Electric cooperatives are private, not-for-profit utilities owned by their customers and operated as a business. Each cooperative member owns an equal share in the business regardless of their connection type or how much electricity they purchase.
Rural electric cooperative are typically established when:
- Access to electricity is recognized as imperative to improving the quality of life for a given community; and/or as an alternative to private of public service needs.
- Electrification programs funded by governments or international development agencies, collaborate with community members to enable access to electric service that would otherwise be unavailable.
Electric cooperatives are typically formed when communities organize themselves to pool resources, raise capital, and engage engineering and training expertise needed to establish electricity generation and distribution service.
Like all cooperative businesses, the electric cooperative model is rooted in the Seven Cooperative Principles which reflect the values of equality, democracy, self-help and solidarity. When successful, electric cooperatives can be the building blocks for autonomy, independence, self-reliance and democracy in the communities where they operate.
The cooperative advantage
Electric cooperatives are owned by their consumer-members who elect board members to hire a general manager and staff to manage electric distribution business activities.
While electric cooperatives are businesses that must recover their costs, they are not driven by investors, and prioritize community economic growth over profit. Electric co-ops have a direct interest to fully align with the community’s well-being, and if successful, electric cooperatives can be the building blocks for autonomy, independence, self-reliance and democracy in the communities they operate.
In addition to reaching electrification goals that will ultimately improve the quality of life of the lives they touch, all financial returns on investments remain in the communities they serve. This cultivates a sense of responsibility among community members, ensuring higher standards for operations and customer satisfaction.
Key factors for long-term success
National laws and regulations that are supportive of cooperatives ensure that rural electric cooperatives can operate independently as private entities.
Strong internal governance and operating rules in the cooperative bylaws solidify the sole business purpose of meeting the members’ interests. It is also important that cooperatives are managed and operated with a focus on reliability, member service, commercial discipline and a reduced loss.
Access to finance in the form of grants or long-term, low interest loans is essential to compensate for the lack of capital for construction in most rural communities and the unwillingness of commercial lenders to provide financing.
Strong buy-in from the community where the rural electric cooperative is located is critical to its long-term success.
Access to technical assistance to build capacity in local, community-based staff to perform specialized technical, managerial, and administrative activities.
Structure of a rural electric cooperative: Community elects board members, determines tariff, and grid expansion.