Greening the Old New Deal: Strengthening Rural Electric Cooperative Supports and Oversight to Combat Climate Change
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Missouri Law Review Volume 85 Issue 2 Article 20 Spring 2020 Greening the Old New Deal: Strengthening Rural Electric Cooperative Supports and Oversight to Combat Climate Change Gabriel Pacyniak Follow this and additional works at: https://scholarship.law.missouri.edu/mlr Part of the Law Commons Recommended Citation Gabriel Pacyniak, Greening the Old New Deal: Strengthening Rural Electric Cooperative Supports and Oversight to Combat Climate Change, 85 MO. L. REV. (2020) Available at: https://scholarship.law.missouri.edu/mlr/vol85/iss2/20 This Article is brought to you for free and open access by the Law Journals at University of Missouri School of Law Scholarship Repository. It has been accepted for inclusion in Missouri Law Review by an authorized editor of University of Missouri School of Law Scholarship Repository. For more information, please contact [email protected]. Pacyniak: Greening the Old New Deal: Strengthening Rural Electric Cooperati Greening the Old New Deal: Strengthening Rural Electric Cooperative Supports and Oversight to Combat Climate Change Gabriel Pacyniak* ABSTRACT New Deal cooperatives succeeded in electrifying rural America when for- profit utilities would not. Today, however, rural electric cooperatives are lagging behind when it comes to meeting the challenge of climate change. Cooperatives have collectively been slower to embrace the shift to low-carbon electricity than for-profit and municipal utilities and have served as a drag on state and federal clean energy and climate policies. This is partially because of the structural differences between cooperatives and other utilities, but also because of a weak and underdetermined federal and state regulatory structure. A few cooperatives in Colorado and New Mexico are seeking to lead the charge to a low-carbon electricity system, but they are finding themselves stymied by their own power supply cooperative. Drawing on insights from organization, public choice, and energy regulation theories, this Article argues that institutional incentives at power supply cooperatives inhibit prudent resource planning in a time of climate change. It concludes that cooperatives need significant changes to state and federal regulatory structures to counter these factors. These changes include subjecting power supply cooperatives to rigorous integrated resource planning requirements and providing state utility commissions oversight over power supply contract buy-out fees. It also includes reconsidering the wholesale electricity rate structure between power supply and distribution cooperatives. * Assistant Professor of Law, University of New Mexico. Thanks to Daniel Alvarez, Megan Ceronsky, Denise Fort, Peter Heisler, Joshua Kastenberg, Ellen Howard Kutzer, Jonas Monast, Megan O’Reilly, Joe Smyth, Melissa Scanlan, Nancy Seidman, Amy Stein, Shelley Welton, and ChristoPher Van Atten for their thoughtful comments on drafts of this article, and to ChristoPher Van Atten, Luke Hellgren, and Jon Farrell for sharing data and related insights. Thanks also to participants in the 2019 Southern Environmental Law Scholars Workshop, the 2019 Arizona State University Sustainability Conference of Legal Educators, the 2019 Online WorkshoP for Environmental Law Scholars, and the 2018 Energy Policy Research Conference. Finally, I’m grateful for excellent research assistance of Erin Phillips and Logan Glasenapp, funded by the University of New Mexico Utton Transboundary Resources Center; for the invaluable research suPPort of Law Librarian Ernesto Longa; and for the thoughtful editing of this article by Brittany Briggs, Carleigh Cavender, Michael Essma, and Emily Holtzman of the Missouri Law Review. All errors are mine alone. Published by University of Missouri School of Law Scholarship Repository, 2020 1 Missouri Law Review, Vol. 85, Iss. 2 [2020], Art. 20 410 MISSOURI LAW REVIEW [Vol. 85 TABLE OF CONTENTS ABSTRACT… ............................................................................................... 409 I. INTRODUCTION…… ................................................................................. 412 II. COOP HISTORY AND GOVERNANCE ........................................................ 419 A. New Dealers Turned to Coops to Electrify Rural America ............. 419 1. Cities Electrified Quickly; the Countryside Did Not ................ 419 2. After Exhausting Other Options, the Roosevelt Administration Settled on Cooperatives ................................ 423 3. Faced with Continued Private Sector Opposition, Cooperatives Banded Together to Build Power Plants and Transmission Lines ................................................................ 