KEE-MUH. KEE-MEE. K-Y-M-E-A. If you’ve been following Berea City Council meetings lately, you may have noticed there’s a little confusion about what to call the Kentucky Municipal Energy Agency (KyMEA). More importantly, some question why the City of Berea would join KyMEA in the first place.
For years, Kentucky Utilities has been Berea’s electric provider, and for much of that time, Berea enjoyed relatively stable electricity rates. But things changed in the early 2010s. Facing increasing government regulation, KU opted to shift its operations away from coal generated electricity to gas. To fund necessary infrastructure for that change, municipal customers like the City of Berea were going to have to foot the bill in the form of increased rates. In the last five years, for example, KU’s rates have gone up nearly 40%, according to Berea city officials.
Perhaps more concerning to municipal utilities like Berea was the fact that KU was demanding its members give a 10-year notice before they could break their contract with KU.
Berea and other municipal utilities had no recourse against KU’s proposed cost increases except to take legal action, and a network of small Kentucky power providers got together and challenged KU’s policies in court. That action led the Federal Energy Regulatory Commission (FERC) ruling that KU was overcharging small energy providers for proposed infrastructure improvements, forcing KU to give approximately $600,000 back to the City of Berea.
From a customer service standpoint, KU’s rate hikes and demands raised a key question for several central Kentucky municipal utilities: Could those agencies find a way to get their power at a lower cost from a provider that was geared toward serving local utilities? That question and other concerns ultimately led 11 Kentucky utility agencies to break their contracts with KU and form the Kentucky Municipal Energy Agency (KyMEA).
First, in June 2016, the Berea City Council adopted a measure to leave KU in 2019 and join American Municipal Power of Ohio, a move that is projected to save the city an estimated $2 million annually in reduced electricity rates.
In September 2016, the council then approved an interlocal agreement for Berea to join KyMEA to secure electricity transmission services. City officials said Berea joined KyMEA for several reasons, including:
• Creating an electric provider that was more responsive to the needs of small Kentucky municipal utilities;
• As a non-profit, KyMEA is tax free;
• Unlike KU, KyMEA has no shareholders to pay;
• As a member of KyMEA, the city can obtain bonding and loans at a lower cost;
• The cost of energy consultants/legal services is divided among all of KyMEA’s members;
• KyMEA membership benefits the City of Berea in the same way the Kentucky League of Cities serves municipalities, offering inter-agency networking and educational opportunities among similarly sized entities, as well as shared training and knowledge;
• Administrative costs are much lower than they would be for a big entity like KU.
KyMEA membership also affords BMU customers access to emergency power at a significantly reduced cost, saving taxpayers $346,500 annually. The city contracts for 25MW of power through AMP. But through KyMEA, the city pays for three months of 10 MW firm capacity (access to emergency power) at $38,500 per month rather than having to pay for an entire 12 months as they would through other agencies. BMU customers thus have the assurance that when severe weather or another emergency hits, their power will stay on.
While KyMEA promises positive benefits, some city officials express concern. As a newly formed entity that has not yet hired a CEO, they question how KyMEA will control its administrative costs. And though it has been projected that Berea’s share of administrative costs would not exceed an average of $12,000 a year, some question if that expectation is realistic as the organization grows.
Other city officials suggest, however, that joining KyMEA is a way local government can operate more efficiently, joining together with other entities to provide service at lower cost to BMU customers. Examples of successful interlocal agreements include forming a 911 Emergency Dispatch Board to share the cost of services with the City of Richmond and Madison County, or in forming an airport board to operate the Central Kentucky Regional Airport (formerly the Madison County Airport). Though there was initial resistance in forming those cooperative agencies, those interlocal boards have succeeded in providing services more efficiently, and in some cases, at a lower cost to Madison County’s three local governments.
Berea City officials are banking the city will benefit in the same way by joining KyMEA, and in the process, saving taxpayers as much as $2.3 million annually.