Bar News - September 21, 2016
Environmental, Telecomm, Utilities & Energy Law: Consumer Cooperatives: An Option for Electric Industry Restructuring
By: Donald M. Kreis
Twenty years have elapsed since then-Governor Steve Merrill signed the Electric Industry Restructuring Act (RSA 374-F) into law, marking New Hampshire’s official embrace of competition and choice, rather than monopoly, as the basis for providing electricity to customers in New Hampshire.
Section 3 of the statute includes a list of 15 specific policy principles, including the declaration that “[a]llowing customers to choose among electricity suppliers will help insure fully competitive and innovative markets. Customers should be able to choose among options such as levels of service reliability, real time pricing, and generation sources, including interconnected self-generation. Customers should expect to be responsible for the consequences of their choices.”
Two decades later, the state’s largest utility, Eversource, is divesting the last of its generation resources pursuant to a settlement approved by the Public Utilities Commission (PUC) in July. At the Legislature’s direction, the PUC has opened a docket to seek a permanent framework for allowing customers to own solar panels and other forms of small-scale generation while exporting any surplus to their neighbors. The PUC has convened a grid modernization working group to embrace new technologies that will give consumers more control over their electricity usage. New Hampshire recently joined the rest of the New England states in adopting an Energy Efficiency Resource Standard and with it, a commitment to use ratepayer resources to reduce electricity sales by more than three percent.
These are game-changing opportunities for consumers, but consumers may need some additional help to navigate and benefit from them.
It is anticipated that legacy utilities, competitive energy suppliers, energy service companies and even nonprofits will do their part to educate consumers about their options. Consumer cooperatives, as authorized by RSA Chapter 301-A, are another potential tool to assist electricity customers in the modern marketplace.
A consumer cooperative differs from a conventional corporation in that it lacks outside investors – it is owned and democratically controlled by its customers. RSA 301-A was originally adopted as the legal framework for the Hanover Consumer Cooperative Society (the nation’s second-biggest food co-op, with four Upper Valley stores) and has since been used by food co-ops in Concord (with a store in New London), Littleton, and Keene, as well as nascent cooperative grocers in Walpole, Milford and greater Manchester.
But RSA 301-A is not limited to food co-ops. Section 2 of the statute provides that a consumer cooperative may incorporate under New Hampshire law “for the purpose of acquiring, producing, building, operating, manufacturing, furnishing, exchanging, or distributing any type or types of property, commodities, goods, or services primarily for the benefit of its members who are ultimate consumers.”
In keeping with this broad definition, a consumer cooperative could be established to help members do one or a combination of the following:
- install solar panels (and other forms of distributed generation) at their homes;
- develop “solar gardens” to benefit consumers who cannot install distributed generation at home;
- retrofit residences to become energy efficient;
- aggregate electricity demand for the purpose of cutting good deals with competitive energy suppliers; and
- manage individual consumers’ residential electricity usage to allow them to take advantage of time-varying rates or demand response programs (which involve being paid to power down at times of peak demand).
These are all services that can be provided by conventional businesses. The advantage of having a cooperative deliver them is the elimination of the agency problem. The fiduciary duties of a consumer cooperative run not to investors but to member-customers. This can give them the confidence they need to leap into the brave new world the NH Legislature envisioned when it adopted the Restructuring Act 20 years ago.
The New Hampshire Electric Cooperative (NHEC), a rural electric cooperative organized pursuant to RSA 301, can provide the services envisioned here, but only in the service territory for which it is approved by the PUC pursuant to RSA 301:53. A rural electric cooperative organized under RSA 301 is essentially a distribution utility, similar to Eversource or Unitil or Liberty, but owned by its customers. In contrast, the RSA 301-A consumer cooperative model is better suited to consumers who already have a distribution utility but want democratic control over energy services beyond the poles and wires network provided by the utility.
The consumer cooperative model is not without its challenges. Because a consumer cooperative lacks investor-owners, attracting capital can be problematic. In the grocery sector, consumer co-ops have raised capital from members, borrowed money from the Cooperative Fund of New England (a community development financial institution organized to help co-ops), received grants and even issued preferred (but nonvoting) shares to non-members.
The profits of consumer cooperatives are distributed in proportion to member purchases – and are typically not taxed at the entity level pursuant to Section 1388 of the Internal Revenue Code. (Pursuant to Section 1385, the profits are also not taxable to consumers when “attributable to personal, living, or family items,” which would potentially cover energy-related services.) The perceived fairness of this system is the reason co-ops have thrived since the concept was invented by British cooperators in 1844, but it also means a consumer co-op would have no way of taking advantage of investment tax credits available for the development of solar facilities. In other states, cooperatives have met this challenge by partnering with other entities that have suitable tax appetites.
As the agent of its members, the NHEC can and will help members ensure maintained services and save money. For the rest of New Hampshire, this kind of consumer cooperative may be the best available answer to the challenge presented by electric industry restructuring.
Donald M. Kreis is an attorney and heads the Office of the Consumer Advocate, which represents the interests of residential utility customers at the PUC and elsewhere. He has previously chaired the boards of the Hanover Consumer Cooperative Society and the Cooperative Fund of New England.