For residential ratepayers, the PSC decision means a 9% increase in monthly service fees for water meters — $15 to $16.40 — and about an 11% increase in water consumption charges. The company had sought more. (Getty Images)

FRANKFORT — Kentucky American Water customers are due a refund after the state utility regulator rejected part of a rate increase the company began charging in February and chastised it for not doing more to stem water loss from its system.

Kentucky American Water, serving more than 138,000 customers in Lexington and more than a dozen counties, had asked last year for a revenue increase of almost $26 million or more than 22%.

In a May 3 order, the Public Service Commission (PSC) pared the revenue increase to $10.6 million. The regulator also rejected expenses that Kentucky American Water sought to recoup to cover inflation, food and gifts for employees, and excess fuel and power costs.

For residential ratepayers, the PSC decision means a 9% increase in monthly service fees for water meters — $15 to $16.40 — and about an 11% increase in water consumption charges. Customers will also receive a refund from when the water utility began on Feb. 6 to collect rates under its proposed increases. The company had asked for a 33% increase in service charges for residential meters to $20 a month, along with an across-the-board 36% increase in the water consumption charges.

Susan Lancho, a spokesperson for Kentucky American Water, a subsidiary of publicly-traded American Water, said in a statement that the utility is reviewing the order and communicating with the PSC about next steps following the order.

The Lexington-Fayette Urban Government and Attorney General Russell Coleman collaborated in the rate case, raising concerns about the size of the rate hike request and the utility’s? proposed expansion of a program originally meant to replace “high-failure” water lines creating leaks.?

Susan Straub, a spokesperson for the Lexington mayor’s office, in a statement said the city always intervenes in Kentucky American Water’s “frequent rate hike requests” in an effort to “keep the cost of living low in Lexington.”?

Coleman specifically took issue with the increased monthly water meter service charges, saying in a filing that it could be a “financial hardship” on “customers already struggling to make ends meet.”?

Water loss rises even as company replaces aging infrastructure

Coleman and the LFUCG opposed a proposed expansion of what’s called a Qualified Infrastructure Program (QIP), created in 2019 with the PSC’s permission, to help Kentucky American Water recoup more quickly the costs of replacing “high-failure” cast iron and galvanized steel water main pipes. At the time, according to the utility, such water main pipes accounted for nearly two-thirds of water main breaks despite only making up 15% of the utility’s distribution system.?

The utility had argued it needed to expand its QIP to be able to recoup costs on more miles of water pipeline each year and to be able to replace more types of water pipeline, beyond just galvanized steel, in order to to be able to replace its aging water infrastructure in a reasonable timeframe.?

But Coleman and the Lexington-Fayette Urban Government pushed back against those arguments. They hired a consultant who argued in a filing the expansion of the QIP would more than double the scope of the pipe replacement program and burden ratepayers with the cost.?

Greg Meyer, a senior principal with the Missouri-based firm Brubaker and Associates Inc., said in a filing the QIP allows Kentucky American Water to recoup costs to replace water pipes on its own without oversight.?

“[T]he company is asking the commission to broadly expand the amount and type of pipeline replacement. It does not appear that the Company has given adequate thought to rate affordability,” Meyer said in a filing.?

The PSC in its order also noted that even with an existing QIP to fix water leaks in specific, problematic water mains, Kentucky American Water has seen increased rates of water loss in recent years. Kentucky American Water’s percentage of unaccounted for water loss in its system has inched up from 19.95% in 2018 to 21.59% in 2022, according to the PSC.

Under state regulations, a water utility can’t recoup costs through rates for unaccounted water loss if the percentage of water loss exceeds 15%, though a utility can ask for a different standard to follow.

Kentucky American Water requested their water loss standard be raised to 20%, saying the 15% limit was “unrealistic” given that there’s no one solution to fixing water loss. The PSC wasn’t convinced, denying the request and asserting the utility hadn’t done enough to address existing water loss.?

Specifically, the regulator in its order wrote Kentucky American Water hadn’t developed a formal plan to reduce water loss nor had requested from the regulator additional personnel or equipment to deal with water loss.?

“This signals to the Commission that Kentucky-American does not appear to take the increasing water loss as a serious matter. This is a cause for serious concern,” the PSC wrote.?

Lancho, the Kentucky American Water spokesperson, in an email did not answer Lantern questions about criticism of its water loss or its QIP.