Attorney General Andy Beshear on Wednesday announced a settlement with Kentucky Utilities and Louisville Gas & Electric that would reduce a large rate increase the companies requested in November. It also would shelve the utilities’ controversial plan to more than double the fixed monthly charge that all customers must pay, regardless of how much electricity they use.
For a typical Central Kentucky home that buys 1,179 kilowatt hours of electricity per month from KU, the monthly bill would rise by $4.21 under the settlement rather than by $7.16, as KU originally sought.
“My office clearly understands the need for utility companies to maintain their infrastructure to better serve ratepayers,” Beshear said in a prepared statement. “But the settlement reached with my office will lessen the impact to Kentuckians by not passing on excessive costs in ways that would be crippling to hundreds of thousands of ratepayers.”
The Kentucky Public Service Commission will review the terms of the settlement at a May 9 hearing in Frankfort.
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KU and LG&E initially asked the PSC for a $210 million increase in their annual revenue to pay for a variety of expenses, including infrastructure replacement and the installation of wireless “smart meters” that would allow the companies to more closely track energy use and outage locations. The settlement with Beshear eliminated the plan for smart meters, which the attorney general said would cost ratepayers $350 million without providing them with much benefit.
KU and LG&E sell electricity to nearly 950,000 customers around Kentucky; LG&E also sells natural gas to about 325,000 customers. They are owned by the PPL Corporation of Allentown, Pa.
In a prepared statement, the utilities on Wednesday said they have agreed to accept a $122 million increase in annual revenue. PPL reports making nearly $400 million in profit in Kentucky last year on statewide operating revenue of $3.1 billion. The company this year is boosting its dividend for shareholders by 4 percent to $1.58 per share.
The settlement’s biggest reduction would come from a proposed hike in the utilities’ fixed monthly charge. The utilities had asked to increase that monthly fee from $10.75 to $22. To mitigate the higher cost, they offered to slightly lower their price for a kilowatt hour of electricity — the amount necessary to operate a 100-watt light bulb for 10 hours — from 8.87 cents to 8.523 cents for KU customers and from 8.639 cents to 8.471 cents for LG&E customers.
On Wednesday, the utilities said they instead will agree to a $1.50 increase in the fixed monthly charge, with 75 cents added July 1 and another 75 cents added on July 1, 2018. However, rather than drop, the price of a kilowatt hour of electricity gradually would rise over the next two years to 9.1 cents for KU customers and 9.19 cents for LG&E customers.
Critics were particularly unhappy with the utilities’ original plan to more than double the fixed monthly charge while lowering the price of electricity, arguing that it would shift the cost burden from high-energy homes to low-energy homes. Such a strategy discourages energy conservation and hurts poorer people living in smaller homes, critics said.
“I understand need, but I also understand greed,” the Rev. Jim Thurman of Shiloh Baptist Church said Tuesday at a PSC hearing in Lexington that was held to discuss the rate increase. Nearly 100 people attended to oppose the utilities’ plans.
In an interview Wednesday, Thurman said he has lived in the same modest house on Tuscaloosa Lane since 1977. His home has no central air conditioning, he said, and because he lives on a fixed retirement income, he conserves electricity. But after reviewing his monthly KU bills going back to the 1970s, he discovered that in recent years he has been using 22 percent less power while paying 125 percent more to KU.
“It just does not make sense to keep charging people more even when they’re using less,” Thurman said. “What they want to do here with this extra $10.75 a month, it’s really a tax increase for the privilege of being a customer of KU, whether you’re using very much of their electricity or not.”
There is a trend of Kentucky’s electric utilities trying to discourage their customers from shifting to renewable energy, with a higher fixed monthly charge being only one such attempt, said John Cotten, manager of Wilderness Trace Solar, a Danville solar panel installer. Cotten also spoke against the rate increase at Tuesday’s PSC hearing.
“If we’re adding another $135 onto everyone’s electric bill every year, no matter how much electricity they use, then someone who might have invested in solar or some other renewable energy system is going to have a lot less money to invest in it. That’s going to affect their payback rate,” Cotten said in an interview Wednesday. “We keep getting these efforts to penalize people who are working really hard at reducing their carbon footprints.”
Apart from the attorney general’s office, many other groups asked the PSC for permission to weigh in on the rate increase request, including the Lexington-Fayette Urban County Government, the Kentucky League of Cities, the Kentucky School Boards Association, the Community Action Council, Kroger, Wal-Mart, AT&T Kentucky, the Kentucky Cable Telecommunications Association and the Sierra Club.
Other parts of the attorney general’s settlement would cut by more than 50 percent the residential gas rate increase that LG&E had requested for its customers in and around Louisville; provide $1.45 million a year from the utilities’ shareholders to help low-income residential customers defer utility costs; and create a pilot project to determine if Kentucky schools use electricity uniquely enough to merit their own rate structure.
If the PSC approves the settlement, KU would see an annual revenue increase of $54.9 million. LG&E would get an electric revenue increase of $59.4 million a year and a natural gas revenue increase of $7.5 million a year.
“We are pleased to have reached a settlement that benefits our customers and their constituent groups,” Kent Blake, LG&E and KU’s chief financial officer, said in a prepared statement. “The agreement gives us the ability to enhance our reliability and continue providing safe and reliable service to our customers while meeting the needs of the parties to this case.”