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Rocco D’AscenzoAssociate General Counsel
Duke Energy Business Services
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Overview of the Kentucky Public Service Commission (KYPSC)
How does the KYPSC work? What are the rules? Overview of Kentucky rate adjustment proceedings Electric and gas adjustment mechanisms Issues impacting the utility industry How can I participate in the regulatory process? Questions
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Created by the Kentucky General Assembly in 1934 Located in Frankfort, Kentucky Three member administrative cabinet Employs a staff of legal and technical experts Regulates over 1,500 public utilities (e.g. gas, electric,
water/sewer, etc.) Funded by utility assessments
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“…to foster the provision of safe and reliable service at a reasonable price to the customers of jurisdictional utilities while providing for the financial stability of those utilities by setting fair and just rates and supporting their operational competency by overseeing regulated activities.”
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• Appointed by the Governor• “With advice and consent” of the Senate• Four year term• Governor designates the Chairman and the Vice
Chairman• Resident of Kentucky• Minimum 25 yrs old• No financial affiliation with a utility• No occupation inconsistent with business as a
commissioner• No political party committee membership
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Every state has a regulatory agency for utilities Dates back to early 20th Century◦ Utility operations were local in nature◦ Lack of a national integrated transmission network◦ Restrictive view of extent of federal power under the
commerce clause
Municipal regulation lacked uniformity Provided consistency throughout state
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FERC State Utility Commission (Generally)
Transmission rates
Certain mergers and acquisitions by electricity companies
Transactions in interstate commerce
Siting projects across state borders
Safety and Reliability
Monitors and investigates energy markets
Enforces FERC regulatory requirements through imposition of civil penalties
Accounting and financial reporting regulations and conduct of regulated companies
Utility retail rates Mergers/acquisitions of a
jurisdictional utility Utility facility construction and siting
within the state Safety and reliability of the utility Utility financial condition Service Regulatory enforcement
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Utility rate adjustments (increases & decreases) Utility operations and management Utility financial condition Consumer complaints Compliance with service and safety regulations Power siting Utility mergers
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The KYPSC is a “creature of statute” Performs regulatory functions through written orders Job is to balance the interests of the public and the utility Legislative function:◦ Creates the administrative regulations for utilities to
follow Investigative function:◦ Safety/reliability◦ Management audits
Judicial Function:◦ Hears customer complaints◦ Conducts hearings◦ Receives evidence◦ Issues orders/decisions
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Consumer complaint Application by a utility (e.g. rate adjustment,
merger, construction, finance, etc.) Commission initiated investigation◦ Utility specific: believes utility in violation of
law, regulation, or order◦ Industry specific: (e.g. gas retail choice,
reliability, net metering, smart grid, etc.)
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Generally includes pre-filed written testimony
KYPSC staff actively participates through discovery and cross-examination
Presided over by one or more commissioners Video transcript Broadcast via streaming internet on KYPSC
website:http://www.psc.ky.gov/Home/Media
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KRS 278.040 ◦ Jurisdiction extends to all utilities in state◦ Gives KYPSC “exclusive jurisdiction” over
regulation of rates and service* KYPSC reviews utility’s costs and determines
whether to allow or disallow expense*exception for local police powers
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KRS 287.180 - Changes can be made by either utility
or KYPSC- 30 days notice before rate change is
effective- Plainly stating changes to be made- State when changes are effective
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KRS 278.030◦Utility may collect and receive fair, just and reasonable rates◦Utility shall furnish adequate, efficient and reasonable service…◦Utility may employ reasonable classifications of service, patrons and rates
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KRS 278.170 - Prohibits utilities from giving an unreasonable
preference or advantage - Includes classes of service under the same or
substantially same conditions - Reasonable distinctions between recipients of
utility service, classes of service or rates are permitted
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“An administrative agency cannot by its rules and regulations, amend, alter, enlarge or limit the terms of legislative enactment.”-Commonwealth v. Chestnut, 250 S.W. 3d 655 (Ky. 2008).
“the PSC could not use its plenary ratemaking authority for purposes other than insuring that rates were fair, just, and reasonable…” -South Central Bell, v. Util. Reg. Comm’n 637 S.W.2d 649 (Ky. 1982).
“The qualifier ‘unreasonable’ clearly points to the conclusion that reasonable distinctions between recipients of utility services, ‘classes of service’ or utility rates are legally appropriate.”-KYPSC v. Commonwealth of Kentucky, 320 S.W.3d 660 (Ky. 2010).
“…the PSC had the plenary authority to regulate and investigate utilities and to ensure that rates charged are fair, just and reasonable…”-KYPSC .v Commonwealth of Kentucky, 324 S.W.3d 373 (Ky. 2010).
