Customer-owned utilities should be leaders on clean energy. Why do most of them fail to deliver?

map shows territory of Rappahannock Electric Cooperative

The territory of the Rappahannock Electric Cooperative in Virginia, from the coop’s website.

More than one in six Virginia residents gets electricity from a rural electric cooperative rather than a big investor-owned utility like Dominion Energy or Appalachian Power. Co-ops don’t get much attention from clean energy advocates and the press, but that might be a mistake. Co-op members aren’t just customers; they’re owners.

In theory, that should put co-ops at the head of the energy transition.

The current reality is mostly quite different, both in Virginia and nationwide. While a few co-ops have adopted innovative customer-friendly programs, most actively resist change. Here in Virginia, a battle over reform of the Rappahannock Electric Cooperative (REC) shows how difficult it is for co-op members to make their voices heard.

According to the reform group Repower REC, the co-op’s management not only refuses to make changes that would save members money, it actively cuts members out of the decision-making process. Repower REC is endorsing a slate of reform board candidates and proposing amendments to the co-op’s bylaws that would give members the right to fair elections and to obtain basic information about REC’s management and finances.

The lack of transparency and democracy at REC turns out to be a common failing of co-ops. A 2016 report from the Institute for Self-Reliance described three reasons why co-ops are laggards rather than leaders in the energy transition: overreliance on coal, long-term contracts with suppliers and a failure of democracy in governance.

Coal accounts for 75% of energy generated by electric cooperatives nationwide, compared to less than 28% today for all utilities nationally. Worse, failing to see the promise of distributed generation, most co-ops have locked themselves into long-term supply contracts that give them little room for self-generation with solar and wind. Having tied their members to fossil fuels, it’s not surprising that co-op managers don’t want their governance scrutinized too closely.

In fact, stuck with the dirty black stuff, rural electric cooperatives are much more likely than investor-owned utilities to support coal and oppose climate regulations. This may even help explain why rural voters are so much more likely than urban voters to support coal even in non-coal states, and to doubt climate science. Certainly their co-ops, which are supposed to educate consumers about the electric power industry, are not helping to educate them about the realities of climate science.

But according to the Institute’s report, it’s the third reason that holds co-ops back the most. Co-op member-owners have the right to vote but mostly don’t, often because they’re presented with no real choices, and lack basic information needed to cast an informed vote.

A host of other barriers, such as a lack of transparency, and the practice of collecting blank “proxy ballots” that incumbent board members complete as they see fit, ensures the reelection of entrenched board members and their hand-picked successors. Board members pay themselves handsomely for very part-time work, with many staying on boards for decades if not life.

All of these problems are present at REC, according to Repower REC. Seth Heald, a Repower REC founder who’s been an REC member for over a decade, says “the total lack of transparency surrounding the co-op’s board meetings seems designed to keep REC members from knowing whether their board members are well-informed, engaged and advocating for consumers. It also prevents us from learning the extent to which management may exercise control over compliant board members.”

To be fair, other Virginia co-ops show the promise of the member-owned model. The only community solar programs offered in Virginia today are run by coops: BARC in southwest Virginia and Central Virginia Electric Cooperative in the Charlottesville area. BARC also installed solar on all three Bath County schools, putting it way ahead of larger and richer jurisdictions like Fairfax and Loudoun that get power from Dominion.

Virginia co-ops also reached a deal with the solar industry this year designed to ease some of the barriers to rooftop solar, a deal neither Dominion nor APCo would agree to.

But Virginia co-ops haven’t adopted the kinds of aggressive energy efficiency programs that have lowered energy demand and saved money for members of the nation’s most innovative co-ops, such as Roanoke Electric Cooperative in North Carolina and Ouachita Electric Cooperative in Arkansas. In both places, utility financing of efficiency improvements and federal grants from the Department of Agriculture have allowed even very low-income members to pay for insulation and appliance upgrades while simultaneously lowering electric bills.

(Ouachita also installed Arkansas’ largest solar farm in 2017.)

It’s hard to believe more co-ops wouldn’t offer programs like these if they truly had their members’ interests at heart.

REC members will be voting this month on board candidates and Repower REC’s proposed bylaw amendments, using proxy/ballot forms attached to the cover of the July Cooperative Living magazine. Forms must be mailed back in time to arrive by Aug. 19. Members may also vote through REC’s SmartHub online tool by Aug. 19, or in person at the August 22 annual meeting.

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.