When utility customers flip their light switch at the beginning of next month, a new era in Frankfort energy will have dawned.
But it will not be as bright as anticipated.
On May 1, the Frankfort Plant Board will begin purchasing its electricity entirely from the Kentucky Municipal Energy Agency (KyMEA), a cooperative of municipal utilities in Kentucky. Previously, the long-anticipated shift from Kentucky Utilities (KU) had been predicted to save Frankfort ratepayers 14 percent, or about $6.3 million a year, on energy. But as the date to flip the switch to KyMEA approaches, estimates of at least the first year’s savings will actually be closer to 8 percent, or $4 million.
And while some officials see the less-than-expected savings as only temporary, others are less optimistic about the future of energy expense in Frankfort.
The savings will initially be used to fund “smart meters” for electricity customers, which would enable remote, two-way communication between FPB and customer meters. That would allow the meter to send information to FPB and FPB to send commands back to the meter.
At the heart of the disparity in outlooks is a decision issued at the end of March by the Federal Energy Regulatory Commission (FERC) to terminate measures adopted in 2005 to address horizontal market power concerns. The ruling basically froze KU’s ability to charge additional fees to run other energy providers’ power through their lines.
FPB General Manager Gary Zheng said the preliminary ruling is encouraging for KyMEA customers. He said the cause for uncertainty — which has the prediction for Frankfort savings at around 8 percent — is the ability for KU to challenge the decision by FERC with long-lasting litigation. Zheng is optimistic, though, that after the first year FPB customers will see even greater savings than previously forecast.
“We can see from the preliminary decision the KyMEA customer can see even more significant savings,” Zheng said. “But we will not realize it in the first year because of uncertainty. You don’t want to spend the money until you realize it.”
Others are not so optimistic about the prospects of the future of FERC’s ruling.
FPB Chair Anna Marie Pavlik Rosen was one of two board members who wanted a deeper study of the rates provided by KyMEA before committing to join the organization. At a recent city commission meeting, Rosen told commissioners that the FERC ruling was “murky” and part of it indicates that once an energy source contract expires, KU could implement the additional fees.
Rosen told The State Journal that the savings might be even less than 8 percent afterward. She said the city could have been better served by going with the Midcontinent Independent System Operator Inc. (MISO), an independent regional transmission organization, whose rates are currently half that of KyMEA’s.
“It could’ve been a lot better,” Rosen said. “We have some options, but things are not everything that was promised.”
The switch from longtime energy provider KU was hotly debated at the time. One of the most divisive aspects of the switch to KyMEA was the organization’s power portfolio being heavily reliant on coal.
Amid a series of political affrays surrounding the switch, Frankfort ultimately joined the list of municipalities — Barbourville, Bardwell, Benham, Berea, Corbin, Falmouth, Madisonville, Owensboro, Paris and Providence — that quit KU and banded together to form the fledgling interlocal agency KyMEA in September 2015.
The issue arose as Commissioner Scott Tippett began to first campaign for the seat he currently holds on the Frankfort City Commission. His position then, as it is now, was that no perfect deal would come along but that the stability of KyMEA — even if the actual savings panned out to be lower — was the best option for Frankfort consumers, he said.
“We all understood those projections were a best-case scenario,” Tippett said. “We still will have a savings, and we shouldn’t let great be the enemy of good.”
Tippett said the cost of KU energy has continued to rise and his concern with second-guessing the KyMEA contract is that it could be detrimental to low-income and fixed-income residents. By backing out of the contract agreed upon with the cooperative that makes up the KyMEA, it could open up FPB to a lawsuit, he said.
“It’s not worth the risk to create uncertainty,” Tippett said. “We know it’s solid, so why introduce uncertainty?”
Frankfort Mayor Bill May, who appoints FPB board members, said that he has not heard any indication that the board could look to back out of KyMEA ahead of May 1. He was one of the opponents of the KyMEA deal, saying that it was fast-tracked with “scare tactics” and did not get the best value for Frankfort.
“Unfortunately, things got rushed through with KyMEA, and we left a massive amount of value on the table,” he said. “Now our focus is on the future and reclaiming that value.”
May, as well as others, pointed to other cities in Kentucky that have rates closer to that of the market average because they negotiated more aggressively.
FPB officials are still confident in their ability to make the situation better in the future.
Zheng agreed that the current state of the KyMEA deal could have turned out better. He said in a year’s time, though, Frankfort could see the tenuous state of the FERC ruling stabilize, and customers could see the savings reach the original projection of 14% or above.
Zheng said that different portions of the contract phasing out over different years — namely the provision that allows KyMEA to incorporate more natural gas instead of coal after 2022 — would help in the future.
“There is a lot of room to make it better. That’s what we’re looking for to try to generate even more savings for customers,” Zheng said. “… We’ll flow power in on May 1, the light will be on and the customer will start to see the savings. We don’t want to just talk about it; we want to realize it and let the customer advantage from it. That’s what we hope we see.”