Energy & Data – Benefits of Rural Electric Cooperatives as Broadband Providers

October 21, 2019 Conor May Article link

Via the U.S. National Archives and Records Administration and the Wikimedia Commons

For years, lack of access to modern infrastructure threatened to leave rural communities across the United States behind in the race for economic development. The large investor-owned companies that were responsible for deploying the necessities of modern economic life to cities and densely-populated areas proved reluctant to make significant investments outside population centers. Lower population density and higher deployment costs limited critical connections for rural America, and only one-in-ten households had access to reliable modern infrastructure.

This story may sound familiar to rural residents who lack access to reliable broadband internet in 2019. However, this isn’t a new story – it mirrors the snail’s pace of electrification in the 1930s. As rural electrification inched along in the early 20th century, rural electric cooperatives (RECs), proved critical to solving the crisis, and these same entities may be able to address the modern broadband divide as well. Until recently, the largest obstacles to RECs providing broadband was lack of federal support and restrictive state law. In the last two years, a wave of state bills and new federal interest have begun to remove these obstacles. RECs are poised to benefit local economies not only by closing the digital divide, but also by folding energy-saving technology and renewable assets into their services.

In the 1930s, rural populations struggled in part due to a lack of the electricity that lit up the rest of America. As the New Deal picked up steam, the federal government sought new solutions to rural electrification. Congress and the White House created the Rural Electrification Administration (REA), which in turn wrote model “Rural Electric Cooperative Corporation” legislation for states. This widely adopted legislative blueprint enabled rural residents to form cooperatives to take advantage of REA funding and build out their own electric grids. These cooperatives combined democratic and corporate structures into a mixed model in which leadership boards are elected by all rate-paying residents, rather than investor-shareholders. They purchased power from large power companies who handled generation and transmission, and then distributed it to their customers. The REA also provided loans and loan guarantees to seed RECs with capital, which would be paid back by member-owners through their monthly electric bills. Hundreds of rural electric co-ops formed across the country and increased electrification rates from ten percent to ninety percent in a span of about eighteen years.

Today, broadband internet access faces similar challenges. The Federal Communications Commission describes broadband as “critical to economic opportunity, job creation, education, and civic engagement.” Deficient broadband access is recognized as a major barrier to effective rural entrepreneurship and economic growth. Sixty percent of American farmers report that they do not have good enough internet to run their businesses. The FCC’s Connect America Fund (CAF), has poured billions into rural development, just last month authorizing another $112 million for the latest auction of CAF project grants. However, the Commission also acknowledges that access to broadband remains twenty to thirty percent lower in rural areas than in population centers. New research from the Purdue Center for Regional Development finds that a large percentage of advertised broadband comes from a DSL connection, which often does not meet the FCC’s modest 25 Mbps download speed and 3 Mbps upload speed definition for broadband. Yet, many urban residents enjoy access to “gigabit” speeds of 1 Gbps or faster, and many believe the FCC should be pushing development by defining 100 Mpbs download speeds as the minimum for “broadband” service. The Purdue research also highlights that upload speed is often as important as download speed for economic development because businesses are producing data as much as they are consuming it from outside sources. However, for “symmetrical 25/25 speeds, the share of rural housing units with no access more than doubles from 26.9 to 64.7 percent.”  While incumbent corporations, states, and the federal government have proposed various remedies, RECs have also begun stepping up to provide access to broadband in these high-cost rural areas.

RECs are well-suited for the task. They have nearly a century of experience managing local infrastructure in difficult, high-cost rural areas. Indeed, REC electric infrastructure connects many of the most distant and rugged parts of the country. This infrastructure and experience enables them to provide fiber to the home at relatively low cost, enabling gigabit speeds in areas where such connectivity would normally be unthinkable. Ownership by their members means that they are only required to break even, enabling RECs to charge more affordable rates than investor-owned companies driven by profitability concerns. Additionally, RECs map well onto many of the areas that could gain the most economic benefit from broadband connectivity. The National Rural Electric Cooperative Association reports that overall 6.3 million households in co-op territory could gain a collective $12 billion in economic benefits if they received reliable access. 

Access to funding is an important piece of the puzzle for any rural broadband project. RECs have applied for and received funding from federal sources like the FCC, the National Telecommunications and Information Administration, and the Department of Agriculture. However, when applications have been denied, they have also proven effective at self-funding. Indeed, RECs can leverage existing electrical assets in order to pay for broadband deployment, without having to hike rates for their electric customers.

As member-owned collectives, RECs tend to be highly trusted and responsive local institutions, allaying possible mistrust and conflict with local residents and stakeholders. The American Consumer Satisfaction Index reports that these inherently localized institutions enjoy the highest consumer satisfaction of any of the different players in the electricity industry. Their structure provides transparency and voice to their consumers, who are also their owners.

