Critics worry this bill could leave customers of local electric utilities in the dark

The way local public utilities buy electricity could change, and possibly become less transparent, under a bill pending in the Kentucky General Assembly.

House Bill 247 would allow local public utilities to buy wholesale electricity without a public bidding process, which is currently required, and without posting their intent to buy electricity in a local newspaper.

Critics warn this could damage ratepayers’ ability to hold their utilities accountable for power purchases, which in turn could impact their monthly electricity bills. The bill also has renewed concerns about the practices and legitimacy of one of its supporters, the Kentucky Municipal Energy Agency, which came online as a power provider for several utilities last year.

The bill’s sponsor, Rep. Mark Hart, R-Falmouth, said the measure is meant to give local public utilities the same bargaining power as electric co-ops and corporations, which do not need to follow a public bidding process when buying power.

Non-public utilities can privately seek out energy producers and make deals without a public bidding process. Hart said this gives them an advantage when seeking power contracts.

“This bill kind of creates a more even and level playing field,” Hart said.

Though local public utilities have been able to function and purchase power within the current model, Hart said, his bill could give those utilities a leg up if they’re competing against another purchaser.

Still, some warned the bill would limit transparency and dramatically limit the public’s ability to monitor how these agencies spend ratepayers’ money.

Tom Fitzgerald, director of the Kentucky Resources Council, an environmental and public health advocacy group, warned that the bill does not include safeguards to protect transparency or assure ratepayers that their utilities are getting the best deals.

Hart said he is aware of the transparency concerns and is working on an addition to the bill that would ensure the public could still hold local utilities accountable.

The Kentucky Resources Council has suggested including language in the bill that would require the utilities to provide detailed explanations of how its energy purchases or sales would protect ratepayers. That language is expected to be included in the bill when it is heard in committee, Fitzgerald said.

Bad purchasing decisions, such as buying too much power or buying it at an unreasonably high price, could lead to unnecessarily-high bills for customers.

Critics of the Kentucky Municipal Energy Agency contend it has not been good for customers.

KyMEA was founded in 2015 as a joint public agency, a conglomerate of several local public utilities who were unsatisfied with their contracts with Kentucky Utilities. The local utilities joined forces to form their own agency that would purchase power for its members, and take over transmission services for some members.

These included local public utilities in Frankfort, Owensboro, Berea, Madisonville and Corbin. Some are under contract to purchase all their power through KyMEA, others only pay the agency for electricity transmission services.

Since its founding, the agency has faced criticisms over its power purchase agreements and its legal structure, primarily from ratepayers and former local public officials in Frankfort.

In August 2016, the Frankfort Plant Board signed an “All Requirements” contract with KyMEA to purchase all its power from the agency. The contract had a number of provisions that troubled some community members, including two Frankfort Plant Board board members who voted against signing the contract.

Those provisions include a 5-year termination notice. If KyMEA had a purchase agreement for 10 years with a coal power plant, for example, the member that terminates its contract after five years would still be obligated to pay for all 10 years.

Critics, including Andrew McDonald, a member of EnvisionFranklinCounty and the director of Sustainable Systems Programs for Earth Tools, Inc., said the agency also entered agreements that purchased substantially more power than it needed, creating a surplus that will result in unnecessarily-high rates for customers.

Doug Buresh, president and CEO of KyMEA, said the agency did purchase a surplus of power that is larger than utilities ordinarily purchase, but said the surplus will act as a safeguard for its members if weather patterns lead to higher electricity needs.

“It was conservative by nature, but that’s how you start a business,” Buresh said. “I’d rather be safe and reliable.”

In his review of HB 247, Fitzgerald pointed to concerns over KyMEA’s legal legitimacy that were raised in 2018 when the City of Berea requested a review of its contracts with the agency.

Mark David Goss, an attorney and former chairman of the Kentucky Public Service Commission, filed a response to Berea’s request in 2018 which said several aspects of KyMEA’s founding were “troubling” and “call into question the validity of KyMEA’s formation and subsequent activities.”

Goss said the law regulating interlocal agencies does not allow two or more public entities to come together and form a new independent agency, and that KyMEA may not have followed the proper review process to form itself.

During its founding, KyMEA may have been required to file review documents with the Department for Local Government, but instead filed them with the state Attorney General’s office, Goss said in his report.

Berea mayor Bruce Faley said the city’s agreement with KyMEA “has allowed us to continue to provide safe and reliable electric service to our ratepayers.”

The agreement was signed by former mayor Steven Connelly.

Faley said the city’s contract with KyMEA — Berea pays KyMEA for transmission services, but declined to buy power from the agency — will end in 2024, and that the city will determine whether to continue as a KyMEA partner at that time.

“At this point, I’m not aware of any challenge to their legality, but if there were any challenges or there is any doubt, that is something we would want to take into consideration,” Faley said.

In a response to Goss’ report, KyMEA said in a letter that the law did allow the agency to form under the attorney general’s review, rather than the Department for Local Government, and that the AG’s office found KyMEA’s formation to be legitimate.

Anna Marie Palvik, a former commissioner of the Frankfort Plant Board, said she believes KyMEA’s support for HB 247, and the questions surrounding the agency’s power purchases, should make lawmakers skeptical as they consider the bill.

“The current system, it works,” Palvik said. “They just want to be less visible.”