In a recent interview with APPA, Doug Buresh, President and CEO of the Kentucky Municipal Energy Agency, details the key benefits that the joint action agency offers to its all requirements members.
“Primarily, what everybody looks at is rates. KYMEA offers wholesale electric rates that are among the lowest when compared to other municipal providers in Kentucky and neighboring states,” he said in a recent episode of APPA’s Public Power Now podcast.
“For each new member we have added, low rates have been the key consideration for joining KYMEA,” he said.
“A second benefit is stable rates,” Buresh noted.
“Before KYMEA was established, our members experienced significant challenges with their previous power supplier, particularly related to the monthly power cost adjustment. The frequent fluctuations in their power bills created considerable difficulties for their operations.”
To address this, “when the members formed KYMEA, they created a rate stabilization fund which absorbs the swings in the monthly energy prices while balancing and achieving key financial metrics,” he said.
Buresh stated, "The rate stabilization fund has proven highly effective, significantly reducing the necessity for monthly power cost adjustments; KYMEA has implemented only two such adjustments during its first six years of operation. This remains an important consideration for both current and newly joined members, as all parties share concerns regarding fluctuations in monthly power prices."
In addition, KYMEA allows its members to determine their own strategic direction.
“With autonomy over its power supply portfolio decisions, the members chose to add cost effective solar generation to our portfolio, resulting in 12% of our portfolio being supplied by solar energy. The solar energy provides an effective hedge against price volatility,” he noted.
“The three principal factors that appeared to influence the decision of new members to join KYMEA were as follows: low rates, which consistently ranked as the highest priority; stability, which was considered the second most important; and the ability to exercise independent decision-making, a feature that attracted both new and existing members during the formation of the agency.”
In late March, KYMEA’s All Requirements Project Committee and Board of Directors voted to approve the City of Olive Hill, Kentucky’s request to become KYMEA’s newest AR member.
Olive Hill joins the existing AR Members: The Cities of Bardwell, Berea, the Electric Plant Board of the City of Benham, Falmouth, Madisonville, Paris, and Providence, the Frankfort Plant Board, the Barbourville Utility Commission, and the Corbin City Utilities Commission.
Carbon Free Choice Program
In the interview, Buresh also discussed KYMEA’s Carbon Free Choice program.
In late 2024, KYMEA announced the launch of the program, which allows KYMEA all requirements members’ retail customers to purchase up to 100% carbon free energy.
He stated, "We added 86 megawatts from Ashwood Solar I to our portfolio, along with our existing 32 megawatts of hydropower."
“Approximately 16% of our energy portfolio consists of carbon-free resources, enabling the launch of our Carbon Free Choice program. Under this initiative, carbon-free energy is offered in blocks to our members, who then provide it to their customers.”
“KYMEA’s involvement is working with our members to promote the program and meet with their customers to answer any questions they may have. We have approximately 233,000 blocks available annually, where one block is equal to 1,000 kilowatt hours. Each block is certified and tracked using the Midwest Renewable Energy Tracking System, also known as MRETS. And the carbon free energy is available on a first come, first served basis with a minimum participation of one year,” he noted.
“Our members’ customers really appreciate the idea that the solar and hydro facilities are based in Kentucky, often right down the road from where they are located at,” Buresh said.
"Our hydro facilities are located along the Cumberland River and available for tours by appointment. Additionally, our solar installation is situated in the western region of the state, demonstrating our commitment to supplying locally sourced, carbon-free energy. We have already achieved considerable success with this program."
“One of KYMEA’s member customers is a Fortune 500 company committed to achieving carbon neutrality across all its locations. This facility will commence by reaching 50% carbon-free operations through the Carbon Free Choice program this year, with plans to achieve full carbon neutrality by 2026. Notably, this site will be the first among the company’s global facilities to reach the 100% carbon neutral milestone.
Given Kentucky’s legacy as a coal-producing state, KYMEA takes pride in being the first to help this customer accomplish this significant sustainability objective by giving them a choice.”
Power Supply Portfolio Strategies
Buresh also discussed how KYMEA goes about assembling its power supply portfolio through modern portfolio theory.
With respect to KYMEA’s current generation portfolio, “We have a mix – and it’s all through purchase power agreements right now -- a mix of coal from various sources with various timing, peaking natural gas, solar and hydro,” and small diesel generation through one of its members.
According to Buresh, modern portfolio theory provides a quantitative framework for constructing asset groups with the objective of either maximizing expected returns at a predetermined risk level or minimizing risk for a given expected return.
This theory originated in the 1950s and was initially developed for investment portfolios. Reflecting on his 35 years of experience in resource planning, Buresh observed that the process has evolved into a sophisticated methodology, largely due to the advancement of models capable of supporting these analytical techniques.
“While modern portfolio theory was originally developed for investment portfolios, we apply the same approach to the energy sector, leveraging finance theory to support integrated resource planning. In our case, we seek to balance low stable rates while reducing risk. In an investment portfolio, you're maximizing profit and minimizing risk. In our case, we're minimizing rates or minimizing cost to our customer again while reducing risk.”
He observed that the theory highlights several key aspects, including resource diversity. "As previously mentioned regarding our portfolio, we have developed a collection of environmentally responsible resources characterized by a wide range of fuel types, technologies, capacities, schedules, and locations."
KYMEA seeks to maintain a diverse portfolio, much like assembling investments across various industries and sectors. "Our approach is to ensure our portfolio varies in size, timing, and type," he explained.
The second consideration is risk mitigation. The objective is to secure long-term, cost-effective, and stable electricity rates while minimizing exposure to market and operational risks. This process entails stochastic analysis of various input variables, alongside scenario analysis to evaluate potential future developments.
By integrating these approaches with a comprehensive hedging program encompassing both financial and physical hedges linked to the portfolio, we aim to systematically address risk across diverse analytical models and identify relevant correlations.
“When market analysts discuss correlation, they refer to the relationship between two commodities. In our context, this pertains to the correlation between commodities as well as resource types. By selecting resources whose performance is not strongly correlated, it is possible to mitigate volatility.”
For instance, Buresh explained that concentrating a portfolio exclusively on a single technology or fuel type is considered risky because any changes in those areas may result in significant fluctuations. Such an approach could yield large gains or substantial losses. According to modern portfolio theory, it is advisable to avoid pursuing high-risk, high-reward strategies.
“We balance risk mitigation with cost efficiency, employing modern portfolio theory as part of what we call least regrets planning. This strategic framework guides our integrated resource plan, helping us identify energy resource portfolios that demonstrate reliable performance across numerous uncertain future scenarios.”
“Instead of focusing on a single forecast through least cost planning, we use least regrets planning, which prioritizes flexibility, resilience, and cost effectiveness across multiple possible future scenarios.”
“Using this approach, the board has decided to build, own, and operate its own power plant. This will be the first power plant under their ownership and operation, which will use natural gas reciprocating internal combustion engines (RICE units). The KYMEA Energy Center I is planned to include four 19 MW RICE engines. Construction is underway, with an expected operational date in 2027.”
The inclusion of RICE technology “alongside our coal, hydro, solar, diesel and peaking natural gas enhances our diversity, risk management and correlation balance in accordance with modern portfolio theory. KYMEA maintains that this systematic approach to resource planning is fundamental to the agency's sustained long-term success.”
