Andrew Melnykovych

(502) 564-3940 x208

(502) 330-5981 (cell)

FRANKFORT, Ky. (June 30, 2004) The Kentucky Public Service Commission (PSC) today granted rate increases to the Louisville Gas & Electric Co. (LG&E) and the Kentucky Utilities Co. (KU), although the rate increases were substantially smaller than the amounts originally requested by the companies.

The rate increases and other provisions of today’s PSC decision reflect settlements reached by parties to the case, including groups representing low-income consumers, such as the Kentucky Association for Community Action, Inc., and representatives of major Kentucky industries, including the Kentucky Industrial Consumers, Inc.

The PSC issued its decision in orders signed by all three members – Chairman Mark David Goss, Vice Chairman Ellen Williams and Commissioner Marty Huelsmann.

"Ultimately, ratemaking decisions require weighing the needs of utilities against the impact of rate increases on consumers," the PSC said in a statement issued today. "This is always a difficult task which neither the PSC nor its staff takes lightly.

"The PSC believes that today’s decision, based as it is on considerable negotiation among the parties and coming as it does only after exhaustive review by the PSC and its staff, strikes the proper balance," the PSC said. (A full text of the statement is attached.)

The rate increases approved for LG&E and KU were the first in many years. KU’s last electric rate increase was in 1984. LG&E last was allowed to increase electric rates in 1990. But in 2000, LG&E’s electric rates were lowered to pre-1990 levels. LG&E’s gas rates were last increased in 2000.

The rate increases grant LG&E and KU the opportunity to earn a return on equity ranging from 10 percent to 11 percent. That is consistent with the authorized returns on equity for similar utility companies in other states.

Even with the rate increases, Kentucky’s electric rates will remain the lowest in the region and among the lowest in the nation. (See accompanying map.)

LG&E electric               $55.94                   $60.93                 $4.99 (8.9%)

(based on average usage of 950 kilowatt-hours/month)

KU electric                   $54.79                   $58.29                  $3.50 (6.4%)

(based on average usage of 1,210 kilowatt-hours/month)

The average monthly gas bill for LG&E customers will increase $2.97 (4.3 percent), from $69.71 to $72.68, based on average usage of 7,300 cubic feet/month. This figure reflects the current wholesale cost of natural gas. But the gas rate increase approved for LG&E covers only the costs of distributing gas to its customers. The actual cost of the gas itself is unregulated (by federal law), fluctuates with market conditions and is passed on to customers on a dollar-for-dollar basis, with no profit for the gas company.

LG&E and KU are both subsidiaries of LG&E Energy LLC. LG&E has about 384,000 electric customers and nearly 312,000 natural gas customers in 16 counties in the Louisville area. KU serves about 477,000 customers in 77 Kentucky counties.

LG&E applied for a $63.7 million increase in annual electric revenue, but the PSC granted a $43.4 million increase, which is 32 percent less than requested. KU requested a $58.2 million annual electric revenue increase, but was allowed a $46.1 million increase, 21 percent less than requested. LG&E asked for a $19.1 million annual gas revenue increase, but received $11.9 million – 38 percent less than requested.

A partial settlement reached by all parties to the case – representing interests from low-income residents to major industrial consumers – addressed all issues except the size of the KU and LG&E electric rate increase. The Kentucky Office of Attorney General was a party to this partial settlement. The electric rates approved by the PSC reflect an agreement reached by all parties to the case except the Office of Attorney General.

Other key elements of the agreements and orders include:

• A program to assist low-income consumers in paying their utility bills. The program will be funded through a monthly assessment of 10 cents per residential meter. The assessments will not begin until the PSC approves the details of how the program will be administered and is assured the program will operate efficiently.
• The end of a program, known as the Earnings Sharing Mechanism, under which KU & LG&E customers shared in the profits and losses incurred by the two utilities. When profits exceeded certain levels, customers received a rebate representing a portion of the additional profits. When profits fell below a certain level, the customers were assessed a surcharge.
• Elimination of a variable rate structure under which LG&E’s electric rates rose during the summer peak, when demand is highest, in order to encourage energy conservation. LG&E will monitor summer usage for two years to determine whether the rate change has any impact on energy consumption.