Kentucky Utilities said Wednesday that it plans to ask the state Public Service Commission for permission to raise the environmental surcharges on customers' bills beginning in 2012 to pay for federally mandated improvements at its coal-fired plants.
The utility said it is seeking to recover $1.1 billion that it will spend to upgrade its Ghent and E.W. Brown plants, the latter of which is on the banks of Herrington Lake.
If the request is approved by the PSC, customers would see bills increase 1.5 percent in 2012. The increases would amount to a maximum of 12.2 percent in 2016.
For a residential customer using 1,000 kilowatt hours a month, the initial monthly increase would be $1.13 during 2012 and the maximum would be $9.46 a month in 2016, according to the utility.
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The moves come as the U.S. Environmental Protection Agency has taken steps to further reduce emissions of pollutants.
At both plants, KU will install systems to better control particulates and mercury. The utility also will convert a wet storage facility at Brown to a dry landfill.
"These are changes that we are forced to do," said KU spokesman Chip Keeling. "We don't have a choice."
KU's affiliated company, Louisville Gas & Electric, will ask the PSC for permission to increase its environmental surcharges by $1.4 billion for the same reason.
Both companies were bought last year by Pennsylvania-based PPL Corp. A stipulation of that sale was that the utilities would not seek an increase in base rates until 2013. That doesn't apply in this case, though, as environmental surcharges are different than base rates.
Rate cases typically see utilities ask for a certain amount and then agree to a smaller increase. In environmental cases, though, "typically you will not see settlements where they get together with the other parties and make concessions on what the amount of recovery will be," said PSC spokesman Andrew Melnykovych.
KU and LG&E plan to file their requests with the PSC on Wednesday. Melnykovych said state statutes give the PSC six months to rule on the requests.
Keeling noted that this might be just the first step of more changes coming for KU's energy production portfolio. The new requirements might force the retirement of KU's Green River and Tyrone plants, and LG&E's Cane Run plant.
Replacing the energy produced from those three plants could cost $800 million, he estimated.
The utility would have to examine whether to build other plants or generating units or buy energy from other producers.
The presumption now, Keeling said, is that the utility will install natural gas-fired turbines.
The moves mean bills are rising, but Keeling expects rates to continue to be attractive in Kentucky because nearby states that also rely heavily on coal for energy will see the same increases.
"The drivers for this are stakeholders in the east and the west," he said. "They don't have and don't burn coal, so they're not going to be impacted like we will be."