Supreme Court Ruling Restricts Co-op Services
Late last year, the Kentucky Supreme Court ruled that electric co-ops in the state are not allowed to provide any service other than electricity.
The decision shocked electric co-op leaders and reversed two lower court rulings. It also disrupted years of business practices that have provided thousands of customers with services such as propane gas, telephone, and broadband Internet access.
“Co-ops started providing these services because they weren’t easily affordable in small-town and rural communities,” says Ron Sheets, president of the Kentucky Association of Electric Co-ops. “We’re now analyzing how this decision will affect the people who were using these much-needed services.”
The November 23 decision came in the case of J. Randolph Lewis vs. Jackson Energy Co-op based in McKee. In 1998, Jackson set up a subsidiary business to sell propane gas after a survey showed co-op members supported such a service. Lewis, a member of Jackson Energy Co-op and a propane dealer, sued the co-op to stop it from selling propane.
The Laurel County Circuit Court sided with Jackson Energy and ruled that under state law, co-ops can sell electricity and other forms of energy.
Lewis, a member of the Kentucky Propane Gas Association (which funded the lawsuit), appealed that decision and again lost. The Appeals Court wrote that, “based upon the language of the statute, Jackson Energy is permitted to furnish all forms of energy, including propane gas, to its members and to the public.”
But the Supreme Court pointedly disagreed, writing, “It was plain error for both the Circuit Court and the Court of Appeals to construe (the law) as permitting rural electric cooperatives to engage in non-electric ventures.”
The disagreement centers on the words “energy” and “electric,” and how often and where they appear in the law that controls cooperative utilities. In fact, three pages of the 16-page written decision come under the heading, “Grammatical Structures.”
The law says co-ops can “organize to conduct an electric generation, transmission, distribution or service nonprofit cooperative corporation to produce, transmit, distribute or furnish energy to any person or corporation and/or to provide electrical devices, wiring and equipment and any services that are requested or deemed advisable or desirable to operate a utility …”
Jackson Energy contended that language allowed the co-op to provide propane energy services as well as non-energy services because of the phrase “any services that are requested or deemed advisable or desirable.” Jackson said its case was further strengthened because in 1974, the legislature amended the law, changing the term “electric energy” to “energy.”
But the Supreme Court focused on the number of times “electric” was still a part of the law. The Court wrote, “If the legislature had intended to convert ‘electric cooperatives’ into ‘energy cooperatives,’ it would have deleted the word ‘electric’ from the statute altogether. That was not done.”
Now that the Supreme Court has issued the final word on how to interpret current law, electric co-ops in Kentucky must determine how to comply. Options range from seeking a change in the law to exiting non-electric services. Across the state, five electric co-ops sell propane gas to a total of more than 13,000 customers. In the short term, it’s not clear how propane could be made available to those customers this winter.
Longer-term questions must be answered as well. Other non-electric co-op services provided by electric co-ops have ranged from tree-trimming to home security services. And co-ops have been frequently mentioned as possible participants in solving the problem of getting high-speed, broadband Internet access into rural parts of Kentucky. The Supreme Court decision appears to prohibit that kind of involvement.
Electric co-op leaders have asked the court for clarification on how to treat existing customers of non-electric services. And they are considering whether to ask the legislature for a change in the law that would allow co-ops to provide some or all of those services.
DISAGREEING WITH THE COURT'S OPINION
Although the Supreme Court’s 4-2 ruling that electric co-ops cannot provide non-electric services was a decisive margin, the two dissenting opinions provide some intriguing opposing arguments.
(There are seven Supreme Court justices but Chief Justice Joseph E. Lambert excused himself from the case.)
Justice John C. Roach focused his disagreement on the legislature’s 1974 changes to the law governing electric co-op utilities. Justice Roach wrote that, “The current version (of the law) states that rural electric cooperatives may provide ‘any services that are requested or deemed advisable or desirable to operate a utility.’ ”
He concluded, “It is clear that the pre-1974 version imposed a restriction on services that is significantly more stringent than the current statute. I believe that in altering the limiting language of the last clause, the General Assembly expressed its clear intent to allow rural electric cooperatives to expand into services with the only limitation being that those services be ‘requested or deemed advisable or desirable to operate a utility.’ ”
Justice Will T. Scott agreed with Roach but added concerns about how the ruling might affect energy services in the state.
Scott wrote, “Have we forgotten the energy crisis that began in 1973 and ran through 1974 and 1975, resulting in our first service station gas lines since War World II; along with the concomitant surge in fossil fuel costs—coal went from $7-$10 a ton to upwards of $100 per ton by 1975 with oil and natural gas prices leading the way. The point I make is that this amendment (changing the statute to refer to ‘energy’ rather than ‘electric energy’) was made during the middle of this crisis. And when the legislature undertook to delete the word ‘electric’—they surely meant the statute to refer to something different than ‘electric energy’; otherwise, why would they have made the change? We should not presume the legislature would perform a needless act.”
Justice Scott continued, “The distribution of propane to its customers was a service ‘requested, or deemed advisable or desirable to operate a utility.’ There was simply no evidence put forth to contradict this.”
And Justice Scott concluded, in his November 23 dissent, “The legislature will meet early next year and consider this issue again—but there is ‘a cold winter comin’.’ And by the logic of the majority, we have inhibited competition in a ‘free enterprise system’ to the detriment of all the Appellee’s customers.””
KEYWORD EXCLUSIVE: TEXT OF SUPREME COURT RULING
To download the complete Supreme Court opinion on the issue of electric co-ops providing propane gas services, click here: Supreme Court