New Paths for Rural Electric Co-op Revival — Episode 196 of Local Energy Rules

And those contracts really in a changing energy world in which clean energy is more modular. We have so many more options and pieces of the portfolio coming together in a resource mix today are really for closing options for cooperatives. I think there’s also probably been a spin cycle where the existence of those long-term contracts, because you’re basically taking certain decisions out of that local decision maker suite of options, helps encourage a slowdown in the democracy that we see because the big decisions around what your energy mix and generation is going to be are ones that don’t feel materially addressable year in year out because of those long-term commitments that have been made.

The other piece that I would add to this matrix though, when it comes specifically to clean energy deployment, is that because of the design of the tax credits for wind and solar over the last decade plus, which have been available to entities that have a taxable liability, cooperatives have been structurally cut from a policy perspective out of owning wind and solar the same way that they had owned other sources of coal and gas generation. I think that one of the most exciting things that we’ve seen in this last year with the Inflation Reduction Act is that there is now a pathway open for the direct access of those tax credits and that opens huge doors of possibility for cooperatives.

And on that piece about co-op democracy, we’ve heard on this podcast from Kit Carson general manager Luis Reyes, and he explained how co-op member owners are asking more from their utilities. They want to have these choices over their energy sources, they want more clean energy and they’re not willing to sit by while rates increase higher and higher. So when Kit Carson broke its contract with Tri-State, it’s really because that’s what the member owners wanted to do.

Another success story that we do look at in the report would then be Delta Montrose Electric Association, which followed Kit Carson’s lead and broke its contract with Tri-State in 2020. So Delta Montrose also expects to save millions of dollars under a new contract and the members were looking to lower their costs again, have a cleaner energy portfolio and increase their own energy resilience.

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We talked a little bit about the tax credits, we’ll probably circle back to those because that is a long tail uncapped source of capital that co-ops now have direct access to via elective pay. And in addition, you have these flagship opportunities from the US Department of Agriculture called the New Era program and PACE, which together provide about $11 billion for cooperatives and rural communities to further their energy transition. The letter of interest phase for each of these programs closed about a month ago. And so over the summer, if you knew anyone involved with a rural electric cooperative, they were likely heads down thinking through what their application could and should be for taking advantage of this pot of federal money that could be used as a grant for up to 25% of your total project value.

And the USDA received a huge sweeping wave of interest through this program. We’ve got 157 proposals that came in from nearly every single state and Puerto Rico together, these support 750 high quality clean energy projects and this is about two x what the program itself can handle from a funding perspective. And so you see the hunger to put these dollars to work and to bring resources in to further the energy transition and take advantage of these new resources. What I think is particularly important here, one of the things that I know that all of us here care very deeply about is lower energy bills and serving disadvantaged communities and making sure that investments don’t go just to the places that are already resource rich. These projects, more than 50% of those letters indicated that they’re going to serve distressed disadvantaged energy or tribal communities. Those are also places where the tax credits are combinable with these investments from USDA to be able to further those projects to fruition.

As we look at that portfolio, to me it represents really a sea change in what’s possible. Some of the coal debt that Maria talked about that could be included in these projects. And as USDA weighs them, they’re going to be looking at the emissions reduction potential as well as a couple of other factors to determine which ones to move forward with. And those projects that have those highest emissions reductions, which is really looking at that coal, are going to be in a really good place to be competitive within this competitive program. And so it’s an exciting moment where we have a down payment to be able to tackle some of the thornier challenges in the sector.

I want to pivot a little bit. I think one of the things that makes me optimistic at least like I said, is about the level of interest in this. So I want to kind of go back to this issue of co-op democracy and this question of how much is this being driven by members? I think there are broad surveys of folks that largely live in rural areas that would be served by electric cooperatives and clean energy scores very highly. So I’m just kind of curious, we’re seeing this shift to clean energy driven in part by the financial incentives, I think by a desire to get out from under contracts that are expensive for members. I’m going to go to Frances first here. Do you feel like cooperatives are set up to reflect their member interests very well? They’re exempt from state regulation, unlike monopoly invest owned utilities. How has that exemption helped and maybe in terms of that structure and the realization of democracy, how has it maybe hurt?

And so that allows for shenanigans to happen as well. It allows for power lock and for a sort of erosion of democratic principles and access that we see in far too many cooperatives. And so thinking about things like transparency, open meeting minutes, just like the base information and contact that folks have with the board of directors, understanding the base fact that somebody can vote for their board of directors members. Y’all’s 2016 report, I think highlighted that over 70% of cooperatives, you’ll have less than 10% turnout in a board election. Many of these seats get appointment or recess appointees and they kind of chug along without having that sort of influx of oversight and accountability that comes from having really robust democracy practices. One of the most exciting things I’ve seen in the advocacy work around this has been the efforts to scorecard in different regions cooperatives and really highlighting what best practices are across democracy, across clean energy, across the inclusionary practices, around electrification and other program delivery that cooperatives can put in place. And I think that daylight really matters and showing up locally really, really matters.

And I think that as we are really infusing so much more complexity into grid management, that community voice becomes all the more important because it helps to prioritize and it helps to showcase and kind of keep a north star on the direction that a utility can go. And what I think is really helpful within the Inflation Reduction Act programs is many of them, including new era, require something called a community benefit plan as part of that full package that a utility is putting together. And this is a chance and an opportunity to really build stronger democratic processes within the project deployment process itself. And so these community benefit plans are on paper. They’re supposed to be contracts that are negotiated as part of your project that is hand in hand designed with community members and member owners of the utilities. It’s looking at things like how is community engaged in the planning, how is labor engaged? How are we investing in the local workforce to deliver these projects, and how is that workforce being supported with good paying jobs and the security that they need? How are we advancing diversity, equity, inclusion and accessibility in program design and in resource allocation and the placement of projects? And also a focus on implementing the Justice 40 initiative, which is really looking to direct resources from these federal programs into the communities that have been left behind in previous economic transformations. The opportunity and the structures are baked into the process, but making it happen is going to take local leadership and it’s not going to happen without the involvement of member owners and folks who are organizing and speaking directly to their cooperative.

On this topic of invigorating co-op democracy, there have been some really nice efforts and tools put together. I’m thinking of the Rural Electric Cooperative Toolkit. Frances, I’ll go to you first. How do you think that those kinds of tools can help broadly with the clean energy investment question, but maybe more narrowly just around that idea of co-op democracy?

And cooperatives are going to be at the center of all of that. And we see pilots and full-blown programs looking across these new technologies and cooperatives across the country, and I think they’re going to be just supercharged by this latest round of federal investments that we see. And so we’ve got New ERA and others looking at that large scale generation challenge. There’s also the opportunity for distribution cooperatives to be a part of that program, and those projects could include community solar, could include solar plus storage and other grid edge investments that really take advantage of the fact that as we move into clean power systems, things are getting more modular and you can really look at both the demand and the supply of energy in new ways to find creative solutions for challenges that both the utility face and the consumers face leading to better outcomes and economics for both.

Frances, what’s your favorite cooperative and where can folks go to find more information about the work that you do around rural electric cooperatives?