One of the New Deal's greatest legacies is on trial in Kentucky — and losing.
The portrait painted by a recent management audit of Eastern Kentucky Power Cooperative is enough to roll FDR in his grave: an apathetic board, enabling unsophisticated, inept financial management in a strategic planning void.
As a result, EKPC is upside down on its loans. There is a widening gap between its costs and those of nearby power producers, amid substantial uncertainty whether EKPC is even "capable of executing its mission" in the best interests of its half-million customers.
If all that's not bleak enough, the audit says the best hope is for the member-customers to drive improvements.
That sounds great in theory. But we've yet to see much evidence that the forces that made this mess are able or willing to clean it up.
EKPC, which operates 2,851 megawatts of generating capacity and 2,800 miles of transmission lines, is owned and governed by local cooperatives that string the electrical lines to homes and businesses and send out the monthly bills. These include Bluegrass Energy, Clark Energy and and 14 other co-ops serving 87 counties.
The local boards are elected by their member-customers at annual meetings/picnics. EKPC's directors are selected from the members of the local boards.
Anecdotal evidence suggests that it's nearly impossible to challenge an incumbent on a local board, much less win an election. At least one of the local boards, Owen Electric, bars member-customers from even attending its meetings.
EKPC's CEO Anthony Campbell, who has been on the job almost a year, and board chairman Wayne Stratton, of Shelby Energy Cooperative, are promising real action in response to the audit. EKPC has hired consultants to develop a plan for improving governance that will soon be submitted to the Public Service Commission, which ordered the management audit by Liberty Consulting Group of Quentin, Pa., in the first place.
It's hard to be optimistic, though, in light of the audit's finding that EKPC has hired a succession of experts over the last 10 years only to ignore their advice.
One shortcoming cited in the audit is EKPC's drastic "overfocus" on building, owning and operating power plants rather than developing a more diverse portfolio of different fuels, purchased power contracts and spot market purchases.
EKPC is sending mixed signals on a huge decision: whether to proceed with plans to build a 278-megawatt coal-fired power plant at Trapp in Clark County. Costs have risen in four years from $533 million to $921 million while EKPC's credit-worthiness has weakened.
On one hand, the audit says, EKPC has said the project is on hold pending more sophisticated analyses; on the other, it has said the only holdup is getting the environmental permits.
Non-profit co-ops, subsidized by taxpayers, were the only way to get power and light to impoverished rural residents during the Depression.
EKPC and the 16 co-ops that own it now serve some of the state's fastest-growing places along interstates and bypasses and in suburbs.
Taxpayers still subsidize co-op generation and transmission through low-cost loans. If EKPC goes belly-up, taxpayers would be left holding the bag, which means everyone has a stake in getting this right.
EKPC and the 16 co-ops must quickly recruit some of the region's best and brightest as their directors.
If they balk, the PSC must keep pushing.