The following is a contributed article by Luis A. Reyes Jr., CEO of Kit Carson Electric Cooperative.
I can tell you with full confidence that the grass is greener, our power is cleaner, our wholesale power costs are lower and predictable, and our future is brighter and reliable since departing our generation & transmission association (G&T) over five years ago. To my knowledge, we are the only cooperative that has exited G&T membership while avoiding litigation and on our own terms.
The power supply contract exit from Tri-State was challenging and we could not have pushed through the process were it not for the continued support and resolve of our member-owners. I see the change that is still needed in the G&T and distribution cooperative relationships across the country, and I have great empathy for my fellow cooperative leaders who are now in the throes of legal pursuits to simply have greater local decision-making control over their power supply strategy. That’s why I joined the founding team of NextGen Cooperative Alliance. We are cooperative leaders who believe distribution cooperatives need to serve their members’ energy goals, not the financial objectives of their G&T providers.
There are dozens of distribution cooperatives struggling with these tough decisions today. Some cooperatives are considering leaving their G&T power provider entirely and some are seeking removal of the archaic G&T practice of decades-long all-requirements contracts — some through 2075 — that remove any ability of a local community to direct the energy future that it wants. Many cooperatives are subject to one-sided contract terms that limit cooperatives to self-supplying just 5% of their power load. Imagine being contractually obligated to buy 95% of your biggest line item from one supplier! For KCEC, we understood years ago that we were going to have to exit our G&T in order to achieve our goals. Let me tell you about life after leaving Tri-State G&T. I’ve compiled some lessons and advice based on my G&T cooperative exit, one of the first in the country. Here’s what I’ve learned:
- Listen to your members always and often. Members know what the future they want looks like. Cooperative leaders need to make those goals reality. Goals could look like what we’ve achieved in Taos — local solar arrays with storage, new broadband services and electric vehicle (EV) charging infrastructure. Every cooperative has different desires for taking control of their power supply decisions. Get clarity on those goals first, driven by member perspectives.
- Allow yourself to think holistically about power supply strategy and economic development. I can’t emphasize this enough. Your power supply is a whole lot more than your power supply. It’s far and away the largest cost we have as a cooperative, so managing that variability means being able to do more. There are new service and revenue generating opportunities that can be funded by taking control of your power sourcing and keeping as much as you can local. In the case of KCEC, once our current and latest solar project under development comes online, KCEC will have 39.5 MW of local, distributed solar, plus 15 MW of accompanying battery storage. That gets us to achieving our goal of 100% daytime solar powered. We set that goal in 2017 and we’ll achieve it in 2021. That would not be possible under the constraints of a decades-long G&T power contract. This is localism at its best. We’re creating jobs and a tax base that stays in our community. The bigger picture you can affect is so much more than wholesale power alone.
- Steel yourself for grade-school antics that come with resistance to change. The spreading of rumors and lies, threats and distractions, and the fracturing of allegiances is just the beginning. Find the board members, friends and colleagues who want to see you succeed for your members, and make that your focus.
- Prepare yourself for head-scratching math. Get ready for fuzzy math. G&Ts looking to dissuade member cooperatives from exit are motivated to overstate, sometimes by hundreds of millions of dollars, the cost of exit from their G&T. Exit fees should be fair to departing members and remaining members — just like the one for KCEC. It took a significant amount of effort to work through the fuzzy math, but we were finally able to achieve a reasonable exit fee from Tri-Sate.
- Find yourself trustworthy strategic partners with more than deep pockets. Believe me, money to fund a power supplier exit or develop a local renewable project is an amazing thing, but it’s not everything. If your community wants to pursue local, renewable power generation as KCEC did, then you need to align yourself with strategic partners who will advise and work with you to bring new development projects to fruition. We made a good choice in selecting Guzman Energy, our new wholesale power provider. It’s a team sport.
I get asked all the time about how it’s going since our departure from Tri-State in 2016. It’s going great, my new power supplier relationship is stronger than ever and I’m proud of what we’ve achieved. Here’s what we’ve gained:
- 300 days of revenue-generating and cost-saving sunshine. That’s only possible when you have freedom to expand power supply from local, renewable sources. It’s important to note this has all been accomplished while keeping the same reliable service delivered to the community, by the community.
- Wholesale power price savings and predictability. My wholesale power pricing is set at a fixed price through the life of the contract, eliminating the unpredictable wholesale power rate increases I used to have. With Tri-State, our cooperative was subjected to 12 wholesale rate increases from 2000-2016. Who can run a business successfully facing that kind of increase in your biggest line item?
- Positive, local economic impact with job creation and a tax base associated with solar and clean energy build projects. We’ll also soon have a fleet of 22 EV charging stations. We are reshaping our electric economy in the vision of our member-owners.
- Self-determination to do what’s best for our community, without obstruction.
I also get asked why we have undertaken these major changes. It’s simple. Our member-owners were asking for more renewable energy to power our community. In the process of understanding the cost savings and revenue generation we’d have in sourcing our own, local renewable energy projects, we found that we could also advance a whole lot more.
I believe deeply in the cooperative model. It’s frustrating to see that distribution cooperatives, largely serving rural communities, are paying some of the highest wholesale electricity rates in the country for electricity that’s dirtier than the mix outside the cooperative world.
At KCEC our plan is working. We have about 11 months left of exit fee repayments. After that, we’ll have some of the lowest wholesale power rates in the country. We are generating our own solar power locally, with batteries to store it. Now we’ve set a new, bolder goal to make KCEC 100% carbon-free by 2030. I know we’ll get there. Meanwhile, I see too many other cooperatives struggling without the ability to make their own power supply choices.
I am encouraged by the recent FERC Section 206 show cause proceeding opened to investigate Tri-State’s actions with regard to exit fees. I hope that FERC keeps asking the tough questions of Tri-State and the G&Ts who operate like them. I also hope that the many frustrated power distribution cooperative leaders continue to listen to their member-owners, steel their resolve and stick to their plan for bringing self-determination in matters of power back to their communities.
Here’s my best advice. Listen to your member-owners, deliver on their goals, and know there is a better energy future your community can be living.