For many rural Americans, the local electric or telephone cooperative is their best hope for finally obtaining modern-day connectivity. With the support of government funding, rural cooperatives have brought electricity, telephone service, and more recently broadband access to some of the most rugged and sparsely populated places in the country.

However, recent tax code changes might prevent co-ops from connecting more rural communities. Cooperatives could potentially lose their tax exempt status if they accept government grants for broadband expansion and disaster recovery — an unintended yet foreseeable consequence of the Republican “Tax Cuts and Jobs Act” passed late last year. In a press release, Senator Tina Smith called attention to the oversight, noting, “This uncertainty has caused cooperatives significant concern and frozen some of their grant applications.”

Who’s Ready for Some Tax Policy?

As nonprofit membership corporations, rural electric and telephone cooperatives are exempted from paying taxes under section 501(c)(12) of the Internal Revenue Code (IRC). To maintain this tax exempt status, cooperatives must derive at least 85 percent of their income from members (e.g., from selling electricity). This is sometimes referred to as the the member income test or the income source test.

South Dakota has more cows than people — and if you live in a rural community in of the state, it’s possible that all those bovines may have better Internet access than you do.

South Dakota Dashboard recently released a report on rural Internet access in the state. It was commissioned by the South Dakota Telecommunications Association (SDTA), whose members include cooperative, municipal, and tribal providers. The report, Connecting South Dakota’s Future: A Report on the Deployment & Impact of Rural Broadband, found that rural connectivity in the state significantly exceeds national averages, proving that high-quality Internet access is possible even in the most rural areas.

Download the report for more details.

Summary of Findings

According to the report, more than three quarters of rural South Dakotans who subscribe to Internet access from SDTA members have access to speeds of 25 Megabits per second (Mbps) download and 3 Mbps upload, which are the federal minimums for broadband. Across the country, approximately 61 percent of rural residents have access to those speeds.

Furthermore, 65 percent of people who subscribe to Internet access from SDTA members receive service through Fiber-to-the-Premises (FTTP). In contrast, only around 40 percent of rural telecommunications company subscribers nationwide are connected via fast and reliable fiber optic lines.

This is all despite the fact that, with fewer than five residents per square mile, deploying fiber costs on average $3,571 per resident in the rural regions served by SDTA members versus about $26 per resident in the more densely populated Sioux Falls.

Fast Internet Speeds Nothing New for South Dakota

If you’re looking to move to a community with a relaxing, rural lifestyle and quality Internet access, then Lyndon Township in Michigan may have just jumped to the top of your list. Now that the community has chosen an ISP to serve the community via its publicly owned infrastructure and established the cost of service, they're eager to start deployment.

Lyndon Township Board recently approved rates for their forthcoming fiber network, setting the price of symmetrical 1 Gigabit per second (Gbps) Internet speeds at a reasonable $69.95 per month. This is a nice reward for the township’s residents, who last year approved a tax increase to fund the construction of the network. The affordable residential gig brings Lyndon Township into the same price range as communities such as Lafayette, Louisiana; Westfield, Massachusetts; and Longmont, Colorado.

Local Support Founds, and Funds, the Network

Though only a 20-minute drive from the University of Michigan, a world class research institution, Lyndon Township residents are mostly stuck with expensive, slow, and unreliable satellite Internet service. Around 80 percent of the community doesn’t currently have access to broadband, which the FCC defines as a minimum of 25 Megabits per second (Mbps) download speed and 3 Mbps upload speed.

When attempts to get existing Internet service providers to expand into the community failed, the township decided to build its own Fiber-to-the-Home (FTTH) network. To fund the approximately $7 million network, residents approved a millage increase in 2017, with 66 percent of voters in support. The millage amounts to a property tax increase of $2.91 per $1,000 of taxable property.

There may be one famous Orange County already — the one in California is home to Laguna Beach, Disneyland, and The Real Housewives — but Orange County, Indiana, will soon be making a name for itself with world-class connectivity thanks to the local electric cooperative.

After a few years of planning, Orange County REMC is moving ahead with the construction of a Fiber-to-the-Home (FTTH) network that will bring premium Internet and telephone services to its members and other nearby residents. Construction on the main fiber ring begins this fall with services starting as early as next year.

The Seventh Cooperative Principle

In Orange County, the co-op’s main service territory, about half of the county’s 9,000 residents do not have access to 25 Megabit per second (Mbps) wired Internet access.

To address this, Orange County REMC began exploring ways to provide fast, reliable connectivity to its members in 2015. Two surveys and a feasibility study confirmed that a fiber project would be financially possible for the co-op and that it would garner sufficient interest from residents, while also improving management of the electric grid. “Based on the second survey, 85 percent of Orange County REMC members stated they would take our service if it were offered,” Matt Deaton, the co-op’s General Manager and CEO, told Hoosier Energy.

