SCC filing challenges Rappahannock Electric Cooperative’s effort to block member-proposed reforms

A filing with the State Corporation Commission last month shines some light on the workings of Virginia rural electric cooperatives, or at least one of them. It also raises an important question about this often-overlooked sector of the commonwealth’s electric distribution system. Electric co-ops are supposed to operate democratically, but do they really? And what happens when they don’t?

Three longtime member-owners of Rappahannock Electric Cooperative (REC), one of whom is me, filed the recent petition. The other two petitioners are Brigadier General John C. Levasseur (U.S. Army Reserves, Retired), and Dr. Michael F. Murphy. REC is one of the largest electric co-ops in the nation. General Levasseur served on REC’s board of directors for more than three years. I didn’t know these two fellow co-op members until last year. We’ve each traveled separate paths that led us to the same conclusion—democracy and transparency are too often practiced more in name than in substance at REC.

We found board practices and maneuvering designed to keep REC members from seeing how the board itself effectively controls board election outcomes. We found board practices that keep co-op members from learning enough about board members and prospective board candidates to make an informed decision when voting in board elections. And we’ve seen a board culture that favors a go-along-to-get-along attitude over asking tough questions of management and looking out for consumers. More details on how REC and its board thwart transparency and democracy are available on the Repower REC website.

Our SCC petition asks the commission to determine that REC’s board of directors is improperly blocking our effort to propose bylaw amendments for consideration by our fellow co-op members. Virginia law and REC’s bylaws explicitly authorize individual co-op members to submit proposed bylaw amendments for a vote by the full co-op membership.

The three of us are co-founders of Repower REC, a campaign to promote genuine transparency and democracy at our co-op. Our three proposed bylaw amendments would require REC to

  •     annually disclose each of its nine board members’ total compensation;
  •     allow REC members to observe the co-op’s board meetings, in person or online; and
  •     make a clarifying change to the proxy ballot form REC uses for board elections.

REC’s lawyer Charles W. Payne Jr., writing on behalf of the co-op’s board, advised us that the board will not allow us to submit the proposed amendments for a membership vote. He said the proposed bylaw amendments were not made in good faith, and would violate REC’s bylaws. One wonders how a bylaw amendment, which after all is supposed to change the bylaws, could do anything but “violate” the existing bylaws. Payne didn’t explain the basis for his lack-of-good-faith allegation. Presumably these matters will be clarified as the SCC case proceeds.

In recent years a number of electric co-ops around the nation have faced challenges from co-op members seeking to address democracy and transparency issues. In some instances bylaws have been changed and entrenched co-op boards have been replaced as co-op members re-asserted their rights, re-established transparency and true democratic control, and in many cases uncovered the mismanagement of cooperative resources. Often the old board members had served for many decades without real accountability to co-op members. Three people have been on REC’s board for 20 years or more, and two of those three have been on for well over 30 years. Last year two other REC board members died in office, having been on the board for 35 and 40 years.

The essence of the cooperative form of business is democratic control, with fair elections and meaningful member-owner participation in governance. REC acknowledges this principle on its website. The executive editor of REC’s member magazine Cooperative Living, Richard G. Johnstone, Jr., even advised REC members a few years ago that their “vote on changes or additions to bylaws that govern the utility they own” is perhaps one of the most important aspects of democratic control at an electric co-op. Johnstone should know. He is president and CEO of the Virginia, Maryland, and Delaware Association of Electric Cooperatives.

But in Virginia it’s not clear that any regulator or law-enforcement agency or the General Assembly regularly monitors electric co-ops to ensure that they’re living up to the requirement embodied in Virginia law and federal tax law that co-ops must operate democratically with fair elections. This despite the fact that electric co-ops have monopoly status and receive favorable regulatory, financial, and tax treatment based on the assumption that they are democratic.

A 2008 U.S. Senate hearing focused on undemocratic practices and serious mismanagement and corruption at rural electric co-ops, focusing in particular on Texas-based Pedernales Electric Cooperative, the nation’s largest. A Texas state legislator testified that “without transparency [at an electric co-op] there is no meaningful local control.” A second witness, a leader of the effort to reform the co-op, said “[t]ransparency and openness, combined with fair elections leading to reduced director tenure, could have prevented many of the abuses we suffered at Pedernales.”

