How Electric Cooperatives and Commercial Utilities Differ

There are many differences between electric cooperatives and commercial utilities.

  • Cooperatives have member-owners, not just customers. The members of the cooperative are also its customers.
  • Cooperatives follow a democratic process, not board governance. Every member can vote and has a right to participate in the policy-making process. They also elect local board members. With commercial utilities, only shareholders have any say in running the company. All members of cooperatives can take part in shaping policies and influencing the business.
  • Cooperatives focus on service, not profits. Electric cooperatives bring electricity to rural areas because for-profit electric companies are reluctant to serve areas where customers may be miles apart. In cities and towns where homes and businesses are close together, power companies make more money per line mile. Though cooperatives don’t ignore the need to make a reasonable profit, they focus on customers because the organizations exist to provide service.
  • Members participate financially. Investors in commercial companies put their money to work and expect company growth to produce a return. When cooperatives produce a margin -- revenue that exceeds the cost of providing service -- it’s reserved as capital credits. The reserves are used to build and maintain the cooperative’s infrastructure and facilities and to provide for other service needs. Each member is allotted an amount of the capital credits based on how much electricity the member consumes. This consumption is called "patronage." When deemed appropriate by the board, a portion of capital credits may be paid to members according to the cooperative's bylaws. Investors buy shares in companies based on their financial ability and personal discretion. But members of a cooperative are usually required to “invest” initially by paying a registration fee, then provide continuous capital by consuming and paying for electricity.

Read the rest at The Balance

 

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