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What LG&E and KU Got in the Rate Case Settlement

The Kentucky Public Service Commission was scheduled to hold a public hearing on Tuesday on Louisville Gas and Electric and Kentucky Utilities’ proposed rate increase.

Instead, as WFPL reported, the utilities and all of the intervenors in the case reached a settlement, which is now subject to PSC approval.

Here’s a deeper look at the settlement, what LG&E/KU got—and what they didn’t get.

Monthly Service Charge

This was the most contentious part of the original proposal because it would affect every customer, regardless of how much energy they used. LG&E electric and gas customers would have ended up paying $37 a month, up from $24.25. KU customers would have paid $18 a month, rather than the $10.75 they pay now. Under the settlement, there will be no change to the monthly charge, but the rates of electricity and gas will change slightly. The company estimates that the average LG&E bill will increase by about $1.15 a month, while the average KU customer will pay $9 more each month.

Revenue Increase

If the settlement is accepted, KU will get an estimated $125 million increase in revenue. LG&E’s electric operation won’t get a revenue increase, but the gas side will get an estimated additional $7 million.

Low-Income Customer Assistance

Under the terms of the settlement, LG&E and KU will put a combined $1.15 million toward helping low-income customers pay their bills. This is basically helping the companies write off bad debt—LG&E and KU pay the money to social service organizations, who then give the money back to the utility companies on behalf of low-income ratepayers.

Rate of Return on Equity

The settlement lays out that LG&E and KU investors expect to make a 10 percent return on money the company has spent on pollution control devices and a gas line tracker. The expectation is currently 10.5 percent. This will come into play when the Public Service Commissioners are asked to set an environmental surcharge, and they’ll adjust the surcharge accordingly.

Off-System Sales

This is the electricity that LG&E and KU sell to customers outside of the system. The companies currently set a dollar amount that they expect to make through off-system sales, and the remainder of the revenue is made up by ratepayers. If the off-system sales were lower than expected, ratepayers were protected. But if the companies had higher-than-expected sales, shareholders got a windfall and ratepayers got nothing.

In the settlement, the parties agree to change the way this process works. Now, they’ll track the off-system sales and 75 percent of that revenue will be credited back to ratepayers through the “fuel adjustment” line item on the bill. LG&E and KU get to keep the remaining 25 percent. This means more off-system sales equals more credit for ratepayers. Fewer sales is less credit.

Demand Side Management

This is a program designed to reduce the amount of energy Kentucky’s industrial sector uses. The settlement includes a provision that LG&E and KU will start working on a plan to study, and possibly expand, the program.

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