A Charter for a Clean, Democratic Future

Like its 1930s counterpart, the Green New Deal should champion democratic cooperation in electricity.

Photo by  Gandosh Ganbaatar .

While the world has failed to make significant progress in combating climate change over the past decade, the prospect for real action looks very promising today. Proponents of a Green New Deal aim not to nudge the current energy economy toward carbon neutrality but to restructure the production, distribution, and use of energy. Even as it represents a break from the impoverished political imagination of the (still ongoing) neoliberal era, the Green New Deal draws on a rich legal and historical template for transforming our energy economy and deepen democracy.

The government structures—indeed builds—a market economy through the creation of property rights, the enforcement of contracts, and the construction and maintenance of roads and highways, among other actions. Two forms of market structuring should be at the heart of the Green New Deal. First, the corporation is a creation of the state endowed with the special privilege of limited liability. This generally protects the owners’ personal assets in the event of legal claims against the corporation. Given this privilege of limited liability, states historically treated corporations as quasi-public institutions. Second, the government can use its monetary power to promote certain activities and types of firms. During the New Deal, the federal government established a program to electrify rural America through cooperatives owned and controlled by their customers.

Building on this law and experience, fostering democratic cooperation at the state and local level should be a core principle of the Green New Deal. Specifically, Congress should create a cooperative charter for state and local governments and existing electric co-ops that want to remake their electricity supply systems. In line with the historical conception of the corporate form, this charter should both confer privileges and impose duties on cooperatives. First, this charter should grant the legal authority and the funds necessary to both acquire existing investor-owned utilities and invest in clean energy. Second, the federal charter should require cooperatives to govern themselves in accordance with democratic principles and end the production and purchase of fossil fuel-generated electricity by 2040. This charter would help decarbonize the energy system and ensure that this vital transition is managed by all of us—not by Wall Street or fossil fuel interests.

State Construction of the Economy Through Corporate Chartering and Direct Aid

Supporters of the Green New Deal, and progressive politics and policy in general, must recognize the state construction of markets. “The market” is not a force of nature: the state builds and facilitates market exchange through legal rules and institutions, such as property rights and enforcement of contracts, and construction and maintenance of public works. Two types of market structuring are especially relevant for the Green New Deal.

The corporation is a creation of the state. Governments—federal and state—grant charters to individuals and confer the important privilege of limited liability. In a business partnership, the partners can be personally liable for the debts and other legal obligations incurred by their venture. In the event of a loan default, creditors can sue the partners and collect the outstanding principal and interest from the partners’ personal assets. Similarly, individuals injured by a business partnership’s contamination of air, land, or water can sue the partners and hold them personally liable for the harms suffered. The owners of a corporation, however, do not face these risks. Because of the state’s grant of limited liability, owners of a corporation generally are not liable in their personal capacity for the entity’s legal obligations. Corporations are powerful because states license them to be.

Historically, this special corporate power was recognized and accordingly constrained. Governments granted limited liability in exchange for the right to structure and supervise corporations. Indeed, the popular view of corporations was one of wariness: corporations could wield their privilege to exercise state-like power. To protect against this threat, governments created corporations only to undertake specific projects that required raising large amounts of capital, such as building a canal or laying a railroad, and prohibited them from engaging in other activities. For example, a corporation created to build a canal in New York could not also build a railroad or bottle milk in Vermont. If it did so, it would be acting outside its scope of authority and could be dissolved by the chartering state.

Senator Elizabeth Warren, through her 2018 bill entitled the Accountable Capitalism Act, has reinjected the public nature of corporations into mainstream debate. Her bill pairs real public duties, including board representation for workers and a board duty to consider the interests of workers, suppliers, and customers and not just the (short-term) interests of shareholders, with the existing privileges of corporations. In a Wall Street Journal op-ed accompanying the introduction of her bill, Warren pointedly raised the problem of corporate privileges without accompanying duties:

American corporations exist only because the American people grant them charters. Those charters confer valuable privileges—such as limited legal liability for their owners—that enable businesses to turn a profit. What do Americans get in return? What are the obligations of corporate citizenship in the U.S.?

Another important form of state structuring of the economy is direct support for specific activities in the interest of promoting the general welfare. Consider a few illustrative examples. In the United States, federal and state governments build and maintain the road network that facilitates local and interstate commerce. The federal government also supports cutting-edge scientific and technical research through institutions like the National Institute of Standards and Technology. For example, it has funded clean energy research that has long-term potential but may not have immediate financial payoffs.

In the mid-twentieth century, the federal government directly supported the electrification of rural areas and revolutionized life in these sections of the country. In the 1930s, whereas nearly all major cities were electrified, only a small fraction of Americans in rural areas had electricity through the grid. In 1935, only 10.9 percent of farms had electricity. In some states, the numbers were even lower. In Arkansas in 1930, “less than 3 percent of the state’s farms . . . used any electricity,” including on-site generators. For investor-owned utilities, rural communities were not attractive places to offer electric service. Utilities had to construct poles and lines that would serve relatively few paying customers (compared to urban areas) due to low population density. In other words, significant upfront costs combined with limited potential for profit. As a result, utilities often demanded that rural residents pay upfront for the fixed costs of electric distribution lines. The choice for rural residents was electricity on prohibitive terms or no service.

