What is The Difference Between an Electric Company and an Electric Cooperative?
Whether you are a long-time member of KREMC, or have just recently moved onto our lines, you may be wondering what the difference is between a standard electric company, and a cooperative. Read on to learn the key differences between these power organizations.
Ownership and Structure
First off, the standard electric company is owned by private shareholders and investors, like most for-profit companies. Cooperatives are non-profit organizations owned by their members.
Cooperatives have a very unique history starting in the 1930s. At this time, 9 out of 10 rural homes had no electricity. Investor-owned utility companies were not willing to bring power to rural homes because it would not have been profitable for them. These rural families banded together and decided to bring electricity to themselves. With the help of federal loans, they formed their own organizations – cooperatives – to deliver electricity to their communities. Cooperatives have remained non-profit, member owned organizations to the present day.
Governance
Given these two organizations’ structure, there is naturally a drastic difference in governance. Electric companies have a corporate board focused on investor interests and profits. Cooperatives on the other hand have a board of directors elected by their local members.
For example, at KREMC, voting for this board of directors takes place during our Annual Meeting. This is our members’ biggest way to have a say in operations, but voting for the people who speak for the community and guide the organization forward.
Rates
Rates at most electric companies are set to not only cover the cost of operation, but also to generate revenue for shareholders. At cooperatives, they are set to cover operating costs. Profit margin is used for capital improvements or returned to members in the form of capital credits. This is why cooperative rates are so much cheaper than other utility companies.
Focus
Cooperatives are non-profit organizations primarily focused on providing reliable, affordable electricity to their members and community. Unlike traditional utility companies, they are not concerned with maximizing profit for investors and shareholders. All of their profits get invested back into the community and the members.
Cooperatives are also focused around seven core principles: voluntary and open membership, democratic member control, members’ economic participation, autonomy and independence, education, training and information, cooperation among cooperatives, and concern for community.
Concern for community shows up in the way cooperatives are invested in their local area and giving back, with programs like the Live Line Demos, youth programs, scholarships, and Community Day, to name just a few.
Clearly, electric cooperatives are very different than standard utility companies. They are non-profit organizations owned by members and governed by people voted on by the members. Their rates are consistently lower than standard power companies, and their profits go back into the local community and its membership.
From the beginning, the cooperative model was born from the vision and collaboration of communities, and the hard work and investment of members. That is why still today, investing in the community is at the heart of the cooperative model, and why we are led by the voices of our members. This is the cooperative difference.