There’s also an important role for the press in monitoring electric co-ops’ democracy, or lack thereof. At the U.S. Senate hearing a congressman cited the “outstanding reporting of Margaret Newkirk of the Atlanta Journal Constitution and of Claudia Grisales of the Austin American Statesman chronicling the abuses of Georgia and Texas co-ops.”

Yet here in Virginia only one of the many newspapers distributed in REC’s service territory has thus far reported on the REC board’s effort to block a member vote on the proposed bylaw amendments. That account is in the respected but tiny Rappahannock News, widely read in Rappahannock County, but not elsewhere in REC’s 22-county service area. To its credit, the new nonprofit online publication Virginia Mercury published Robert Zullo’s account of the SCC filing. But many media outlets that seemingly cover Dominion Energy’s every move often ignore the electric co-ops.

As the SCC matter proceeds, it will be interesting to see what arguments REC advances in support of its claim that proposed bylaw amendments somehow improperly “violate” existing bylaws, and the co-op board’s claim that amendments to improve transparency about board compensation, board meetings, and election ballots are made in bad faith.

Even more interesting to observe will be the SCC’s analysis of the matter, and whether state legislators and the press begin to pay attention to whether genuine democracy is practiced in Virginia’s electric co-ops. Those co-ops all love to extoll their supposed democratic governance when seeking favorable treatment in Richmond or Washington D.C. But not all rural electric co-ops live up to their high-minded principles.

Seth Heald has been an REC member-owner for ten years. He is a retired lawyer and has a master of science degree in energy policy and climate.

August 18, 2018 Update: This amazing story, published in Columbia South Carolina’s daily newspaper, The State, shows why electric co-op boards prefer to keep co-op members from knowing the details of board members’ generous compensation.

 

Virginia regulators reject Dominion renewable energy tariff

Virginia’s State Corporation Commission (SCC) has rejected Dominion Energy Virginia’s application for approval of a new rate schedule “CRG” under which it would offer renewable energy to large users of energy.

The SCC concluded Dominion had failed to show the tariff would result in “just and reasonable rates.” The Commission focused especially on two issues. First, the tariff relied on a formula made up of a long list of unknown variables including half a dozen different cost and price forecasts, producing “simply too much uncertainty and subjectivity.”

Second, Dominion proposed to collect a profit on the renewable energy it purchased for customers, equivalent to the return on equity it is allowed to charge on projects it builds. This would be unusual (typically the costs of purchased power are simply passed through to customers), and the Commission wasn’t having it.

This puts Dominion back at square one in developing a renewable energy tariff it can offer to large customers other than the Amazons and Facebooks of the world, who negotiate their own terms.

On the one hand, that’s good for customer choice and free market competition; as long as the utility does not have an approved tariff for 100% renewable energy, customers are allowed to buy renewable energy from other providers.

On the other hand, the SCC opinion also seems to suggest that when Dominion comes back with a new proposal, it might have to be one that, while cheaper, could be even less appealing to customers than the already-questionable CRG tariff. Pointing to the very broad definition of renewable energy in § 56-576 of the Code, the SCC makes the peculiar assertion that “The Commission must find that the energy provided by the proposed tariffs meets the General Assembly’s definition of renewable energy, not an individual customer’s preferred definition of such.”

This language concerns Cale Jaffe, Assistant Professor of Law at the University of Virginia and the Director of the Environmental and Regulatory Law Clinic. He says:

I take that as a not-so-thinly veiled criticism of Tier 1 renewables like wind and solar by the Commissioners.  I.e., Va. Code 56-576 defines “renewable energy” to include, “biomass, sustainable or otherwise, (the definitions of which shall be liberally construed), energy from waste, landfill gas, municipal solid waste….” I read the Commission as advising Dominion that if it comes back with another 100% Renewable Energy tariff, it needs to include “cheaper” options (if externalities are excluded), which the Commission would define to include unsustainable biomass along with other Tier 3 resources (e.g., waste to energy).

For customers, the result could be the worst of both worlds if a tariff with a mix of cheap, crummy stuff won SCC approval. It would close off the market to competition, yet probably not attract many takers.

Taking the optimistic view, though, there’s little out there in the renewable energy world that can compete with today’s wind and solar prices, with the exception of hydropower in places that have a lot of it. If Dominion’s prices are high, that’s because it insists on mixing in high-cost biomass to satisfy its own insistence that a renewable energy tariff consist of renewable energy 100% of the time.

