Member-Owned power Companies
Member-owned power companies are highly competitive in the United States' rural energy sector with most of their members pledging to remain loyal to them despite the competitive energy markets. The members feel the companies are cheaper than their competitors and are more transparent in their dealings with their customers. These companies own about 42% of the national line distribution network and have operations in about 48 states. The number of member-owned power companies in the United States has been increasing from one in the 1940s to over 900 today and the companies have outlined their growth projections for 2020 to 2026. The regulations affecting the companies include the 'Rural Act', the 'Secure Act', the 'Parking Lot' tax and the 'Cadillac' tax. Some major concerns facing the industry include the aging grid line, the global environment quality concerns and their employees' motivation.
Impact of Competitive Energy Markets on Member Owned Power Companies
- A survey conducted by the National Rural Electric Cooperative Association (NRECA) in 2019 revealed that majority of their members say they will remain loyal to the member-owned power companies in the midst of competitive energy markets. About 57% of members surveyed said they will remain loyal customers of member-owned power companies even if competitors offered lower prices and close to 70% of the members pledged to remain loyal even if competitors offered same prices. Members cited several reasons for maintaining loyalty to member-owned power companies, including transparent communication, appropriate billing and quick restoration of power after outages.
- Scott Peterson of NRECA says that whereas Americans are loosing confidence in investor-owned and in public-owned power companies, the support for member-owned companies remains steady. NRECA attributes this support to a number of things, including the continuous innovations they develop to address customers' needs, the companies' democratic decision-making process and the fact that their distribution network covers about 75% of America's land area.
- A 2018 report by Cass County Electric Cooperative shows that member-owned power companies are highly competitive in the United States power sector. They claim to own about 42% of the country's line distribution network and to serve over 42 million people in about 48 states.
The Growth Of Member-Owned Power Companies in the United States
- The history of member-owned power companies in the United States dates back to the 1930s when the Rural Electrification Administration was formed which facilitated the creation of the first member-owned power company in the early 1940s. NRECA was first formed in 1942 to enhance supply of electricity to rural America and by the mid 1950s, over 90% of rural America had power. The number of member-owned companies has been increasing over the years and by 2017 there were about 900 companies.
- The NREA 2019 annual conference of member-owned power companies in the United States was attended by about 1000 members. Their announcement for the 2020 conference highlights the association's innovations, growth projections and their annual meetings venues for 2020 to 2026.
Regulations Likely to Impact Member-Owned Power Companies
- The federal tax law exempts member-owned power companies from tax if at least 85% of their revenues is from their members. Previously, this percentage included federal grants received by these companies but a new law proposed in 2017 did not consider federal grants as part of this percentage. If this law had been effected, most of these companies would have fallen into the tax bracket. Fortunately, the Congress passed the 'Rural Act' which exempts member-owned power companies from tax.
- The 'Secure Act' will have a positive effect on member-owned power companies as it will lower the premiums they pay to Pension Benefit Guaranty Corporation and save them of about $30 million per year. Jim Matheson, CEO, NRECA reports that in the past, these companies have paid premiums similar to those paid by Fortune-500 companies.
- The repeal of the 'Parking Lot' tax has saved member-owned power companies from a 21% tax on some employees' benefits including the use of parking spaces. This tax would have affected more than 30% of these companies. The repeal of the 'Cadillac' tax also had a significant cost saving implication for member-owned power companies.
Major Concerns Facing Member-Owned Power Companies
- One of the major concerns facing these companies is the aging and deteriorating line distribution network which has served for close to a century. The companies are strongly considering modernizing the grid line to improve services to their members but this has a heavy cost implication.
- Environment quality concerns is the other issue these companies are faced with since the global trend now is for companies to move towards renewable energy sources and away from traditional sources such as coal. This shift has heavy cost implications given that coal has been the major source of power for these companies. Employee motivation is also an issue these companies are struggling with as most of their staff reside far away from their work places and have to commute long distances to and from work causing many of them to suffer burn-out.