Co-ops beat utility rates in 15 states. But why not more?

Despite the fact that their customers are scattered throughout the most remote reaches of the 46 U.S. states they service, electrical cooperatives in 15 states offer residential rates lower than the averages for all utilities in those states.

A comparison of 1997 rates by the National Rural Electric Cooperative Association finds that another 24 states have rates that are just 1 to 10 percent higher than the utilities' state averages.

But shouldn't co-ops, which exist to provide at-cost service to their consumer-owners, be expected to offer rates in line with or better than those of competing municipal and investor-owned utilities in nearly every state they service?

That co-ops offer average rates lower than those of IOUs in certain states "should be a surprise to no one," says John Castagna, spokesman for the Edison Electric Institute. "Co-ops and munis are heavily subsidized by the government," he says. Castagna says this subsidy, an exemption from federal income taxes, amounts to more than $10 billion per year.

"IOUs, on the other hand, contributed $25 billion in taxes in 1996," compares Castagna. These tax breaks give co-ops an unfair advantage, he says, and should be expected to translate into low rates.

Dale Phariss, NRECA spokesman, sees no unfair advantage for co-ops. "[Co-ops] pay every tax that IOUs pay except income tax because they're not-for-profit," he says.

Rather than being at a disadvantage, says Phariss, many IOUs benefit from the ability to defer payment of federal income taxes. "That's $70 billion that IOUs have collected [from customers] but not yet paid to the U.S. Treasury," he says. "We see that as quite a tax advantage."

Tax differences aside, there are various reasons some co-ops' rates differ from those of utilities. Most significant is the co-ops' tendency to service areas with low customer density. "Even in places like Texas, a fairly populous state, there's a lot of land to cover and the people who take service need to cover the costs," says Phariss. And, according to NRECA, while co-ops serve 11 percent of the market, they own and maintain 44 percent of the nation's distribution lines.

In the 15 states where co-ops offer lower residential rates than utilities on average, Phariss says, it may be a matter of some other factors driving utilities' costs up.

The bottom line, says Phariss: "It's hard to make sweeping generalizations about rates; there are just too many variables."

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