Academic journal article Management Quarterly

Electric Cooperatives: Competitive and Efficient

Academic journal article Management Quarterly

Electric Cooperatives: Competitive and Efficient

Article excerpt

Overview

Rural electric cooperatives (RECs) serve approximately 30 million persons in 2,600 counties of 46 states. Of the nation's 3,100 electric utilities, 934 are co-ops: 874 distribution systems and 60 Generation and Transmission (G&T) systems. The average REC has 9,400 consumers (meters) compared to 315,000 for investor-owned utilities (IOUs.) Municipal utilities (muni's) are the most numerous (nearly 2,000) and the smallest, averaging only 1,732 consumers. Co-ops have 8% of the industry's revenues and sales.

Residential sales amount to 59% of total REC sales, but only 35% for the industry. Nearly two-thirds of the industry's sales are commercial and industrial, but only 38% of REC sales.

Residential rates average 7.7[cents] per kWh for RECs, somewhat lower nationally than IOUs and higher than muni's. The commercial rate averages 7.4[cents] per kWh and the industrial rate averages 4.5[cents] per kWh.

Cooperative's density or consumers per mile averages 5.8, considerably lower than the IOU average of 35 and the muni average of 48.

Cooperative Costs

As graph 1 shows, power costs average 4.5[cents]kWh and represent nearly two-thirds of total revenues of 7[cents]/kWh. Power costs have trended downward in recent years. Distribution costs, however, have increased from 2.1[cents]/kWh in 1985 to 2.3[cents]/kWh in 1990 to 2.5[cents]/kWh in 1995. Overhead costs are .7[cents]/kWh or about one-fourth of distribution costs. Operations and maintenance (O&M) costs have been fairly steady at .5[cents]/kWh. Fixed costs, comprised of interest, depreciation and taxes, have increased most to 1.0[cents]/kWh or 40% of distribution costs. Operating margins have remained stable at .3[cents]/kWh.

Assets and Equity

Assets of RECs total $62 billion. Equity totals $18 billion or 29% of assets for distribution and G&T combined, but 42% for distribution systems.

Growth

Co-ops overall serve areas of higher consumer and sales growth than other utilities. Graph 2 shows average growth in consumers of 2.7% in 1995, over double that of IOUs. Growth in kWh sales which fluctuates from year to year, was 6% in 1995 compared to 2.4% for IOUs (see graph 3.)

Capital Credit Retirements

Retirements of capital credits have increased substantially in recent years to over $300 million (see graph 4. …

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