Colorado Law Creates Transparency at Rural Electric Co-ops — Episode 139 of Local Energy Rules

Joe Smyth:

As those policies are being considered, make sure to look at the generation and transmission associations. These are huge power companies that are generally unregulated by state commissions or, or federal regulators that make decisions that affect the rates of nearly all of rural America’s electric bills. And so we should know, right, what those G&Ts are doing, how they’re making decisions, what kind of information those decisions are based on and what they’re doing to navigate this transition away from coal.

John Farrell:

Formed by rural residents and businesses during the depression, rural electric cooperatives were instrumental to ensuring every American had access to affordable electricity. Like grocery and other cooperatives, they’re committed to the seven cooperative principles, including democratic member control. But what happens if cooperatives don’t live up to their principles? Joe Smyth, a researcher with Energy and Policy Institute and author of cleancooperatives.com, joined me in June, 2021. When he moved into cooperative territory in Colorado a few years ago, he found that ILSR’s 2016 assessment of cooperative democracy hit home. We spoke about his work to bring more transparency to cooperative governance, including passage of a recent Colorado law aimed at ensuring co-op members could guide their utilities toward more local clean power. I’m John Farrell, Director of the Energy Democracy Initiative at the Institute for Local Self-Reliance and this is Local Energy Rules, a bi-weekly podcast sharing powerful stories about local, renewable energy. Joe, welcome to Local Energy Rules.

Well, I always like to start out by just kind of asking people what motivated them to get into this issue area of clean energy, renewable energy, climate policy. I know you were formally at Greenpeace, like what was something that sort of triggered you to get into the clean energy space?

Joe Smyth:

Yeah, so I’ve been involved with clean energy and climate policy advocacy for about the last 15 years, but got more focused on electric cooperatives about five years ago, moved to an area in Colorado that’s served by an electric cooperative and heard about some proposals they had to sort of roll back some of the clean energy policies that they had. So went to a meeting and found a super interesting discussion amongst the board of directors at the co-op about how the cost declines of especially solar energy were disrupting the way that the utility industry works, right, which is a topic I think folks are now well aware of the declining cost of renewable energy, how they become lower cost than operating existing coal plants and what that does to the companies that produce and distribute electric energy. But what I found at the electric cooperatives was these conversations are happening oftentimes in boards of directors that are open to members or at least should be open to members. And so you could see the sort of conversation amongst the leadership of the utility about what should they do, should they try and clamp down on net metering or other policies that encourage renewable energy development, or should they join in the transition and make it a part of their business? And then as I started kind of talking to more folks in Colorado, we realized that this is an issue across electric cooperatives in the state and region. And that many cases, if we come back to decisions by the wholesale power supplier.

So in our case, is Tri-State, and the policies that they act or choose to implement, that has a huge impact on what the electric cooperatives can do in terms of that energy transition. And that is an area that I didn’t see a whole lot of research being done around. So I’ve started this website, cleancooperative.com. It kind of has tracked this process in Colorado where the wholesale power provider has shifted in part from an entity mostly focused on just building and expanding coal infrastructure to one that sees its future more into the renewable energy space.

John Farrell:

Let’s give people a little bit of background with how rural electric cooperatives work. So just broadly, they serve about one in seven U.S. residents with electricity. Why do we have cooperative still? Why do we have, you know, some cities own their own utilities. We have lots of private companies, probably the names that you’ll see on the sides of stadiums or things like that that provide electricity. How do cooperatives fit into this mix and how are they different than the kinds of electricity providers many people might be familiar with?

Joe Smyth:

Yeah. So rural electric cooperatives are really a product of the New Deal era in time when cities were electrifying, but most of rural America was left behind because the utility didn’t see it as cost-effective to run power lines out to the more rural areas. And so in response to that, FDR and others in that sort of progressive era started the Rural Electrification Act. And then along with efforts by rural communities across the country, set up hundreds of rural electric cooperatives that strung wires to farms and communities across the country. So the difference today is in several areas. I think one is like the cooperatives are not for profit. So there’s no shareholders, right, different than investor owned utilities, but similar to municipal utilities where there’s no profit incentive in running the utility, but in many cases as well, these electric cooperatives are, are unregulated by state commissions, right? And that’s to do with that history of there not being incentives.

