Ernie Fletcher Governor

Teresa J. Hill, Secretary Environmental and Public Protection Cabinet

Christopher L. Lilly Commissioner Department of Public Protection

Commonwealth of Kentucky Public Service Commission

21 1 Sower Blvd P Q Box615

Frankfort, Kentucky 40602-061 5 Telephone. (502) 564-3940

Fax. (502) 564-3460 psc ky gov

Mark David Goss Chairman

John W. Clay Commissioner

October 24,2006

PARTIES OF RECORD:

RE: Case No. 2006-00206 THE APPLICATION OF KENTUCKY UTILITIES COMPANY FOR A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY TO CONSTRlJCT A SELECTIVE CATALYTIC REDUCTION SYSTEM AND APPROVAL OF ITS 2006 COMPLIANCE PLAN FOR RECOVERY BY ENVIRONMENTAL SURCHARGE

AND

Case No. 2006-00208 THE APPLICATION OF LOUISVILLE GAS AND ELECTRIC COMPANY FOR APPROVAL OF ITS 2006 COMPLIANCE PLAN FOR RECOVERY BY ENVIRONMENTAL SURCHARGE

Enclosed please find a memorandum that has been filed in the record of the above- referenced case. Any comments regarding this memorandum’s content should be submitted to the Commission within five days of receipt of this letter. Questions regarding this memorandum should be directed to Isaac Scott at (502) 564-3940, extension 444.

Executive Director

Attachments

KentuckyUnbridledSpirit corn An Equal Opportunity Employer MIFID

I-lonoiable Elizabcth E Blacldoid Assistaiit Attoi iiey Geiieial Ollice ol‘tlie Attoiney Gciieial Utility Sr Rate Intei ventioii Divisioti 1024 Capital Centel Diive Suite 200 Fta~~lttbi t, l<Y 40601-S201

I-loiioiable Michael L ICtiitz Attorney at Law Boclim, l<ui tz Sr L.owIy 36 East Scveiitli Stiect 2 I 10 CBLD Btiilding C iiic i niiati , 0 1-1 45202

ICent W Blalte Diicctoi State llegulatioiis and liates Louisvtlle Gas and Electi I C Company 220 W ivlaiii Stieet P 0 Box32010 Loti~sv~llc, ICY 40232-2010

I-loiiorable ICeiidrick R Riggs Atlomey a1 Law Stoll ICcenoii Ogdeii, PLLC 2000 PNC Plaza 500 W leffersoii Street L.ouisvillc, ICY 40202-2828

I-loiiomble Elizabeth L. Cocanouglier Senioi Col-poiate Attorney L.ot~isville Gas and Electric Company 220 W Main Sticct I’ 0 Bos32010 I_ouisville, ICY 40232-1010

Service List for Case 2006-00208

INTRA-AGENCY MEMORANDUM

KENTUCKY PUBLIC SERVICE COMMISSION

TO: Main Case File - Case No. 2006-00206 Main Case File - Case No. 2006-00208

FROM: Isaac Scott, Team Leader

DATE: October 24,2006

SUBJECT: October 12, 2006 Informal Conference

Pursuant to the September 29, 2006 Orders in these cases, an informal conference was held on October 12, 2006. Attached to this memorandum as Attachment 1 is a list of the participants. The piirpose of the conference was to discuss procedural matters and other issues in the cases.

Kentucky Utilities Company (“KU”) and Louisville Gas and Electric Company (‘‘LG&E’’) provided a handout that presented an overview of the applications and copies of the proposed tariff sheets and the monthly environmental surcharge filings. A copy of the handout is attached to this memorandum as Attachment 2, while a copy of the tariff sheets and monthly filings is attached as Attachment 3.

KU and LG&E went over the material outlined in the handout and offered to answer any questions the Intervenors or Commission Staff had. The Kentucky Industrial Utility Customers, Inc. asked several questions concerning the Trimble County Unit 2 construction and general operations. There also was a brief discussion concerning the need to control the emission of sulfur trioxides.

