The Latest Front in Virginia’s Energy Wars: Rural Electric Co-Ops

One in six Virginians get their electricity from a rural electric cooperative. In theory, because co-ops are owned by their electrical customers, the interests of owners and customers and owners are aligned — in contrast to Virginia’s investor-owned utilities, Dominion Energy and Appalachian Power Co., in which the interests of stockholders and customers often come into conflict. But in the real world, the agency problem intervenes: The electric co-ops are run by professional managers, and a question arises as to whether entrenched management is putting its own interests ahead of the owner-customers they serve.

The policies of Virginia’s electric co-ops has been the source of considerable consternation among environmentalists. As noted last month by Ivy Main, a Sierra Club of Virginia blogger and contributor to the Virginia Mercury, “While a few co-ops have adopted innovative customer-friendly programs, most actively resist change.”

By “actively resisting change,” Main refers to their reluctance to embrace the environmentalists’ clean energy agenda. Coal accounts for 75% of energy generated by electric cooperatives nationwide, compared to less than 28% for all utilities nationally. “Worse,” she writes, “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. … 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.”

It’s easy for environmentalists to demonize Dominion and Apco for their failure to live up to the environmentalists’ vision for Virginia’s solar- and wind-powered energy future — they depict investor-owned utilities as big, greedy monopolies serving stockholders at the expense of their customers and the public at large.

But that line of logic poses a problem when it comes to electrical co-ops, where owners and customers are one and the same. The environmentalists’ answer to that conundrum: Co-ops are run by insulated, out-of-touch, self-perpetuating cliques that ignore the best interests of their owners/customers.

To any student of human behavior, it would not be surprising if such a thing were true. Observers of organizational behavior have long noted that the interests of management and stockholders diverge even in for-profit corporations where stockholders have a direct material interest in how the corporations are managed. A central challenge in executive compensation theory is how to keep the interests of senior executives and stockholders in alignment. If the problem exists in for-profit corporations, it likely exists in more intense form in non-profit co-ops in which customers feel only a remote sense of ownership.

Here in Virginia, a group called Repower REC is arguing that the leadership and board of the Rappahannock Electric Cooperative (REC), which serves 135,000 customers in the exurban fringe of Northern Virginia, is unresponsive to member-owner sentiments. Repower has made an issue of how REC distributes and counts its members’ ballots.

A review of elections back to 2010 shows the number of … unsigned proxy ballots has always been in the thousands, constituting more than half of all votes cast in each board election. REC employees encouraging or suggesting on-the-spot voting at an REC office increases the likelihood of REC members signing blank “member-undesignated” proxies. The board’s control of thousands of blank proxies has changed the election results in two of thee last three board elections (2016 and 2017), meaning that two of REC’s current nine board members won their election only because of the board’s using the blank proxies to change the election outcome.

There may be something to these charges. On the other hand, the incumbent management and board may pose legitimate questions of their own about those who seek to displace them. How representative is Repower REC of the c0-op’s members? Is the openness-and-transparency initiative simply a front by a vocal minority of environmentalists to put its own people into power and impose a clean energy agenda on the co-op and its members?

Perhaps renewable energy does not make as much economic sense as environmentalists claim. Dominion Energy has executed a major about-face on solar and wind because the company is confident that it can recoup higher costs through the political and regulatory process. In other words, while clean energy might cost rate payers, it will not cost stockholders. But with electric co-ops, the interests of rate payers and owners are the same. Is it not possible that co-op executives and boards have concluded that clean energy is not the great good that environmentalists and solar advocates purport it to be?

I don’t pretend to know the answers. I just pose questions worth asking. I will be watching developments at REC as they unfold.

Update: The original post mistakenly attributed the highlighted quote above to Solar United Neighbors. Although it was republished on the Solar United website, the article was written by Seath Heald, a retired lawyer and REC member-owner.

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18 responses to “The Latest Front in Virginia’s Energy Wars: Rural Electric Co-Ops

  1. Shouldn’t utopia be universal? Why should coop customers escape?

  2. Looks like the rural electric cooperatives could easily buy power from PJM that was generated by gas instead of buying coal generated electricity (which is what the novec northern Virginia electric cooperative it is actually doing so the question is why do they continue to buy coal when they could buy gas and is the board of directors of Raz thinking about that or are they continuing to do what they’ve always done?finally my suspects are that most people who are customers for real for Rappahannock electric cooperative would prefer to not use coal generated electricity if they could buy gas generated electricity for no more money so can the customers of Rappahannock electric cooperative participate in that decision?

