Can the co-op model continue to power the future?

Teri Viswanath: Nearly a century ago, millions of rural Americans were being left in the dark. Extending electric service to their communities was considered too difficult, too expensive, and too risky. Those communities built a different kind of business, one owned by the people it served. That decision did more than bring power to farms and homes; it helped transform rural America, and it created institutions that still anchor local communities today.

On this episode of Power Plays, we’re going to look back at how electric cooperatives changed rural America and ahead to the hard problems they may be uniquely built to solve today.

Hello, and welcome to Power Plays, a CoBank Knowledge Exchange podcast focused on the energy industry. I’m Teri Vishwanath, the energy economist from CoBank, and my co-host is Esther Simon. She’s the sector vice president for electric distribution division. Hey, Esther.

Esther Simon: Hey, Teri. October is one of my favorite months. It’s National Cooperative Month, a time to celebrate a business model that’s been making a difference in communities for generations. Cooperatives aren’t just part of our history. They’re also an important part of our future.

Today on Power Plays, we’re joined by Ted Case with the Oregon Rural Electric Cooperative Association and Adam Schwartz with The Cooperative Way to explore what makes the cooperative model so powerful, why it remains relevant today, and what it will take to keep it thriving for generations to come. Because at the heart of every cooperative is something pretty simple but incredibly powerful. It’s the power of us.

Viswanath: Ted, let’s begin with a historical look back. You have some fabulous books on your website, which I have just purchased one. We talked about this. I think it helps us understand rural electrification is often remembered as an infrastructure success story. It’s also a story about how communities were able to create a new business model when the existing marketplace did not meet their needs. Why is rural electrification such a powerful place to begin a conversation about the co-op model?

Ted Case: It’s one of the most unlikely success stories of the 20th century. I think it’s one of the greatest successful programs the federal government ever ran in the 20th century. How it started really was, as you noted, back in the 1930s, 10% of farms had electricity. Most of the farms in rural America were living a life that was pretty similar to the Middle Ages, just drudgery. Just imagine not having a radio, an electric iron, a washing machine, a vacuum cleaner, a toaster, a refrigerator, electric pump, all of those things.

And so, with rural electrification, and you have to give, of course, enormous credit to Franklin Roosevelt, who had a vision of what the country could be. He would go down to Georgia, and he had polio. He would get in these warm springs down there for some relief. He would see this extreme poverty around him. The people didn’t have electricity.

He wanted to do something about that when he became resident of the United States. The REA started as a relief agency in 1935 with $100 million with the notion of just trying to get some infrastructure up.

In fact, the REA, when they started getting these applications from these electric co-ops in 1935, 1936, they didn’t really think that they could do the job. They were divided. Some believe they didn’t have the business acumen to get the bills paid and they didn’t have the engineering capability to keep the lights on. There was nobody else that wanted to do the job. That’s where the story really begins of rural electric co-ops. That’s why I think it’s just a magnificent story about the whole business model.

Simon: Thinking beyond poles and wires that started out as rural electrification, what did that whole movement — you touched on it a little bit — what did that whole movement make possible for rural communities? You talked about the quality of life. What did the impacts look like on things like education, health, or economic vitality of rural communities?

Case: It changed everything almost overnight. When the lights came on, and that is a common refrain. We remember when the lights came on. Of course, nobody now really remembers when the lights came on. Very few people were born back in the 1930s, 1940s. We have some distance from that, but it’s just such a powerful story of when the lights came on, and all along that went with that.

Our statewide is part of rural electrification in Guatemala. We electrify a village. We get some ideas looking back, how it was in the 1930s and 1940s. This image of our last project of a guy, we electrified this village. We have a picture of a guy carrying a refrigerator across a river on his back. I think it's the same kind of thing that on the first day. These type of things that, again, that we take for granted, just changed everything about rural America.

Within 10 years, we had 78% of the farms electrified. It happened very quickly. They were almost hooking up a home every single second of the day. The REA was amazing. They had the best accountants, engineers, lawyers. We had some help, electric co-ops. It is such an amazing story because nobody wanted to do this. These farmers and ranchers and local people came together and did it for themselves with no profit motive. I couldn’t be more enthusiastic about what they did and how they did it because nobody thought they were going to succeed and they had something to prove.

Viswanath: Yet many of those co-ops go on to become remarkably durable institutions. Ted talked about the foundation, and yes, there were definitely innovative farmers involved, land-grant universities, but I think what I’m struck by is the fact that it’s remained a very durable institution. I ask you, what makes the co-op model so resilient, and why does it repeatedly show up when communities face problems that maybe traditional business models struggle to solve?

Adam Schwartz: What continues to happen is that the for-profit motive will go in search of what that business is designed to do, and that’s to generate a profit. Whereas co-ops get started because there is a need, and they get started to serve their members.

