Despite “a tumultuous two years,” Kenergy Corp. is performing well.
That was the overarching message Greg Starheim, Kenergy Corp’s president and CEO, delivered to the Green River Area Development District board of directors and guests Wednesday.
“We’re doing well in about all aspects, and we’re off to a good start in 2014,” Starheim said.
The nonprofit co-op returned $2.3 million to its members in 2013 from positive margins earned the previous year, he said.
Starheim gave the board an update on Kenergy’s business performance and discussed the co-op’s relationship with Century Aluminum, recent rate increases and utility industry issues.
Kenergy is one of three electric co-ops that owns Big Rivers Electric Corp., a nonprofit, transmission and generation co-op that supplies wholesale power to its owners.
Big Rivers is in the throes of a remediation strategy after Century’s two aluminum smelters left the electric system to buy power on the open market. Century’s departure left a $360 million hole in Big Rivers’ annual revenue.
As the distribution co-op, Kenergy provided Century Aluminum with what they asked for ­— to be served with electricity from the market, not the co-operative system. The smelters wanted a contract that would allow them to remain viable, Starheim said.
Kenergy has been charged with two rate increases from Big Rivers, related to Century’s pulling out of the co-op system. Those have been approved as flow-through increases for Kenergy’s customers. One rate hike went into effect in August 2013. Technically, the second boost would have occurred in February, but Big Rivers is using reserve funds to fill that revenue gap.
“Hopefully Kenergy members will never have to see that increase,” Starheim said.
One part of Big Rivers’ recovery strategy is to idle two generating plants — Kenneth C. Coleman in Hawesville and D.B. Wilson in Centertown. The Coleman plant is offline, but Wilson is still operating — producing power for recent new customer sales.
The recent “secure sales” that Big Rivers has made are helping Kenergy to keep its rates as low as possible, Starheim said.
Even with the rate increase, Kenergy still has “the very lowest in Kentucky and in the U.S.,” he said.
The 55,000-member co-op is one of the largest in the U.S. with about 7,000 miles of distribution lines and about $500 million in annual revenue. The 11-member board conducts strategic planning every two years and is set for a session in December, Starheim said. The focus has been on member satisfaction, reliability and safety.
“We’ve set the bar high — measuring against the best utilities,” he said.
Starheim also discussed changes in the power industry. The industry was paralyzed when he started his career 30 years ago.
“Then deregulation hit in many states, and that led to a number of co-generation plants,” he said.
Cost overruns for nuclear plants occurred, and that industry “came to a screeching halt,” he said.
The 1998 Fuel Use Act discouraged cooperatives from using natural gas and encouraged the use of coal, resulting in massive numbers of coal fired plants. “Obviously, things have changed quite a bit,” Starheim said. “There is a focused effort to close coal-fired plants.”
A number of nuclear plants are set to come online, but the industry took a hit in 2011 when a tsunami damaged Japan’s Fukushima Daiichi nuclear plant. And renewable energy resources are in the mix.
“A number of dynamics are in play,” Starheim said. “But what is clear is that we don’t have a long term national energy policy we can bank on. So we are trying to figure out how to keep rates as low as possible.”
U.S. Environmental Protection Agency regulations have been devastating to the utility industry, he said. A large number of coal-fired utility plants will be coming off line in one to two years, “and many of those were called upon during the Polar Vortex in January and February.”
Energy industry officials have discussed how important it is to have those plants in emergencies, he said.
“We’re not seeing the federal government take ownership of ensuring low-cost, reliable energy for consumers,” he said. “Having said that, we believe we’re in good shape with our power supply.”
New EPA regulations expect a reduction of carbon emissions by 30 percent of a 2012 baseline by 2030. Federal regulations on reducing emissions are expected to be completed next year, and states will have until sometime in 2016 to create their own plans for each state’s particular reduction.
“In the Big Rivers system, with the Coleman plant idled, that’s already a 30 percent reduction,” Starheim said. “But a lot of discussion still has to take place.”
GRADD’s monthly meeting was held at the Hartford City Building.