BY SCOTT FLOOD
No matter where you travel across the U.S., you’ll always find a place to plug in your phone charger. From the East Coast and Pacific Northwest to small towns in the Sonoran Desert, the familiar wall socket delivers electricity wherever you go. But while the power itself may be consistent, the organizations behind it often are not.
Throughout the U.S., electricity is delivered through three types of power providers: investor-owned utility companies (IOUs), public power systems (also known as municipal utilities) and electric power cooperatives. Two-thirds of American homes and businesses receive their electricity through an IOU. Public power companies serve 15% and co-ops deliver power to 13% of the nation’s consumers.
Different types of power providers
When business and homeowners talk about their electric service, most simply credit the “power company” that issues the monthly bill for the kilowatt-hours they’ve used. Although the three types share many characteristics, how they operate – and how that affects the users of the power they deliver – is strikingly different.
The biggest single difference is the profit motive. Public power systems and electric co-ops are not-for-profit organizations. That means their primary motive isn’t to make a profit, but to deliver electricity to the homes and businesses they serve at the most reasonable cost. In other words, their first objective is service.
Compare that to investor-owned utilities. As the name implies, IOUs are owned by investors. Those investors hold shares of stock in the utility, each owning some percentage of the utility’s assets. The goal of the IOU is to generate profits, thereby increasing the value of the stock and providing income to shareholders in the form of dividends. No matter how much effort an IOU puts into being a good power provider for its customers, its ultimate goal is often to maximize profits for its owners.
Public power systems are owned by municipalities and other forms of government, which means they’re technically owned by – and accountable to – the taxpayers they serve. The people who run these government units want to keep the taxpayers happy, so their goal is to keep rates as low as possible. Similarly, co-ops are owned by the members they serve, and their primary motivation is to keep the cost of electricity as low as possible.
Local control and member voice
Decision-making is another differentiator. IOUs are large corporations that may be headquartered hundreds of miles away from the folks who pay the bills. If one of those customers has a concern, they may have a difficult time getting the utility’s management to listen.
For public power, the same officials elected or hired to manage things like streets and parks oversee operations. A customer can reach out to their government representative if they’re unhappy with the service they receive.
Once again, co-ops are different. Their operations are managed by an elected board of directors made up of members. Those directors represent their neighbors and have an obligation to consider the concerns and preferences of other members. A co-op member who has questions about their rates or concerns about their service can turn to their local director for answers.
Serving rural communities efficiently
Infrastructure needs represent another key difference. Public power providers and IOUs tend to serve areas such as cities, suburbs and larger towns that have higher population densities. Most co-op service areas are in rural areas and smaller communities, where members are more widespread.
As a result, co-ops average just 7.98 members per mile of power lines, compared to 32.4 customers per mile for other types of power providers nationwide. In Iowa, electric cooperatives serve four members per mile of line compared to 58 customers for municipal utilities and 28 customers for investor-owned utilities. In Iowa, co-ops earn $10,800 in annual revenue from members, compared to $131,000 and $85,000 for municipal and investor-owned utilities, respectively.
This data shows that co-ops must manage significantly more infrastructure for the number of homes and businesses they serve, although they receive less money than the other types of power providers.
Because co-ops are inherently focused on the needs of their members, they center their planning and operations around the places they operate. They also play active roles in building the economic strength of the places they serve through community support, economic development initiatives, by employing more than 73,000 Americans, and by paying $1.5 billion in state and local taxes annually across the nation. In Iowa, electric cooperatives support nearly 2,000 jobs and pay almost $29 million annually in state and local taxes. For the five years ending in 2022, Iowa electric co-ops had an impressive impact of $4.7 billion in economic development projects.
Electric cooperatives work closely with neighboring co-ops and counterparts across the U.S. This collaboration stems from their shared commitment to the seven cooperative principles – especially the call for cooperation among co-ops. These close relationships, whether through joint investment in assets such as solar farms, shared resources to eliminate duplication, or joint ownership of a generation and transmission cooperative, strengthen all co-ops’ ability to serve their members.
While the three types of power providers are structured and operate in different ways, it’s essential to note that all are highly regulated by multiple state and federal agencies. Unlike other industries in which companies can raise prices or build facilities at will, power companies typically need to obtain regulators’ permission before taking actions that affect the services they provide and the rates they charge.
Scott Flood writes on a variety of energy-related topics for the National Rural Electric Cooperative Association.
