Electric utilities have motivation to play pivotal role in Kentucky economic development
By Chris Clair
When it comes to attracting companies to the Bluegrass State, near the top of the list of benefits economic development officials point to is Kentucky’s relatively low cost for reliable power.
According to the state Cabinet for Economic Development, last year Kentucky offered the lowest electricity cost of any state east of the Mississippi River and the fourth-lowest overall in the nation – 8.13 cents per kilowatt hour on average across industrial, commercial and residential sectors.
But that’s only part of the role electric and gas utilities play in attracting business to the commonwealth. Many are also directly recruiting companies and offering their own local incentives, backstopping public economic development efforts or even directly funding activities by underwriting key trade show visits.
Louisville Gas and Electric and its sister company Kentucky Utilities, American Electric Power, East Kentucky Power Cooperative and others have staff dedicated to economic development. Their staffs work with existing customers to help keep utility costs down and reliability up in order to retain businesses, and they partner with state economic development officials in providing information and actively recruiting new businesses. They house pages on their websites devoted to showcasing incentives; comparing water, gas and electric rates in Kentucky with other states; and offering maps showing available sites and properties in the utilities’ coverage area.
East Kentucky Power Cooperative is working on an app that will bring detailed information about the electric utility’s service area to mobile devices anywhere. LG&E-KU has an app that allows users to search anywhere in its coverage area for available properties, or focus in specifically on the Louisville and Lexington areas.
In October 2014, East Kentucky Power announced a partnership with StateBook International, an online marketplace where companies and site selectors can interact with and learn more about communities and economic development organizations. StateBook includes some 20,000 data points covering everything from workforce information and taxes to utility costs and incentives. East Kentucky Power’s member co-ops will be able to upload their own information to add to the StateBook database.
East Kentucky Power is the first utility in the country to partner with StateBook.
Together, LG&E-KU – part of publicly-traded PPL Corp. – and East Kentucky Power – a not-for-profit power generation and transmission cooperative made up of 16 distribution co-ops – serve slightly more than half of Kentucky’s 4.4 million residents.
LG&E-KU’s service area includes all or part of 90 counties and some large industrial and commercial users, including Toyota Kentucky’s Georgetown assembly plant, Nestlé, Ford, Johnson Controls and several of the state’s larger distilleries.
East Kentucky Power’s customers, spread across all or part of 87 counties, tend to be more rural and mostly residential, although the co-op is working to bring in larger industrial and commercial customers.
LG&E operates nine power generation plants, while East Kentucky Power runs four. Those power plants play an important role in why the electric utilities have an interest in attracting commercial and industrial customers.
Managing their power load demand
Utilities’ involvement in economic development goes back decades, said Nick Comer, external affairs manager for East Kentucky Power. Initially they wanted to build demand for their product. In the 1940s and 1950s, he said, some power companies would give away electric appliances. More recently, bringing in bigger users of electricity has more to do with keeping the load factor – or demand – on the power plants steady.
With residential users, demand spikes occur at different times of the day, Comer said. In the morning, people get up and use electricity as they get ready for work and school. Then they leave and usage drops down until afternoon, when people return home.
Industrial users of electricity use more power, but importantly they use it more consistently over time. Rodney Hitch, economic development manager at East Kentucky Power, said the more stable the use is, the easier it is on the power plants, which affects rates down the line.
“The power plants, they have to operate at the peak demand,” Hitch said. “So when you have this up and down shift and people – mainly residential – coming online and going offline, the power plants still have to generate at that maximum level. When we get that level, more consistent usage, the power plants may be able to operate less, expenses come down and everybody’s electricity costs come down. The more stable we can be, it helps everybody on the final end.”
To help attract consistent users like that, LG&E-KU and East Kentucky Power offer economic development riders, which effectively give large users a break on their bills. East Kentucky Power offers companies that locate in one of the co-ops’ territories discounts of 30 percent to 50 percent on the highest use part of their bills if they agree to provide a base load. The threshold to qualify is lower in counties with high unemployment, high poverty and low wages, Hitch said.
LG&E-KU’s economic development riders reduce demand charges for large customers in Kentucky so long as they contract for a minimum monthly billing load of 1,000 kVA. The discount is 50 percent the first year, 40 percent the second year and so on until the rider ends starting with the seventh year.
“In the utility business, we are always looking ahead and planning for the future,” said Liz Pratt, public relations specialist at LG&E-KU. “We have a team within the company that works closely to provide direct support for industrial customers.”
