Co-op 101

duane highley

Duane Highley

What makes a co-op different?

This past month we met with business leaders, lobbyists and legislators to discuss bills under consideration by the Arkansas General Assembly. In discussing one particular proposal, we explained that additional proposed regulation and oversight would be unnecessary because of our cooperative business model. Our counterparties pushed back, asking “but you’re just like the other utilities, aren’t you?” Our answer: “Actually, we aren’t.”

The Electric Cooperatives of Arkansas consist of 17 individual, member-owned retail electric cooperatives, known as distribution co-ops. The smallest serve a few thousand homes, farms and businesses; the largest serve almost 100,000.  Altogether they serve about 1.2 million Arkansans, and even service some members in Missouri, Oklahoma, Texas and Louisiana. They cover service territories that include all but one of Arkansas’ 75 counties, representing almost two-thirds of the state’s land mass.

But the most amazing thing about this cooperative network isn’t its size — it’s the business model.

Each of these local member-owned electric cooperatives is governed by a board of directors elected by the membership, from the membership. Each director is a customer of the cooperative, and they pay their monthly electric bill just like you do. They review the operations of the co-op and approve of its plans and expenditures. The CEO of each cooperative reports to this board of customers each month to justify the money that was spent.

I can’t think of a better way to ensure alignment of interests between the customers and the leadership of the cooperative, because in the cooperative business model, the customers ARE the leadership!

For this reason, we can avoid a lot of the checks and balances that are necessary in the “investor-owned” business model. Outside shareholders of investor-owned utilities want to see a return on their investment, and without regulatory oversight, those utilities would have the unchecked ability to continually raise rates and profits. On the expense side, service reliability costs money, and without enforceable service requirements these utilities would also have an incentive to spend as little as possible on maintenance to provide a greater return to shareholders.

Don’t get me wrong, I’m all for free enterprise, and I believe that investors are entitled to earn a reasonable return on their investment. However, I also believe that the cooperative business model is better at ensuring that costs and reliability are balanced in the best interests of the customer because the customer, the member, is in charge.  We aren’t in business to make a profit; we are in business to provide reliable service at the lowest reasonable cost.

In addition, because each cooperative is a locally owned, community-oriented business, we believe in supporting those we serve in many ways beyond just providing reliable and affordable electricity. We see ourselves in the quality-of-life business. We live and work where you live and work, so once again there is a great alignment of interests. Cooperatives want to help make their communities better. That’s the cooperative difference.