Because of the strong community support and the benefits for local businesses and residents, the Orange County REMC Board of Directors approved the FTTH project, Orange County Fiber, in May 2018.

In a recent edition of the Electric Consumer, published by Indiana electric co-ops, Deaton explained:

“All of these factors are found under the seventh cooperative principle ­— concern for community...This was a major decision to expand the services we provide to prepare us to meet the current and future needs of our members.”

Orange County Fiber

Rural electric cooperatives in Arkansas are stepping up and making the investments to bring broadband connectivity to their members. We recently described plans taking shape from North Arkansas Electric Cooperative. This month, construction began in the northeast region on infrastructure that will provide both broadband access and improved smart grid technology in the eight counties of Craigshead Electric Cooperative Corporation (CECC).

A Multi-Year Investment

The cooperative will deploy approximately 5,000 miles of fiber on utility poles and underground over the next five to seven years. Empower, a subsidiary of CECC, will offer Internet access to more than 30,000 members and non-members in its service area northwest of Memphis by the time construction is finished. FCC data has determined that about 44 percent of CECC’s members aren’t able to subscribe to broadband at the 25 Megabits per second (Mbps) download and 3 Mbps upload minimum threshold because there is no option in their territory.

CECC wants to make use of smart grid technology in order to improve delivery of electric services. Since fiber optic Internet infrastructure and smart grid can exist hand-in-hand, and the region is in desperate need for better connectivity, CECC and Empower will offer high-speed Internet access where incumbents won’t.

The cooperative will spend approximately $100 - $110 million to complete the project; construction on the first phase began in July and should be finished by the end of 2018. In addition to the economic development benefits that will come to the region as the infrastructure attracts new business, 30 new permanent positions which will be created to manage and operate the network.

Great Lakes Energy (GLE), Michigan’s largest electric cooperative and third largest energy utility, is constructing a Fiber-to-the-Home (FTTH) network to bring gigabit connectivity to its 125,000 members. Construction in the project’s pilot area is underway. Eligible members may be able to subscribe to services from the co-op’s subsidiary Truestream as soon as the end of the year.

Truestream Off to A Quick Start

GLE shared on its website that the co-op decided to build the Truestream network because members expressed a need for better connectivity in rural Michigan.

At the end of 2017, the co-op’s Board of Directors approved the planned fiber project. Board approval came after three feasibility studies, commissioned by GLE and its power supplier, Wolverine Power Cooperative, concluded that a broadband network would be a responsible investment for the co-op. Bill Scott, President and CEO of GLE, wrote in Michigan Country Lines that this conclusion was “based in part on GLE’s very positive satisfaction rating… [and] on surveys done by GLE and Wolverine that show a high demand for high-speed, reasonably priced, Internet service.”

GLE began constructing the first portion of the Truestream network earlier this year. For the initial pilot, the co-op is focusing on the Petoskey service district, which includes Emmet County and parts of Charlevoix and Cheboygan Counties. An online FAQ explains this region was selected because it’s representative of the varying terrain, density, level of connectivity, and type of membership found throughout GLE’s service territory. Some homes could be online by the end of 2018.

Residents of northern Arkansas will soon be able to obtain high-speed Internet access through their local electric cooperative. North Arkansas Electric Cooperative (NAEC) recently received approval from its Board of Directors to expand its residential broadband pilot program, NEXT, Powered by NAEC. This expansion will bring Fiber-to-the-Home (FTTH) connectivity and one gigabit speeds to the co-op’s entire service area. 

Origin of NEXT, Powered by NAEC

We first covered NEXT last year on Community Broadband Bits episode 243, when we talked to Mel Coleman, the CEO of NAEC.

While on the podcast, Coleman discussed how rural electric co-ops brought “the next greatest thing,” electricity, to their members. He views the provision of Internet services as following in the same historical tradition: “What we like to think is, ‘This is the next “next greatest thing,”’ and that is broadband in your home, true broadband.”

To bring broadband to their members, NAEC created the subsidiary NEXT to develop the fiber network and connect residences.

Developing a Successful Pilot

In 2016, the NEXT pilot program was launched in three locations in Baxter and Fulton counties. The pilot area included both urban and rural communities as well as portions of the small town of Salem, where NAEC is headquartered. Internet, voice, and video services were offered to approximately 1,500 co-op members within the pilot program’s targeted areas, according to the press release carried by Areawide News.

Since NAEC already owned a fiber backbone to manage its electrical system, the co-op simply had to build out from the existing infrastructure to connect residences. Eligible members could subscribe to symmetrical gigabit services for only $79.95 per month.

“We exceeded our goal of [pilot program] subscribers,” said Coleman, as quoted on the NAEC site, “and many have shared with us the benefits true broadband internet has brought to their families and businesses.”

What’s Next for NEXT?