to understand exactly what an electric cooperative system really is
can be somewhat daunting. Here is a list of a few questions and
answers that might help you understand:
- What is an
cooperative is a type of electric utility that is owned by the
members it serves. Its profits, or margins, are put back into
the cooperative to help run the business efficiently, or are
returned to the customer-owner. A co-op exists solely to provide
high-quality service at the lowest possible price for its
- What is a
generation and transmission cooperative?
and transmission cooperative, or G&T, is owned by several
distribution cooperatives to furnish their own generating plants
and transmission lines to supply power to their member co-ops.
To find out more about the two G&Ts providing power to
Kentuckys 24 distribution cooperatives, click
- What is a
distribution cooperative is a non-profit, customer-owned
electric company that purchases electric power at wholesale and
distributes it to its customers. For more information about
Kentuckys 24 distribution co-ops, click
- What are
cooperative exists for the purpose of providing its members with
electric service - on a non-profit basis. Therefore, in a
cooperative, the net margins do not belong to the corporation -
they belong to the individual consumers who paid the money on
their monthly service bills. In most types of co-ops, net
margins, after reasonable reserves are set aside to pay back
government loans, operating costs and other expenses, go back to
the members in the form of a cash patronage refund. The funds
credited to members are capital credits, and over a period
of years these membership funds take the place of federal
investment. The individual members capital credits are his
ownership equity in the system. Most electric co-ops have a
provision in their bylaws for repayment of capital credits on a
- What is an
investor-owned utility, or IOU, is an electric company owned by
stockholders. IOUs provide
a service to return a profit for investors.
- What is a
municipal electric system?
systems are owned by a unit of government, like a city, that
purchases electricity at wholesale and distributes it to
- What are
the basic differences among electric utilities?
kinds of utilities are distinguished more by their business
structure than by the product they sell. They are electric
cooperatives, investor-owned utilities, and municipal systems.
electric cooperative is owned by the members it serves.
Therefore, all of the owners live in the cooperative's service
territory, with most customers living in rural or semi-rural
areas. A cooperative operates on a non-profit, cost-of-service
basis. In Kentucky, electric cooperatives serve an average of
eight consumers per mile of electric line.
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. In Kentucky, IOUs
serve an average of 25 consumers per mile of electric line.
Municipal systems are usually owned by a city, a state or
federal government agency. Municipal customers are usually
located in urban or semi-urban areas. In Kentucky, municipal
electric systems serve an average of 60 consumers per mile of
consumer-owned cooperatives run by or owned by the government?
owned by the customers they serve. Co-ops are run by policies
established by a consumer-elected board of directors, normally
about seven people, who in turn hire a manager and chief
executive officer to hire additional staff for the purpose of
running the organization. People often confuse co-ops with
federal ownership because they typically receive a portion of
their financing through federal loans. The interest rate on
these loans is typically what is paid by municipal systems.
- What is the
big deal about being non-profit?
cooperatives developed because many citizens who did not have
access to electricity in the 1930s decided to band together and
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 for distributing
electricity in areas where making a profit would be difficult.
- What is the
1935, there was no national effort to bring electricity to rural
America. In most rural areas, it was too expensive for electric
companies to extend their lines out into sparsely populated
areas. Farmers and other rural residents made due without the
benefits of electricity, unlike folks in the cities who had
President Franklin D. Roosevelt and some members of Congress
felt strongly that having electricity should not be limited only
to Americans who live in larger towns and cities. In 1935,
President Roosevelt created the Rural Electrification
Administration (REA). In 1936, President Roosevelt - working
with Congress - passed the Rural Electrification Act. Thus began
an enormous effort by rural Americans and the newly created REA
to organize in their communities and plan how they would bring
electricity to their towns and farms.
Department of Agriculture was re-organized in 1995, the Rural
Electrification Administration was combined with the rural Water
Facilities and Telecommunications Programs to form the new Rural
Rural Utilities Service (RUS) is the Federal "point"
agency for rural infrastructure assistance in electricity, water
As a Federal
credit agency in the United States Department of Agriculture,
RUS provides a leadership role in lending and technical guidance
for the rural utilities industries. The public/private
partnership that is forged between RUS and these industries
results in billions of dollars in rural infrastructure
development and creates thousands of jobs for the American
like to find out more about the RUS, click
- What does an
electric utility territorial law mean in Kentucky?
In 1972, the
Kentucky General Assembly passed one of the countrys first
territorial laws. The law, in essence, set up parameters for the
service areas for Kentuckys investor-owned utilities and the
electric cooperatives, which were then filed with the Kentucky
Public Service Commission. This was a good way for Kentuckys
electric utility companies to avoid the extra cost of stringing
expensive electric lines that were already in place and to keep
others from annexing service areas so the utility would not lose
its source of income.
- What is the
Kentucky Public Service Commission?
Public Service Commission is a three-member administrative body
with quasi-legislative and quasi-judicial duties and powers
involving regulation of nearly 600 conventional utilities, plus
approximately 300 coin-operated phone vendors. It is funded by
an assessment paid by all utilities under the Commission's
jurisdiction based on a utility's annual gross intrastate
revenues. The Commission's mission is to provide a healthy
regulatory environment so that the utilities under its authority
can safely provide quality services at reasonable rates to the
people of Kentucky.
utilities, most of the state utilities rates are regulated by
the Kentucky Public Service Commission, except for municipal
systems and the five Tennessee Valley Authority (TVA) electric
co-ops - but, the PSC does have the legal responsibility to
enforce territorial boundaries of all electric utilities,
including the TVA co-ops.
If you'd like
to know more about the Kentucky Public Service Commission, click
Kentucky Association of
Electric Cooperatives, Inc.
4515 Bishop Lane * Louisville, KY 40218
502-451-2430 * FAX: 502-459-3209