If we look back to history, there were different industries where co-ops became very prominent. Ted just went through rural electrification. Prior to that, farmers forming co-ops so that they can get their products to market. Then I work with co-ops in all sectors. Just to help maybe your listeners lay the groundwork here, there are four basic types of co-ops. There are purchasing co-ops. These are where small businesses come together. ACE Hardware probably being the most famous of them.

In fact, just a few moments before joining you, I was on a call with the veterinary co-op. This is a purchasing co-op of veterinarians who don’t want to sell out to private equity and don’t want to work for the big boxes. They want to keep the practice local. They want to keep it run by people who really care about animals. This group now has over 4,000 veterinary clinics that have come together to form a co-op. In your opening, you talked about what we’ve done in the past. I think our future is brighter than ever.

Simon: There are a number of challenges and changes going on in the industry today. I’m going to ask both of you, can locally governed organizations like cooperatives move fast enough to meet some of those challenges? Ted, I’ll start with you.

Case: I think it goes back again to the local control. These are very sophisticated operations. Just because you’re a small electric co-op, and that’s, of course, the sector that I know best. Adam, again, he has the whole breadth of it, and, again, one of the most knowledgeable and passionate guys about co-op in the United States of America. Good for you guys for getting him here.

What I see from the electric co-op sector is just the ability to adapt, to innovate. We’re ahead on technology in many respects. Again, we do that because it’s the right thing to do, not because we’re trying to satisfy some investor far away, or Wall Street, or anybody else, some shareholder. We’re doing it for our community. That ability to be nimble and the ability to do the right thing.

You never get in trouble for doing the right thing. I think Adam tells me that. I may be stealing one of his lines. When you do that, you can meet the moment. What I’m seeing with my electric co-ops, they’ve led on many of these things, on innovation. They’re ahead of the neighboring investor-owned utility. I feel very strongly that they’re able to meet the moment in the future.

Simon: So Adam, I’m going to ask you the same question. Can locally governed organizations like cooperatives move fast enough to meet the challenges that are occurring in the electric utility industry today?

Schwartz: Yes, absolutely. Not only can they, but I think they’re poised to be leaders in the change that’s going through the electric utility industry in part because one of the things that co-ops do, electric co-ops in particular, is that when they have a problem, they form another co-op or they form an association.

You take Ted’s organization, the Oregon statewide, as an example. It brings together the strength of all of his members. Then you multiply that with the national, NRECA, the National Rural Electric Cooperative Association. Then you think of all the second-tier co-ops that those individual electric co-ops came together, in the area of finance, of technology, of insurance, outage response, in purchasing the equipment.

We are stronger together. That is a common theme among cooperatives. I do think that we are very well positioned. And, combine that with our total focus on serving the members, not outside shareholders. I think the combination of the innovation and the focus on the membership is a very winning combination for co-ops.

Viswanath: We started the conversation talking about this big major problem that co-ops uniquely helped solve, which was rural electrification. But I’m wondering, today we are facing and confronting large share challenges, massive infrastructure investment needs, concerns about affordability, housing development, just across the board, community development. I’m wondering, what is the strongest argument that the co-op model is more relevant today than maybe it even was at the start almost 100 years ago?

Case: Back in the 1930s, 1940s, when they were starting, again, electric co-ops had something to prove because nobody thought that they could do the job. I think that same mindset exists today, that they still feel like they have something to prove because of their scale and their size.

I don’t think that’s changed a whole lot. I think that’s going to help get through these very turbulent times. I think it all goes back again to a loss of faith in institutions generally. We’ve seen this with banks. You name the large institution, there’s a lot of distrust out there. They trust their local co-op because they know the people.

If you see them at a Friday night football game or you see them at church, you see them on the street, the people that govern the co-op, that lead the co-op, that’s a lot different than being beholden to some distant CEO or distant shareholders in Chicago or someplace else. There’s a certain accountability to that, but there’s a certain partnership to that. I think it’s far more relevant than it was 50 years ago. I don’t think we’re ever going to stop trying to prove something.

Viswanath: That’s helpful. Adam, what would you add to that?

Schwartz: One of the things that happens over time with co-ops as they mature, and I would put the electric co-ops and credit unions and ag co-ops in the mature sector, is that they can start looking more like the industry that they’re part of and less like a co-op. One of the things that I certainly counsel my clients and folks to think about is how do we make sure that we keep that co-op advantage front and center?

In part, I think it means working with the employees, making sure that they understand what a co-op is all about. It’s not just a job, that there’s really a career and a purpose behind it. The fact that the co-ops are really all about community, serving the people in the community.

