What Sets Co-ops Apart?
The number of residential customers co-ops serve is just one of the things that set them apart from investor-owned and municipal utilities. The cooperative principles by which they operate, the diversity of their customer base, and their history of consumer advocacy and conservation also make co-ops different.
Cooperatives are member-driven, not profit-driven. Operating much like a grocery cooperative or a credit union, each electric cooperative is an independent utility owned by its customers. Unlike investor-owned utilities, cooperatives set their rates strictly to cover the cost of doing business. If annual revenues exceed costs, co-op members get a credit.
This willingness to forego profits helped electric co-ops take root in sparsely populated areas across the United States in the 1930s and 1940s. All of the 22 electric co-ops now operating in Colorado were created between 1936 and 1946. At the time, nine out of 10 rural homes had no electricity, and it was not profitable for investor-owned utilities to expand beyond the densely populated areas they served. Remote areas had too few customers to provide a return on the significant investment in infrastructure that was needed.
The Rural Electrification Act of 1936 created a program to support the expansion of electric service to small communities, which included loans for electric cooperatives. As a result, the number of rural homes with electricity more than tripled in five years’ time.
Investor-owned utilities maintain about half of the nation’s distribution lines, publicly-owned utilities maintain around 7%, and co-ops maintain 43%.
Today, electric cooperatives are the only U.S. utilities that rely on government and other loans to finance capital construction. Unlike municipal or investor-owned utilities, they do not receive tax-exempt financing or revenue bonds. Instead they repay loans monthly with interest.