Storm Damage May Lead to Higher Electricity Rates

by Erica Peterson on August 15, 2011

Saturday evening’s storm knocked out power to more than 120,000 area residents, and crews have been working since then to restore electricity. The work will be expensive, and ratepayers will shoulder the burden.

Louisville Gas & Electric and Kentucky Utilities have a special account they use to finance storm damages. But in the case of an event like this weekend’s, it probably won’t be enough and the company is allowed to raise rates to pay for repairs.

After wind and ice storms only four months apart battered the city in 2008 and 2009, the Kentucky Public Service Commission issued a report with a series of recommendations to help utility companies prepare for the next huge power outage. PSC spokesman Andrew Melnykovych says the commission didn’t recommend buying storm damage insurance to cushion the eventual blow to consumers.

“It’s prohibitively expensive,” he said. “So the ongoing cost to the ratepayers to purchase the insurance, if they could get it—most underwriters won’t even write that kind of insurance for utilities anymore—if they could get it, it would be extremely expensive.”

Melnykovych says if the utilities do seek to recoup the costs, it’ll only be for a set amount of time.

“Typically it’s anywhere from five to ten years,” he said. “And once they’ve recovered that that portion of the rate goes away. The rate that we’re now paying to LG&E and KU right now reflects a substantially, what’s much larger than this is going to be, regulatory asset that was established to cover the 2008 and 2009 storms.”

LG&E and KU won’t be able to recoup the costs of recovering from last weekend’s storm until January 2013. That’s the earliest base rate increases are allowed to go into effect.

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