Dive Brief:

• Kentucky regulators on Wednesday denied Kentucky Utilities' request to recover its dues to the Edison Electric Institute (EEI) from ratepayers.

• The Kentucky Public Service Commission (PSC) ruled that Kentucky Utilities, the subsidiary of LG&E and KU Energy, did not adequately prove that recovering those costs was "fair, just and reasonable," in a move that reinforces the PSC's opposition to utilities using ratepayer funds to recover spending on public relations and regulatory advocacy.

• The state's ruling comes as environmental and consumer groups push for federal regulators to take a similar position at the federal level, and require utilities and their trade groups to justify why trade dues should be charged to ratepayers.

Dive Insight:

Determining what all goes into a ratepayer's monthly power bill essentially comes down to an accounting question, according to advocates. Currently, the majority of utility trade group dues are placed into an account slotted for "miscellaneous general expenses," which is routinely recovered from ratepayers. A portion of trade group expenses also falls into a second payment category — generally carved out for lobbying — that is not recoverable.

The Center for Biological Diversity, in a move backed by a number of national and local clean energy and consumer groups, is asking FERC to require all trade dues be charged to the non-recoverable account, and require utilities and their trade groups to prove, in instances where they believe trade dues should be recovered, why it is just and reasonable for ratepayers to absorb those costs.

"What our petition seeks to do is to flip the burdens, to put all of the … trade association dues in that non-recoverable account," said Howard Crystal, who is leading the petition for the Center. "And what that would mean is that for the first time, trade associations — and ultimately the utilities, since they're the ones asking for the recovery — would have to actually justify why it is that money should be charged to ratepayers."

EEI, which represents U.S. investor-owned utilities, argued in its filing with the commission commenting on the petition that there is no problem with the current system, because spending reserved for lobbying is not recovered. Further, the trade group argued, the Center is "requesting that the Commission redefine lobbying activities to include activities that trade associations undertake with which the Petitioner may disagree," a definition that is ultimately up to Congress.

"[T]he Commission should be wary of this thinly veiled proxy fight about what should be deemed lobbying," EEI wrote.

But the Center says FERC does have the jurisdiction to change these accounting measures. And, Crystal said, the point is that there is no way to know whether money is being misspent  — or how it's being spent — because utilities aren't required to disclose those funds.

In the case of Kentucky Utilities, regulators asked the utility to detail how exactly trade group funds are spent, and make the case as to why those funds should be recovered by from ratepayers. The utility was not able to document how much of its trade dues were spent on regulatory advocacy and public relations efforts, so regulators denied recovery of all its EEI-related costs.

EEI to the PSC detailed what portion of its dues are spent on state, federal and grassroots lobbying, and acknowledged that "activities that could be described as 'regulatory advocacy, and public relations'" are not included in those calculations. 

But in presenting these and other arguments before the PSC, regulators argued, the trade group was clearly directly advocating in regulatory activity before the commission, something the PSC had previously decided was not recoverable. And without any evidence as to how much of EEI's activities in front of the commission cost ratepayers, the PSC found Kentucky Utilities could not recover any EEI costs.

"In two sets of written comments and twice in oral comments, agents of EEI advocated directly to this Commission the organization's interests, concern and suggestions regarding the Commission's implementation of rates pursuant to Senate Bill 100, An Act Related to Net Metering," the PSC wrote in its decision. 

"Based on the explanation in the EEI letter, coupled with EEI's actual regulatory advocacy, the Commission finds that EEI is engaging in activity the Commission has previously denied recovery of expenses for and ... for which KU seeks recovery of in this matter," the decision continued. Further, the commission said it was up to the utility to prove to regulators why costs should be recovered, not simply outline what costs aren't going to be recovered.

"Merely incurring, or expecting to incur, an expense is not itself a sufficient basis for the recovery of that expense from customers … A focus only on the amount of EEI dues not recoverable in rates misses the point. KU's affirmative burden is what level of EEI dues is recoverable from customers," the decision read.

The Kentucky ruling does exactly what petitioners in the FERC ruling are seeking, said Crystal, "puts the burdens of trade dues recovery where they belong."

EEI said it "provides broad benefits to customers of our member companies on several fronts, including through mutual assistance planning, training programs, and forums for information sharing."

"While we are clearly disappointed in the Kentucky PSC's action, we respect the role of state commissions and believe that their decision further reinforces why the [Center's] petition is both unnecessary and moot," said Adam Benshoff, EEI vice president of regulatory affairs in an emailed statement.

Kentucky Utilities in an email said it was "reviewing the order closely to determine our next steps." The order also included decisions on net metering, recovery on advanced metering infrastructure, and broader rate recovery, among other things.

"We appreciate that the commission approved much of the agreement to help ensure that LG&E and KU can continue to provide safe and reliable energy and provide customers with technology to help them better manage their energy and money," said spokesperson Chris Welder in an email.

The initial comment period on the FERC proceeding ended in April, and petitioners are awaiting a response from the commission.