So the commissions didn’t see that need to regulate the rates and resource plans. But what we’ve seen is that as the utility industry increasingly gets more complex and two way distributed energy resources, and that metering respond. There’s a whole host of issues that are often handled by state regulators, that in many cases, the electric cooperatives are falling behind on because they don’t have that sort of oversight by state regulators. And that’s something that’s changing a little bit and in Colorado, which we’ll talk about, I think to make sure that the, the rate payers, electric cooperative members aren’t left behind as we transition from coal to a more distributed and renewable electricity system.

John Farrell:

So we’ve got these cooperatives, thanks to the support of the federal government. They were able to electrify the countryside. You have these different utilities that are member owned. So I’m not just an electric customer, I don’t just get a bill from the utility, I actually have a vote in the business of the utility. And as you alluded to before, one of your reasons that you got involved in this space was that you moved to a place that had a cooperative. You heard that they were having a meeting and you showed up there, is that always possible? Like, are they always open and transparent? Is it easy for members to get information about what, how the decisions that their cooperative is making on their behalf and to have a say in that, or are there sometimes barriers to that?

Joe Smyth:

Yes, unfortunately there’s often there isn’t, it’s very variable across the country. And I didn’t know this at the time, but when I attended that first meeting at my electric cooperative, I could do that because a state law in Colorado passed a decade ago, guaranteed co-op members access to the 10 board meetings held by the electric cooperative, but that law doesn’t exist in most states. So in many cases, it’s up to the electric cooperative whether cooperative members can even attend a monthly board meeting or up to the electric co-op of about whether they publish important information about their rates, how they make decisions, their policies, the power supplies, really kind of core questions about how electric cooperative is run. In some cases, we’ve got good access to that information and then the ability to bring up issues with our electric cooperatives, but in many states, unfortunately that’s not the case. And we see some coops making decisions really behind closed doors, not informing their members about why they made decisions of where the electric cooperative is going as we transition away from coal and other barriers to participation by co-op members and the coop’s business.

John Farrell:

Well, you know, one of the things I think that’s been interesting to watch and, you know, ILSR did a report on co-ops now, was almost seven years ago, looking at some of this issue about the challenges. And we’ll get into some of, hopefully I want to ask you about some of them, but one of them being the kind of relationships utilities, cooperatives have with their bigger cooperatives, like, as you mentioned Tri-State, these sort of co-op of co-ops where they have these power relationships. So there’s that piece of it in terms of like where they get their electricity from and the contracts that they’ve signed and the relationships that there are between those board members and the ones on these larger co-ops.

And then you also have this issue at the local level about participation. So I remember in, in the research that we did for that, you not only have this barrier sometimes in terms of finding out what the leaders of the co-op are doing, but it’s also hard to get on the co-op board potentially because there might be a nominating committee for the board that actually approves people who can be on the ballot and other kinds of restrictions that co-ops have about participation. So maybe that’s already kind of evident that I’m leading in this direction, but Colorado has recently passed another law about transparency for cooperatives. And I’m wondering if you could talk about some of the specific things that were involved in bringing that law forward and getting it passed that folks saw as problematic that needed to be addressed in order to make sure that co-ops could live up to their aim of being democratically governed.

Joe Smyth:

Yeah, so like I mentioned that law passed over a decade ago here in Colorado insured certain member access to information in board meetings at electric cooperatives in the state, but it didn’t extend that transparency requirement to the generation and transmission association, Tri-State. And that became an increasingly evident problem, not just to co-op member rate payers, but really to the leadership, the staff and the directors at the co-ops themselves, because the decisions that Tri-State makes affects co-ops throughout the state. And for that matter, the region. Huge implications for rates, power supply, environmental impacts, and on and on. And yet it was exempt from just basic rules about what’s going on in your board meetings. Why did you make these decisions? Right? And there was an awareness at some of those co-ops that those decisions need to be made in a public forum so that they can be scrutinized. And we know what’s going on, not just the rate payers, but really the co-ops themselves.

