I’m a big fan of generation and transmission cooperatives, or, as we know them, G&Ts. For me, they’ve always been the embodiment of the sixth cooperative principle: “Cooperation Among Cooperatives.” What’s better than co-ops coming together to form another co-op, right?
Other co-op sectors do similar things. Credit unions form credit union service organizations. Food co-ops have their National Co+op Grocers group.
The long-term stability of these federated organizations is one way for co-ops to reduce costs and stay strong in the face of shifting and often uncertain markets.
But as we know, one of the keys to a successful long- term relationship lies in its ability to evolve over time as circumstances and people change.
One facet of the G&T/distribution co-op arrangement that I feel needs to be reviewed is the wholesale power contract.
Most of these contracts were entered into when the electric industry looked different than it does now. The model, which obligates distribution co-ops to purchase all or nearly all of their power from the G&T, was appropriate when there were few options for alternate generation. But that is no longer the case.
The landscape is now complicated by large, structural changes in generation and distribution technologies and the growing ability of consumer-members to generate or buy power on their own.
Distribution co-ops may be put in a bind, constrained by the wholesale power contract on one hand and wanting to adapt to meet members’ desires on the other. Those members, if their wants go unmet, could eventually lose their incentive to stay engaged in or supportive of the co-op.
This new dynamic is prompting a re-examination of the G&T/distribution system relationship. Distribution co-ops want flexibility to show value to their members beyond price—the benefits of being part of a community-owned entity. G&Ts working to meet their member co-ops’ desires must ensure that any contract changes take into consideration the costs they’ve already incurred and don’t unfairly shift those burdens to other members.
I firmly believe that a revised relationship is achievable while still honoring the history, commitment, and mutual benefits of the co-op/G&T arrangement. Here’s a mental exercise to help you envision what this might look like:
First, imagine you were creating a new G&T today. Knowing what we know about the modern energy market, what would the structure and the contract look like?
Now, imagine the opposite. What if, in the face of market changes, we do absolutely nothing. Everything stays as it is now. What will the future look like?
For me, something roughly midway between starting from scratch and the status quo is a reasonable target for the short term. Of course, that target will vary depending upon the circumstances of each G&T and its members. What’s most important is that both parties in this relationship are rooting for each other, not battling against one another.
We have ample evidence to know that businesses that fail to adapt to broad market changes often end up going by the wayside. Case in point: Anybody out there visited a Blockbuster store lately? That business dominated its market for 15 to 20 years and then abruptly went defunct after it failed to respond to the trend of the future: streaming video. Contrast that with Netflix, which has flourished because it adapted well to changing consumer demands.
I certainly don’t think our co-op/G&T relationship risks the same fate as on-site videotape rentals, but the central lesson is valid nonetheless: The way to ensure our success is to listen to our members, commit to being fair and equitable for everyone involved, and be ready and willing to change.
Adam Schwartz is the founder of The Cooperative Way, a consulting firm helping co-ops succeed. He is an author, consultant, educator, speaker, and member-owner of the CDS Consulting Co-op. You can follow him on Twitter
@adamcooperative or e-mail him at:
Editor’s note: The ideas expressed in #gocoop are those of the author and do not necessarily reflect the beliefs of NRECA or RE Magazine.