In 2016, Kenergy experienced net margins of $3.9 million, representing an increase of approximately $1.2 million over 2015 net margins. This year-over-year increase in net margins was the result of three main drivers.
First, Kenergy’s controllable costs (total operating expenses excluding purchased power) were reduced by $1.0 million year-over-year. This cost saving was achieved by reductions in Kenergy’s labor force, redesign of Kenergy’s pole inspection program, reduced substation maintenance, a reduction in bad debt expense, and various other cost containment measures.
Second, in 2015, Kenergy filed an application with the Kentucky Public Service Commission for a base rate increase. In 2016 the Commission approved a $2.4 million or 1.8% base rate increase, which took effect May 20, 2016. Therefore, Kenergy’s revenue less power cost increased approximately $1.5 million year-over-year.
Third, the cost savings and rate increase mentioned above were partially offset by a $1.0 million increase in depreciation and amortization expense, which is a result of Kenergy’s continued investment in new services and the replacement of aged facilities. Kenergy invested $16 million in plant during 2016 and $19 million in 2015.
Consistent net margins, solid equity position, and excellent operating cash flow allowed Kenergy to continue its practice of returning patronage capital to its current and former members. Kenergy returned $3.3 million in net patronage capital during 2016, bringing the 5-year total to $13.4 million.