So there was a, an effort really beginning last year was somewhat disrupted by, by the, um, shortened session. So then brought up again this year to expand that those transparency rules to Tri-State. And that’s really pretty simple. It just says ratepayers, the media, the public should be allowed to attend board meetings. And minutes from those board meetings should be published on the website. And again, remember these are monopoly utilities, right? And not for profit, but still technically monopoly utilities. So if you’re a rate payer in the area of electric co-op, you don’t have any choice about who’s your energy supplier and they’re generally unregulated by the state regulators. So that’s all dependent that notion that, you know, this is a monopoly utility, basically unregulated, depends on them being run in a democratic manner. Well, we can’t have a democratically run utility unless there’s transparency and accountability. And so through that process of both the rate payers and some of the co-ops themselves identifying these problems of a lack of transparency at Tri-State. Legislators came together, it was actually on a bipartisan basis. And before this bill that expanded the electric cooperative transparency rules to include Tri-State and it took a couple other measures as well, making it easier for co-ops to implement electronic voting for board director of elections, to hopefully increase participation and also getting into some issues around the fiduciary duty of the directors at the, at the generation & transmission, which we can talk about as well.

John Farrell:

If I can just sort of paraphrase here, what we had is, what it sounds like you had is a situation where, you know, there are a few dozen distribution cooperatives. So the local power company they’re cooperatively run, but they’re getting a lot of their power from these generation and transmission cooperatives of which they’re a part of, but they’re having trouble finding out how decisions are being made about the power that they’re buying to sell them to the ultimate customers in the different communities across Colorado. Is an involved in broader than Colorado. But is that, is that right? Is that kind of the crux of the issue here, is that the decisions are being made at this higher level at Tri-State Generation and Transmission cooperative and the other co-op members, and that the members who are supposed to kind of have access to an understanding how this works, are not able to find out what’s going on.

Joe Smyth:

Yes, that’s right. And remember that, you know, the electric cooperatives that purchase power from Tri-State, they’re bound by contracts that extend out to 2050 to purchase that power, which has been controversial because the power is mostly coal at this point, and it’s higher than market prices. So there’s been the growing effort by co-ops in the state, to either look at alternative power suppliers, build in more flexibility to those contracts so that they can build their own local solar projects or buy power from other wholesale power providers, or even just implement demand response or, um, battery storage projects to cut their peak demands and, you know, become modern utilities navigating complex energy transition, many cases, those decisions are restricted or hampered by decisions that Tri-State makes. And, and by these contracts that extend for another 30 years. So there’s a lot of pressure to make some changes. And those changes are happening probably a bit slower than, than many of the co-ops would like to see. But Tri-State has been making changes to the, moving away from some of their coal plants. Those are now set for closure in a few cases, and they’re somewhat relaxing the restrictions on the contracts they have with these co-ops, but how those decisions are made to what end and what the implications are in many cases, weren’t well understood even by the co-ops themselves, much less the rate payers and that sort of motivated the co-op to support, but effort to expand that transparency to Tri-State.

John Farrell:

We’re going to take a short break. When we come back, Joe and I discuss two distributed cooperatives that left the Tri-State community to get more affordable, clean local power, and the longer term implications for members of cooperatives that serve nearly every rural American electric customer. You’re listening to a Local Energy Rules interview with Joe Smyth, researcher at the Energy and Policy Institute, about transparency and democracy at rural electric cooperatives.

Hey, thanks for listening to Local Energy Rules. If you’ve made it this far, you’re obviously a fan and we could use your help for just two minutes. As you’ve probably noticed, we don’t have any corporate sponsors or ads for any of our podcasts. The reason is that our mission at ILSR is to reinvigorate democracy by decentralizing economic power. Instead, we rely on you, our listeners. Your donations not only underwrite this podcast, but also help us produce all of the research and resources that we make available on our website and all of the technical assistance we provide to grassroots organizations. Every year ILSR’s small staff helps hundreds of communities challenge monopoly power directly and rebuild their local economies. So please take a minute and go to ilsr.org and click on the donate button. And if making a donation isn’t something you can do, please consider helping us in other ways. You can help other folks find this podcast by telling them about it, or by giving it a review on iTunes, Stitcher, or wherever you get your podcasts. The more ratings from listeners like you, the more folks can find this and ILSR’s other podcasts, Community Broadband Bits and Building Local Power. Thanks again for listening. Now, back to the program.

