8-K: LG&E and KU Seek Rate Hikes to Fund System Upgrades and Enhance Reliability

Louisville Gas and Electric (LG&E) and Kentucky Utilities (KU) plan to file requests with the Kentucky Public Service Commission (KPSC) for increases in annual electricity and gas revenues to fund system enhancements and address aging infrastructure.

Summary

• Louisville Gas and Electric (LG&E) and Kentucky Utilities (KU) are planning to request rate increases from the Kentucky Public Service Commission (KPSC).
• LG&E seeks an 8.3% increase in electricity revenues (approximately $105 million) and a 14.0% increase in gas revenues (approximately $60 million).
• KU is requesting an 11.5% increase in electricity revenues (approximately $226 million).
• The rate increases are intended to fund system enhancements, including replacing aging infrastructure and improving reliability against severe weather.
• The applications will be based on a forecasted test year of January 1, 2026, through December 31, 2026, and a requested authorized return-on-equity of 10.95%.
• Subject to KPSC approval, the requested rates would become effective on January 1, 2026.
• The KPSC is expected to rule on the requests during the fourth quarter of 2025.
• The companies have not requested increases in base rates since November 2020.
• The companies are also proposing new services to help lessen the impact for customers and allow for more flexibility, such as waiving transaction fees for cash payments and offering a pre-pay program.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the rate increases are a negative for customers, the company is framing them as necessary investments for improved reliability and service. The emphasis on customer assistance programs and below-average rates helps to mitigate the negative impact.

Positives

• System enhancements are expected to improve reliability and reduce power outages.
• The companies have held down costs and maintained residential rates that are more than 24% below the national average over the last five years.
• New services are proposed to help customers manage their energy usage and budget, including waiving transaction fees for cash payments and offering a pre-pay program.
• Since 2017, customers have collectively experienced 150,000 fewer power outages each year, preventing 27.7 million outage minutes in total.
• Residential rates for both LG&E and KU electric service will remain below average U.S. residential rates, even with the proposed increase.

Negatives

• The proposed rate increases will increase customer bills.
• The rate increases are needed because some equipment dates back to the 1920s and is reaching the end of its life.
• The Bullitt County pipeline project was delayed over the past six years due to legal challenges.

Risks

• The KPSC may not approve the requested rate increases.
• Actual results may differ materially from the forward-looking statements due to various factors, including regulatory cost recovery and market demand.
• Political, regulatory, or economic conditions in the states and regions where the companies conduct business could impact results.
• The companies cannot predict the outcome of the KPSC proceedings.

Future Outlook

The companies anticipate filing requests with the KPSC and expect a ruling in the fourth quarter of 2025, with the requested rates potentially becoming effective on January 1, 2026, subject to KPSC approval.

Management Comments

• 'We continually evaluate how to best serve our customers and ensure that we are providing safe, reliable, affordable energy with award-winning customer service,' said John R. Crockett, LG&E and KU President.
• 'Our system enhancement plans will help us defend against Mother Nature and improve service for our customers,' said John R. Crockett, LG&E and KU President.
• 'We understand that increasing customer bills is impactful and not a decision we take lightly,' said John R. Crockett.
• 'Even now, our request is significantly less than the rate of inflation,' said Crockett.
• 'However, we're at a tipping point in which the foundational portions of our system – poles, wires, substations and technology – are reaching the end of their useful lives,' said Crockett.

Industry Context

Utilities across the US are facing increasing pressure to upgrade aging infrastructure and harden systems against extreme weather, often leading to requests for rate increases to fund these investments.

Comparison to Industry Standards

• The requested return on equity of 10.95% is within the typical range for regulated utilities, but the specific approval will depend on the KPSC's assessment of the company's risk profile and investment needs.
• Comparing LG&E and KU to peers like Duke Energy or American Electric Power, their residential rates have been relatively lower, but the proposed increases aim to address infrastructure deficits.
• The focus on system hardening and vegetation management aligns with industry best practices for improving reliability and resilience in the face of increasingly severe weather events.

Stakeholder Impact

• Shareholders: The rate increases could improve the financial stability of LG&E and KU, benefiting their parent company, PPL Corporation.
• Customers: Customers will likely see an increase in their monthly utility bills.
• Employees: System enhancements could create job opportunities and improve working conditions.
• Suppliers: Increased investment in infrastructure could lead to more business for suppliers of equipment and materials.

Next Steps

• LG&E and KU will file rate increase requests with the Kentucky Public Service Commission (KPSC) on or after May 30, 2025.
• The KPSC will review the requests and is expected to issue a ruling during the fourth quarter of 2025.
• If approved, the new rates would become effective on January 1, 2026.

Key Dates

Keywords

rate increase, Kentucky Utilities, Louisville Gas and Electric, KPSC, revenue, system enhancements, electricity, natural gas, utilities, PPL Corporation