Electric Co-op and Utility: What's the Difference?
There's a wide variety of entities operating our electrical infrastructure. Here's why the difference matters, even if you don't have much of a choice.
- Finalist for the Nesta Tipping Point prize and a degree in broadcast journalism from the University of Missouri-Columbia.
Depending where you live, one company may generate, transmit and sell you your electricity.
The source of electricity in your home may seem simple: Just flip a switch or insert a plug in the wall. There's a much more complicated network of infrastructure delivering electrons to those outlets, however, and the web of companies and other entities that keep the grid going is arguably even more complex.
Ever since the Rural Electrification Act of 1936 poured US federal government funds into turning the lights on across America, much of the grid has been maintained by a mix of either member-owned electric cooperatives or utility companies that are either publicly or investor-owned.
This means we have an interconnected electrical grid, the different components of which are largely run by three different types of institutions. Here's a breakdown of how co-ops differ from utility companies, what that difference has traditionally meant and how things are changing right now.
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What is a utility company?
A utility company is simply the organization that maintains and operates a region's energy generation and transmission infrastructure, including the power plants, solar arrays, wind farms, transformers and transmission lines. In other words, it is typically the company that runs the power grid for a certain area.
Increasingly, due to deregulation (which allows more than one company to sell electricity in a utility's area) and other changes in legal and regulatory structures, a sort of middleman is emerging called an energy supplier. These companies work as go-betweens to connect customers to energy sources of their choice and compete with each other to sell electricity to individual residents and businesses.
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Not all customers in all markets have the option to choose an energy supplier. In states where the electricity market has been deregulated, electric cooperatives often get to choose whether or not they deregulate. Still, utility companies (or co-ops) exist in all markets and keep the grid operating to serve either energy suppliers, individual energy customers, or both.
What is an electric cooperative?
Like other companies and just about any other asset, utilities can be privately, publicly or cooperatively owned and managed.
As Corey Ramsden, vice president for Go Solar Programs at Solar United Neighbors explained to me, electric cooperatives are "generally defined as an electric utility owned by its members; as opposed to an investor-owned utility owned by shareholders, which is more common in the US."
Solar United Neighbors works with electric co-ops to help them add more solar to their energy mix and also helps individual homeowners work with their utilities to connect their own solar panels to the grid.
Advocacy groups like Solar United Neighbors often find common cause with electric co-ops because they're owned by members who are also the organization's energy customers rather than shareholders primarily interested in seeing a return on an investment.
A tower holding power lines
Typically, joining a local electric co-op is as simple as connecting to its grid and signing up for electric service. Being a customer often automatically also means becoming a co-op member, although there may be other ways to gain membership without paying for regular electric service.
The co-op then functions through some democratic means, often with members voting to elect a board of directors that hires and oversees a management team responsible for the day-to-day operations of the utility.
Types of utility company
What a utility company does is pretty standard. We're focusing on providing electricity here, but utilities can offer other services like natural gas, propane, water, sewage and even broadband. While these offerings can vary widely, most non co-op utilities have one of two basic ownership structures, either investor or publicly-owned.
Investor-owned utilities
Investor-owned utilities are structured similarly to other corporations that have shareholders and a fiduciary responsible to maximize a return on those shareholders' investments in the company. The company can be publicly traded on a stock exchange, or it may be privately held.
This sort of utility typically owns and runs the infrastructure to sell energy to retail customers in order to make a profit and return value to shareholders.
Publicly owned utilities
Utilities can also be wholly owned and operated by local governments or by semi-autonomous public entities (like the federally owned Tennessee Valley Authority). Think of publicly owned utilities as structured in a way similar to that of a local public school district.
The main difference between a public utility and a co-op is that an existing government such as a municipality, state or even the federal government usually has ultimate ownership and responsibility for a publicly owned utility.
Pros and cons of an electric co-op
Co-op members often have a say in operational matters like rate increases, infrastructure investment or how to spend a budget surplus. While such a surplus would be categorized as profits that go to shareholders in the case of a privately-owned utility, a cooperative might opt to distribute a surplus as credits spread across all members.
However, not all co-ops are created equal. Many date back to the New Deal era and a big nationwide push to electrify rural areas over 80 years ago. Some, smaller rural co-ops can seem stuck in another era with outdated customer service, billing systems and electrical infrastructure itself. They are governed by a diverse array of local, state and federal regulations, to say nothing of the local politics that can come into play on the co-ops' own boards.
Still, co-ops offer more ways to become directly involved with how energy is produced, distributed, bought and sold in your local community, especially compared to a privately owned utility.
Can you choose between an electric co-op and a utility company?
Ultimately, you have two real options in where to source your power from. You can either connect to the energy grid at your physical location or you can source your own power with an off-grid setup like I do.
There is, however, some potential nuance and choice in whom and how you pay for the power you get from the grid. An increasing number of states have deregulated their systems, allowing for energy suppliers to negotiate terms with utilities and then resell electricity to retail customers.
There's also some interesting programs operating as sort of quasi-utilities, like community solar efforts that operate solar farms and allow people to subscribe to the power they generate, sometimes even if they aren't directly connected to that specific farm. Organizations like Solar United Neighbors have been working with electric co-ops to add community solar to the list of services they offer.
For more information on deregulated energy rates and companies, check out CNET partner site ChooseEnergy.com, which, like CNET, is owned by Red Ventures.