John Farrell:

I recall reading about a couple of the member co-ops, the distribution cooperatives, that left Tri-State. I think one in New Mexico and then another one in Colorado. So what’s at stake here really is, as you said, the contracts that have locked these utilities in they’re paying maybe more than they would if they had alternatives. Is that, is that essentially what these cooperatives that decided to leave were looking for is that freedom, flexibility, choice to get their power supply in a different way? Was it, or was it about governance, or about both? What, what caused those? Well, first of all, which co-ops was it that that have left and, and what were, what was motivating them?

Joe Smyth:

Yeah, so the two cops that did already leave Tri-State were Kit Carson Electric in Northern New Mexico and Delta Montrose Electric Association in Western Colorado. And I think their motivations were, were multiple to leave and one was fairly straightforward, but they saw an ability to purchase wholesale power at a lower rate than Tri-State was offering. They, you saw Tri-State rates increasing significantly, and were concerned that those increases would continue for the next decade. And in contrast, we’re seeing the wholesale market prices available in the region, much lower than what Tri-State was offering. So one piece of that I think was purely just on competitive wholesale power pricing. And the other aspect of their decision, I think, was based on their desire to build local, renewable energy infrastructure, to support their community. So one of the cooperative principles is concern for community and those co-ops, and I think others as well, saw their role as a utility including economic development in the communities that they serve. And that one way they could do that was by tapping the renewable energy resources that they had.

Kit Carson’s case, that’s mostly solar and Delta Montrose, their case is about solar and hydroelectric power that they have there, and Tri-State policies restricted those co-ops from pursuing those projects, because it had these punitive contracts that basically don’t allow the co-ops to build more than a small percentage of their power supplies in their service territory. So they’re sort of required to purchase nearly all their power supplies from Tri-State are these long term contracts. And they saw that they could work with another wholesale power provider that would allow them to help those projects and deliver power at a cheaper price. And then it was a matter of, well then how do they get out of this, the restrictive contract with Tri-State so that in both cases with a multi-year process of negotiations, regulatory decisions, and lawsuits, ultimately won and the ability to, to exit from the contract, and we’ve seen in recent announcements and Delta Montrose they’re partnering with the power provider to build a pretty significant solar array in the community.

So exactly what they wanted to do. And I think at an attractive price, from what they’ve said and something that they would never have been able to do if they’d stayed with Tri-State. Now other co-ops in the state, and I think our region, has seen that and are also interested in, in doing the same thing, but Tri-State, you know, doesn’t want to lose these co-op members and then has fought those efforts to leave really at every step of the way. I think they saw that they could perhaps lose Kit Carson, Delta Montrose electric association, and still manage as a G&T. But if they lost some of these larger members like United Power, which is their largest co-op member or La Plata electric associations across Colorado, but that would portend a pretty troubling future for the G&T. So those challenges are ongoing both in court at the court of public utilities commission. And I think at the Tri-State board room in terms of negotiations there, and, and Tri-State has responded in ways that I think are a little bit more constructive than their past attempts, not just trying to block the co-ops from leaving, but also opening up some ability for those co-ops to build more local projects, buy a portion of their wholesale power from other providers, without fully leaving Tri-State. So trying to come to some sort of arrangement that works for both Tri-State, maybe keeps those co-ops as members, but also allows them the flexibility that they see that they need to navigate the energy transition.

John Farrell:

When we talk about the kind of impacts of transparency, it’s sort of interesting to think about that first round and the transparency law directed at distribution co-ops could have been behind Kit Carson and Delta Montrose, being able to have that conversation locally about, do we want to still be a part of Tri-State? What’s the future of our co-op, right? It’s the something that gives that inroads to members to express some difference of opinion with the board to help change direction. What do you see as at stake here as the law is changing transparency for Tri-State and giving the cooperative members individually, but also the distribution cooperatives, more information about what happens at those meetings, hopefully more of a say in those meetings? Do you think Tri-State is going to transform more quickly than it already is? I mean, it sounds like you said they’re kind of, they’ve, they’ve shifted their position from completely fighting everything in any change to they’re doing a few constructive things in response. I guess what I wonder is though, if folks are even just looking at the numbers, as you mentioned, wholesale power is relatively inexpensive when renewables are so cheap, especially in that part of the country. Why, why would distribution co-ops want to stick around? Like what, what does Tri-State need to do to convince them to stay? What are the bigger stakes here? What do you see as happening in the next five years?