As part of the New Deal, the federal government offered direct support for electrification through cooperation. The government, through the Rural Electrification Administration (REA), gave loans and technical support to rural residents who wanted to electrify their communities through cooperative enterprise. (While they were eligible for REA assistance, investor-owned utilities continued to show little interest in rural electrification.) Groups of rural residents organized cooperatives under state law and applied for federal assistance. Customers owned and controlled the cooperatives and decided important matters through democratic vote. At the end of a fiscal year, earnings not retained by the cooperative would be distributed to customer-members (not to shareholders or other financial constituents) based on their use of power (known as patronage refund). To further aid the growth of cooperatives and electrify rural areas, new federal hydroelectric facilities in the Pacific Northwest and Tennessee Valley sold power to electric cooperatives on favorable terms and freed them from dependence on often-hostile investor-owned generation plants.

The federal government’s electrification program transformed rural life. By 1950, more than 90 percent of farms had electricity. In a span of a few decades, electricity went from a luxury for rural Americans to something they took for granted. For example, in North Carolina, the number of farms with electricity increased from approximately 3 percent of the total in 1935 to around 98 percent in 1963. Electrification revolutionized life in rural America. Women no longer had to do backbreaking, time-consuming domestic work and could rely instead on electric appliances. Children could read and study at night under bright electric light.

The democratic entities that brought electricity to and remade the rural United States remain a part of our economic and political landscape. We do not have to excavate historical artifacts to understand cooperation in electricity. Instead, we can learn from the experience of millions of Americans in many parts of the country. Today, nearly 900 electric cooperatives serve 42 million Americans in 47 states, with service territories covering 56 percent of the country’s landmass.

Charters for Clean Power through Cooperation

Drawing on the state creation of corporations and the successful example of rural electrification, a federal charter for clean, customer-owned and -controlled utilities should be a key pillar of the Green New Deal. Congress should create this charter for municipalities, counties, states, and existing electric cooperatives.

How should the charter be structured to both decarbonize our electricity and democratize our economy? Like the historical corporate charter, it should feature not only private privileges but also public duties. Electric cooperatives should have the power and means to take over existing investor-owned utilities and to transition away from fossil fuels. First, the charter should grant clean electricity co-ops the federal government’s eminent domain power to take over investor-owned utilities’ franchises and assets. Second, to ensure that charter holders can acquire these utilities at market value (as the Fifth Amendment’s “takings clause” requires), the federal government should grant charter holders the necessary funds. Third, to accelerate the decarbonization of power generation, the federal government should award grants for investments in energy efficiency and zero-carbon generation sources.

Along with these privileges, the charter should include duties that ensure the accomplishment of both decarbonization and democratization. First, the law establishing the charter should establish a clear timeline for the phaseout of fossil fuels: the charter should require electric co-ops to obtain no more than 40 percent of their electricity from coal-, natural gas-, and oil-fired generation by 2030, and be entirely free of fossil fuels by 2040. At the outset, applicants for the charter should be required to submit a detailed program for achieving these targets through investing in clean power generation or purchasing clean power. In other words, the federal government should set the targets, but state and local co-ops should decide the means of achieving them.

Second, chartered cooperatives should be democratically-run and -owned by residential customers in the co-op’s territory. Democratic elections (one-customer-one-vote) should be held regularly to fill co-op board seats and decide major policy questions, much like shareholders do in investor-owned corporations. Elections every four years, for example, would promote effective customer control and engagement and protect against self-dealing by boards and managers. The cooperative’s surplus should belong to residents. At the end of each fiscal year, the board should retain sufficient surplus to ensure the co-op’s long-term stability and to fund its investments and distribute any unretained funds to customer-owners.

To understand how the charter would fit within the larger mission of the Green New Deal, consider this hypothetical scenario. Following federal enactment of the clean co-op charter and a public information and organizing campaign by local labor unions and environmental justice groups, the council of a large city in the Midwest votes to apply for this charter. In its application to obtain a charter and take over the incumbent investor-owned utility, the city presents a detailed program to end the utility’s purchase of coal-fired electricity and replace it with carbon-free electricity. Once its application is approved, the city uses its federally-granted legal authority and funds to buy out the utility and operate it as a democratic co-op.

The new electric co-op advances both decarbonization and democratization objectives. It solicits bids from clean energy producers to meet the city’s electricity requirements, with the target of sourcing 80 percent of power from wind facilities and the rest from hydroelectric facilities by 2030. A large federal expansion of the electric transmission grid in the 2020s makes this goal feasible: a well-developed transmission network in the Midwest’s wind corridor allows remote wind farms to ship their power hundreds of miles to metropolitan areas. Starting in 2023, the co-op has a large surplus, much larger than what is necessary for its investment and financial security. The incumbent board, however, declines to pay out any of this reserve as a patronage refund. In response to this decision, customer-members vote in a new slate of board members at the quadrennial election in 2026. This new board declares a patronage refund that disburses millions of dollars to the city’s residents.

As Kate Aronoff has written, “Like its 1930s counterpart, the ‘Green New Deal’ isn’t a specific set of programs so much as an umbrella under which various policies might fit, ranging from technocratic to transformative.” Like its 1930s counterpart, the Green New Deal should champion democratic cooperation in electricity. Through its chartering and monetary powers, the federal government should allow states, local governments, and existing electric co-ops to take over investor-owned utilities, operate them in accordance with democratic principles, and decarbonize the generation of electricity. This charter would help put the United States on a path to clean power controlled not by unaccountable and short-termist corporate and financial interests, but by all of us.

Sandeep Vaheesan is legal director at the Open Markets Institute, an antimonopoly advocacy and research group. He has published articles and essays on a variety of topics in competition policy.

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