Rate Case Roundup: Kentucky

Although approving an increase in base rates for an electric cooperative, the Kentucky Public Service Commission acted to keep the revenue increase at the lowest level possible, by disallowing a portion of the costs of retirement, life insurance, health care, and dental benefits claimed by the co-op, Farmers Rural Electric Cooperative Corporation. The commission ruled that the smaller increase still would allow Farmers to meet its financial obligations, including satisfying the terms of its loan agreements. 

From the commission's perspective, the increase authorized is still sizable, coming to approximately $1.7 million. However, the commission said, the increase would have been about $168,000 more had it not ordered the reductions in certain employee benefits costs. 

The commission found that the co-op should not be permitted to include matching contributions to the employee 401(k) plan, at least for those employees already participating under a legacy defined benefit pension plan. The commission said the disallowance was necessary to prevent an inequity among employees in the different plans. 

At issue was the National Rural Electric Cooperative Retirement and Security Plan (R&S) that Farmers has maintained for employees who were hired before January 1, 2012. That plan was closed to new participants as of December 31, 2011, and was replaced with a defined contribution 401(k) plan in an effort to reduce costs. 

The cooperative has continued to pay 100% of the cost of the R&S plan, but employees under the R&S plan also are allowed to participate in the 401(k) program, with Farmers matching up to one percent of the employee's contribution. It is that extra one percent matching that the commission deemed inappropriate. According to the commission, elimination of that extra contribution alone reduced the co-op's rate request by more than $28,500. 

The commission held as well that the co-op should limit the amount of employee health care plan costs it covers to a market-competitive level, as based on national average employee contribution rates published by the Bureau of Labor Statistics. Currently, the commission related, Farmers pays the entire monthly premium for its employees with single coverage but requires employees with other types of coverage (e.g., family) to pay $149 per month toward the premium costs. 

In requiring cuts to the co-op's contribution to health insurance costs, the commission reduced such premised on a 32% employee contribution rate for family, employee and spouse, and employee and child(ren) coverage, and on a 21% employee contribution rate for single coverage. Similarly, with respect to dental insurance, the commission determined that the co-op's expenses should be reduced to reflect all employees contributing 60% to the total dental premium. The commission calculated that the decreases in allowable health plan costs would lower the co-op's revenue requirement by more than $92,000 and that the changes in dental plan expenses would reduce its revenue needs by another $30,000. 

Lastly, the commission pointed out that while it traditionally has permitted co-ops to deduct the cost of life insurance coverage up to $50,000 per employee for rate-making purposes, Farmers had paid $8,406 above the $50,000 threshold. In keeping with that long-standing precedent, the commission directed the co-op to eliminate the overage from rates. Re Farmers Rural Electric Cooperative Corp., Case No. 2016-00365, May 12, 2017 (Ky.P.S.C.).