Co-op Services Bill to become Law
04/04/2006

Gov. Ernie Fletcher signed a bill April 3 allowing electric cooperatives in Kentucky to continue offering services in addition to electricity.

With the signature, the bill will become law this July.

Final approval of House Bill 568 marks the end of four intense months for electric co-ops in Kentucky, after a far-reaching ruling in November by the state Supreme Court. That decision said that state law did not permit electric co-ops to offer any service other than electricity.

That high-court ruling would have affected several thousand Kentuckians who receive services from electric co-op subsidiary businesses, such as propane gas and high-speed broadband Internet connections.

The change in the law will allow such businesses to continue, but under rules that strengthen the separation between the co-op electric utility businesses and their non-electric subsidiaries. The stronger rules were added to the original bill as a result of some business people who were concerned that the co-ops would use the electric utility business to subsidize the nonelectric ventures.

The story of the new law began in 1998 after Jackson Energy Cooperative based in McKee, set up a subsidiary to offer propane gas services to its members. An area propane gas dealer, backed by the Kentucky Propane Gas Association, sued Jackson Energy Co-op.

The suit charged that state law restricted electric co-ops from providing any service other than electricity. The trial court and the Kentucky Court of Appeals ruled that Jackson Energy Co-op could legally sell propane, but the Supreme Court reversed those decisions.

So Rep. Rob Wilkey of Scottsville introduced HB 568. That bill specified that the primary purpose of electric cooperatives in Kentucky is to provide electricity, and that they can also have a secondary purpose of engaging in any other legal activity through an affiliate subject to statutory requirements.

The most extensive public discussion of the legislation first came in a March 9 hearing before the House Tourism Development and Energy Committee. Rep. Wilkey told the panel he introduced the bill “to clarify the law with regard to electric co-ops” and their involvement in nonelectric services.

Ron Sheets, president of the Kentucky Association of Electric Cooperatives, called the bill “an extremely critical piece of legislation” for electric co-ops. He said at the committee hearing that various state and federal rules of protection are already in place. He said the additional rules in the legislation create a “firewall” between electric utility operations and affiliates providing nonelectric services, effectively preventing the electric utility part of the co-op from subsidizing the nonelectric subsidiaries.

That point was emphasized at the hearing by Hilda Legg, former head of the federal Rural Utilities Service, an agency of the U.S. Department of Agriculture which provides loans for many electric co-op operations nationwide.

“If co-ops were engaged in other (nonelectric) activities, that had to be a separate accounting system,” said Legg. Such operations can not be financed by federal loans.

“Co-ops make a difference in so many lives,” said Legg. “They need to be involved in issues that members deem important to their lives.”

Dan Brewer, president and CEO of Blue Grass Energy Cooperative based in Nicholasville, in his testimony listed several nonelectric services provided by Kentucky electric co-ops, including economic development, and billing services for trash collection and water supply.

Brewer said without the change in the law, “Cooperatives will be forced to discontinue efforts at improving communities.”

For additional background on HB 568, go to our magazine's Web site, KentuckyLiving.com, and read Electric Co-ops Support Bill to Allow Additional Services. For background on the Supreme Court decision that led to introduction of the bill, read Supreme Court Ruling Restricts Co-op Services. For commentary on the court ruling and legislation, read Legal Limits, and The truth about co-ops.

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