PSC OKs settlement in LG&E and KU rate cases

FRANKFORT, Ky. – The Kentucky Public Service Commission on Thursday accepted a settlement granting revenue adjustments that increase the base electric rates for customers of Kentucky Utilities Co. and the base electric and natural gas rates for customers of Louisville Gas and Electric Co.

The revenue adjustments are at levels agreed to by the two utilities, the Kentucky Office of Attorney General and other parties to the utilities’ rate cases, among them the Kentucky Industrial Utility Customers Inc., Kroger Co., the Kentucky School Boards Association and advocates for low-income consumers.

In orders issued Thursday, the PSC said that accepting the settlement is in the public interest because they result in a rates “consistent with those justified by our traditional rate-making analysis.” The PSC found that the rates in the settlement are fair, just and reasonable. The new rates take effect on Jan. 1, 2013.

Under the settlement agreement, the average monthly bill for a typical KU residential customer will increase by $5.16 (5.6 percent). A typical LG&E residential electric customer will see the average monthly bill increase by $4.25 (5 percent). The average monthly bill for an LG&E residential natural gas customer will increase by $5.57, a figure that includes a new surcharge for infrastructure improvements but does not take into account any fluctuations in the price of natural gas itself.

The settlement also includes an increase in the contribution company stockholders will make to help low-income customers, bringing it to $1 million per year.

LG&E has about 401,000 electric customers in nine counties in and around the Louisville area and 320,000 natural gas customers in 17 counties. KU has 550,000 customers in 77 Kentucky counties.

The PSC conducted a hearing on the settlement on Nov. 27. It also conducted public meetings in Harlan, Lexington and Louisville to take comments from ratepayers.

The last rate adjustments for KU and LG&E came in July 2010.

KU and LG&E said the base electric rate increases are needed to pay for upgrades to electric transmission and distribution systems, improvements at electric generating facilities and the hiring of additional employees, particularly in their customer service operations. The companies also cited increased costs to comply with tighter federal cyber security standards.

The rate changes do not include bill components that fluctuate on a regular basis, such as fuel cost adjustments and environmental costs on electric bills, surcharges related to energy efficiency programs or the commodity cost of natural gas.

The PSC addressed numerous public comments that objected to the proposed allocation of the increase for residential customers. The comments suggested that rather than dividing the increase between the fixed monthly charge and the usage-based charge, the entire increase should be in the usage charge.

An increase solely in the usage-based charge, the commenters contended, would reward those customers who have invested in energy efficiency and encourage other customers to make similar investments.

The PSC analyzed the effect of allocating the entire increase to the usage-based portion of the rate and found that it would have a negligible effect on that portion of the total bill that fluctuates with energy usage and is within the customer’s control. Thus, the allocation in the settlement is unlikely to discourage investments in energy efficiency, the PSC said.

Details of the settlement agreement follow.

Rates for Kentucky Utility customers

Annual revenue for KU will increase by $51 million (4 percent), which is $31.4 million less than the $82.4 million requested by the utility. As a result, the average monthly residential bill will increase by $5.16, rather than $7.41.

The monthly residential customer charge will go from the current $8.50 to $10.75, while the rate per kilowatt-hour (a kilowatt-hour is the amount of electricity used by a 100-watt bulb in 10 hours) will go from 6.987 cents to 7.235 cents.

Rates for Louisville Gas & Electric electric customers

Annual revenue from electricity sales for LG&E will increase by $33.7 million (3.7 percent), which is $28.4 million less than the $62.1 million requested by the utility. As a result, the average monthly residential bill will increase by $4.25, rather than $7.25.

The monthly residential customer charge will go from the current $8.50 to $10.75, while the rate per kilowatt-hour will go from 7.242 cents to 7.439 cents.