By David O. Williams/Original Source

Rural electric co-ops that gamble on low-cost coal while
largely keeping their member-owners in the dark about future
financial risks may be playing with federal regulatory fire in
the form of the Sarbanes-Oxley Act of 2002, according to an
attorney for the renewable-energy sector.

Ron Lehr, attorney for Interwest Energy Alliance and former chairman of the Colorado Public Utilities Commission (PUC), said board members of rural electric co-ops need to go to great lengths to divulge to their members the potential risks of investing in coal-fired power plants with a possible federal carbon tax or cap-and-trade policy looming.

While it’s far from certain the Obama administration and Democratic-controlled Congress will be able to impose carbon limits as part of the American Clean Energy and Security Act, renewable-energy advocates say it’s only a matter time, making over-reliance on cheap but dirty coal-fired plants a risky long-term bet.

Two of Colorado’s co-ops — the Intermountain Rural Electric Association (IREA) on the Front Range and Holy Cross Energy on the Western Slope — invested $366 million and $100 million respectively in Xcel Energy’s new Comanche 3 coal-fired plant near Pueblo. Both co-ops have publicly stated they did so to procure a cheap, stable base load.

But cap-and-trade or a carbon tax could significantly penalize coal-fired power plants, which produce 50-percent more carbon than natural gas-fired plants.

“If you don’t make any reasonable disclosure of risks attendant on your business, as a director and officer, if that risk turns out to hurt shareholders and shareholders find cause of action and bring it and are successful, then the directors and officers might be personally liable,” Lehr said, referring to Sarbanes-Oxley, which was passed following the Enron, Tyco and WorldCom accounting scandals earlier this decade.

“So there are a lot of companies that are disclosing these
risks now, and that’s the standard to which these directors and
officers are held. What are reasonable directors and officers
in similar circumstances doing? And many of them are
investigating and disclosing these attendant carbon risks.”

The IREA and Holy Cross board decisions, made with minimal
debate and publicity, locked in electricity — at least for now
— at about four or five cents a kilowatt hour. An IREA
spokesman said even a two-cent per kilowatt-hour increase
resulting from a carbon cap would be worth the risk, with a
full 50 percent of the co-op’s base load coming from Comanche 3.