Kenergy forms internet company

By Dave Taylor

Almost exactly two years after saying it had no interest in providing internet to its customers, Kenergy Corp. has formed a new subsidiary and filed a motion with the Public Service Commission asking for permission to provide broadband to its electric customers.
Kenergy formed Kenect, a for-profit corporation, on July 6, in order to run high speed internet to homes using the existing power poles, but since Kenergy is a not-for-profit member owned co-op, tight PSC regulations mean no electric customer revenues can be used for anything else. But to start a new internet provider the co-op will need to either provide a financial guarantee to banks that Kenect will pay its bills, or the co-op needs to invest $3 million in seed money to get the company on its feet, either of which require PSC approval.

In a filing to the PSC in July, Kenergy requested a waiver related to KRS 278.2219, which is the state law that says a co-op like Kenergy can’t use its money for anything other than providing electricity, but the co-op said the PSC allows discretion for other valid uses.
And providing broadband to rural customers is not only a valid use, but a vital need, the company said.

“Kenergy obtained a feasibility study, including an analysis of the current internet availability within Kenergy’s service territory,” the application says. “The study found that the majority of homes and businesses in Kenergy’s service territory are underserved or unserved.”
They included information from the state that pointed out the importance of broadband to improving lives of citizens and creating investment and economic growth, but adding that rural areas are missing out on all of that without broadband.

Hancock County Judge-Executive Johnny “Chic” Roberts said the county’s been working with internet providers and even Kenergy on finding ways to get broadband to the county, where the lack thereof is becoming a major barrier to citizens’ success.“I don’t think there’s any question of the need of high speed reliable internet,” Roberts said. “This pandemic has highlighted the urgency of high speed reliable internet.”  With some students planning to attend school remotely, including many in college, students in rural areas face the reality of either doing without or going to public spaces for online access.

“We have great kids here in Hancock County and like any other kid in the state of Kentucky, their success should be based on work ethic and their initiative, not on their zip code,” he said. “But unfortunately for many rural communities in Kentucky, just like Hancock County, it’s more and more based on where they’re at, not who they are or what they’re trying to do.”

With KentuckyWired having completed installing fiber optic lines in the county as part of a statewide project to bring a fiber backbone to all 120 counties, Roberts said the county will still be needing companies to tap onto the line to provide service to homes.  “We’re looking for service providers to take the final mile and go into houses,” he said. “So what we’re focused on here is being able hopefully get broadband to every single house in Hancock County. That’s the goal.”  “We’ve talked to several different companies in the last year and a half, and talked with Kenergy,” he said.

Other providers hesitate to run internet down a long rural road just to gain possibly one or two customers, so they skip areas that won’t bring a cluster of customers, but Kenergy’s poles are already in place everywhere so they can simply run fiber along those poles.

Mirroring the original purpose of electric co-ops, which were formed in the 1930s to provide electricity to rural parts of Kentucky when no companies wanted to do it, Kenergy’s application said that providing internet is equally important to rural areas today.

“Kenergy’s desire to provide broadband access to its members emanates from the same factors that propelled the Rural Electrifications Act into existence,” the application reads. “For-profit electric utilities had little desire to extend electric service to sparsely populated areas, and as a result, Congress passed the Rural Electrification Act to provide loans so cooperatives could form and distribute electricity to unserved areas.

“The nation’s broadband providers have followed the same path,” the co-op said. “They have had the opportunity to serve rural areas but largely neglected to do so. As a result, significant portions of Kenergy’s territory are left in the dark as to broadband as they were to electricity 80 years ago.”
Infrastructure for the internet is already mostly in place, the application says, because Kenect would run fiber optic lines on the existing power poles, which reach nearly every property in the co-op’s 14-county region.

Some of the system will be used by Kenergy for intra-system communications, the co-op said, but “the remaining space on the fiber network will be leased to Kenect so that Kenect can provide home internet access.”

Revenues from internet customers and potential government grants would be used to make the lease payments to Kenergy, and the co-op estimated it would recover its investment within three to five years.
And that $3 million investment wouldn’t hurt the co-op because it would be money already set aside to retire capital credits, so one way or another the money would be spent.
Kenergy CEO Jeffrey Hohn, in testimony to the PSC, said the electric co-op would be in essentially no danger of being harmed by the investment in Kenect because since it would be a subsidiary of Kenergy the co-op would have full control of its operations and could prevent any damage. Plus, Hohn said he expects Kenect to be able to stand on its own quickly.

“Kenergy believes broadband is viable without grants,” he said. “With grants Kenect may be in a positive profit position in two (2) years.”  The case is still pending before the PSC and Roberts said at some point they might ask for public input, but he said the PSC and the state leadership needs to ensure that Kenergy or someone else can and will bring broadband to every citizen.  “I think it’s so critical the politicians at the state level, they can’t miss this,” he said. “I think they have to come together on this and if not a lot of people get left out.”

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