    • “for no more money” Can NOVIC buy gas-generated power in sufficient quantities at a cost that does not exceed the cost of the same amount of coal-generated power? I’m still waiting for a company to tell me that they would sell me the same amount of power I buy from Dominion at 3/4 the cost Dominion sells it for if there were retail competition.

      Speaking of Dominion, I was in NYC on Saturday evening during the ConEd outage in Midtown. I believe there was a fire in a manhole that took out a number of transformers. The power was restored in about 4 and 1/2 hours. Had this been Dominion, I somehow suspect restoration would have taken days.

  3. Glad you’re reading our work, Jim, but you’ve got some facts wrong. I, not Solar United Neighbors, wrote the piece you’re quoting from about how REC’s board uses blank proxies to control election outcomes. (It was posted on the Repower website by someone who works at Solar United Neighbors, but I wrote it and I wrote and sent the underlying letter it is based on.) I don’t work for Solar United Neighbors (or anyone else). I’m a retired lawyer and longtime REC member-owner. Our Repower REC campaign has around 1,000 supporters and is growing. Solar United Neighbors, a grassroots nonprofit that promotes rooftop solar, is one of our partners but it doesn’t control what we say about REC. Regardless of what you think of clean energy, I hope we can agree that fair board elections are a minimum requirement for an electric co-op. You didn’t link to what I’ve written about REC’s unfair election practices, so I’ll give the link here: https://repowerrec.com/2019/07/09/are-rec-staff-trying-to-influence-the-board-election/

    • Thanks for pointing out the error in authorship. I’ll make the correction in the blog post.

    • The power of a signal, non-institutional shareowner is small, indeed. I often vote against directors I think are rubber-stamping management and against proposals that seem to unduly reward management. I often vote against proposals by other shareowners that are aimed not at high-quality and profitable operations of the business but a social or economic goal.

      At the same time, there is nothing untoward about management soliciting proxies so long as they comply with the law and any other applicable requirements. Why should coops be treated differently? If coop managers are violating the law or provisions of the bylaws or other applicable documents, they should be called to task. If not, I’m struggling to see where they’ve done wrong.

  4. Based on America’s Electric Cooperatives data, there appear to be eleven (11) Electric Coops in VA that use solar. How did those subscriber/owners arrive at this (environmental) decision to pursue renewable energy, not coal or gas (exclusively)? It would be an interesting case study, vis a vis REC. https://www.electric.coop/wp-content/Renewables/solar.html#

  5. re: “Dominion can generate electricity from gas at 3/4 the price that PJM suppliers can”.

    So is it true that Dominion can generate electricity for LESS than PJM suppliers can OR is it true that no matter where the Co-ops get their power form – coal or gas, it’s gonna cost more no matter what?

    I don’t truly know the answer but it might be interesting to see a chart showing the cost per killowatt for Dom/ApCo and the Co-ops.

  6. The thing about gas and coal is that gas is replacing coal as a cheaper fuel. Dominion is replacing coal with gas as are other investor-owned utilities as well as the suppliers of PJM.

    So the question remains – what are Virginia’s co-opts still using coal – and to TMTs question – does NoVa charge more per killowatt hour for PJM gas-generated electricity than if it was buying coal-generated electricity like the rest of the Va Co-ops are?

    See how much we do NOT know?

  7. I realize it is somewhat unusual for the subject of a post to comment, however, since many readers seem to be unfamiliar with Virginia’s electric cooperatives, specifically Rappahannock Electric Cooperative (REC), it seems appropriate to respond and provide some background. For full disclosure, I am the manager of external affairs for the Cooperative. I apologize in advance for the length of this comment.

    REC respects and is always responsive to the concerns of its member-owners. With more than 130,000 members receiving service at nearly 170,000 locations across 22 counties and 11 towns, pleasing each member is, understandably, difficult. Regardless, the mission of the board and management remains the same, with providing affordable and reliable electricity always being top of mind, and safety of the public and employees taking precedence over all else.

