Utility Automation & Engineering T&D - PSI proposes rate increase for environmental projects, new power supplies, system improvements

PLAINFIELD, Ind., Dec. 31, 2002 -- PSI Energy filed a petition Tuesday with the Indiana Utility Regulatory Commission for a rate increase that, if approved, will have an estimated average impact of 16-19 percent on customer electric bills.

A large part of the proposed increase is for major construction projects that will help the company meet its environmental responsibilities, respond to the growing power demands of its customers, and make system improvements important for reliable service. If approved by state regulators, the earliest the total increase would be effective is 2004.

PSI will phase-in some of the impact from the rate increase through an Indiana law that permits bill adjustments for the construction of pre-approved environmental projects.

Customer bills will increase gradually by about 3 percent between now and 2004 to cover a portion of the company's environmental investment costs. If approved by regulators, PSI estimates the remainder of its rate request -- a 13 to 16 percent increase -- will become effective in early 2004.

Although PSI adjusts electric bills periodically to reflect increases as well as reductions in expenses such as fuel and purchased power costs, this will be the company's first base rate increase since 1996. The increase will vary among consumers depending on the cost to serve different types of customers.

For a residential consumer using 1,000 kilowatt-hours a month, the proposed increase will amount to an estimated additional $11 to $13 monthly. The request is for an increase of approximately $225 million in annual revenue. Some of the main reasons for the request, much of which has been previously reviewed and approved in public hearings, include:

* Environmental Projects -- PSI is investing more than $500 million to comply with federal and state environmental rules regulating power plant emissions. These projects will further improve air quality and reduce nitrogen oxide emissions, which contribute to smog, by approximately 60 percent.

* New Power Generation to Meet Growing Needs -- Even with a slower economy, last summer PSI's customers set new records for electric usage, and the demand for power continues to grow. To meet customers' needs, the company is investing more than $200 million to modernize one of PSI's coal-fired power plants and convert it to natural gas. In addition to tripling the facility's capacity to produce power, this project has significant environmental benefits by substantially reducing the plant's overall emissions. Also, the Indiana Utility Regulatory Commission recently approved PSI's purchase of two new plants in the region that are designed to operate when customer demand is at its highest.

* Improvements to Power Delivery System and Overall Reliability -- Once the company produces power, PSI has to make sure it can deliver the energy reliably. An electric utility's power lines and energy delivery system are essential to ensuring a reliable flow of electricity. Since 1995 the company has invested $1.2 billion to maintain and improve energy delivery as well as the overall reliability of the PSI system.

"We understand that rate increases are never welcome," said PSI President Douglas Esamann. "But periodic increases allow us to make the investments necessary to provide customers with dependable and high-quality service. If approved, this will be our first base rate increase in seven years. During that time we have invested approximately $1.8 billion in mandated pollution control, new power supplies, and a more reliable energy delivery system. Meanwhile we have worked diligently to keep our day-to-day operating costs down without sacrificing the quality of our service."

Even with the proposed increase, PSI will still be one of the lowest cost providers of electricity in the nation. In 2001, the most recent year for which comparative data are available, the national average electric rate was approximately 49 percent higher than PSI's average rate and, in Indiana, the average electric rate of other investor-owned utilities was about 18 percent higher.

PSI Energy is Indiana's largest electric supplier, serving more than 700,000 customers in portions of 69 of the state's 92 counties. It is a subsidiary of Cinergy Corp.

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