Public Service Commission
PSC Allows Separate Accounting of LG&E, KU Hurricane Ike Costs - Rate recovery decision will follow restoration effort review

       The Kentucky Public Service Commission (PSC) today allowed Louisville Gas and Electric Co. (LG&E) and Kentucky Utilities Co. (KU) to set up separate accounts to track power restoration costs and other expenses associated with recovery from the damage caused by Hurricane Ike as it swept through Kentucky on Sept. 14.
       But, in an order issued today, the PSC said a decision on what portion of those costs may be recovered from ratepayers won’t be made until after the PSC completes its review of the utilities’ disaster preparedness and storm restoration efforts. A report will come next year.
       Today’s decision allows LG&E and KU to create separate accounts to track their storm-related costs. The accounts, known as regulatory assets, are a tool that allows unusual or one-time costs to be deferred for a period of time for possible future recovery through rates.
       While the establishment of regulatory assets is done in expectation of future cost recovery through rates, it is not a guarantee of recovery. That determination will be made in a rate case based upon the evidence presented in that proceeding.
       LG&E is authorized to establish a regulatory asset of $24.1 million, which is the amount the utility requested.  KU is allowed to establish a regulatory asset of $2.56 million, also the amount requested.
       More than 300,000 of LG&E’s 401,000 customers, most of them in Jefferson County, lost power during the storm. Damage to the KU system was less extensive, with 76,000 of its 503,000 customers losing power. Most of the KU outages were in western Kentucky.
       All three PSC commissioners approved LG&E’s request to establish a regulatory asset. Vice Chairman Jim Gardner dissented from the decision to allow KU a regulatory asset, saying the amount requested was too small to justify separating it from normal expenses.
       One other utility, Duke Energy Kentucky Inc., has asked the PSC to allow the establishment of a regulatory asset to account for costs related to Hurricane Ike. A decision in that case is pending.
       Utilities routinely seek establishment of regulatory assets following natural disasters that cause significant damage and outages. KU was authorized to establish such an account following the February 2003 ice storm, while LG&E was granted a regulatory asset after the 1974 tornado in Louisville.
       The PSC has begun a review of how LG&E, KU and other affected utilities responded to Hurricane Ike. The review is examining not only the efforts to restore electric power and telephone service, but also preparation for major outages, communication with customers and coordination with local governments.
       Utilities have responded to an information request from the PSC. Information has been received from local officials in affected cities and counties. The PSC review also will include comments received from customers during and following the outages.
       Following an initial review, the PSC will gather whatever additional evidence it deems necessary. A report will be issued in several months.
        Today’s order and related documents are available on the PSC Web site, psc.ky.gov. The case numbers are 2008-00456 (LG&E) and 2008-00457 (KU).
       The PSC is an independent agency attached for administrative purposes to the Energy and Environment Cabinet. It regulates more than 1,500 gas, water, sewer, electric and telecommunication utilities operating in Kentucky and has approximately 100 employees.