The SCC’s focus on cost to customers has implications for Dominion’s proposed Schedule CRG-S, which would offer residential and smaller non-residential customers a mix of renewable sources at a fixed price that would increase the bills of participating residential customers by nearly 18%, or more than $20 per month for someone using 1,000 kWh. (Again, it’s that insistence on “100% of the time” that appears to be driving up the price.) This is a greater increase than the similar tariff Appalachian Power proposed, and the SCC rejected as too high, just a year ago.

For Dominion, the answer to every problem is more gas

Dominion Energy Virginia just released its 2018 Integrated Resource Plan (IRP), and the message it conveys could not be clearer: no matter what happens, the utility plans to build more fracked gas generation.

The IRP lays out five scenarios for meeting electric demand over the next 15 years, each one responding to a different set of assumptions. Yet weirdly, no matter which assumptions you choose, Dominion’s plan involves building a little bit of solar and a lot more gas.

Dominion Energy Virginia IRP; table showing alternatives considered

Dominion’s “Alternative Plans” (from page 24 of the IRP) prove to be very short on actual alternatives.

Everywhere you see “CT” in the table, that’s another gas plant–and they show up in every “alternative.” Assume no carbon tax? Great, Dominion will build gas. What if Virginia follows through on plans to cut carbon by joining the Regional Greenhouse Gas Initiative (RGGI)? No problem, Dominion will build gas. How about if the Feds impose a national carbon plan? Alrighty then, Dominion will build gas!

Seriously, folks, if fracked gas is always the answer, somebody isn’t asking the right question.

The question we’d like to see addressed is how the utility intends to help Virginia transition to a clean energy economy. The question Dominion seems to be answering is how to create a need for the Atlantic Coast Pipeline.

This isn’t a surprise; Dominion’s parent company, Dominion Energy, is the majority partner in the pipeline, and the pipeline’s approval was premised on the utility “needing” the pipeline to serve its gas plants. It’s a blatant conflict of interest that the SCC should have addressed by now, but it declined to do so. (The Sierra Club has taken the SCC to court over this dereliction of duty.)

Dominion would prefer we talk about its plans for more solar. It is true the 2018 IRP proposes more solar generation than the 2017 IRP did. Last year’s IRP revealed that solar had become the lowest-cost energy in Virginia, but it forecast only 240 MW per year. This year’s IRP shows solar increasing over the next few years to a maximum of 480 MW per year beginning in 2022 (about half of what North Carolina installed in 2016). To put that in perspective, Microsoft recently announced it was contracting for 350 MW of Virginia solar to be built in one fell swoop, to serve just its own operations.

Meanwhile, the IRP notes that Dominion’s newest combined-cycle gas plant, the 1,585 MW Greensville behemoth, will enter service next year. Running at full capacity, it would provide the equivalent amount of electricity to 13 years’ worth of planned solar construction, since the expected output of a solar farm is about 25% of its “nameplate” capacity. (To be fair, the Greensville plant will likely run at more like 75-80% capacity. But it follows three other new gas plants Dominion built this decade. Together the four plants add a total of  4,862 MW. And those are nowhere near all the gas plants Dominion operates.)

The fact that all of Dominion’s IRP scenarios look alike and rely heavily on gas seems to be intended to send a message not to the SCC but to Governor Northam. Dominion doesn’t like the carbon reduction rulemaking now underway at the Department of Environmental Quality, which aims to lower emissions from Virginia power plants by 30% between 2020 and 2030. So the IRP “assumes” Dominion will comply by purchasing dirtier power from states not subject to regulation, actually driving up both cost and carbon emissions. Meanwhile, it’s going to build gas no matter what.

Welcome to Dominion’s game of hardball, Governor Northam.

Of course, the IRP is only a planning document. The SCC may approve it but still reject a proposed facility when the utility asks for permission to build it. Market watchers will question whether Dominion will be able to justify all—or any—of the 8 proposed gas combustion turbine facilities in hearings before the SCC. Virginia has too little solar now to need combustion turbines for back-up, and by the time there is enough to challenge the capabilities of the grid, experts predict battery storage will be the better and cheaper choice.

But never mind that; for Dominion, what matters now is justifying the Atlantic Coast Pipeline.