This is the third installment of my article on why electric distribution cooperatives must be able to operate smart distribution grids on fiber optic networks. Next we will discuss profound electric utility industry restructuring from technology to infrastructure to business models.
PART 3 – LEGACY ELECTRIC COOPERATIVE SYSTEM INFRASTRUCTURE
By the 1930s, 90% of Americans had electricity but only about 10% of rural Americans did. Again, ironically, foreshadowing current developments, more than half of those bought and operated their own distributed energy resources. These included country-home generators, maybe a diesel generator, or a Jacobs “wind charger” windmill generator, or even batteries that they carried to town to charge and bring home to run lights, crude appliances and, most importantly, a radio. Just like today, being connected was as important as having electricity. The farmers who were feeding America were sorely disadvantaged by limited access to the electricity that the rest of the country had. This resulted in the US Congress passing the Rural Electrification Act in 1935 and the creation by President Franklin Roosevelt of the Rural Electrification Administration (REA) to lead and support rural electrification. This was followed by the passage in 1936 of the Norris-Rayburn Act that provided funding for REA to assist cooperatives with operations and offer low interest loans for rural electrification.
This New Deal initiative during the Great Depression was available to any private company, public agency, or cooperative. Investor owned utilities did not deem it profitable enough to build out to serve such broad and sparsely populated areas where customers would not use nearly as much electricity per dollar invested in infrastructure as those in urban and suburban areas. It was ultimately rural Americans who formed and operated electric cooperatives. They signed up members and used their own equipment to build the distribution infrastructure. They electrified almost all of rural America within three decades. The first, Bartlett Electric Cooperative in Texas, led by general manager Horace Keith, began operations in 1937.
Today 834 electric cooperatives provide electricity to nearly 15% or about 20 of the nation’s 140 million meters. They provide electricity in 88% of U.S. counties spread over 56% of the nation’s land mass, operating 42% or 2.6 of the 5.5 million miles of distribution lines in the U.S. grid. Cooperatives face unique challenges in planning, constructing, operating, managing such an expansive, sparsely populated electric distribution grid.
Few electric distribution cooperatives owned and operated generation and transmission and most still don’t. Instead, they rely on power purchased from electric utilities who did, often times an investor-owned utility that competes with them for retail customers. Generation & transmission cooperatives (G&Ts) were created when groups of electric cooperatives, usually in the same geographic region formed a “super cooperative”, a cooperative of cooperatives. The distribution cooperatives entered into exclusive, long-term, all-requirements power purchase agreements with the G&T. This enabled the G&T to take advantage of economies of scale, increased bargaining power, and sufficient financial strength to obtain long term financing to build generation and transmission assets as well as attract the necessary administrative and operations expertise and experience necessary to operate successfully.
G&Ts generate about 5% of total U.S. electricity and their members account for about 13% of all U.S. electricity sales. The historical justifications for G&Ts to build and operate conventional central station generation (growing demand, declining costs, fuel indifference) have reversed, resulting in considerable business stress for many of them. They face daunting economic and operational challenges, often greater than those that other electric utilities face, because of the economic and operational realities affecting their distribution members.
Despite these difficulties, the cooperative joint action model remains desirable, as proven by the G&Ts’ ACES Power Marketing cooperative, municipal utility joint action agencies, and many non-utility “super cooperatives” like USAA insurance, ACE Hardware, CUNA (the credit unions of America), Land O’ Lakes and many more. This joint action model might help electric cooperatives deploy and operate smart grids on fiber to the meter networks?
In the next two installments, we will examine the legacy electric utility business model and how it is undergoing revolutionary changes.
