Unpacking the electricity rate increases for LG&E and KU

After rate hikes in 2015 and 2017, Louisville Gas & Electric (LG&E) and Kentucky Utilities (KU) hit their customers with another rate hike a few weeks ago. While they didn’t get everything they asked for from the Kentucky’s Public Service Commission, they did get sizable increases in their gas and electric rates. 

Here’s how it breaks down for residential electric consumers:

Those are pretty big rate hikes, especially when the repeated increases over the last five years are considered. Residential and small commercial rates have gone up 17-23 percent, and base rates (the charge regardless of how much energy is used) around 50 percent over the last five years.

While rising rates are a challenge for everyone, the repeated (and significant) rise in base fees is an even bigger problem because it has a disproportionate impact on lower-income folks and discourages investments in energy efficiency or rooftop solar energy. 

The purpose of the base fee is to cover fixed costs, like poles, wires and other infrastructure, and consumers have to pay it regardless of how much or how little electricity used. So it reduces the incentive to invest in energy efficiency or solar, and it locks low-income folks into higher bills regardless of how much they cut their usage.

The bigger picture question to ask is, why are we seeing these repeated rate hikes? 

The business model for our investor-owned monopoly utilities (which includes Duke Energy and Kentucky Power) is to sell kilowatt-hours, and to attract investors by building big new power plants. But Kentucky, like most of the United States, is using less electricity per capita than we used to as technology improves. So not only are the utilities selling less electricity, they don’t need to build any new power plants.

This isn’t a problem unique to Kentucky’s utilities. But while utilities in other states are exploring new ways of operating, and adapting to this rapidly shifting energy landscape, our investor-owned utilities are cutting efficiency programs, trying to keep folks from putting up rooftop solar, and making everyone pay more for their power. 

Why? One reason is because their investors are guaranteed a rate of return on their investments. Think about that – no matter what kind of bad business decisions LG&E and KU make, their investors are still going to make money at 9.275 percent. 

Kentucky Power has to pay to take down the Big Sandy power plant and for a bad investment in a coal-burning power plant in Illinois. But it’s not coming out of their investors’ pockets. Their customers are paying big extra charges on their bills to cover those costs. 

LG&E and KU (both owned by PPL Corporation of Allentown, Pennsylvania) made around $400 million in profits last year – so what incentive do they have to change? They know they’ll always make money because they can charge us for it.

This LG&E-KU rate increase is just one of many we’ve seen and will continue to see unless something changes in the way our monopoly utilities, our legislators and our Public Service Commission start thinking differently about energy in Kentucky. They may need our help to do it.