KU and LG8E indicated that one of their witnesses, Sharon L. Dodson, would not be available for the hearing and that Gary H. Revlett would be adopting her testimony. KU and LG&E asked if they could be notified prior to the November 8, 2006 hearing if any of their witnesses would not need to appear. Commission Staff indicated that it would try to accommodate this request. The conference was then adjourned.

Attachments

CASE NO. 2006-00206 and 2006-00208 I(ENTUCKY UTILITIES COMPANY and

LOUISVILLE GAS & ELECTRIC COMPANY INFOIRMAL CONFEFCENCE - October 12,2006

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Revised Exhibit RMC-1 Kentucky Utilities Company

Second Revision to Original Sheet No. 72 P.S.C. No. 13

ECR Environmental Cost Recovery Surcharge

--

APPLICABLE In all territory served.

AVAILABILITY OF SERVICE To all electric rate schedules.

RATE The monthly billing amount under each of the schedules to which this mechanism is applicable, including the fuel adjustment clause, demand-side management cost recovery mechanism and STOD program cost recovery factor, shall be increased or decreased by a percentage factor calculated in accordance with the following formula.

CESF = E(m)/R(m) MESF = CESF - BESF

MESF = Monthly Environmental Surcharge Factor CESF = Current Environmental Surcharge Factor BESF = Base Environmental Surcharge Factor

Where E(m) is the jurisdictional total of each approved environmental compliance plan revenue requirement of environmental compliance costs for the current expense month and R(m) is the revenue for the current expense month as set forth below.

DEFl NITIONS

1) For all Plans, E(m) = [(RB/12) (ROR + (ROR - DR) (TR / (1 - TR))] + OE - BAS Where: a) RB is the Total Environmental Compliance Rate Base. b) ROR is the Rate of Return in Environmental Compliance Rate Base, designated as the

overall all rate of return [cost of short term debt, long term debt, preferred stock, and common equity]

c) DR is the Debt Rate [cost of short term debt, and long term debt] d) TR is the Composite Federal and State Income Tax Rate. e) OE is the Operating Expenses [Depreciation and Amortization Expense, Property Taxes,

Emission Allowance Expense and O&M expense adjusted for the Average Month Expense already included in existing rates]. Includes operation and maintenance expense recovery authorized by the K.P.S.C. in Case Nos. 2000-439, 2002-146, 2004-00426 and 2006- 00206. BAS is the total proceeds from by-product and allowance sales. f)

2) Total E(m) (sum of each approved environmental compliance plan revenue requirement) is multiplied by the Jurisdictional Allocation Factor to arrive at Net Jurisdictional E(m)

3) The revenue R(m) is the average monthly base revenue for the Company for the 12 months ending with the current expense month. Base revenue includes the customer, energy and demand charge for each rate schedule to which this mechanism is applicable and automatic adjustment clause revenues for the Fuel Adjustment Clause, the Demand-Side Management Cost Recovery Mechanism and STOD Program Cost Recovery Factor as applicable for each rate schedule.

4) Current expense month (m) shall be the second month preceding the month in which the Environmental Surcharge is billed.

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Date of Issue: June 23, 2006 Canceling First Revision to Original Sheet No. 72 Issued June 28,2005 Issued By

Date Effective: With Bills Rendered On and After February 1,2007

John R. McCall, General Counsel and Secretary Louisville, Kentucky

Issued by Authority of an Order of the KPSC in Case No. 2006-00206 dated

I

Exhibit FWC-4 Page 1 of 13

ES FORM 1.00

KENTUCKX UTILITIES COMPANY ENVIRONMENTAL SURCHARGE REPORT

Calculation of Monthly Billed Environmental Surcharge Factor - MESF For the Expense Month of

MESF =CESF - BESF

Where:

CESF

BESF

Calculation of MESF:

=

=

Current Period Jurisdictional Environmental Surcharge Factor

Base Period Jurisdictional Environmental Surcharge Factor

CESF, from ES Form 1 .lo BESF, from Case No.