LG&E/KU team among nation’s best
Site Selection magazine, which covers corporate real estate and area economic development, publishes an annual list of the top economic development teams at utility companies. LG&E-KU made the list in 2000, 2002, 2004, 2012, 2013 and 2014. In last year’s entry, Site Selection wrote that the utility helped create 10,303 of the 12,598 new jobs in Kentucky in 2013. Those new jobs came courtesy of companies that invested $2.6 billion of the $3.1 billion Kentucky saw in facility location and expansion that year.
Joe Lilly, spokesman for the Kentucky Cabinet for Economic Development, said the state is happy to partner with the utilities and leverage their resources to bring in jobs.
“Kentucky’s utility companies have a strong story to tell prospective clients, and their ability to meet the needs of new and expanding industry makes them a tremendous asset,” Lilly said. “The fact is that we are all in the service industry. Companies look to us for solutions to roadblocks to their growth in Kentucky. Our utility partners work with us to break through those roadblocks and find solutions.”
For instance, the U.S. Department of Agriculture runs the Rural Economic Development Loan and Grant program (REDLG), which provides local utilities with zero-interest loans and grants that the utilities then pass along to businesses for economic development.
Because it’s a loan, “the cooperative is responsible for that loan,” Hitch said. “If the company goes out of business, that loan still has to be paid back. But they’re in partnership with this company and with the state to make sure it’s a good loan and a good project.”
Brad Thomas, economic development associate manager at East Kentucky Power, said incentives like those offered by utilities through the REDLG program are designed to add the “cherry on top of the sundae” on the incentive side to help close deals to get companies to move to or expand in Kentucky.
“At the end of the day we’re here to support the Cabinet,” Thomas said. “We want to make sure when they’re thinking about opportunities, they’re thinking about our 87 counties and our 16 co-ops. One of the key things about economic development is you want to make sure you’re picking the right locations. You don’t want a company to come in and leave three years later. You want to find a community for that company to come into for which the community can embrace the company as much as the company embraces the community. That’s not always the case, and by us working cooperatively we can tell the stories of our communities and help in that recruitment piece.”
East Kentucky Power’s service area extends from a small part of Grayson County in the west to part of Martin County in the east and from the Ohio River on the north to the Tennessee border on the south. As such, the cooperative is agnostic about where a particular company might choose to locate in its service area, Thomas said.
“We’d be happy for it to be in any one of those counties,” he said.
Several recent projects have landed in East Kentucky Power’s territory.
Putting a deal together
In September last year, Japanese metalworking and metal treatment company Kowa Kogyosho Co. announced plans to build an $8.3 million facility in Corbin that would eventually employ 30 people. Corbin straddles parts of Laurel, Whitley and Knox counties, which are served by Cumberland Valley Electric Inc., one of East Kentucky Power’s co-ops. The non-seasonally adjusted unemployment rate for that region in April was 6.2 percent. That compares to a statewide average of 4.8 percent and a national average of 5.1 percent, both also non-seasonally adjusted.
The Kentucky Economic Development Finance Authority (KEDFA) gave preliminary approval for $600,000 in tax credits and wage assessments through its Kentucky Business Investment Program, provided Kowa meets certain employment and investment targets, plus further benefits of up to $50,000 through the state’s Enterprise Act Initiative, which allows companies to recover sales and use taxes on construction costs, building fixtures, research equipment and development, and electronic processing equipment. State and local governments worked to build a road to access the site.
Cumberland Valley Electric provided a loan through the REDLG program that helped with construction of a speculative industrial building into which Kowa will eventually move, Hitch said.
Similarly, in May 2014 KEDFA approved up to $4 million in tax incentives and benefits to encourage Diageo to build a new $115 million distillery and warehouse facility on Benson Pike in Shelby County, adding 30 jobs to the local economy. East Kentucky Power offered to move some of its infrastructure, and its Shelby Energy Cooperative offered money through the REDLG program.
“We were at the table, helping that community and helping the state of Kentucky put their best foot forward, and we were fortunate that they did choose to locate in Kentucky,” Hitch said.
Also in Shelby County, when developers wanted to build the Outlet Shoppes of the Bluegrass mall at Interstate 64 and Buck Creek Road, East Kentucky Power installed a new substation and ran three miles of transmission lines in about seven months, a project that normally would have taken 18 months to two years.
