PSC rejects wind surcharge

State regulators have nixed a proposal by Kentucky Utilities Co. to automatically charge customers for importing wind-generated electricity that costs twice as much as its own coal-generated power.

KU and sister company Louisville Gas and Electric Co. plan to purchase wind power from the breezy prairie of northern Illinois to help meet what they expect will be federal requirements to increase their use of renewable energy.

Last month, they asked the Kentucky Public Service Commission for permission to add a "renewable resource clause" to customer bills so they can recover the costs of the pricier wind power and transmission.

KU estimated the wind power surcharge would cost a typical residential customer 92 cents more per month, while LG&E would charge 71 cents.

But the PSC on Wednesday turned down the requested surcharge, saying it wouldn't permit KU and LG&E to bypass the commission's traditional process of reviewing utility rates.

"The wind energy costs should be considered only within the framework of a general rate case that examines a utility's overall expenses and revenue," the PSC said in a news release.

"Today's decision is simply about ensuring that the rate impacts of this proposal are considered appropriately," PSC Chairman David Armstrong said in a statement. "It is purely procedural and makes no judgment about the wind energy proposal itself," which the commission will review independently.

The companies are evaluating the commission's decision and will "make a decision at a later time" as to whether to try to proceed with the wind power deal, according to Chip Keeling, a spokesman for parent company E.ON U.S.

KU and LG&E are proposing the purchase of a combined 110 megawatts of power from the Grand Ridge Energy Center wind farm in LaSalle County, Ill., west of Chicago.

That's a fraction of KU's total generation capacity of 4,570 MW and LG&E's 3,514 MW.

KU and LG&E asked for the PSC to approve a surcharge, calling the wind contracts "a single, extraordinary, and volatile expense that is, and should be, separate from the companies' general rates" and saying going through a full-scale rate case would cause them unnecessary expense and delay.

The surcharge was opposed by the Kentucky Attorney General's Rate Intervention Division and Kentucky Industrial Utility Customers Inc., a group that represents large industries in utility issues.

KU serves 485,000 customers across the state, including in portions of Henderson, Union and Webster counties, while LG&E serves 384,000 customers in the Louisville area.