MESF

Effective Date for Billing:

Submitted by:

Title: Manager, Rates

Date Submitted:

Eshibit RMC-4 Page 2 of 1.3

ES FOR31 1.10

KENTUCKY UTILITIES COMPANY ENVIRONMENTAL SURCHARGE REPORT

Calculation of Total E(m) and Jurisdictional Surcharge Billing Factor

For the Expense Month of

Calculation of Total E(m)

E(m) =[(RB I 12) (RORi(ROR -DR)(TRI(I-TR)))] +OE - BAS, where RB = Environmental Compliance Rate Base ROR DR = Debt Rate (both short-term and long-term debt) TR = Composite Federal & State Income Tax Rate QE = Pollution Control Operating Expenses BAS = Total Proceeds from By-Product and Allowance Sales

= Rate of Return on the Environmental Compliance Rate Base

Environmental Compliance Plans r-- RB 1 RBI12 (RQR +(ROR - DR) (TR I(1 - TR))) I OE

I BAS

Calculation of Jurisdictional Environmental Surcharge Billing Factor

- - Jurisdictional Allocation Ratio for Expense Month Jurisdictional E(m) =E(m) x Jurisdictional Allocation Ratio Adjustment for Monthly True-up (from Form 2.00)

Prior Period Adjustment (if necessary)

- - - -

Recovery of QMU NOx Expenditures (Case No. 200300434-Settlement Agreement, Section 3.19.pg. 13) - -

- - Net Jurisdictional E(m) =Jurisdictional E(m) minus Adjustment for Monthly True-up

- plusIminus Prior Period Adjustment -

Months Ending with the Current Expense Month Jurisdictional R(m) =Average Monthly Jurisdictional Revenue for the 12

- -

Jurisdictional Environmental Surcharge Billing Factor: Net Jurisdictional E(m) I Jurisdictional R(m) ;as a I of Revenue

83,333

Exhibit RMC-4 Page 3 of 13

L

Enviromental Compliance Plan

Monthly Operations & Maintenance Expense

ES FORAM 2.00

Monthly Depreciation & Amortization Expense Monthly Taxes Other Than Income Taxes Monthly Insurance Expense Monthly Emission Allowance Expense from ES Form 2.3 1.2.32 and 2.33 Less Monthly Emission Allowance Expense in base rates (1/12 of $58,345.76) - Net Recoverable Emission AUowance Expense

m,NTUCI(Y UTILITIES COMPANY ENVIRONMENTAL SURCHMZGE REPORT

Revenue Requirements of Environmental Compliance Costs For the Expense Month of

I

4.862

Determination of Environmental Compliance Rate Base , Enviromental Compliance Plan

Eligible Pollution Control Plant

r Total

Proceeds Allowance Sales - Scrubber By-Products Sales Total Proceeds from Sales

I

"_.. A. MESF for two months prior to Expense Month -- B. Net Jurisdictional E(m) for two months prior to Expense Month C. Environmental Surcharge Revenue, current month (from ES Form 3.00) D. Retail E(m) recovered through base rates (Base Revenues, ES Form 3.00 times xx%) _. E. Over/(Under) Recovery due to Timing Differences ((D +C) - B) Over-recoveries will be deducted from the Jurisdictional E(m); under-recoveries will be added to the Jurisdictional E(m)

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Exhibit RMC-4 Page 10 of 13

Environmental Compliance Plan I

ES FORM 2.40

I O&M ExDenses I Amount

KENTUCKY UTILITIES COMPANY

1 1 th Previous Month 10th Previous Month 9th Previous Month 8th Previous Month 7th Previous Month 16th Previous Month 5th Previous Month 4th Previous Month 3rd Previous Month 2nd Previous Month ‘Previous Month Current Month Total 12 Month O&M

ENVIRONMIENTAL SURCHARGE REPORT O&M Expenses and Determination of Cash Working Capital Allowance

For the Month Ended:

I Determination of Working CaDital Allowance 1 12 Months O&M Expenses

One Eighth (1/8) of 12 Month O&M Expenses 1 I8

Pollution Control Cash Working Capital Allowance

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Exhibit M C - 1 Louisville Gas and Electric Company

Second Revision to Original Sheet No. 72 P.S.C. of Ky. Electric No. 6

ECR E nvi ronrn e n ta I Cost Recove w S u rc harne

APPLICABLE In all territory served.