Joe Smyth:

Yeah, it’s definitely going to be interesting to watch, right. I think what’s clear is that Tri-State now understands that they have to transition away from their uneconomic coal plants, both to keep their member co-ops and to comply with the rules that Colorado and New Mexico have ensuring that we move away from coal. But whether they do that in a way that just reinforces the fairly centralized top-down decision-making processes that they’ve, that they’ve historically operated under, or that more empowers their electric cooperative members, the distribution utilities to do what makes sense for their communities to my mind, that’s not clear yet, right? Because the, the rules that the laws in New Mexico have, have implemented more or less ensure, you know, an emissions reduction pathway for Tri-State along with the other utilities in the states, but they don’t do a whole lot in terms of how that transition will happen.

So Tri-State has a case to make that they’ll be able to navigate that transition in a more regionally coordinated and perhaps even lower cost way than could be done without Tri-State, right? They point to, we can get wind and solar bids at utility, for utility scale projects at incredibly low prices here, right? Less than 2 cents a kilowatt hour, concise, close to one cent a kilowatt hour, right? And that’s cheaper than the, than the sort of smaller solar projects or hydroelectric projects that the co-ops can get. But if that just moves to the same kind of top-down decision making without real input from the co-op about how they want the transition to look like in their communities, they might not get that support. I think, from the calls and from policy makers in Colorado, because it just has to work for the communities, has to be done in a way that that makes sense. And that allows for that local economic development opportunities that some of the co-ops are looking for. Or they’ll just, I think, continue to see this pressure from some of the other co-ops to, to exit the contracts. So I think it kind of remains to be seen, but the, the benefit, I think, of the transparency rules extending to Tri-State, at least the whole leadership at every co-op the rate payers, policymakers will have, will not have a better opportunity to understand what Tri-State is doing, why and the timeline for these decisions, right? So it’s not just a, we’re making progress, trust us, we’re going to handle this, but really what decisions are being made this month? What are you looking to next month? How about next year and how does that work with what these co-ops want, what the rate payers need and what the states call.

John Farrell:

Yeah. I want to come back to one thing that you talked about there with the utility scale energy versus what the co-ops are doing. I’ve written recently about what I called the farce of free delivery. When we do these comparisons between utility scale power and particularly things like rooftop solar, where, you know, if you just look at the power and the cost to produce that power, of course, you see a very big difference, but also that there is often transmission infrastructure that’s needed to bring that power from where people, where you can generate it to where people use it. So I think that’s always one thing folks need to keep in the back of their minds. But also as you kind of alluded to earlier, it sounds like what Kit Carson or Delta Montrose has dealt…  You mentioned the Delta Montrose project. That’s a local solar project. You’ve got jobs and economic development benefits that come from doing it locally. Maybe that’s worth paying a little bit extra for electricity because you have these spillover benefits in terms of other economic development. And I guess what that makes me think about, you know, you, when you were talking about the Colorado and New Mexico clean energy laws, there are a lot of states now that are thinking about a hundred percent clean energy laws. Are they missing something? Whether maybe it’s not even about co-ops, but in general, about the importance of local decision-making and kind of local project development?

Joe Smyth:

Yeah, no, I’m really glad you brought up that point. Um, but I do think it has been somewhat left out of the conversation here still. Yeah. Those utility scale renewables projects come in at extraordinarily low price, but yet the electricity has to be delivered and the initial build-out those transmission connection costs might not be too high if they’re using existing, just connecting into existing transmission. But as you get more and more of it, it becomes a little bit unclear how much it’s going to cost to connect all that utility scale renewables into the places where, where we need it. And so the sort of distributed renewables, both rooftop, but also one to 10 megawatt solar projects that said some of these costs of building become a lot more attractive. And that’s what Kit Carson Electric is doing, right to building small one to 10 megawatt solar projects near substations, right. Feeding right into the distribution grid that maybe aren’t quite as cheap on a kilowatt hour basis as a huge hundred to 500 megawatt solar array, but might actually ultimately be more cost effective for that co-op and might offer resilience benefits to the co-op as well. That’s another important issue that the co-ops here are looking at, especially we’ve had some extraordinarily damaging wildfires in Colorado in the last couple of years where utilities have had to make tough decisions about turning off the power like we see in California. And that will, I think, increase. So more co-ops are looking at well we should be building solar and storage, right where we need it, because then at least we can run critical systems in addition to the economic development benefits and the price benefits. And I think that, you know, ultimately crisis policies and the policy frameworks that the states are implementing have to allow for that kind of thing, because it’s just going to be clearly attractive to more and more co-ops to build out these kinds of local renewables projects to benefit the communities, offer resilience and deliver power at a good price.

