Renewable Energy At Risk In Rural Electric Cooperative Tax Snafu

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Speaking of socialist control over our precious freedoms, one such example is the sprawling network of rural electric cooperatives that sprang to life in the 1930s. Co-ops lit up vast swaths of the US that had been left in the dark by privately owned electric companies. Rural electric co-ops (REC) do not make money for shareholders. Their mission today, as it was in the 1930s, is to provide affordable energy for their ratepayers, who are technically co-op members. Lately that means providing more renewable energy, but as an “unintended” consequence of the 2017 tax bill, the clean power progress could stall out.

renewable energy tax
Seal of the US Department of the Treasury

The Law Of Unintended Consequences, It Burns

The law of unintended consequences works in mysterious ways, and this one may come back to bite whoever crafted a 2017 amendment to Section 118 of the federal tax code.

The amendment impacts RECs that receive disaster aid and other government grants. Previously, these funds were not counted as taxable income. Now they are considered taxable, and those taxable dollars add up to big bucks. The result could be higher rates and/or a slowdown in service improvements.

Who would do such a thing to rural ratepayers? Perhaps the amendment was of a piece with the Trump* administration’s apparent aim of zinging property owners in blue-leaning states through the federal tax code, only somebody got their colors mixed up.

If you have any thoughts about that, drop us a note in the comment thread, but whoa if true.

The prospect of higher electricity costs and a slowdown in service improvements is not exactly good news for rural communities, which are already dealing with the impact of the Trump* administration’s trade wars and a new ethanol waiver for refineries but whatever.

Renewable Energy & RECs

The National Rural Electric Cooperative Association explained the impact of the Section 118 amendment back in November 2018:

“…it effectively means electric co-ops, particularly small ones, may be vulnerable when it comes to accepting aid long considered vital for operations and community development initiatives. This includes grants from the USDA’s Rural Utilities Service, the Rural Economic Development Loan and Grant (REDLG) program and the Federal Emergency Management Agency for recovery from hurricanes, floods or other disasters.”

NRECA took note of the clean power angle last spring, explaining that RECs would “have to think twice before taking grants that help provide broadband service or fund economic development, energy efficiency and renewable energy programs.”

Just last week, Bloomberg reporter Lydia O’Neal took a look at the impact of Section 118 on RECs and also raised the renewable energy alarm with this observation:

“Rural electric cooperatives are slowing down construction of broadband networks and renewable energy infrastructure and taking on debt as a 2017 tax law change threatens their traditional tax exemption.”


NRECA has been working with Congress and the IRS on bipartisan legislation to resolve the problem. However, as of last week the legislation has stalled out.

Renewable Energy Is No Small Potatoes For RECs

As for the number of ratepayers potentially impacted by Section 118, that’s a pretty big number. In its 2019 fact sheet, NRECA toted up 831 distribution cooperatives serving 42 million people, with a footprint in 47 states and 88% of the nation’s 3,000 (more or less) counties. All together, about 56% of the nation’s land mass is powered by RECs.

NRECA also notes that REC sales growth rates “generally surpass that of the electric utility industry as a whole,” which is interesting.

The fact sheet also emphasizes the renewable energy trend:

“Co-ops use advanced communications and automation technology to improve reliability and efficiency while reducing environmental impacts by growing the use of renewable resources.”

They’re not kidding around. Among other initiatives, NRECA recently partnered with the US Department of Energy to develop a toolkit aimed at smoothing the path for solar power among its membership.

Individual RECs have also been on a renewable energy tear, despite some contractual obstacles and other issues. That includes hopping on the emerging wind-solar hybrid trend and the agro-voltaics trend, in which solar farms are paired with certain types of agricultural uses.

Wisconsin’s Dairyland Power Cooperative is a good example of a co-op transitioning to renewables. CleanTechnica is reaching out to NRECA for other examples, so stay tuned for more on that.

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*Developing story.

Image: US Department of the Treasury.


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Tina Casey

Tina specializes in advanced energy technology, military sustainability, emerging materials, biofuels, ESG and related policy and political matters. Views expressed are her own. Follow her on LinkedIn, Threads, or Bluesky.

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