AVAILABILITY OF SERVICE To all electric rate schedules

RATE The monthly billing amount under each of the schedules to which this mechanism is applicable, including the fuel adjustment clause, demand-side management cost recovery mechanism and STOD program cost recovery factor, shall be increased or decreased by a percentage factor calculated in accordance with the following formula.

CESF = E(m)/R(m) MESF = CESF - BESF

MESF = Monthly Environmental Surcharge Factor CESF = Current Environmental Surcharge Factor BESF = Base Environmental Surcharge Factor

Where E(m) is the jurisdictional total of each approved environmental compliance plan revenue requirement of environmental compliance costs for the current expense month and R(m) is the revenue for the current expense month as set forth below.

DEFINITIONS

1) For all Plans, E(m) = [(RB/12) (ROR + (ROR - DR) (TR / (1 - TR))] + OE - BAS Where: a) RB is the Total Environmental Compliance Rate Base. b) ROR is the Rate of Return on Environmental Compliance Rate Base, designated as the

overall all rate of return [cost of short-term debt, long-term debt, preferred stock, and common equity].

c) DR is the Debt Rate [cost of short-term debt, and long-term debt]. d) TR is the Composite Federal and State Income Tax Rate. e) OE is the Operating Expenses [Depreciation and Amortization Expense, Property Taxes,

Insurance Expense; adjusted for the Average Month Expense already included in existing rates]. Includes operation and maintenance expense recovery authorized by the K.P.S.C. in Case Nos. 2000-386,2002-147,2004-00421 and 2006-00208. BAS is the total proceeds from by-product and allowance sales 9

2) Total E(m) (sum of each approved environmental compliance plan revenue requirement) is multiplied by the Jurisdictional Allocation Factor to arrive at the Net Jurisdictional E(m).

3) The revenue R(m) is the average monthly base revenue for the Company for the 12 months ending with the current expense month. Base revenue includes the customer, energy and demand charge for each scheduJe to which this mechanism is applicable and automatic adjustment clause revenues for the Fuel Adjustment Clause, the Demand-Side Management Cost Recovery Mechanism and STOD Program Cost Recovery Factor as applicable for each rate schedule.

4) Current expense month (m) shall be the second month preceding the month in which the Environmental Surcharge is billed.

Date of Issue: June 23,2006 Canceling First Revision to

Original Sheet No. 72 Issued June 28,2005

Issued By Effective: With Bills Rendered On and After

February 1,2007

John R. McCall, Executive Vice President General Counsel and Secretary

Louisville, Kentucky Issued by Authority of an Order of the KPSC in Case No. 2006-00208 dated

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Exhibit RMC-4 Page 1 of 13

ES FORM 1.00

LOUISVILLE GAS AND ELECTRIC COMPANY ENVIRONMF,NTAL SURCHARGE REPORT

Calculation of Monthly Billed Environmental Surcharge Factor - MESF

For the Expense Month of

MESF =CESF - BESF

Where:

CESF

BESF

=

=

Current Period Jurisdictional Environmental Surcharge Factor

Base Period Jurisdictional Environmental Surcharge Factor

Calculation of MESF:

CESF, from ES Form 1.10 BESF, from Case No.

