The Kentucky Public Service Commission has weighed in on Kenergy’s for-profit broadband internet service Kenect.

Kenect is a proposed for-profit corporate 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.

Essentially, Kenergy requested a waiver from the PSC to waive restrictions under the Kentucky Revised Statute that would allow it to provide and seek financial backing for and oversee Kenect until such a time that the proposed $166 million project bears fruit and can stand on its own.

On Thursday, the PSC ruled that Kenergy’s July 17, 2020 application for waivers of KRS 278.2201 and KRS 278.2213(14) were granted and denied, respectively, according to the PSC.

In regard to KRS 278.2201, Kenergy was only granted a waiver, “to the extent required,” to make a one-time $3 million capital investment in Kenect with the caveat that if Kenect did not pursue the project that the money would be returned to Kenergy, according to the ruling.

In terms of Kenergy’s request for a waiver of KRS 278.2213(14), that waiver was denied. This particular statute prohibits a utility from entering into any arrangement for financing nonregulated activities through an affiliate that would permit a creditor upon default to have recourse to the assets of the utility. Meaning, Kenergy would not be allowed to put itself at risk in the event that Kenect fails.

While Kentucky Attorney General Daniel Cameron had recommended that the PSC “conditionally approve,” the cooperative’s application on Oct. 8, the commission’s decision to deny a majority of Kenergy’s request came as the result of persistent changes in direction and a lack of specificity on the part of Kenergy, according to the PSC ruling.

One example of shifting game plans came in the form of financing options for Kenect.

Kenergy stated that Colorado-based CoBank would supply the letter of credit for the project under two scenarios.

Under the first scenario Kenergy would be responsible for satisfying the letter of credit should Kenect default.

Under the second scenario, in which Kenergy does not provide a parent guarantee, CoBank will require Kenergy to maintain at least a 50% equity position in Kenect.

The issue about the dual scenarios, as highlighted by the PSC, is that Kenergy, prior to filing its brief, “consistently described the requested $3 million capital transfer as a one-time cash infusion with future equity investments as inconsequential,” their preferred course of action, according to the ruling.

However, as the cooperative began to file and go through the bureaucratic gauntlet, their preferences changed with them preferring to go the letter of credit and parent-guarantee route, given that Kenergy’s obligation to maintain a 50% equity position in Kenect would “necessitate future capital investment,” outside of the $3 million.

Simply put, the PSC determined that Kenergy attempted to combine, as did Cameron, the equity investments necessary for CoBank to lend directly to Kenect to build the fiber infrastructure and those necessary to receive a letter of credit without a parent-guarantee.

Essentially, in their waiver request, Kenergy was not fully detailed in their plans moving forward, encouraging the PSC to determine that in the event that Kenergy wishes to finance the fiber infrastructure, it would need to file an entirely new application.

However, in regard to Kenergy’s initial request of providing $3 million in start-up capital, the PSC did approve.

As far KRS 278.2213(14) and Kenergy’s request for a waiver, the PSC found that allowing a creditor of an affiliate to be able to seek recourse against Kenergy’s assets should the project fail is not in the best interest of Kenergy’s member-owners, according to the PSC.

The PSC finished its rulings with numerous warnings and suggestions for Kenergy and Kenect moving forward, finally encouraging the cooperative, “given the challenges they face in the pursuit of this project under current law,” to lobby the Kentucky General Assembly to review the statutes and provide guidance regarding the state’s policy with respect to a cooperative corporation’s involvement in broadband expansion.

As far as Kenergy goes, it does not expect this to be an easy process, said Leslie Barr, communications and public relations specialist with Kenergy.

“We have received the order and are taking time to process the information and decisions that the PSC has given us,” she said. “As Kenergy stated from the beginning of this project exploration, there would be many hurdles to make this happen. It still remains our goal to get high speed internet access to all of our members. We appreciate the immense support that we have received so far from our members, various community organizations and elected officials.”

For more information on the Kenergy/Kenect case and the PSC’s ruling, visit www.psc.ky.gov case number 2020-00215.

Jacob Mulliken, 270-228-2837, jmulliken@messenger-inquirer.com

Jacob Mulliken, 270-228-2837, jmulliken@messenger-inquirer.com

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