South Dakota co-ops are fighting for changes in state laws that allow municipal governments with electric systems to take service territory away from other electric utilities.

“Just because government participates as a provider of goods or services in an industry, it is unfair to grant them an advantage over other participants in that industry,” said Ed Anderson, general manager of the South Dakota Rural Electric Association. “Providing for the unilateral taking of service territory by government does just that.”

While co-ops and investor-owned utilities must negotiate territorial boundary changes, municipal utilities can effectively absorb new service areas into their communities using annexation statutes.

“Sioux Valley Energy has lost about $21.5 million in revenues because of territorial taking in the past 20 years,” said Tim McCarthy, CEO and general manager of the Colman-based distribution co-op. “During that time, we’ve received just over $2 million in compensation for ceding territory.”

According to McCarthy, development in former co-op service territory now served by Brookings Municipal Utilities has included the addition of more than 1,600 homes and 81 businesses since 1977.

A law passed this year established an interim legislative committee charged with reviewing existing South Dakota law and considering possible changes to resolve territorial claims. The statewide association, joined by representatives from several of its member systems, presented their concerns to the panel at a July 25 hearing.

“Applying the same rules to all electric utilities operating in the state will not impede municipal annexations,” Anderson said. “It will force municipal governments to engage in the same conversations about service territory, fairness and equity that an investor-owned utility and an electric cooperative must consider.”

Of the 310 incorporated municipalities in South Dakota, only 35 offer municipal electric service. Most communities are served by co-ops or IOUs and have frozen service areas protected from encroachment.

David Eide, general manager and CEO of Codington-Clark Electric Cooperative, told the panel his co-op has spent nearly $2 million promoting its headquarters community of Watertown through economic development support only to have the city’s municipal utility “cherry-pick” certain areas for targeted annexation.

“When the municipal utility chooses to serve a dense area or high-use area, the rural patron loses that opportunity,” said Eide. “As a result, there is a cost shift [due to lost investment]; the rural member ends up paying more to the benefit of the urban consumer.”

South Dakota co-ops have poured more than $100 million into economic development projects over the past 20 years. That includes about $15 million loaned to communities and businesses operating in cities that have municipal electric systems.

“The cooperatives will see no electric revenue from these projects, but our cooperatives are willing to make those investments because they want to see communities succeed,” said Linda Salmonson, economic development manager for East River Electric Power Cooperative.

Another hearing is scheduled for late August, and legislators on the study committee are expected to ask concerned parties for further information about the issues raised under current state law.

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