State regulators in Kentucky have partially agreed with Kentucky Power Co. on whether changes should be made to the way jurisdictional utilities account for recovery costs following severe weather events.

The utility's argument that the state Public Service Commission should allow utilities to establish a regulatory asset for storm-related expenses and for "other extraordinary expenses" is too narrow, the commission found in a Dec. 12 order.

The American Electric Power Co. Inc. subsidiary maintained that changes should be made to a previous PSC ruling on the subject, calling the ruling "arbitrary" and asserting that the ability for a utility to record a deferred asset "rests not on the merits of the situation but on the timing of the occurrence of the storm."

"A utility may not have sufficient time to obtain authorization to defer expenses for a storm that occurs later in the fiscal year, yet for similar storm expenses that occur earlier in the fiscal year there would be sufficient time for a utility to obtain prior commission approval to record those same expenses as a regulatory asset," Kentucky Power told the PSC.

Restoration expenses from such a weather event could have a significant impact on a utility's financial results, depending on the accounting methods authorized, according to the utility.

While the PSC found that Kentucky Power's reasoning is not enough to justify a wholesale amendment to its previous ruling, "particularly as it relates to the request to allow utilities the authority to establish a regulatory asset not only for storm-related expenses but also for 'other extraordinary expenses,'" it said the utility raised a valid point regarding the impacts of a major storm that occurs later in the year.

The PSC therefore ordered the ruling be slightly modified to allow utilities to record expenses for major storm events that happen in the fourth quarter of the fiscal year as a deferred asset. The exception will only be for accounting purposes and is conditioned on the utility providing "immediate notice of the establishment of such deferred asset." Utilities will also be required to file an application within 90 days of the major storm event to obtain PSC approval for the exception.

The modification will give the utilities the flexibility needed to confront timing issues related to major storms events occurring in the latter part of the year, the PSC said.