PSC Reviews Kentucky Power Energy Efficiency Program, Considers Cutbacks

Recognizing that the escalating cost of demand-side (DS) management programs has “exacerbated an already bleak economic situation” for many Kentucky Power customers,” – and that there is less demand for electricity in the Bluegrass State than there was several years ago – the Kentucky Public Service Commission announced last week that it had opened a review (Case No. 2017-00097) of the programs.

In an order issued on February 24, the commission noted that the investigation was necessary because of “an approximately 2,000 percent increase over the last year in the DSM rates charged to Kentucky Power’s customers,” noting that, “Kentucky Power’s residential customers this time last year paid a monthly average DSM charge of $.51 . Today the average monthly charge is $10.61.”

The PSC said it would evaluate whether the programs remain cost-effective in light of the fact that demand for electricity is decreasing across Kentucky Power’s 20-county service territory in eastern Kentucky. The utility serves about 168,000 customers in the Bluegrass State.

Demand-side management, or DSM, programs are designed to reduce electric power consumption, mostly by residential and commercial customers, through various measures that improve energy efficiency. DSM programs are intended to benefit consumers not only by saving energy and money, but also by postponing or eliminating the need to construct expensive new power plants to meet anticipated future increases in demand for electricity.

But Kentucky Power has lost customers over the last 15 years and projects a steady decline in both the number of customers and the amount of electricity it will sell over the next 15 years.

Under state law, a utility may recover the cost of its DSM programs thorough a surcharge on customer bills. The surcharge covers the cost of the programs and recoups a portion of the revenue the company loses as a result of lower electric consumption.

Most of the increase is due to an October 2013 agreement that Kentucky Power reached with other parties to a filing (Case No. 2013-00410) involving the utility’s acquisition of a 50-percent stake in the Mitchell Generating Station in West Virginia. The Mitchell plant replaced generating capacity lost by the closure of the larger of two generating units at the Big Sandy power plant in Lawrence County, Kentucky.

The other parties to the agreement were the Kentucky Industrial Utility Customers, which represents large industrial customers (who do not participate in the DSM program), and the Sierra Club.

Under the 2013 agreement, Kentucky Power agreed to increase annual DSM spending from $3 million in 2013 to $4 million in 2014, $5 million in 2015, and $6 million in 2016, 2017 and 2018.

After holding a hearing on the proposed agreement, the PSC approved it. The PSC subsequently approved several increases to the DSM surcharge to reflect the increased spending called for by the agreement.

In its order this month, the PSC noted that declining demand for electricity in Kentucky Power’s service territory has called into question the need for extensive DSM programs. Under those circumstances, the PSC will review “Kentucky Power’s DSM programs, rates and costs against the backdrop of the economic condition of its customers and the region in which Kentucky Power serves” and will “evaluate whether continuing the current programs and level of spending is reasonable and in the best interests of customers.”

The order opening the case also includes a number of questions for Kentucky Power. The responses are due on March 17.

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