8-K: KPSC Approves LG&E, KU New Generation Projects

The Kentucky Public Service Commission approved Louisville Gas and Electric Company and Kentucky Utilities Company's plans to construct new natural gas generation units and environmental upgrades.

Summary

• The Kentucky Public Service Commission (KPSC) issued an order on October 28, 2025, approving much of Louisville Gas and Electric Company (LG&E) and Kentucky Utilities Company's (KU) July 2025 stipulation regarding new generation facilities.
• The KPSC granted Certificates of Public Convenience and Necessity (CPCNs) for the construction of E.W. Brown Unit 12, a 645 MW natural gas combined-cycle (NGCC) generation unit, and Mill Creek Unit 6, also a 645 MW NGCC generation unit.
• Approval was also given for Ghent Unit 2's selective catalytic reduction (SCR) environmental facility, with relevant costs authorized for inclusion in the Companies' existing environmental cost recovery rate mechanism.
• A separate monitoring case was established to receive and consider information during the construction of Mill Creek Unit 6.
• Requests for regulatory asset deferral accounting treatment for certain allowance-for-funds-used-during-construction related amounts were approved.
• The KPSC did not approve the Companies' proposed new rate adjustment cost recovery mechanisms for certain costs associated with Mill Creek Unit 6 and operating the Mill Creek 2 coal unit beyond its original 2027 retirement date, but these denials were without prejudice to resubmission.
• The KPSC declined to rule on a matter related to the retirement date of Mill Creek Unit 2.
• A CPCN for a Cane Run battery energy storage system (BESS) was not included due to its conditional withdrawal from the stipulation, but LG&E and KU retain the right to seek future approval for this or similar projects.
• E.W. Brown Unit 12 is expected to be available in 2030, Mill Creek Unit 6 in 2031, and the Ghent 2 SCR in 2028.

Sentiment

Score: 7

Explanation: The KPSC approved significant generation and environmental projects crucial for meeting Kentucky's growing energy needs, which is a strong positive. While some rate recovery mechanisms and a battery storage project were not approved in this order, the denials were 'without prejudice' and the company retains options for future approval, indicating a generally favorable outcome despite minor setbacks.

Positives

• KPSC approved the construction of two new 645 MW natural gas combined-cycle units (E.W. Brown Unit 12 and Mill Creek Unit 6) to meet growing energy demands.
• Approval was granted for the selective catalytic reduction (SCR) environmental upgrade for Ghent Unit 2, enhancing environmental compliance.
• Costs associated with Ghent Unit 2's SCR are authorized for inclusion in the existing environmental cost recovery rate mechanism, providing a clear path for cost recovery.
• Regulatory asset deferral accounting treatment was approved for certain construction-related funds, aiding project financing.
• The KPSC encouraged resubmission of denied rate mechanisms with additional evidence, indicating a potential path for future approval.
• LG&E and KU retain the right to seek approval for the Cane Run BESS project or similar substitute projects in future regulatory proceedings.

Negatives

• The KPSC did not approve proposed new rate adjustment cost recovery mechanisms for certain costs associated with Mill Creek Unit 6 and operating Mill Creek 2 beyond its original 2027 retirement date.
• The KPSC declined to rule on the retirement date of Mill Creek Unit 2, leaving some uncertainty.
• The Cane Run battery energy storage system (BESS) project's CPCN was not approved in this order due to its conditional withdrawal from the stipulation.

Risks

• Actual results may differ materially from forward-looking statements due to various risks and uncertainties.
• Subsequent phases of rate proceedings and regulatory cost recovery could impact financial outcomes.
• Market demand and prices for electricity and natural gas are subject to fluctuations.
• Political, regulatory, or economic conditions in the states and regions where the Companies operate could change.
• Final negotiated terms and conditions in any prospective contracts may differ from expectations.
• The progress of actual construction, purchase, or installation of assets or operations could face unforeseen challenges.
• The KPSC's order is subject to rights to request rehearing or appeal by the Companies and intervenors, creating uncertainty regarding the final outcome.

