Smith: Rural Electric Cooperatives

In Empowering the Energy Transition in Rural Electric Cooperatives, Katrina Smith (North Carolina Central University School of Law), outlines the shortcomings of rural electric cooperatives and how they have transformed from their original design to what they are today. Smith considers various pathways for reform to empower rural communities, including how tax status can be leveraged as a new method of reform.

The article begins with an overview of the origins of rural electric cooperatives, which were designed to give rural Americans autonomy over their energy systems in areas that were left behind by for-profit energy companies. The Rural Electrification Act of 1936 gave funding to rural communities to establish democratic cooperatives to create and manage power utilities. While these cooperatives fulfilled this purpose, Smith examines how the democratic design of cooperatives is failing from a lack of oversight in regulation, anti-democratic board elections processes, and a lack of accountability to the communities they serve. Smith then argues that the Inflation Reduction Act of 2022 is an opportunity to revive cooperatives as “instruments of progress” and considers existing proposals for reform and their drawbacks.

Ultimately, Smith proposes leveraging cooperatives’ tax statuses as 501(c)(12) entities to promote reform and examines how such practices, while untested, show potential and have support. Member-owners could reform their cooperatives by filing complaints that their boards are not complying with requirements to maintain 501(c)(12) status and by filing lawsuits claiming boards are breaching fiduciary duties. They could also take advantage of tax-deductible funding for cooperative election campaigns. Smith argues that through reform, truly democratic cooperatives could promote “energy localism,” which would give residents more agency over the energy policy that affects their daily lives. Putting communities in charge of their own energy decisions may curb the effects of misinformation and advance renewable energy options as communities seek affordability.

Smith argues that if restored to the democratic entities they were intended to be through tax leverages or other reform, cooperatives could ultimately galvanize rural autonomy and promote civic engagement while simultaneously providing environmental and economic benefits to the communities they serve.