At this time, there’s so much technology available and so much disconnect, the bowling-alone kind of syndrome that’s out there, co-ops really can serve as a community cornerstone to bring people together. Yogi Berra never said it, but we all live locally. If we live locally, we should be acting locally. Co-ops can be a great community resource to bring communities together.

Simon: What’s something that you see that cooperative leadership can do differently or think about differently now or as we move into the future? Adam?

Schwartz: I think one of the things would be really helpful is for us to remember our roots, remember the seven co-op principles and why they exist and co-op values. Think about how we can apply this co-op business model to other challenges that we have in our community. My dream is co-ops are like spider plants. They give out these roots, and new co-ops gets started. There’s many instances of what we call principle 6, cooperation among co-ops, where co-ops are assisting other co-ops to get started.

Like what Ted mentioned about sending crews down to Guatemala, I’ve talked to those crews when they come back. They come back changed people because they see the value of this business model and the difference it can make in people’s everyday lives. Continuing to talk about that, and to the extent that co-op leaders can expose their employees and their members to that kind of experience where we see the difference that co-ops are making in people’s lives, both here in the U.S. and around the world, I think that would be a great additive and be very helpful to help the co-op movement continue to grow and succeed.

Simon: Ted, same question. What does that next generation of co-op leadership need to think about?

Case: If you listen to your members, they will tell you what they’re interested in. If you follow through on that, it’s the amazing things you can do. There are some examples. Certainly, we’ve had almost another parallel with rural electrification with rural broadband. We have electric co-ops that have gotten involved in rural broadband. CoBank has been a big part of that across the country. It’s the same kind of model, bringing something to people that never think they’re going to have it.

I think we certainly have challenges. There’s a lot of people that still view us as just another power company. Adam talks about coming out and talking to employees. He’s come out to Oregon and talked to electric co-op employees. He’s galvanized them and energized them. We have to do the same thing with our membership because we don’t want them to just view us as a power company that they pay a bill to every single month.

There’s lots of ways to get involved, and they own that co-op. I think we have lots of work to do to get them to recognize they are part of something much larger than themselves. It’s a very exciting thing to be part of. We’ve got to get the word out. We still have some work to do.

Viswanath: Guys, I want to close out our conversation by really looking at the next 20 years ahead. As we think about this, and we look back at this period as a defining moment for the cooperative model, are you optimistic, or do you think there are signs that we may miss an opportunity, especially given the challenges we just talked about that are facing our communities?

Schwartz: Given the number of industries that co-ops touch, one of the things that I really hope that we can do in the future is to learn from each other. There’s an organization called National Co-op Business Association. In fact, they just changed their name to U.S. Co-ops. They’re a trade association of all different types of co-ops. There’s great, great benefit for us to learn from each other, from co-op leaders in other sectors.

I know that every co-op has an annual meeting. One of the things I encourage is look at the other co-ops in your community and see what they’re doing. Creating either statewide or even local co-op cohorts. I know there’s a bunch in different states, in Iowa, Kansas, Maine. Looking where we can come together to continue to talk about this model, it’s as flexible as Gumby.

If you can think of it, you can create a co-op that can do just about anything. Keep talking about it and making sure that we’re being open to learn from each other and work together to implement what will be a very cooperative-minded communities. Thinking of it as a real solution for some of the great challenges that we are continuing to face. Private equity is certainly taking over a lot of businesses. I would like to see those businesses convert more to cooperatives and really be owned by people in their community.

Viswanath: Ted, you’re an author, you’re a historian, you are also the leader of our Oregon State Association. I want to take a look locally in Oregon for our co-ops. In the next 20 years, there are a lot of challenges. Are we going to look back? What are we going to say about this period?

Case: We’re going to say that this was probably the most challenging period of time that we ever faced. I think we all feel that there’s just a lot coming at us from power supply to governance to finance, all of these things, growth, data centers, all the things that are coming at us. I’m really optimistic because of the people that are involved in this program. They are just superb leadership, superb governance.

We have our challenges. I love the partnerships that we have. I love the cooperative network. I think a small electric co-op, and we have one that’s 1,000 members in our state. They’re supported by this incredible network across the country, whether it’s CoBank, whether it’s NRECA, our association. You’re not alone, but you are going to face a very tumultuous time. If you remember our roots, and I think Adam said that, I think you’re going to be able to weather this storm.

Simon: As we celebrate Cooperative Month, I think it’s worth remembering that the cooperative model isn’t just something that we’ve inherited, but I think it’s something based on what I’m hearing from you today, that we have the opportunity and responsibility to continue building on. I really want to thank Ted and Adam for joining us today, and I want to thank you all for joining us for this wonderful conversation.

Viswanath: Thanks to all of you listening, and we hope you join us again next month for our next episode of Power Plays, where we take a look at practical strategies for getting infrastructure built. Join us then. Thank you.