Future Outlook

The Companies expect E.W. Brown Unit 12 to be available in 2030, Mill Creek Unit 6 in 2031, and the Ghent 2 SCR in 2028. They are evaluating next steps for cost recovery of denied rate mechanisms and retain the right to seek approval for the Cane Run BESS or similar projects in future regulatory proceedings. Forward-looking statements are subject to risks and uncertainties, including regulatory outcomes and construction progress.

Management Comments

• "This is an exciting time for Kentucky as the interest in locating new and expanding businesses continues to grow. These generation projects help ensure we continue to safely and reliably serve all customers and new economic development growth in the lowest reasonable cost manner." John R. Crockett III, LG&E and KU President.
• "LG&E and KU appreciate the collaborative efforts of the parties to this proceeding, as the utilities look to meet the growing energy needs in the Commonwealth, and look forward to continuing to work with the KPSC on the items not approved in its order."

Industry Context

The approval of new natural gas generation facilities and environmental upgrades aligns with the broader utility industry trend of modernizing infrastructure to meet increasing energy demand, driven by economic development, while also addressing environmental regulations. The focus on natural gas combined-cycle units reflects a common strategy for balancing reliability and emissions compared to older coal-fired plants. The mention of potential future data center or high load customers highlights a specific growth segment driving demand in the utility sector.

Comparison to Industry Standards

• The approval of two 645 MW natural gas combined-cycle (NGCC) units (Mill Creek 6 and Brown 12) is consistent with modern utility practices for efficient, dispatchable generation, comparable to similar projects undertaken by utilities like Duke Energy or Southern Company in their respective service territories, which are also investing in NGCC to replace retiring coal assets and support load growth.
• The installation of selective catalytic reduction (SCR) for Ghent Unit 2 is a standard environmental control technology widely used across the industry to reduce nitrogen oxide emissions from coal-fired power plants, aligning with EPA regulations and similar upgrades seen at facilities operated by companies such as American Electric Power or NRG Energy.
• The conditional withdrawal of the Cane Run battery energy storage system (BESS) project, while retaining the right to refile, indicates a cautious but ongoing interest in energy storage, a rapidly growing sector with projects like Florida Power & Light's Manatee Energy Storage Center (409 MW) or Pacific Gas and Electric's Elkhorn Battery (182.5 MW) setting benchmarks for utility-scale deployment.

Stakeholder Impact

• Shareholders: Positive impact from regulatory clarity on significant capital projects, ensuring long-term asset base and revenue streams, though some uncertainty remains regarding full cost recovery for specific items.
• Customers: Enhanced reliability and capacity to meet growing energy demand, potentially at the "lowest reasonable cost manner" as stated by management, but future rate cases will determine the ultimate impact on bills.
• Employees: Continued employment and potential for new jobs related to construction and operation of new facilities.
• Suppliers/Contractors: Opportunities for contracts related to the construction of new generation units and environmental upgrades.

Next Steps

• Companies are evaluating next steps, including addressing recovery of costs for denied rate mechanisms in pending rate case proceedings.
• Companies continue to evaluate the KPSC order and related matters, including potential appeals or requests for rehearing by themselves or other parties.
• LG&E and KU retain the right to seek approval of the Cane Run BESS project or similar substitute projects in future regulatory proceedings.
• Construction of E.W. Brown Unit 12 (expected available 2030), Mill Creek Unit 6 (expected available 2031), and Ghent 2 SCR (expected available 2028) will proceed.
• A separate monitoring case will receive and consider information during the construction of Mill Creek Unit 6.

Key Dates

Recommendation

The KPSC approval of major generation projects provides regulatory certainty and supports future growth, which is positive. However, the denial of certain cost recovery mechanisms and the deferral of the BESS project introduce some uncertainty regarding full cost recovery and the pace of clean energy transition. Given the mixed outcome, a 'hold' recommendation is appropriate, awaiting further clarity on rate cases and future project approvals.

Keywords

PPL Corporation, Louisville Gas and Electric Company, Kentucky Utilities Company, KPSC, Kentucky Public Service Commission, natural gas combined-cycle, NGCC, power generation, energy infrastructure, environmental upgrades, utility regulation, CPCN, Mill Creek, E.W. Brown, Ghent, rate case, energy storage, BESS