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No Title 1287

Legislators are considering a small change in state law that could make a big difference for people who get their electricity from electric cooperatives in Kentucky.

The proposed change would more clearly allow the customer-owned utilities to continue offering nonelectricity services such as propane gas sales and high-speed Internet connections.

The proposal comes in the form of a bill (House Bill 568) introduced by Rep. Rob Wilkey of Scottsville. Electric co-ops in Kentucky strongly support the measure.

The bill deletes 56 words in the current state law and replaces them with 64 words (at least, that’s how it read when it was introduced in mid-February, before any possible amendments). The deleted phrases allow co-op utilities to generate, transmit, and distribute electricity. The new language describes electricity as the “primary purpose” of electric co-ops, but adds a “Secondary purpose of engaging in any other lawful business or activity.”

That section of state law has been the focus of a legal dispute for the past seven years. After a propane gas dealer sued an electric co-op for setting up a propane business, two courts ruled that the law allows co-ops to sell nonelectricity services to their customers. But the final word came late last November from the Kentucky Supreme Court. It ruled that the law restricts co-ops in Kentucky from selling any service that isn’t directly related to providing electricity.

To read more about that Supreme Court ruling in the February issue of Kentucky Living (“Supreme Court Ruling Restricts Co-op Services”), click here: Supreme Court Ruling Restricts Co-op Services.

The Supreme Court ruling surprised the electric co-ops, which had won in the two lower court rulings. And it raised difficult questions about how the local, customer-owned utilities could continue to help their communities solve local problems or provide services that are sometimes unavailable or too expensive in small towns and rural areas.

Over the years, several of the 24 electric distribution co-ops in Kentucky have provided a variety of nonelectricity services to help solve local problems. Electric co-ops have been involved in economic development, home security systems, long-distance and cellular phone service, and billing services for sewer and solid-waste systems. More recently, electric co-ops have been exploring how they might help provide high-speed broadband Internet access, a service currently either very expensive or not available at all in many of the rural areas served by the co-ops.

The Supreme Court ruling raises questions about whether the thousands of current customers of those nonelectric businesses will be able to continue to receive those services. For the future, the ruling would keep co-ops from helping their communities solve local problems that might arise in years to come.

Faced with those current and future dilemmas, electric co-ops asked the legislature to consider amending the law to allow co-ops to provide nonelectricity related services. The result is House Bill 568.

Opposition to the bill could come from businesses fearing competition from electric co-ops. In its November-December 2005 newsletter, the Kentucky Propane Gas Association said it opposed any legislation that would allow electric co-ops to use income from their electric utility businesses to subsidize the operations of nonelectric businesses.

However, electric co-ops already follow laws that prevent such “cross-subsidization” (see “The truth about co-ops” in the From the Editor column). The non-electric operations are set up as separate business units that do not rely on money from the part of the co-op that provides electric utility service.

In addition, most nonelectric businesses set up by electric co-ops don’t compete with any local business, says Ron Sheets, president of the Kentucky Association of Electric Cooperatives.

“Co-ops started providing these services because they weren’t easily affordable or available in small-town and rural communities,” says Sheets. “We feel strongly that this legislation will not result in unfair competition. What it will do is provide prices and services that electric co-op consumer-owners can’t get any other way.”




TEXT OF THE BILL ON ELECTRIC CO-OP ACTIVITIES

A proposal to change state law takes a lot of twists, turns, and changes as it makes its way through the procedures of the Kentucky Legislature. But here is the language of HB 568, as it was introduced February 14 —the new wording amends current law in order to allow co-ops to offer services in addition to electricity:

“Any three (3) or more individuals, partnerships, associations or private corporations a majority of whom are citizens of Kentucky may by executing, filing, and recording articles of incorporation as provided in KRS 279.030 and 279.040 organize to conduct a nonprofit cooperative corporation for the (1) Primary purpose of generating, purchasing, selling, transmitting, or distributing electric energy to any individual or entity, and providing any good or service related to generating, purchasing, selling, transmitting, or distributing electric energy to any individual or entity; and (2) Secondary purpose of engaging in any other lawful business or activity.”

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