FRANKFORT, Ky. (WMDJ) — The Kentucky Public Service Commission has issued its final order in a closely watched Kentucky Power rate case that drew strong reaction from customers and local leaders.

Under the order, the average residential customer will see an average monthly energy bill increase of $10.76 in the first year. That represents an increase of approximately 5.87%.

After the first year, there will be an additional 0.76% increase.

The PSC says the lower first-year impact is due to a provision allowing Kentucky Power to use certain deferred tax liabilities to offset costs. The mechanism, known as a DTL Rider, applies those credits to reduce customer bills in the first year rather than spreading them out under traditional ratemaking.

In its original application, Kentucky Power had proposed an average monthly residential increase of $27.30. That would have raised the average bill from $183.37 to $210.67, an increase of about 14.62%.

The Commission approved a lower overall increase through a modified settlement agreement.

The final order also requires Kentucky Power to undergo an independent management audit. The review will examine the company’s operations, decision-making processes and its relationship with parent company American Electric Power. The stated goal is to identify potential efficiencies that could benefit customers.

The PSC noted that Kentucky Power has lost about 12,000 residential customers over the past 14 years and has seen a 38% decrease in industrial power consumption within its service territory. Fewer customers have resulted in the company’s costs being spread across a smaller customer base.

The new rates take effect March 1. The order from the PSC can be view here.