John Farrell:

Joe, I want to wrap up by just asking you… the conversation we’ve had is kind of centered around this update to the transparency law that Colorado has done for cooperatives. Is there legislation like this elsewhere? Are policies that other states have already adopted or places that you’ve heard of where gosh, you think this could be of real help in terms of giving members more access to helping to govern the cooperatives that they’re part of?

Joe Smyth:

Yeah. So I think that there’s interest by co-op reform advocates across the country, in what rules their state should consider to make sure that co-ops are run in a truly democratic and transparent manner. And, and I think what the Colorado example hopefully shows is that as those policies are being considered, make sure to, to look at the generation and transmission associations, these are huge power companies that are generally unregulated by state commissions or, or federal regulators that make decisions that affect the rates of nearly all of rural America’s electric bills. And so we should know right, what those G&T are doing, how they’re making decisions, what kind of information those decisions are based on, and what they’re doing to navigate this transition away from coal. Generation transmission associations in general are heavily reliant on coal and that’s becoming increasingly uneconomic and in every region of the country. So they’re going to have tough decisions to make about how long to run these coal plants, what to replace them with – renewables or, or gas empowering their member co-ops to pursue distributed renewables, demand response programs. In an investor-owned utility, those decisions are made before a state commission that can review the decisions and make sure and hear from outside experts to make sure that the utilities making informed decision based on where energy markets are going. But in most cases, the D&Ts are making those decisions behind closed doors at a boardroom that doesn’t even publish when their meetings or, or even basic information about the decisions that have been made. And that’s a problem, right? It’s a problem for the rate payers. And it’s a problem for the electric cooperatives that are ultimately going to be delivering electricity no matter who’s the power supplier and are dependent on those G&Ts right now for the power that they supply, but may not be in the future. So these decisions that G&Ts are making have enormous impact for rural America and as rate payers, we deserve to know how those decisions are being made and why.

John Farrell:

Joe, can you just remind folks if they want to follow along with the work that you’ve been doing on cooperatives, how they can do that?

Joe Smyth:

Sure. I publish information about electric cooperatives and the energy transition at  cleancooperative.com and also research and write about electric utility issues more broadly at energy and policy institute dot org.

John Farrell:

Joe, thank you so much for joining me today to talk about the progress that you’re making in Colorado and the really significant implications for rural Americans in terms of the future of their energy and how much they’re going to pay for it. We really appreciate it.

Joe Smyth:

Well, thanks so much for having me John and also thanks to ILSR for longstanding effort to shine a light on what’s going on in electric cooperatives across the country. It’s been an enormous benefit, that they’ve done this research to kind of use some of that information.

John Farrell:

Thank you so much for listening to this episode of Local Energy Rules with Energy and Policy Institute researcher Joe Smith, discussing the importance of transparency in cooperative democratic governance to getting more affordable, clean energy. On the show page, look for links to Joe’s website, clean cooperative, as well as ILSR’s 2016 report on rural electric cooperatives called Re-membering the Rural Electric Cooperative. We’ll also have links to two interviews with leaders of cooperatives formerly served by Tri-State, including a 2016 podcast interview with Delta Montrose co-op board member Ed Marston, and a 2018 interview with Luis Reyes, the general manager of the Kit Carson Electric Cooperative. We also have an interview with the authors of the rural electric cooperative toolkit, a resource for member owners to organize for more control over the utility. Local Energy Rules is produced by myself and Maria McCoy with editing provided by audio engineer Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear more powerful stories of communities taking on concentrated power to transform the energy system. Until next time, keep your energy local and thanks for listening.