If you are like me, you opened your bill from LG&E/KU last month to discover that increases in the price of gas, rather than significant increases in your demand for either gas or electricity, were the reason for a hefty increase in your utility bill. I was very concerned to learn that my gas prices per unit jumped from $.37/ccf one month to $.52/ccf the next, a whopping 40% increase! So alarmed was I that, after talking LG&E/KU, I contacted the Kentucky Public Service Commission (PSC) to try and further understand why the regulator of an energy supplier enjoying monopoly status in our service area had allowed the supplier to pass the entirety of a steep increase in gas prices through its customers.
Here is what I was told. “By law, natural gas prices are not regulated at the wholesale level and generally fluctuate with supply and demand. Under Kentucky law gas utilities are entitled to recover the wholesale cost of the gas delivered to their customers, including fees they pay to interstate pipelines to transport the gas to their retail distribution systems. The price at which the utility purchased the gas is passed through to customers on a dollar for dollar basis. Monthly bill impacts will depend on wholesale cost adjustments throughout the heating season.”
Ok I thought, so by a gentleperson’s agreement between the PSC and the monopoly gas utilities, customers and not the utility bear the risk for gas price fluctuations when the utility is supplying a straight up commodity like gas to its customers. But surely, I mused, the utility bears the risk of fuel price fluctuations when it, and not the customer, has made the choice to power its electric generating stations using fossil fuels like gas and coal, rather than choosing to generate its electricity with say solar or wind, electric generation for which the cost of fuel is zero? Unfortunately, though a regulatory structure without fuel pass throughs would make total sense if the commission wanted to encourage utilities to generate electricity with renewables rather than with fuels that exacerbate climate change, like natural gas and coal, that is NOT the way the Kentucky Public Service Commission has chosen to regulate LG&E/KU.
Instead, as I was also told by the PSC, “the Fuel Adjustment Clause process, which is set forth in detail in 807 KAR 5:056, is used by utilities to adjust the price of electricity to reflect fluctuations in the cost of fuel, or purchased power, used to supply electricity.” In other words, our electric rates reflect the increase in gas prices as well! “The Fuel Adjustment Clause allows utilities to reflect those fluctuations in their electric rates without having to request changes in their base rates. Without the Fuel Adjustment Clause, utilities would likely be required to file for more frequent adjustments in their base rates, and the changes in base rates would be greater.” Which leaves me with several remaining questions for the Kentucky Public Service Commission. Why, in an age in which climate change makes it unconscionable for an electric energy regulatory body to not follow its mandate to regulate in the public interest by encouraging the use of non-fossil fuel electric generation, wouldn’t you phase out the fuel adjustment clause to discourage the construction of any new fossil fuels generation? Why would you continue to promise monopoly utilities that they will be able to continue to pass the cost of fossil fuels through to their customers for the foreseeable future? Why wouldn’t you, instead, encourage them to make the switch to renewables through the simple act of letting them, and not the customer, bear the full risk of fuel price fluctuations for any new generation that comes online from here? We customers would love it if the PSC would help us ensure that utilities start “passing through” the cost of renewable fuel, which is always, for both the customer and the supplier, zero. I invite you to write to the KY PSC to ask them those questions (you can find their complaint page here) and to read more about what environmental activists in Louisville are doing to encourage LG&E/KU to make the switch to renewable electric generation here.