Here are answers to frequently asked questions about electric cooperatives. Got more questions? Write us at firstname.lastname@example.org.
The three kinds of utilities are distinguished more by their business structure than by the product they sell. They are electric cooperatives, investor-owned utilities, and public power systems.
A cooperative is owned by its members, and in the case of an electric cooperative the members are also the consumers. Therefore, all of the owners live in the cooperative's service area. A cooperative operates on a non-profit, cost-of-service basis.
An investor-owned utility (IOU) is owned by stockholders who may or may not be customers and who may or may not live in the service area. The IOU is a for-profit enterprise.
A public power system is owned by a city, state or federal government. Twenty-one South Carolina cities own their electric power systems. The state owns Santee Cooper (The South Carolina Public Service Authority); it is not a cooperative. The federal government owns the Tennessee Valley Authority.
They are independent companies and in some cases competitors. The power supply equation seems complicated to the average consumer because utilities often work together. Most have contracts with others for on going power purchases or short-term emergency purchases.
Twenty electric cooperatives provide retail service in this state.
No more than investor-owned utilities such as Dominion Energy or Duke Energy.
And, no more than The Associated Press, Ocean Spray, Land O'Lakes, FTD (florists), Mutual of Omaha or Ace Hardware. Electric cooperatives, press cooperatives, farm cooperatives, etc. are independent businesses that are owned by and operate for the benefit of their members.
The cooperative form of business structure has existed for centuries. In America, Benjamin Franklin helped organize the Philadelphia Contributorship for the Insurance of Homes from Loss of Fire in 1752. This mutually owned business continues today, the oldest cooperative-style service in this country.
Electric cooperatives developed because many citizens, who did not have access to electricity in the 1930s, decided to form their own companies to acquire power.
Investor-owned power companies said they couldn't make a profit in areas with a small number of consumers per mile of expensive power line. The cooperative business structure already was a well-established part of the American free enterprise system for providing services that were too big for individuals to do alone. Non-profit cooperatives were a natural fit for distributing electricity in areas where making a profit would be difficult.
The federal government long ago determined that all Americans should have access to electric power. As a result government policy has provided assistance to all electric utilities. Some electric cooperatives borrow money at favorable rates from the Rural Utilities Service (RUS), an agency of the U.S. Department of Agriculture.
Critics sometimes point to those favorable interest rates as unfair subsidies. That criticism ignores the billions of dollars in government benefits going to investor-owned and municipally owned utilities in the form of investment tax credits, deferred income taxes, and tax-exempt bonds.
In fact, electric cooperatives receive less government assistance per consumer ($23) than investor-owned utilities ($52).
Sources: U.S. Department of Energy, U.S. Department of Agriculture, U.S. General Accounting Office, Congressional Research Service.