All electric utilities receive federal subsidies in one form or another. You may be surprised to learn that electric cooperatives receive the least amount of subsidy per customer.
The difference in federal subsidies for each type of utility becomes even sharper after considering that rural electric cooperatives typically serve sparsely populated areas: they have an average of 7 customers per mile compared to 35 for IOUs and 47 for municipal owned (muni) utilities.
Investor-Owned Utilities (IOUs)
Investor-owned utilities take advantage of accelerated depreciation and investment tax credits. Federal studies have referred to this as an "interest-free loan." The annual value of this major federal assistance to investor-owned utilities is estimated at $3.3 billion for 2003, making the subsidy to IOUs $35 per customer 1.
Municipal-Owned Utilities (Muni’s)
Muni’s can issue tax-exempt bonds. The federal government loses revenue because the interest income to owners of these tax-exempt bonds is not taxed. The federal subsidy to muni’s in 2003 was $909 million or $55 per customer 2.
Electric Cooperatives (Co-ops)
Electric cooperatives are not for profit businesses. Under the current Internal Revenue Code, electric cooperatives are exempt from federal income tax so long as, on an annual basis, at least 85 percent of their income comes directly from their member-owners for the sole purpose of meeting losses and expenses of providing that service.
Some electric co-ops receive loans from the Rural Utilities Service (RUS). The federal assistance is the interest subsidy (federal borrowing rate minus the RUS rate) on outstanding RUS loans. The federal subsidy to 668 rural electric cooperatives amounted to $35 million or $3 per customer in 2003 3. Another 235 co-ops have repaid their RUS loans in full and thus now receive no federal assistance.
Data Source:
- U.S. Dept. of Energy (DOE/EIA) 2003 data
- U.S. Dept. of Energy (DOE/EIA), Financial Statistics of Selected Publicly Owned Electric Utilities 2003
*516 municipal systems (out of approx. 2,000) reported statistics to DOE
- U.S. Dept. of Agriculture (USDA), 2003 Statistical Report, Rural Electric Borrowers, IP 201-1. November 2004