June 18, 2010
EKPC to take new direction
Group introduces new management team

By Bill Robinson
Senior News Writer

WINCHESTER — East Kentucky Power Cooperative’s board of directors introduced three new members of its top management team during its annual meeting Tuesday and re-affirmed a pledge to follow the recommendations of a management audit commissioned by the state Public Service Commission.

However, the non-profit generating cooperative is still proceeding with plans to construct a new coal-fire power plant near the Kentucky River in Clark County across from Madison County.

“The board unanimously accepts the audit report’s recommendations and is committed to doing whatever is necessary to bring about long-term, comprehensive change,” said Wayne Stratton, EKPC board chair. “We have pledged to change the way the board itself operates.”

EKPC supplies electricity to 16 distribution cooperatives, including Blue Grass Energy and Clark Energy, which serves members in Madison County. About 500,000 Kentucky homes and businesses are use power generated by EKPC.

After receiving the auditors’ report in April, the Public Service Commission told EKPC to “make substantial improvements in its governance and financial condition.”

According to the auditors, EKPC’s “overriding priority of keeping rates low” had weakened its financial position. “Although EKPC’s strategic planning has focused on cutting costs rather than (its) long-term direction, the cost-cutting initiative had been ineffective.”

The PSC ordered the audit “after EKPC’s financial condition had declined for several years as demonstrated by deteriorating financial ratios and a prior default on credit agreements,” the regulatory agency stated in a release after receiving the audit. The utility was “perilously close to a second credit default” when the agency ordered the audit, the release stated.

The auditors also criticized EKPC for not maintaining an updated strategic plan and not sufficiently engaging its board in strategic planning, operations and oversight.

On Tuesday, Anthony “Tony” Campbell, EKPC president and chief executive officer, vowed to “forge a new course” for the non-profit generating utility. “When I arrived at EKPC a year ago,” he said, “I saw an organization with a proud tradition of meeting challenge after challenge.”

Although EKPC experienced financial challenges in the mid-2000s, he said for the past four years, the cooperative has posted positive margins totaling nearly $110 million.

Campbell repeated a commitment to work with the Kentucky Public Service Commission to address issues identified in the audit report.

“When we learned the auditor’s findings last year, we immediately recognized opportunities to improve, and we began implementing changes,” he said.

To comply with the auditors’ recommendation, Campbell said EKPC had begun to:

• Update the cooperative’s 20-year financial plan

• Create on a new strategic plan

• Explore partnerships with other utilities

• Have an independent consultant evaluate EKPC’s power supply portfolio

• Work with consultant to identify, assess and mitigate risk.

Campbell said the three new executives he introduced would help the co-op achieve those goals. The three are:

• Interim Chief Operating Officer Mike Steffes, who comes from ACES Power Marketing Carmel, Ind.

• Interim Chief Financial Officer Bob Daniel, formerly CFO for Buckley Power of Columbus, Ohio

• Interim Vice President of Power Supply Chad Ferguson, formerly manager of Integrys Energy Services’ Midwest trading desk.

Also, on May 27, EKPC notified the PSC that by year’s end it will apply for a 5.3 percent wholesale rate increase that it said would raise the monthly bill of a typical residential user by $5 to $6.

Two earlier rate increases had been helpful but insufficient, according to the auditors.

The auditors also stated that EKPC had “increased financial risk” by being “too reliant on building, owning and operating electric generating facilities and has not sufficiently explored other options, including purchasing power from neighboring utilities.”

However, the audit did not specifically object to the $767 million coal-fire power plant the EKPC proposes to build in Clark County near the Kentucky River across from Madison County.

Before the cooperative can break ground for the plant, it must receive permits from environmental regulators and obtain financing from private capital markets.

Three Berea-based environmental groups — Kentuckians for the Commonwealth, the Kentucky Environmental Foundation and the Kentucky Sierra Club — have opposed the new coal-fired plant at every turn.

On Monday, Kentuckians for the Commonwealth and the Sierra Club, filed a complaint with the U.S. Rural Utilities Service challenging its decision giving EPKC authority to seek up to $900 million in private financing with for the new plant.

The RUS, a branch of the U.S. Dept. of Agriculture and historically the financier of rural electric cooperatives, no longer provides financing for the construction of nuclear- and coal-fired generating plants. It has funded much of EKPC’s past construction and holds the first lien on $1.3 billion of the co-op’s nearly $3 billion assets.

The complaint claims that before it granted the approval, the RUS should have conducted an environmental review, which it said was required by the National Environmental Policy and the Rural Electrification Act.

The federal Environmental Protection Agency has voiced objections to an air quality permit for the plant, which EKPC has said it can meet. The co-op also needs a water quality permit from the U.S. Army Corps of Engineers.

On Thursday, EKPC released this statement:

“In recent years, East Kentucky Power Cooperative (EKPC) and its regulators have faced frequent lawsuits by the Sierra Club and its allies. Clearly, their strategy is to use lawsuits to prevent or obstruct any proposals for fossil-fuel power plants.

“As these groups are well aware, the environmental impacts of the proposed generating unit are being thoroughly examined in the supplemental environmental impact statement being prepared by the U.S. Army Corps of Engineers.

“The business of generating electricity is capital intensive. EKPC has made investments it believes are necessary to serve its members as reliably and as affordably as possible.”

Bill Robinson can be reached at brobinson@richmondregister.com or at 624-6622.