PSC says Louisville Gas and Electric must pass utility franchise fees to customers as line item

The Kentucky Public Service Commission (PSC) ruled recently in a case involving Louisville Gas and Electric Co. (LG&E) and Louisville and Jefferson County Metro Government that utilities must pass franchise fees imposed by local governments to customers as a separate line item on those customers’ utility bills.

“The practical effect of franchise fees is to have a utility act as the conduit by which ratepayers are assessed a franchise fee which the utility then collects and passes on to the municipality,” the PSC said. “Ratepayers have the right to know the amount of such charges collected from them for government operating expenses.”

In 2016, LG&E and Louisville Metro entered into an agreement granting the company a natural gas franchise and establishing a fee of up to three percent of the company’s total natural gas revenue within the franchise area. The franchise agreement, however, did not resolve how the fee would be collected and from whom.

Louisville Metro requested that the franchise fee be collected through base rates. This would have resulted in all of LG&E’s natural gas customers, including those residing outside of Jefferson County, bearing the cost of the fee.

LG&E argued that it should collect the fee only from Jefferson County customers not living in one of the 82 cities within Jefferson County and that it should be passed through to customers and listed as a separate item on gas bills.

The PSC ruled in LG&E’s favor in its recent ruling. Under the franchise agreement, no fee has been collected pending a ruling from the PSC. The franchise agreement also says that no fee will be collected in the event that the PSC rules in favor of LG&E’s position.

Also party to the case was Kentucky Industrial Utility Customers, Inc. (KIUC), which represents large industrial ratepayers. KIUC largely agreed with LG&E and argued that recovering the Louisville Metro franchise fee through base rates would impose an improper tax burden on all the company’s gas customers.