426 B. Coops Are Largely Exempted from Utility Regulation .................... 430 1. States and the Federal Government Develop a State-Federal Regulated Monopoly Model ................................................... 430 2. The REA Viewed Itself as Cooperative Overseer and Urged States and the Federal Government to Avoid Additional Regulation .............................................................................. 435 C. Coop Successes and Challenges ...................................................... 443 III. COOPS AND THE CHALLENGE OF CLIMATE CHANGE ............................. 449 A. Coops Have Lagged Behind in the Transition to Clean Energy ..... 450 B. Case Study: Tri-State Coops in CO and NM ................................... 455 1. Tri-State’s Organization and Generation Mix ........................... 456 2. Reasons for Member Coop Dissatisfaction ............................... 457 i. High Wholesale Rates ......................................................... 457 ii. Desire for Increased, Locally-Sited, Renewable Energy ... 458 3. Kit Carson’s Exit from Tri-State and Subsequent Accelerated Clean Energy Pathway ....................................... 461 4. Delta-Montrose’s Attempt to Use PURPA to Greenlight Additional Local Renewables ................................................ 462 5. Delta-Montrose and Two Other Coops Seek Colorado Utility Commission Oversight over Exit Price ...................... 465 6. Colorado, New Mexico 2019 Legislation ................................. 468 7. Tri-State’s Coal Power Plant Closures and Responsible Energy Plan ............................................................................ 469 IV. COOP OVERSIGHT IS NOT ADEQUATE TO ADDRESS CLIMATE CHANGE ................................................................................................ 471 A. Not All Benefits of the Coop Form Transfer to the Clean Energy Transition ...................................................................................... 471 B. Coop Managers Often Have Incentives to Grow Size and Revenue ......................................................................................... 475 C. Shifting to a Low-Carbon System will Likely Require Disrupting the Power Supply – Distribution Coop Model .............................. 477 https://scholarship.law.missouri.edu/mlr/vol85/iss2/20 2 Pacyniak: Greening the Old New Deal: Strengthening Rural Electric Cooperati 2020] GREENING THE OLD NEW DEAL 411 D. Coops Have Largely Been Exempted from Rigorous Resource Planning Oversight ....................................................................... 483 E. Implications of Failure to Prudently Plan for the Shift to a Low- Carbon Electricity System ............................................................. 485 V. STRENGTHENING COOP SUPPORTS AND OVERSIGHT TO ADDRESS CLIMATE CHANGE ................................................................................ 487 A. States Should Include Coops in Clean Energy, Resource Planning Mandates ....................................................................... 488 B. Allow Distribution Coops to Innovate, Require Power Supply Cooperatives to Compete .............................................................. 490 C. Use RUS to Incentivize the Shift to Low-Carbon Electricity ........... 492 D. Give Coops an Out .......................................................................... 492 VI. CONCLUSION ......................................................................................... 493 Published by University of Missouri School of Law Scholarship Repository, 2020 3 Missouri Law Review, Vol. 85, Iss. 2 [2020], Art. 20 412 MISSOURI LAW REVIEW [Vol. 85 I. INTRODUCTION One of the signature achievements of the New Deal was the electrification of rural America, which was accomplished chiefly through the formation of rural cooperatives bankrolled by federal loans.1 At a time when less than 10% of the rural United States was electrified, President Franklin D. Roosevelt and Congress made available hundreds of millions of dollars in subsidized loans to bring electric power to farms across America.2 Private, for-profit utilities refused to carry out this sweeping rural electrification effort – even with government subsidies – in large part because of the expense of serving poor and sparsely-populated areas.3 Federal administrators therefore looked to a model for rural electrification that was used successfully in Europe and had been tried in a few areas in the United States: customer-owned non- profit cooperatives. The federal loan program gave preference to cooperatives and government-owned utilities over for-profit utilities and helped rural communities organize such cooperatives.4 The program, carried out by the Rural Electrification Administration (“REA”) and later the Rural Utilities Service (“RUS”),5 was strikingly successful.