Finally, deploying fiber can enhance an REC’s electric service and expand distributed renewable energy generation. Combining fiber with electric service provides reliability and redundancy for the grid managers. It can also improve efficient energy usage by allowing for load-management devices like smart thermostats and smart appliances. Perhaps most importantly, as RECs are looking to increase their renewable generation portfolios, building connectivity can improve their “ability to host these generation assets, monitor power sources, and improve forecasting capabilities to integrate the intermittent nature of their production onto the grid.” While many investor-owned monopoly utilities remain reluctant to move away from centralized power plants, REC’s member-owner structure gives them enormous potential as renewable energy providers. Producing energy on land owned by members in turn boosts economic development by increasing the land’s productivity while developing new sources of rural capital. (For more on the benefits of smart grids and the disruptive potential of distributed generation, see the National Rural Electric Cooperative Association’s “The Value of a Broadband Backbone” and “The Energy Prosumer” by Colorado Law Professor Sharon Jacobs, respectively.)

It may come as a surprise, then, that despite the 1996 Telecommunications Act authorizing grants to multiple types of providers, the FCC has been reluctant to provide Connect America Fund money to RECs, instead reserving grants for telephone companies. Even more surprisingly,  in many states RECs faced long-standing legal barriers to getting into the broadband game. For example, North Carolina prevents their RECs from accessing federal grant funding for broadband deployment. Similarly, Georgia began 2019 in a legal limbo, unclear whether RECs were even allowed to provide broadband service at all. The Institute for Local Self-Reliance points out that many direct state barriers are preempted by the 1996 Telecommunications Act. However, RECs often lack the resources, knowledge, and political will to engage in lengthy legal battles with their own state capitols. Of course, major national telecom companies are known to lobby fervently against letting any new providers into the market, even in poorly-served areas. For small cooperatives, this creates a daunting political landscape. 

Meanwhile, major incumbent electric utilities are equally leery of landowners developing their own renewable energy resources, which injects more competition into electricity generation market. RECs have typically purchased power from these wholesale power generators, and distributed it to their customers. The ability for REC member-owners to produce their own power keeps more money local, but also creates supply competition for regional power providers. RECs trying to empower distributed generation and build broadband connectivity thus face fights on multiple regulatory fronts against incumbent electricity providers as well as telecommunications companies.

But in the last two years, spurred by an increasing demand to close the digital divide, both states and the FCC have been making changes. The 2017 Connect America Fund Auction finally opened a relatively small portion of the bidding to non-incumbent carriers like RECs In 2017. In this same vein, Tennessee cleared out legal barriers for co-ops and simultaneously provided a pot of money to incentivize build-out. Georgia and Mississippi both passed laws this year allowing its co-ops to get in the game. In a reflection of the bipartisan consensus around removing regulatory obstacles to rural economic development, both pieces of legislation cleared state houses with overwhelming support. In 2016, notably earlier than many of the recent developments in state law, 87 RECs across the country were already advertising fiber networks providing gigabit speeds. Some of these take the form of partnerships with ISPs while others may offer open-access networks to encourage competition. These success stories have no doubt spurred states and the FCC to reconsider RECs more as partners, and less as competitors.

Until 2018, Colorado had its own obstacle for RECs. By law, incumbent telecommunications providers had the right of first refusal whenever a new broadband expansion project was proposed. This restriction enabled telecommunications companies operating in the area to provide a minimum level of service while foreclosing other competitors. The 2018 Broadband Deployment Level Playing Field Act kept this right of first refusal in place, but with an important change. Under the amended law, incumbents that wish to exercise their right of first refusal must match the upstream and downstream rates of a potential competitor’s proposed project, and do so at the same or lower cost. 

In 2016, the Delta-Montrose Electric Association (DMEA), on the western edge Colorado was among the first to move forward with a fiber program to stimulate economic growth in the region. Their Elevate program offers a 100 Mbps option and 1 Gbps option. Similarly, the La Plata Electric Association and Yampa Valley Electric Association, in southern and northern Colorado respectively, are also in the process of expanding broadband subsidiaries. DMEA has also been a leader in the fight to allow for more local electricity generation. The co-op recently followed the example of New Mexico’s Kit Carson Cooperative and reached a settlement to buy out of its contract with incumbent electricity producers, which limited local generation potential. La Plata Electric Association is considering doing the same.

Closing the rural digital divide has been described as an “all hands on deck” effort by the FCC. Increasingly, that means opening the door to RECs as broadband providers. Their community-centered model and time-tested experience with rural infrastructure gives them a natural affinity for the task at hand. As the cost of distributed renewable energy generation continues to plummet, the advantages of integrating energy and data infrastructure grow. RECs not only enable data-driven entrepreneurs, they also open the door for struggling farmers and landowners to build profitable, renewable energy resources. However, both our data infrastructure and power generation infrastructure are struggling to grow past the restrictive legacy of a top-down approach. This top-down approach relied on regulation and planned economic development, rather than market competition and entrepreneurial innovation. In a time when American public sentiment is distrustful of corporate interests and intrigued by cooperative ownership models, lawmakers and regulators should empower RECs. They should have the chance to duplicate the success of the 1930s, compete with incumbent broadband providers in a free market, and participate in competitive power markets. Rural Americans underserved by the existing broadband market should consider if the groups that proved so successful at electrifying their communities could also be the most reliable bridge across the digital divide.

Conor May is a member of the Colorado Law & Technology Journal and serves on the executive boards of the Environmental Law Society as well as the Silicon Flatirons Student Group. He studies antitrust law, tech policy, and environmental law, with a focus on energy regulation.