Electrial Cooperatives and Distributed Power Generation

“Solar [PV] is slowly going to begin to unwind the existing utility economics, to the point where utilities decide they have to get in or they risk losing their core business – exactly [like] the [PC and telcom] transformations we’ve lived through in the last 20 years.”
Travis Bradford, 2008, author of Solar Revolution

For nearly 100 years utility companies have operated with minimal competition as a regulated monopoly. Imagine having a business that nearly always grew and when costs increased, you could just pass them off to your customers in the form of higher prices.  Utilities, much like the long distance telephone carriers of our recent past, are now facing real competition for the first time.  The primary threat is from PV power installed on the rooftops of American homes and unlike revenue losing energy efficiency measures, such as compact fluorescent lighting, efficient heating and cooling equipment, solar hot water systems, and Energy Star appliances, SOME utilities see homeowner PV and wind power generation as a threat to future revenue loss they can block.

The electrical generation and distribution market in America is divided between Investor Owned Utilities (IOU), Public Owned (Federal or city), and Cooperatives formed under the 1936 Rural Electrification Act.

Investor owned utilities have been the first to adopt net metering due to state laws mandating both net metering and minimum requirements for producing power via renewable energy.  Also, because PV power is generated during the hours of peak demand, providing incentives for residential PV makes good business sense because it offsets the higher operating costs of natural gas peak power plants and defers or avoids the capital costs of additional plants.  However, public utilities and cooperatives are typically not subject to these laws, and aside from the preferential Federal hydroelectric power they get on the cheap, cooperatives in particular have resisted pressure to promote and use renewables.

Cooperatives and the Rural Electrification Administration (REA) launched by President Franklin D. Roosevelt in 1935 are one this country’s greatest success stories.  At the time private and investor owned utilities were not willing to take the risk to extend electrical service to rural areas and millions of  american communities, farms, and ranches were without any source of electricity.

The first rural cooperative organizations were humble main street store-fronts and by 1938 the typical coop had about 800 consumer-members with democratically elected directors to manage the affairs of the organization. These early coops were “first name” neighborly affairs and about as formal as your local grange.  A typical “staff” might consist of a manager, a bookkeeper, a line foreman and a single crew.  Growth would be revolutionary, and by the 1940’s REA cooperatives would deliver power to over 97% of America’s farms and ranches and cooperatives would politically band together under the National Rural Electric Cooperative Association.  As the country grew, the demographics of many cooperatives would change from rural to suburban and the original small farm, grassroots, community character would begin to take on a more corporate feel.  In 1987 and 1993, first president Reagan and then President Clinton would attempt to dismantle the REA structure of federal subsidies, but the cooperative “political footprint” had grown too large and powerful.  Today cooperatives are largely resellers of electricity they buy from investor owned and public utilities at wholesale and resell to their members at retail.  Many are “cooperatives” in name and form only and behave and act with the same self interest as any corporation.  Since, in many cases they are neither base or peak power generators, they don’t have the same incentive as the investor owned utilities to manage peak demand and promote and financially support homeowner PV or wind power systems.

The battle for grid access with cooperatives can best be illustrated with a personal example.

I live in geographical middle of Colorado within the service area of the Intermountain Rural Electrical Association (IREA).  The IREA was formed in 1938 and is the largest of 22 Colorado cooperatives serving a population that is both rural and Denver suburban.  The IREA buys it 93% of its power from investor owned utility XCEL and the balance from DOE’s Western Area Power Administration, a federal hydroelectric power provider.  The members of IREA elect board directors in various districts within the IREA service area every four years.  This sounds democratic enough, but unlike the rural members of the 1930’s who helped dig and plant the original power poles, todays members see themselves more as customers and director elections get about as much mind-share as an election for county coroner.  As a result, directors tend to be elected for “life”, getting what amounts to a proxy rubber stamp every four years.  This cozy relationship changed in 2007 when a member revolt in some of the more liberal suburban districts mobilized to elect a director with greener credentials. The trigger for the revolt was IREA’s position on global warming.  IREA’s website devotes an entire page to debunking global warming and they had spent $100,000 that year to fund anti-global warming “research”.  You have to wonder why a relatively small electrical power reseller would spend so much of its members money tilting a political windmills.

The IREA belongs to both the National Rural Electric Cooperative Association and the Colorado Rural Electric Association(CREA).  These lobbying organizations represent large and conservative political footprints at both the state and national levels.  The Colorado state legislature has been at battle with the CREA over a proposed net metering law for cooperatives.  The CREA and IREA’s position is that residential and other customer’s that take advantage of net metering by installing PV or other renewable power technologies do not pay their fair share of indirect costs and that net metering should be limited to a small percentage of customer’s and that excess power generated should only be reimbursed at “wholesale” rates.  This argument is weak at best, and I could apply the identical logic to a customer that weatherizes his home, or installs Energy Star appliances or compact fluorescent lights.  Add to that the irony that over 90% of the electricity I receive from the IREA comes from XCEL energy which has an aggressive Solar Rewards program to encourage net metered generation of PV power.  To promote the program, XCEL has invested $19.5 million in rebates to over 1,000 customers adding more than 4.3 megawatts of solar energy capacity, and plans on adding another 29 megawatts of capacity by 2015.

The Rural Electrification Administration was renamed the Rural Utilities Service (RUS) in 1994 and continues to subsidize cooperatives through low-rate government loans.  The Washington Post recently reported that the RUS “is using taxpayer money to provide billions of dollars in low-interest loans to build coal plants even as Congress seeks ways to limit greenhouse gas emissions.”  Since only 24% of the counties served by cooperatives are completely rural and 200 of the counties served have populations of more than 1 million, the RUS has lost its original rural focus and now subsidizes many urban areas.  Cooperatives are a “New Deal” legacy program that fulfilled its basic function decades ago and now has taken on a life of its own.  It is ironic that the progressive policies that created the electrical cooperatives and brought power to rural American in the 1930’s and 40’s, would evolve into a regressive and entrenched bureaucracy that will probably be the last barrier to a national  policy of net metering and the distributed generation revolution.

Note: The electrical cooperatives eventually lost the net metering battle in Colorado and must now reimburse net metered customers at retail rates.

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One response to “Electrial Cooperatives and Distributed Power Generation

  1. *

    Recently an insurance company nearly wind up….

    A bank is nearly bankrupt……filing chapter 11 protection.

    How it affect you? Did you buy insurance? Did you buy mini note or bonds?

    Who fault?

    They bailout trouble finance company, but they will not bail out your credit card bills……You got no choice, and no point pointing finger but you can prevent similar things from happen again……

    The top management of the Public listed company ( belong to “public” ) salary should be tied a portion of it to the shares price ( IPO or ave 5 years )…. so when the shares price drop, it don’t just penalise the investors, but those who don’t take care of the company…..If this rule is pass on, without any need of further regulation, all industries ( as long as it is public listed ) will be self regulated……because the top management will be concern about their own pay check……
    Some might feel that it sound stupid….. as there is long and Short position…but in reality there is still many different caliber CEO…..so there is still long and short…..They can ban short selling definitely they can do something about this…….

    Are you a partisan?

    Sign a petition to your favourite president candidate, congress member, House of representative again and ask for their views to comment on this, and what regulations they are going to raise for implementation…..If you agree on my point, please share with many people as possible…. Finance and Media are the two only industries can shaken politics ( Maybe Hackers can ), please help to highlight also…


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