In coming months, the courts will be parsing the language of East River Power Cooperative's bylaws and checking legal precedent on contract law to determine whether Dakota Energy can leave the wholesale cooperative and, if so, how that exit can be accomplished.
In a press release issued when Dakota Energy filed the lawsuit in November, board president Garry Dearborn stated, "We want more flexibility and local control to help us manage and even reduce costs. As the energy landscape continues to quickly change, we need to be able to plan for a future that truly benefits our member owners."
In seeking to leave the cooperative, Dakota Energy is following in the footsteps of other member-owned cooperatives which, having infrastructure in place, are seeking to take advantage of other options now available to them. Among the first in the nation to pursue this avenue was Kit Carson Electric Cooperative in Taos, N.M.
Kit Carson's decision was driven by an involved membership which felt their wholesale cooperative, Tri-State Generation & Transmission Association, was not listening to their expressed desire for more renewable energy.
"Our membership is very environmentally aware and sensitive to that," said CEO Luis Reyes, Jr.
At the time, Tri-State capped the amount of renewable energy members could produce at 5%. Reyes said Kit Carson attempted to work with Tri-State, hoping the company would incrementally increase the amount allowed. His cooperative even appointed him to Tri-State's board, hoping his voice at meetings would help bring about change.
"I was on the inside. I participated on every committee I could," Reyes said.
Eventually, it became evident that Tri-State wasn't receptive to helping Kit Carson meet its members' goals, he said, and the two cooperatives entered into negotiations to sever their relationship. Each cooperative hired a consultant to determine an equitable buyout, and both boards voted unanimously to approve $37 million.
"We never ended up in court. We mutually agreed that would take care of the debt we had," Reyes indicated.
This buyout was considered a "keep whole solution." As a result of Kit Carson's buyout, rates would not have to be increased for other member cooperatives.
"In our exit, we did not want any other cooperative to be harmed," Reyes stated.
He did not back away from admitting that decision contributed to higher rates for Kit Carson consumer members. The cooperative is currently working to pay off in six years debt that previously would have stretched over 24. In addition, the company has faced increasing transmission costs since their power is carried over lines owned by Tri-State.
However, the cooperative was also impacted significantly when Chevron Mining, Inc. closed its molybdenum mine in Questa, N.M. This occurred while Kit Carson was in the process of exiting Tri-State.
With that closure in June 2014, Kit Carson lost 20% of its load in one fell swoop. That had a ripple effect on the surrounding community as well. Reyes estimates that two-thirds of the company's 300 miners left the area with their families, which also affected local schools and businesses.
"We would have had to raise our rates regardless of whether we left Tri-State," Reyes said. "It was a load that was non-replaceable."
In talking about the impact of that decision on Kit Carson, he focuses on member satisfaction and on the goals the cooperative has been able to achieve.
"We found our members had a bigger voice in their power supplier," Reyes stated.
This is consistent with the way Kit Carson does business, he said. The 30,000-member cooperative is divided into five districts. Reyes meets with members in each district quarterly, not only to report to them but also to talk with them about issues affecting them.
He said he asks members a blunt question: "What do you think we're not doing right?" After hearing from them, he elicits their assistance in addressing the issues they raise.
The cooperative also has standing advisory committees which enable teachers, farmers, ranchers and local business owners to contribute their ideas. One standing advisory committee, for example, considers renewable energy options.
Initially when considering renewable energy, they looked at wind power, hydro-electric power and solar energy, according to Reyes. Because the area of New Mexico served by Kit Carson is popular with sportsmen, wind power was eliminated as an option because it could affect wildlife habitat, and hydro-electric power was eliminated because members did not want to dam rivers.
The company opted to pursue solar power.
"By next October, we'll be 100% daytime solar powered," Reyes said. Every one of the cooperative's 30,000 members will receive their energy from solar arrays during the day.
As a result, the amount of energy they have to purchase from the open market has been reduced to 40% of what they purchased from Tri-State during the summer months, he indicated. In the winter, less energy is generated due to the shorter days and they have to purchase up to 60%.
Kit Carson accomplished this goal by working with local developers. They put in the solar arrays and Kit Carson purchases the energy produced. Each community served has its own solar array, so the company has less need for transmission lines.
Reyes is proud of Kit Carson's accomplishments. By listening to members and pursuing goals which were important to them, the cooperative has created jobs and enhanced economic development in their service area.
"I'm not saying it was easy," he said about the decision to leave Tri-State and to pursue goals independently. "You learn a lot about your members. You learn a lot about your organization."
However, he feels the growing pains the cooperative has experienced have been worth the effort and believes that decisions made reflect the members' vision for their cooperative. Membership engagement, he believes, is the key.
"Most of us want to be part of the solution," Reyes said. "For us, it worked."