    Much of the information referenced in the original post and subsequent comments are based on national averages and are not specific to REC or Virginia’s other cooperatives. REC does have a long-term, all power requirement contract with a wholesale cooperative – essentially a “cooperative of cooperatives” – which, among other things, provides economies of scale. REC’s wholesale power contract also provides a diverse portfolio that creates stability and protection from market fluctuations. More about our power supply can be found in the About Us section of myrec.coop. A quick review of the pie chart shows that over half of the energy comes from market purchases, less than 14% from coal, 15.5% from nuclear, and slightly more than 7% from cooperatively-owned combustion turbines. The percentage of renewable energy is constantly growing, with 6.5% from solar, wind, or landfill gas, and another 1.2% from carbon-free hydroelectric generation. The benefits of a stable and diversely-supplied contract, and the fallacy of evaluating the market based on a snap-shot in time, are further explained in a statement titled “REC Response to Report on Wholesale Power Supply Costs” posted in the Newsroom section of the website.

    REC’s elections are fair and inclusive. The biggest challenge is meeting the 2 1/2% quorum requirement, which is why we take every opportunity to encourage members to participate. It is interesting that two members who are actively engaged in litigation with REC, in what they describe as an effort to increase democracy, are now complaining that REC encourages ALL members to participate in a democratic process, and offers multiple convenient means of doing so.

    For those who are interested in learning more about REC, its governance, management, board of directors, finances, etc., there is a wealth of information on our website, including a Governance Center and Document Center, as well as sections devoted to REC’s Annual Meeting and Director Elections. Access these in the About Us section: https://www.myrec.coop/aboutus/index.cfm

    • Thank you, Mr. Faulconer for clearing up some misstatements by others.

      Your comments would seem to support my earlier opinion that “As noted last month by Ivy Main, a Sierra Club of Virginia blogger and contributor to the Virginia Mercury …”This is key to understanding Ivy Main’s environmental and energy commentary found on Virginia Mercury. It is not news. Instead it reflects the talking points and extreme partisan bias of the Sierra Club on these environmental and energy matters …”

      In my own vernacular now, it appears to me that you have been forced unfairly to respond to a hit piece orchestrated by the Sierra Club but delivered via the Virginia Mercury. Unfortunately, most targets of the Sierra Club are not afforded a way to respond to these sorts of disinformation hit piece campaigns.

  8. I appreciate the response as I am a long-time customer of REC and can say without hesitation that when storms come – REC is out fixing stuff as fast as they can. It’s often the first thing I see after venturing out after storms.

    As far as elections, I think they are perhaps “open and fair” but over the years – the leadership is insular and does use it’s proxy votes to ward off challenges.

    I DO pay MORE for electricity from REC than my friends who get it from Dom and I do not know why if they are getting from same sources. I also do not know if NOVEC which left the ODEC cooperative and gets power from PJM charges more or less per killowat hour than Dom or REC.

    It’s THIS KIND of information that I feel that REC should willingly and openly provide and when it does not or it’s provided deep in inscrutable financials, that’s not good and REC should do better.

    Those are constructive criticisms as I think highly of REC in some ways but they could (and should) improve in some areas.

  9. Larry, I expect you do pay more for the delivery of a certain quantity of power than a Dominion customer pays for delivery of that same quantity. The costs of the power itself are probably very similar, but the costs of delivering that power to a predominantly rural service territory is what adds to your bill compared to that of a Dominion customer. Ten customers supporting, say, a 5 mile delivery line have to pay more per person than those supporting a similar line supplying 50 customers, for example

  10. Larry, thank you for the kind words regarding REC’s service, and for your suggestions. Rowinguy’s explanation is accurate; the difference in rates is a matter of “meter density” as defined by meters per mile of line. Co-ops have similar or even higher fixed costs per mile of power line, but tend to serve about 75% fewer meters per mile than do investor-owned utilities. Fewer consumers per mile translates to fewer kWh per mile, meaning the average delivery rate for co-ops trends higher than that of utilities serving more populous areas. REC has only 9.4 meters per mile. For an industry comparison, see the Fact Sheet at:

    https://www.cooperative.com/programs-services/bts/Documents/Data/Electric-Co-op-Factsheet-Update-February-2019.pdf).

  11. Rowinguy and Matt Faulconer, you are correct of course and it was obviously an un unthoughtful comment… it’s the same fundamental problem was cable internet – which at one time, I thought REC was going to offer and I was looking forward to it.

    I very much appreciate Matt for coming forward and commenting. A lot of commenting here could benefit from
    additional comments from folks who are directly involved – as Steve ad Dick have demonstrated.. more can join in whenever it seems right and many would be thankful and better informed!

    This is coming from Baker City, Or which has an awesome Oregon Trail Interpretive Center as well as the Four Rivers Cultural Interpretive Center in Ontario, Or.

    We’re headed for John Day and it’s Fossil Beds next.

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