News

1/14/2010

LG&E seeks rate hike for projects, storm repairs, other costs

By Patrick Howington
phowington@courier-journal.com

LG&E is asking for a 12 percent increase in electric rates and a nearly 9 percent increase in residential gas rates to cover the cost of replacing aging gas mains, repairing the damage from two historic storms, and other expenses.

The utility wants to raise its base electric rates by $94.6 million a year and its natural gas rates by $22.6 million.

That would mean an electric-bill increase of $8.92 a month for a residential customer using 992 kilowatt hours, the average amount for LG&E customers. A natural-gas customer burning 5,800 cubic feet, the average monthly amount for residences, would pay an extra $4.65.

LG&E’s parent company, E.On U.S., expects to file its request Jan. 29 with the Kentucky Public Service Commission, which is expected to rule on it by Aug. 1.

E.On U.S. also will request higher rates for its other utility in the state, Kentucky Utilities, which provides electric service in 77 counties.

The Rev. James Tennyson executive director of the Justice Resource Center, which has fought LG&E rate increases in the past, said he was “just appalled” by the request, especially with the economy still weak.

He vowed that he and other advocates will fight the request, including by testifying before the PSC. “We’re going to have to put on our protesting shoes,” he said.

“People are still out of work, home foreclosures have not stabilized yet, and jobs are the last things to come around … and to hit the poor working class that are on fixed income at this point in time is not real,” Tennyson said.

Bob Fowler, a retired GE manager who testified before the PSC last year against LG&E’s last rate increase, said this one is also unwarranted.

In a year when seniors will get no cost-of-living increase from Social Security, LG&E should not have the “luxury” of simply passing on increased costs to customers, Fowler said. Instead, they should “have to get their costs in line … like other businesses do.”

To cope with the higher rates, E.On U.S. suggested that customers take advantage of energy-efficiency programs such as its Demand Conservation plan, which automatically shuts off a home’s air conditioning briefly at peak usage times.

Customers also can spread their annual energy costs evenly over 12 months instead of being hit with higher bills in summer and winter. Details of such programs are on the company’s Web site, www.eon-us.com.

“We understand that, in this sluggish economy, any additional costs are burdensome for our customers,” Victor A. Staffieri, chairman and CEO of E.On U.S., said in a statement. But he noted the company has some of the lowest rates in the country, and even with the proposed increase, they would still be lower than utilities in six of the seven states surrounding Kentucky.

LG&E’s base residential electric rate would rise to 8.3 cents per kilowatt hour, compared with the national average of 11.96 cents.

By comparison, Kenergy Corp.'s residential rate is 7 cents.

The only state bordering Kentucky with a lower rate is West Virginia at 7.87 cents, though a pending rate increase could change that. Rates in the other border states range from 8.97 to 11.51 cents, according to Energy Department figures provided by LG&E.

E. On’s requested rate increase for Kentucky Utilities would boost residential rates by 13.7 percent. That would add $11.85 to the average monthly bill, based on using 1,230 kilowatt hours.

Businesses would see a smaller rate increase. Across the KU customer base, the increase would amount to 11.5 percent.

E.On seeks to raise an extra $136 million a year for KU, whose transmission lines were widely damaged in the January 2009 ice storm.

The KU increase also would recover some of the cost of building a $1.2 billion electricity-generating plant in Trimble County that is scheduled to be completed this summer.

Kentucky Utilities will get most of the electricity from the 760-megawatt facility, which E.On says will be one of the cleanest coal-fired plants in the country. LG&E also will get a small portion of the new electricity.

The rate increase also would recover costs of some projects confined to Louisville.

They include a long-term initiative to replace 615 miles of aging gas mains, especially downtown. The project’s eventual cost could reach as high as $300 million.

About 11 percent of LG&E’s proposed increase would be to recover its costs to restore power after two epic storms — the September 2008 wind storm, which left 301,000 customers without power, and the January 2009 ice storm.

After the the wind storm, LG&E said it eventually would try to recover about $24 million of its costs through a rate filing. Between them, LG&E and KU replaced 698 utility poles and 340 transformers; at the storm’s peak, 2,943 E.On employees and contractors worked to restore power.

The ice storm, which robbed more than 400,000 LG&E and KU customers of power, cost another $45 million in restoration costs for LG&E alone.

Besides storm costs and construction projects, many less-visible expenses contribute to the rate request. They include increased costs for insurance, health care, pension funding, borrowing money, and information technology improvements.

The economic downturn also played a part by causing a decrease in manufacturing that reduced the demand for energy.

That reduced LG&E’s local revenue and hurt its unit that sells energy to other utilities. LG&E said the combined effect was about $28 million.

LG&E’s last increase in base rates, filed in July 2008 and approved last February, caused the average residential gas bill to rise $4.50 a month while base electric rates declined slightly.

The final rates were lower than those LG&E originally proposed, as a result of negotiations with the Kentucky Attorney General’s office and other groups that protested the increase.

Attorney General Jack Conway said his office will review the LG&E and KU requests “and as always, will intervene to protect Kentucky taxpayers from any excessive increases” — but said his ability to do that is limited by the state budget crunch.

In a letter to legislative leaders last week, Conway noted that because cutbacks reduced his office budget by 23 percent, he has no money to hire expert witnesses to testify before the Public Service Commission against the rate increase.

Assuming the PSC approves a rate increase, a portion of the higher rate would last five years. That’s the period over which the two utilities would recoup their storm costs.

Other costs, such as those for major infrastructure improvements, will be recouped over a much longer period.

The new rates would remain in effect until LG&E files its next rate case, whenever changed expenses prompt that.

LG&E’s base rates are different from other periodic changes that affect monthly bills, such as quarterly adjustments for up-or-down changes in natural gas prices.

Rates also could be affected if Congress passes climate-change legislation, which could require utilities to produce some power from renewable-energy sources and make other changes. E.On estimates that a bill passed by the House of Representatives could cause residential rates to go up 14 percent by 2012. A similar bill is pending in the Senate.

Additional Facts

LG&E’s requested rate increase

Electric

*Residential — 12.2 percent
*Including businesses — 12.1 percent

Gas

*Residential: 8.7 percent
*Including businesses: 7.7 percent

Effect on residents

*Electric: $8.92 a month (assumes usage of 992 kilowatt hours)
*Gas: $4.65 a month (assumes usage of 5,800 cubic feet)

(Kenergy Corp. added to this story.)

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