If Kenect fails, Kenergy will be left holding the bag.
Kenect is a proposed for-profit corporation branch of Kenergy that would allow the nonprofit electric cooperative to provide/sell internet services to Kenergy customers in Daviess, Hancock, Henderson, Hopkins, McLean, Muhlenberg, Ohio, Webster, Breckinridge, Union, Crittenden, Caldwell, Lyon and Livingston counties.
Before the $165.9 million project can begin however, Kenergy has to gain a waiver of KRS 278.2201 from the Kentucky Public Service Commission. The statute prohibits the subsidy of non-regulated activity by regulated utilities.
As part of the waiver process, Kenergy has had to jump through numerous hoops, including fielding questions from Kentucky Attorney General Daniel Cameron’s office regarding the relationship between Kenergy and Kenect, and whether “this relationship could in any way impact electrical rates to be paid by Kenergy customers.”
While a great deal of Kenergy’s responses and details on its feasibility report compiled by Kansas City, Missouri-based consultant Conexon are redacted due to an ongoing application for funding through the Federal Communications Commission’s Rural Digital Opportunity Fund Phase I Auction, according to Kenergy, what isn’t redacted is the company’s liability.
On Page 9 of Kenergy’s response to the AG’s second data request (psc.ky.gov/) the company reports that if it borrows funds from the USDA’s Rural Utility Services, Kenergy would be liable for the peak debt amount of the project, or $118 million in year six of the project.
Their response further states that, “If Kenect utilizes some combination of CoBank loans, Kenergy equity investment, and/or outside equity investors, then Kenergy members will give up control over the project and most of the returns, and would only have any equity investment in Kenect at risk,” according to the report.
So, is there a potential for failure, maybe, but Kenergy feels confident, said Leslie Barr, communications and public relations specialist with Kenergy.
“As with any business venture, there is always risk involved,” she said. “Kenergy feels very confident with results from our feasibility study that show this business endeavor will be successful. The study prepared for Kenergy is based on actual results of dozens of co-op projects. The fact that our membership has been asking for us to get involved with broadband for several years, paired with the enthusiastic support from elected officials, schools, and community groups makes Kenergy believe it will be an extremely successful endeavor.
“Even more than a business success, it will meet a great need in the communities we serve. We are also not the first electric cooperative to do a project like this. Over 40 other cooperatives have had successful projects very similar to the structure we will be creating for ours.”
The company also claims that in terms of impact on customers, there shouldn’t be any, if people subscribe, she said.
“Our feasibility study shows that there should not be any upward pressure on rates to fund this project,” Barr said. “We are hoping that once the project matures over the course of a few years, there will be downward pressure on rates. However, there are no guarantees.”
If approved and able to move forward, Kenergy will have to depend heavily on its members and being competitive against already existing providers.
“Kenect plans to provide high-speed reliable internet at a competitive price. Unfortunately, we cannot name specific speeds or pricing due to the quiet period associated with the RDOF auction,” Barr said. “Kenergy believes that the major risk in this project happens if people don’t subscribe. Kenect’s success is directly correlated to subscribers. Based on the overwhelming support from Kenergy members, government officials, businesses and other community organizations, we just don’t foresee that happening. The member elected Kenergy Board of Directors studied this for several months before giving their approval. Once board approved, the application for the waiver was filed with the Public Service Commission in August. The PSC, along with the Attorney General, have been studying the project and all of the data. The only way they will approve this project is if they are extremely confident that the risk is both minimal and manageable.”
Jacob Mulliken, 270-228-2837, email@example.com