Utilities in Kentucky warn of 20 percent rate increases

bmusgrave@herald-leader.comJune 3, 2011 

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Electricity pylon

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FRANKFORT — Officials of the state's utility companies told lawmakers Thursday that all Kentucky customers can expect average rate increases of 20 percent during the next five years.

John Voyles Jr., a vice president of Louisville Gas & Electric and Kentucky Utilities, told a legislative committee that a host of new Environmental Protection Agency regulations will mean upgrades and changes to the state's coal-fired power plants, resulting in increased costs to customers.

Voyles said power companies are looking at an "unprecedented number of proposed regulations" in the next four years that will require changes to comply with pollution standards.

The two companies have filed with the Public Service Commission, which sets utility rates, for an environmental surcharge. That would allow them to pass along the costs for the changes needed to comply with the regulations.

LG&E and Kentucky Utilities are the only companies that have filed. But all of the utility companies told the interim committee on Natural Resources and Environment that they planned to file similar requests in coming months.

LG&E has requested a 19 percent rate hike, and KU, which serves Lexington, has requested a 12.2 percent rate increase during the next four years.

Voyles told the committee that it would cost at least $4 billion to comply with the pollution standards.

John Talbert of Big Rivers Electric Corp., which serves 22 Western Kentucky counties, said upgrades and changes will cost Big Rivers $785 million.

"That's a huge expenditure for a system of our size," he said.

Wholesale rate increases will be about 40 percent, which would translate to about 20 percent for customers, Talbert said.

The increases are troubling, he said, because Big Rivers serves two aluminum plants — in Hawesville and Robards. About 30 percent of the costs for those plants are related to power.

Even an increase of 1 percent to 2 percent is tough on those companies, he said. "They have expressed grave concerns about these increases," Talbert said.

Rep. Jim Gooch, D-Providence, said the loss of those plants would mean a loss of jobs. If those companies go out of business, utility rates for other customers probably will go up.

"It would destroy our economy," Gooch said.

Eastern Kentucky Power Cooperative, which is based in Winchester and serves many parts of Eastern Kentucky, said its rate increase also would be about 20 percent. Representatives from Kentucky Power said the rate increase could be as much as 30 percent by 2016. Duke Energy, which serves parts of Northern Kentucky, said it could have similar increases.

Jeff Derouen, executive director of the Public Service Commission, said the commission will evaluate the environmental surcharge requests based on whether the company has made reasonable and cost-effective decisions on its compliance with environmental regulations.

The PSC does not decide whether the regulations are appropriate, he said. The environmental surcharge is a separate line-item on a customer's bill. The commission typically has six months to decide on an environmental surcharge case.

But Sen. Ray Jones, D-Pikeville, questioned why statutes allow the companies to recover both capital and operating costs from customers for changes made to comply with regulations. That means they can still make a profit and pass all of the costs on to the customers.

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