Journal-Times (Grayson, KY)

January 9, 2013

Olive Hill electric rate study explained, scrutinized

By Joe Lewis - Staff Writer
Journal-Times

Jan. 9, 2013 — The Olive Hill City Council met in a special working session Monday with a representative from Power Systems Engineering, Inc. (PSE) to ask questions about a recently conducted electric rate study.

Jeff Laslie was on hand from the Wisconsin-based firm to field comments and concerns from council members, the public and the media about proposed changes to the electric rates – specifically how those changes would affect monthly customer bills.

At the meeting’s outset, Council member Glenn Meade questioned the study procedure, citing a paragraph from the study findings stating, “detailed plant investment data is not available which made it necessary for PSE to make some assumptions in order to complete this study.”

“How can we make assumptions? We’re doing a disservice by not having that data,” said Meade.

Laslie countered by stating, “We don’t have that data because the city doesn’t maintain that data. The city did provide us with some information, but it wasn’t in the kind of detail that we ordinarily like to see.”

Under the proposed rate schedule suggested by the study, residential customers would pay a flat fee each month of $8.25 and a usage rate of approximately $10.23 cents per 100-kilowatt hours.

Commercial customers would pay a flat fee of $10.25 per month with a usage rate of approximately $10.80 per 100-kilowatt hours, and industrial customers would pay a flat fee of $25 per month with a usage rate of approximately $10.39 per 100-kilowatt hours and a demand charge of $2.50 per demand kilowatt hour.

According to the city’s existing electric rate ordinance, residential customers are charged a flat fee of $6 per month and a usage rate of $5 per 100 kilowatt hours, with a $12 flat rate for commercial businesses and a $14 flat rate for industrial customers -- both of whom are charged a usage rate of $6 per 100 kilowatt hours.

The rate study asserts an increase of only 3.9 percent in total cost to residential customers, while showing a decrease in total cost of 1.6 percent to commercial customers and 6.4 percent to industrial customers.

Further examination of the study data, however, reveals that the base rates used in these calculations are not consistent with the rates specified in the city’s current rate ordinance.

When compared to the current ordinance, residential rates per 100 kilowatt hours would actually increase by more than 100 percent ($5 to $10.23) if the proposed rate changes are adopted.

Commercial rates would see a jump of approximately 80 percent ($6 to $10.79 per 100 kilowatt hours) and industrial rates would increase by 73 percent ($6 to $10.38 per 100 kilowatt hours) in addition to new demand charges.

Laslie noted a Fuel Cost Adjustment (FCA) mechanism that he says the city uses to adjust rate prices each month, which could explain the difference between the rates outlined in the ordinance and the data he received, which shows customers paying higher rates.

The city’s response letter to a recent Attorney General inquiry, however, makes no mention of an FCA mechanism, but rather a Power Cost Adjustment (PCA) formula that is implemented by the city clerk, assistant city clerk, and utility office manager each month to determine costs in addition to the base rates set in the city’s electric ordinance.

A review of that ordinance, however, shows no provision for an FCA, PCA or any other adjustment mechanism that would allow for an additional charge above and beyond the base rates.

A new electric rate ordinance would have to be approved by majority vote of the City Council before any changes to customer rates could be implemented.

Joe Lewis can be reached at jlewis@journal-times.com or by telephone at 286-4201.