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KRS 278.020:◦ Gives KYPSC approval authority over utility construction◦ Bidding on franchise◦ Approval authority over utility mergers and acquisitions
KRS 278.218:◦ Approval authority over asset transfers (includes ownership, control,
or right to control)
KRS 278.2207:◦ Authority over transactions (goods and services) between utility and
its affiliates
KRS 278.2213:◦ Kentucky utility code of conduct- prevents utility from gaining or
giving a competitive advantage from an affiliate
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Penalty for violating affiliate rules:◦Disallow costs from rates
Penalties for violating KYPSC Order, regulation or chapter of KRS 278:◦ Civil penalty of up to $2,500 for each offense◦ Criminal penalty of up to 6 months in jail
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Appellate process:◦Rehearing at the KYPSC◦Certification to the Franklin Circuit Court◦Appellate Court (Discretionary)◦Kentucky Supreme Court (Discretionary)
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Rates generally in effect approx. 6-7 months from application Pre-filing notice (30 days before application) Application, written direct testimony, data and analysis supporting the
filing Interventions KYPSC issues an order accepting the filing as complete or stating
deficiencies Discovery (usually two rounds) Filing of written intervenor testimony Discovery Filing of rebuttal testimony Public hearing Legal briefs Decision
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Application, testimony and supporting analysis Test year –12 month historical or forecasted Various corporate documents Tariffs Bill impact analysis Rate base and revenue requirements Depreciation studies Cost of Service Study/ Cost allocations Income statements and balance sheets Capital construction budgets Monthly operating budgets/managerial reports Audit reports Sales figures (historic/forecasted) FERC/SEC forms
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Revenue RequirementsCost of ServiceDepreciationRate DesignRate of Return
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Rev. Req.= E+r (RB)Where:
E= Expenses (Operating and Maintenance, Depreciation, Taxes)
r= rate of returnRB= Rate Base*
*(Plant in service + Working Capital)- (Accumulated Depreciation + Accumulated Deferred Income Taxes)
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The "end result" of the Commission's decision should be to allow a utility the opportunity to earn a return on equity that is: (1) commensurate with returns on investments in other firms having corresponding risks, (2) sufficient to assure confidence in the company’s financial integrity, and (3) sufficient to maintain the company’s creditworthiness and ability to attract capital on reasonable terms.
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“A public utility is entitled to such rates as will permit it toearn a return on the value of the property which it employs forthe convenience of the public…”-Bluefield Water Works & Improvement Co. v. Public Service Commission of West Virginia, 262 U.S. 679 (1923).
“By that standard the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks. That return, moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and attract capital.”-Federal Power Commission v. Hope Natural Gas Company, 320 U.S. 591 (1944).
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Fuel Adjustment Clause Environmental Compliance Surcharge Demand Side Management Rider Others (TBD)
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Permits utility to adjust price for changes in cost of fuel or purchased power
Pure cost recovery (no return) Changes monthly (2 month lag) Separate per kilo-watt hour (kWh) charge on utility
bill KYPSC conducts investigation every 6 months
(evidentiary hearing) Performs 2 year comprehensive reviews (evidentiary
hearing)
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KRS 278.183 - Enacted by General Assembly in 1992- Effective in 1993- Response to Federal Clean Air Act Amendments (SO2 and
NOx limits)- Recovers costs of compliance with federal, state, and local
environmental requirements applicable to coal combustion wastes and byproducts
- Opportunity for rate of return- Separate line-item on utility bill- Incremental costs to base rates
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Filing:◦ Environmental Compliance Plan ◦ CPCN for construction of any equipment◦ Supporting testimony◦ Tariffs addition containing the terms and conditions of a
proposed surcharge as applied to individual rate classes ◦ Hearing within 6 months of filing
Ongoing oversight:◦ KYPSC reviews ESM in six month intervals◦ Comprehensive review of ESM every two years ◦ Approves adjustments found just and reasonable and
disallows improper expenses
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Purchased Gas Adjustment Gas Main Replacement
Permits gas utilities to adjust price for commodity of gas
Reflects actual costs of purchased gas
No return Adjustment varies by utility
(monthly or quarterly) KYPSC reviews contracts and
published indices of wholesale prices and after-the-fact true-ups
KRS. 278.509 (effective June 2005)
Allows rider recovery of natural gas pipeline replacement programs
“Expressly clarified (but did not create) the PSC’s authority”
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“Any conservation load management, orother utility activity intended to influencethe level or pattern of customer usage ordemand including home energyassistance programs.”
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KRS 278.285 ◦ Separate line item on bills◦ Generally adjusted annually & trued up for over/under
collection◦ Recovers costs, lost margins, and incentive for utility
No cross subsidy among customer classes for DSM programs
Industrial customer opt-out is available File application and supporting analysis and
documentation Procedure similar to base rate cases
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Utilities: tariffs/websites State and Federal incentives Database of State incentives for Renewables and
Efficiency (DSIRE):
http://dsireusa.org/incentives/index.cfm?getRE=1?re=undefined&ee=1&spv=0&st=0&srp=1&state=KY
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Environmental regulations Resource planning Market prices Mergers Regional Transmission Organizations (RTO) Grid modernization
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Intervention: “any person who wishes to become a party to a proceeding before the Commission may by timely motion request that he be granted leave to intervene.”
Motion must include name, address, who the person represents, and in what capacity.
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• Entitled to full rights of a party at the hearing• Served with Commission orders• Not served with testimony, exhibits, pleadings,
correspondence• Not considered a certified party for rehearing or
petition for judicial review
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Must request full intervention Must specify interest in proceeding Must indicate special interest in proceeding not
otherwise or adequately represented Likely to present issues or develop facts that assist
the Commission in considering the case Participation will not unduly complicate or disrupt
the proceeding Party to the proceeding Get served with all documents
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Kentucky Attorney General’s Rate Intervention Office intervenes in cases on behalf of the citizens of the Commonwealth of Kentucky
Written comments/general correspondence Local public hearings Public comments at evidentiary hearing
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PSC website: http://psc.ky.gov/cis/inquiry.aspx Telephone:1-800-772-4636 Fax: 502-564-7397 Mail: Kentucky Public Service Commission
Attn: Consumer ServiceP.O. Box 615Frankfort, KY 40602
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