MESF

Effective Date for Billing:

Submitted by:

Title: Manager, Rates

Date Submitted:

Exhibit RhlC-4 Page 2 of 13

ES FORM 1.10

LOIJISVILLE GAS AND ELECTRIC COMPANY ENVIRONMENTAL SURCHARGE REPORT

Calculation of Total E(m) and Jurisdictional Surcharge Billing Factor

For the Expense Month of

Calculation of Total E(m)

a m ) =[(RB / 12) (RORYROR -DR)(TR/(I-TR)))] +OE- BAS, where RB = Environmental Compliance Rate Base ROR DR = Debt Rate (both short-term and long-term debt) TR = Composite Feden1 & State Income Tax Rate OE = Pollution Control Operating Expenses BAS

= Rate of Return on the Environmental Compliance Rate Base

= Total hoceeds from By-Wuct and Allowance Sales

Environmental Compliance Plans

- - - RB I 12 - _. - - - _. -

~ ~ o R + ~ O R - ~ R ) m / ( i - m ) ) )

BAS

a m ) - - -

Calculation of Jurisdictional Environmental Surcharge Billing Factor

- - Jurisdictional Allocation Ratio for Expense Month Jurisdictional E(m) = a m ) x Jurisdictional Allocation Ratio Adjustment for Monthly True-up (from Form 2.00) Prior Period Adjustment (if necessary)

- - - - - -

Net Jurisdictional a m ) =Jurisdictional E(m) minus Adjustment for Monthly True-up - plus/minus Prior Period Adjustment -

Jurisdictional R(m) =Avenge Monthly Jurisdictional Revenue for the 12 - - Months Ending with the Cunent Expense Month

Jurisdictional Environmental Surcharge Billing Factor: Net Jurisdictional Urn) /Jurisdictional R(m) ; as a 96 of Revenue

Exhibit RMC-4 Page 3 of 13

1

Environmental Complaince Plan

Monthly Operations & Maintenance Expense Monthly Depreciation & Amortization Expense

Monthly Insurance Expense Monthly Emission Allowance Expense from ES Form 2.31,2.32 and 2.33 Monthly Permitting Fees Amortization of Mill Creek Ash Dredging

Monthly Property & Other Applicable Taxes --

Less : Operating Expenses Associated with Retirements or Replacements Occuring Since Last Roll-In of Surcharge into Existing Rates

Total Pollution Control Operations Expense

ES FORM 2.00

Proceeds Allowance Sales

Total Proceeds from Sales Scrubber By-Products Sales _ _ _ _ _ _ . ~ r

LOUISVGL,LE GAS AND ELECTRIC COMPANY ENVIRONMENTAL SURCHARGE REPORT

Revenue Requirements of Environmental Compliance Costs For the Expense Month of

Determination of Environmental Compliance Rate Base I

Proceeds From By-product and Allowance Sales I I Total I

True-up Adjustment: OverNnder Recoveryof Monthly Surcharge Due to Tining Differences A. MESF for two months prior to Expense Month B. Net Jurisdictional E(m) for two months prior to Expense Month C. Environmental Surcharge Revenue, current month (from ES Form 3.00) D. Retail E(m) recovered through base rates (Base Revenues, ES Form 3.00 times xx%) E. Over/(Under) Recovery due to Timing Differences ((D i-C) - B) Over-recoveries will be deducted from the Jurisdictional E(m); under-recoveries will be added to the Jurisdictional E(m)

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Exhibit RMC-4 Page 10 of 13

Environmental Compliance Plan

1 O&M Expenses Amount 1 Ith Previous Month 10th Previous Month

ES FORM 2.40

One Eighth (1/8) of 12 Month O&M Expenses

Pollution Control Cash Working Capital Allowance

LOUISVILLE GAS & ELECTRIC COMPANY ENVIRONMENTAL SURCHARGE REPORT

O&M Expenses and Determination of Cash Working Capital Allowance

1 I8

For the Month Ended:

9th Previous Month 8th Previous Month 7th Previous Month 6th Previous Month 5th Previous Month 4th Previous Month 3rd Previous Month

__

2nd Previous Month Previous Month Current Month Total 12 Month O&M

Determination of Working Capital Allowance 12 Months O&M Expenses I

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