Electric cooperatives in Tennessee have fought a long legal battle in the state public utility commission to prevent a nonprofit solar developer organized by for-profit companies from marketing itself as a cooperative. The Tennessee Electric Cooperative Association successfully argued that would potentially damage the co-op brand and mislead consumers.

Registered in Tennessee under the name Jackson Sustainability Cooperative, the company sought to develop a solar farm that would have sold its energy output directly to large commercial and industrial customers in municipal electric utility service territory.

The company planned to use its own distribution facilities and metering equipment to deliver the power. TECA argued the company was attempting to circumvent state laws by claiming electric cooperative status.

The $70 million project potentially would have targeted sales to large load users, impacting the value of the municipal utility’s system and raising their wholesale power costs.

“There was nothing to indicate that they were going to operate according to the seven cooperative principles,” said Brant Phillips, lead legal counsel for the statewide association.

“It would have set a dangerous precedent that would allow anyone to decide they wanted to be a ‘cooperative’ and then set up competing retail power operations in the middle of existing co-op or municipal service areas and cherry-pick loads,” he said.

Although the Tennessee Public Utility Commission is not familiar territory for the state’s electric co-ops, which are regulated by the Tennessee Valley Authority, TECA was quick to intervene when it learned of a proceeding involving Jackson Sustainability Cooperative. With support of its board, the statewide sought outside counsel to help prepare its response.

TECA intervened in Jackson Energy Authority’s proceeding at the commission on behalf of its members in 2021. TVA and the Tennessee Municipal Electric Power Association also intervened on behalf of the municipal utility.

TECA argued that Jackson Sustainability Cooperative sought “permission to operate an electric generation and distribution project that targets [municipal utility] high-volume consumers in [the municipal utility’s] existing service area.”

If granted, TECA argued other entities may be encouraged to pursue similar projects marketed as “cooperatives,” which “may well disrupt the distribution of electricity in Tennessee, duplicate facilities, and reduce the revenues to existing providers that are used to maintain facilities across their service areas.”

“This group wanted the benefits without the requirements,” said Ryan King, TECA’s vice president of government affairs. “It would have created a massive loophole in the state’s territorial protections for electric utilities. Any group, reputable or not, could claim to be an electric co-op, set up shop and begin to offer services to select groups.”

In May 2023, the commission ruled that TECA and TVA could intervene in the proceedings. Jackson Sustainability Cooperative subsequently declared bankruptcy and withdrew its PUC petition, essentially resolving the matter in favor of TECA. In December, the commission heard oral arguments regarding the award of attorneys’ fees to TECA.

TECA’s opposition to JSC was driven by broad concerns about service delivery as demand for power continues to increase and technology expands the options available to buy, sell and share electricity.

“The downstream implications of a case like this can have a devastating impact on the stability of a co-op and the rates consumers pay,” said Mike Knotts, TECA’s CEO.

King cautioned that the changing energy landscape and the entry of new business models into the energy space warrants vigilance among co-ops across the country in educating their member-owners about the benefits of the cooperative business model. That’s expected to become more important as developers seek ways to interest existing utility customers in potentially untested business models or energy products.

“There will be things that force our industry to change in the coming years, and we should not be afraid to embrace that change,” said Phillips. “But we must keep a close eye on others who claim to offer innovation when really all they are looking to do is undermine the good work that co-ops have done for the last 100 years.”

“It is critical that we be prepared and willing to defend the people we serve when the need arises,” Knotts said. “Co-ops do the right things for the right reasons. The same cannot be said for groups who view change in the industry as an opportunity to profit without any requirements to serve the public.”