Kentucky PSC rejects South Kentucky Rural Electric Cooperative Corp. power purchase proposal
The Kentucky Public Service Commission (PSC) recently rejected a proposal by South Kentucky Rural Electric Cooperative Corp. to enter into a long-term agreement to purchase power through Morgan Stanley Capital Group, Inc.
In its order issued last week, the PSC found that the deal would violate South Kentucky’s obligation to purchase most of its electricity from the East Kentucky Power Cooperative (EKPC). Sixteen distribution cooperatives, including South Kentucky, own and purchase power from EKPC.
Under the proposed 20-year agreement, Morgan Stanley would have supplied approximately 40 percent of South Kentucky’s normal load.
South Kentucky argued that purchasing power from outside parties is permissible under a memorandum of understanding (MOU) reached by EKPC and its 16 member distribution cooperatives.
South Kentucky also contended that the power purchase would have resulted in savings for its retail customers.
EKPC intervened in the case and argued that the purchase would shift operating costs to the other distribution cooperatives and that South Kentucky had miscalculated the cost savings from the purchase agreement.
The other 15 EKPC member cooperatives also participated in the case either jointly or individually. All but one opposed the purchase proposal primarily due to concerns over cost shifting.
Other parties to the case included the Kentucky Office of Attorney General and Nucor Steel Gallatin, which also argued against approval of the agreement.
In the order, the PSC said that South Kentucky failed to demonstrate that it needs to purchase power from outside EKPC to adequately serve its customers, that it underestimated the cost of the power purchase and did not fully consider the financial risks associated with the deal. The PSC also said the purchase agreement would shift costs totaling between $15.9 million and $18.3 million annually to the other 15 EKPC member cooperatives.
The order also terminated the MOU between EKPC and its 16 member cooperatives regarding outside power purchases. The PSC noted in its order that the commission never conducted a full review of the MOU. The PSC order nullifies the MOU and prohibits individual cooperatives from purchasing power from outside the EKPC system.
