By developing renewable energy projects, America's customer-owned rural electric cooperatives (RECs) can forge unique, recognizable and lasting links to local consumers, and thereby distinguish themselves from competitors in the coming electricity market. Collaboration on such efforts between electric companies and environmental advocates can raise knotty issues for both sides. But the following case study suggests that through careful cooperation, committed partners can resolve their problems.

The prospect of competing to retain customers alarms many RECs. The co-ops, whose high operating costs in part reflect their small size and scattered clientele, fear that large, predatory firms with lower costs will poach "their" customers. The co-ops' preparations for arriving changes have featured intense political effort; at the national level, this endeavor builds their national appeal and bipartisan Congressional support. Yet the most agile co-ops have turned their attention to building a strong brand identity, able to engage customers' long-term loyalty.

While RECs are uniquely vulnerable to competition, many retain enviable advantages. These include a long history of local economic development, successful resistance to antagonistic corporate "outsiders," good community relations, and experience in introducing new products without regulatory interference. But wise co-ops will resist the lure of superficial branding based only on appeals to history. Avoiding the tumble toward a commodity electricity market -- in which many co-ops could not compete -- will require a convincing commitment to customers' current and future well-being. As described here, managers of at least one co-op, Minnesota's Cooperative Power, believe that renewable energy development will help them to demonstrate that commitment.

Many co-ops, appreciating the threat of a competitive marketplace, will linger in the "denial stage." They will be joined there by some environmental advocates and supporters of renewable energy, who rightly fret that in an unstructured electricity market most consumers will buy the cheapest -- and dirtiest -- power available, without a thought for its environmental impact. Environmentalists will also correctly identify the vexing ethical and strategic questions -- well described in this paper -- raised by the option of collaborating with rural co-ops.

Yet we see grounds for hope in the story told here. While restructuring presents both peril and promise for co-ops and for the environment, we suspect that competition may be inevitable. We also note that renewables have not thrived in the "pre-restructured" electric system, and have little stake in the status quo! We therefore applaud attempts to adapt the renewable energy endeavor to new market realities, and we commend those electric companies such as Cooperative Power that have accurately identified environmental protection as a strategic key to a competitive corporate future. We believe that renewable energy can become a strong product for RECs.

Adam Serchuk, Research Director and Executive Editor of REPP's Research Report Series
Roby Roberts, Executive Director
Virinder Singh, Research Associate

April 12, 1998

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