The co-op is even happy about companies that don’t locate in its service area at all, said Hitch.
“That’s OK, too, because the state of Kentucky has been uplifted. And more than likely, the people working in that factory, they’re going to have their homes in our territory because we’re more of a rural area.”
Along with LG&E and other utilities like the Tennessee Valley Authority, Kentucky Power and Duke Energy, East Kentucky Power is a member of Kentucky United, a public-private partnership comprising economic development organizations at the state, regional and local levels. It is led by the Kentucky Association for Economic Development.
To be part of Kentucky United, Hitch said, members agree to represent the state, not their own interests.
Education and workforce development, too
“First and foremost we want investment to come to the state of Kentucky,” he said. “Now, we all want it to be in our areas, but bottom line, we’re working as one large team out there to promote the state of Kentucky.”
East Kentucky Power is also playing a key role in building a more skilled workforce in Eastern Kentucky tomorrow by changing parts of the K-16 education curriculum to emphasize science, technology, engineering and math (STEM). The co-op, along with Project Lead The Way, recently announced an initiative called STEM-Transforming Eastern Kentucky (STEM-TEK). Project Lead The Way is a nonprofit organization that specializes in providing science, technology, engineering and math-based curriculum for K-12 schools.
Working with Morehead State University, the Kentucky Educational Development Corp. and the Shaping Our Appalachian Region (SOAR) initiative, East Kentucky Power and Project Lead The Way are aiming to implement the STEM curriculum across 19 counties in Eastern Kentucky. That would include more than 80,000 students.
The project is starting with training and National Board Certification for 64 Eastern Kentucky teachers, said Hitch. STEM-TEK will pay for those teachers to receive certification from the National Board for Professional Teaching Standards with an emphasis on STEM training and leadership. They will receive master’s degrees and with those, will be eligible to earn more money teaching in their districts.
In the short-term, the goal is to implement STEM-TEK in seven Eastern Kentucky School districts that currently offer Project Lead The Way curriculum. As the program expands, its backers hope it will lay the groundwork for a more skilled workforce, which in turn could attract more high-skill, higher-wage jobs to Eastern Kentucky. Eventually the school superintendents and principals in STEM-TEK schools would serve on local industrial authorities and economic development councils, giving education a seat at the economic development table it currently lacks,
“We see this as the beginning of a long-term effort to fundamentally change the environment for high-quality jobs and investment in the region,” said East Kentucky Power CEO Tony Campbell in a statement.
Eventual goal is transformational change
STEM-TEK got a boost in June when it was highlighted at the Clinton Global Initiative meeting in Denver, Colo. Campbell and Project Lead The Way President and CEO Vince Bertram joined President Bill Clinton on stage at the meeting, and Clinton praised the initiative as one of only a handful of examples of a state using its own education system to lay the groundwork for attracting good jobs.
“This commitment represents an investment in building out a highly-qualified STEM workforce that will attract businesses and high-wage, high-talent demand jobs to an area that desperately needs them,” Clinton said. “It will also keep more talented young Kentuckians in a newly revitalized part of the state.”
While initiatives similar to STEM-TEK have been implemented locally elsewhere, there has not been a strong push to use it at the regional level, said Thomas.
“I think that’s something that, from the perspective of EKPC representing a large territory, we can make those types of suggestions and put into play those types of efforts to really make an impact. If we develop the workforce, we hope the jobs come.”
Thomas said initiatives like STEM-TEK and the SOAR drive to improve broadband access in the region are transformational events for Eastern Kentucky.
“The opportunity we’re seeking right now is a future, because a lot of people in Eastern Kentucky do not see a future right now,” Thomas said. “If we can get the skill sets and a STEM workforce created there, that creates opportunities that exist nowhere else in the country.”
While some might find it surprising that a utility company is leading this charge, it makes perfect sense to East Kentucky Power, Hitch said. Bringing good companies with good jobs to Eastern Kentucky means more people living in the region, a better economy and more people paying their power bills. Although as nonprofits, power cooperatives are not concerned with making more money, they are invested in the quality of life of their users, said Comer.
“Really that’s why electric coops exist – our members saw the improvements to the lifestyle that access to electricity had in cities and they said ‘we want that,’ ” Comer said. “Extending that forward to today, people see that it makes sense to do economic development activities, to improve the quality of life for the small towns and rural areas. That’s what we’re doing.”