The recent announcement from Kentucky Utilities (KU) came as no surprise to Berea city officials. KU, along with Louisville Gas and Electric Co. (LG&E), plans to ask state regulators for permission to implement a rate hike.
KU and LG&E are planning infrastructure improvements valued $2.2 billion, which will include poles and wires, more durable gas lines, as well as equipment that will detect outages, according to news reports. The reports further state KU will request a rate increase of 32 cents per day from its residential customers. The 32-cent-per-day increase will equal about $10 more per month for residential customers, the report said.
In 2016, the Berea City Council voted to terminate its contract with KU, in part, because of rate increases equaling 30% over a five-year period. While Berea Mayor Steven Connelly noted Berea is a wholesale electric customer, and would not be directly affected by this most recent proposed rate hike, the planned increase demonstrates the way in which KU is trying to cover increasing costs.
“This fits with what we’ve known for five years or longer, that there is a major difference between municipal electric companies and investor owned utilities like Kentucky Utilities,” Connelly said. “They have shareholders that want to see return on investment. They have to pay taxes, and they have been passing along to wholesale customers many of the costs of the environmental controls that they are having to implement. It (KU) is ultimately passing those costs on to its customers.”
Connelly noted that with more stringent environmental regulations relating to the operation of coal-generated electric plants, KU will likely have to invest more money in the future. “It emphasizes the fact that their cost of operation is more and more expensive because so much of their electricity is supplied by coal, which requires extra safeguards,” Connelly said.
After KU informed wholesale customers, like Berea, that they would have to pay higher rates to fund needed infrastructure improvements, and that cities would thereafter be required to give 10 years advance notice before they could terminate their contract with KU, Berea, along with other central Kentucky municipalities, began exploring the possibility of leaving KU.
In 2016, the Berea City Council voted to enter into agreements with American Municipal Power (AMP) for electricity and with KyMEA for transmission of that electricity and for seasonal capacity (reserve emergency power for winter months). Connelly said that transition from KU to AMP is projected to reduce the amount the city pays for power beginning in 2019 and running through 2024. “It’s clear that with AMP for the next five years we are still predicted to get an 8-10 percent cheaper product overall compared with KU,” Connelly said.
The most important questions Berea now has to consider about its electricity needs concern the future, after the 2024 agreement with AMP expires, Connelly said.
“We need to make a shrewd choice in our long-term strategy that will provide us options at the least cost with the most flexibility, avoiding the market swings (in price) that inevitably take place,” Connelly said. “We need to have the flexibility within our future contracts so that if natural gas (gas generated electricity) continues to be low in price, we can focus on natural gas. But we also need to be diversified enough so that if solar or wind or coal is the best price option, we are flexible enough to be able to make choices that keep us on the lower end of the cost spectrum.”