Working on a case where Louisville Gas & Electric is billing a landlord under schedule GS (General Service) for a 6-story office building. Tenant is questioning the fuel adjustment clause charges being passed through. LG&E fuel adjustment is running about $0.021/kWh. Tenant thinks this should vary month to month but landlord is charging a flat rate. Thoughts?
LG&E fuel adjustment clause allocation in Louisville office building
Steve - the LG&E fuel adjustment does fluctuate monthly. It's based on actual fuel costs and gets trued up quarterly. If the landlord is charging a flat rate, they're either averaging it out or pocketing the difference in low-fuel months. Check several months of actual LG&E bills.
Had a similar situation in Lexington with Kentucky Utilities. The fuel adjustment clause can swing from $0.015/kWh to $0.035/kWh depending on coal and natural gas prices. Tenant should be getting actual monthly rates, not an average.
Pulled 8 months of LG&E bills. Fuel adjustment varied from $0.018/kWh in March to $0.027/kWh in August. Landlord charged $0.023/kWh every month. Over the year, tenant overpaid by about $340.
That's pretty typical for Kentucky utilities. The fuel adjustment reflects actual generation costs. Landlords who charge flat rates are essentially betting on fuel prices. In this case the tenant lost the bet, but in other years they might come out ahead.