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■ spotlight Municipal electric systems


Municipal electric systems are distribution utilities owned by a city or other incorporated community. As public entities, they can levy taxes, issue government bonds, and adopt and enforce rules and regulations.


Dividing Lines


What makes electric cooperatives different from other types of utilities lies in their core mission.


ecause Choctaw Electric is a cooperative, co-op members often hear about “the cooperative difference.” The differences between electric co-ops and other electric utilities range from the language used—co-ops serve “members” or “consumers,” not “customers”—to the business model itself.


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For example, electric co-ops operate on a not-for-profit basis. Revenues above operating costs, called “margins,” are returned to members in the form of capital credits. Since 2006, Choctaw Electric Cooperative (CEC) has returned $3.4 million in capital credits to its members.


In the U.S., there are two other kinds of not-for-profit electric providers: public utility districts (PUDs) and public power districts (PPDs). There are also two other types of electric utilities: city-owned municipal electric systems such as Broken Bow, and profit-driven investor-owned utilities such as Public Service Company (PSO) and Oklahoma Gas & Electric (OG&E). In every case, utilities receive financial assistance from the federal government in some fashion. Following is a look at each.


Cooperatives, PUDs, PPDs


Electric cooperatives are joined by public power districts—located exclusively in Nebraska—and public utility districts (all in the Pacific Northwest) as being not-for-profit. But while cooperatives choose directors or trustees from their


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membership and are required by state law to hold annual membership meetings, PUDs and PPDs are local government units and are not required to hold annual meetings or allocate capital credits. In addition, their directors (commissioners in the case of PUDs) are elected on the state ballot. Candidates only need to reside within the PPD/PUD’s boundaries to serve on a board; they do not have to receive power from the utility.


Federal assistance to electric co-ops comes in the form of low-interest loans from the Rural Utilities Service (RUS), formerly the Rural Electrification Administration. Based on current interest rates, RUS loans actually make money for the federal government—about $274 million in fiscal year 2012. Aside from aiding in the construction of critical infrastructure that keeps electric service reliable and electric rates affordable, RUS financing remains important because household incomes in co-op service territories run about 11 percent lower than the national average.


Electric co-ops nationwide serve an average of 7.4 consumers per mile of line, over which they collect annual revenues of about $14,900 per mile. Choctaw Electric, however, serves an average 5.7 members per mile, collecting an annual average of $11,926.26 per mile.


Nationally, electric co-ops pay $1.4 billion in state and local taxes each year.


Source: National Rural Electric Cooperative Association, September 2013


Not-for-profit municipals serve the most consumers per mile of line, an average of 48, and collect an average of $113,301 per mile of line. The federal government subsidizes municipals, too. For instance, when cities issue tax-exempt bonds, interest paid to bond owners is not taxed. The cost of this benefit in 2003 (the last year data is available) was $909 million, or $55 per consumer.


Investor-owned utilities


Investor-owned utilities, or IOUs, are governed by and generate profits for shareholders (those who own stock in the company) who do not necessarily live in the utility’s service area or even in the same state. PSO, which serves customers


Revenue in Review


Because of higher population densities (more consumers served per mile of line), municipal electric systems and investor-owned electric utilities receive more revenue per mile of line than electric cooperatives.


Consumers served/revenue per mile of line for different utilities:


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