State regulators ordered an electricity provider in southeast Kentucky to study cutting expenses and told the utility to stop hiring relatives of officers and employees.
The Kentucky Public Service Commission also ordered Cumberland Valley Electric Inc. to look at the possibility of merging with another utility to improve its financial standing.
The utility had applied for permission to raise rates about 4.75 percent, enough to generate an extra $2 million annually. The PSC approved an increase of 4.08 percent, according to a news release.
The monthly bill for a typical Cumberland Valley customer will go up by about $5.40 a month, from $106.91 to $112.31, the PSC said.
Cumberland Valley is a member-owned cooperative, one of 16 in the state that buy electricity from East Kentucky Power Cooperative. It has about 23,600 customers in Bell, Clay, Harlan, Knox, Laurel, Leslie, Letcher, McCreary and Whitley counties.
In an order handed down Monday, the PSC raised concerns about excessive spending on employee benefits and barred the co-op from recovering some of those costs from ratepayers.
The order said that salaried employees received a 3.5 percent pay increase despite a PSC order two years ago that raised concerns about how the co-op raises salaries.
Cumberland Valley has provided salaried employees with a pension plan while also contributing to 401(k) accounts, the PSC said.
The agency disallowed the costs of the 401(k) payments, meaning the co-op can’t pass on that cost to ratepayers.
Cumberland Valley said in its rate request that it considered its salary and benefits reasonable and similar to those at other co-ops.
The agency also ordered Cumberland Valley to begin requiring salaried employees to share the cost of insurance for them and their families.
Cumberland Valley has been paying the entire premium for health insurance for employees and families, 100 percent of the Medicare supplement cost for retirees and dependents, all employee dental insurance premiums and half the cost of dental insurance for employees’ family members, the PSC said.
The PSC also raised a concern about nepotism. The co-op has a policy that bars hiring anyone closer than a second cousin to any board member or employee, but the board of directors has routinely made exceptions, the PSC said.
The agency said four employees are related to the CEO. Twelve other employees and a board member are related to co-op employees, the PSC said.
Such hiring exceptions raise the appearance of a conflict of interest, the PSC said, “especially when those who make compensation decisions are related to employees who are subject to and may benefit from such decisions.”
The PSC told Cumberland Valley to stop making exceptions to the nepotism policy for future hiring. Current employees will not be affected.
The PSC said economic conditions in Cumberland Valley’s service area have hurt its financial standing.
With the sharp downturn in the coal industry, Cumberland Valley’s revenue from commercial and large industrial customers has gone down nearly 50 percent since 2011, the PSC said.
Revenue from residential customers also is down and could continue to fall because of high unemployment in southeast Kentucky.
That’s why Cumberland Valley must evaluate how to cut costs and improve efficiency, the PSC said. The agency gave Cumberland Valley six months to come up with a plan.