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.