Charles Cotton never gave much thought to the fact that he owns a piece of Jackson Energy Cooperative, the utility that delivers power to his home in Berea, Ky. His grandparents used to go every year to the co-op’s annual meeting and cook-out, where member-owners elect representatives and vote on cooperative business, but Cotton himself has never gone. He uses Jackson Energy simply because it’s the only utility serving his region.

But last November, Cotton’s membership paid off in a way he hadn’t expected: The cooperative gave him an energy upgrade, installing a plastic moisture barrier underneath his house and replacing his old furnace with an efficient heat pump. Cotton’s home now feels warmer and his electric bills have dropped significantly, but he never paid a dime up front.

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Jackson Energy’s status as a cooperative led directly to Cotton’s retrofit. It is one of four rural electric cooperatives participating in a pilot program called How$martKY, run by the Mountain Association for Community Economic Development (MACED). The program will let Cotton slowly pay back the cost of the retrofit: His bill is smaller than before, but he’s actually paying a bit more than the cost of the electricity he uses. The extra charge is how he repays the cost of the retrofit. It’s a scheme called on-bill financing—a way for people of all financial backgrounds to reap the benefits of energy efficiency without a big up-front cost.

Since on-bill programs like How$martKY are still experimental, MACED made a point of kicking off its pilot program by working with cooperatives. Investor-owned utilities are legally required to prioritize shareholder profits, and often can’t take on risky or unproven ventures. But electric cooperatives are required to maximize value for their members. That makes a cooperative potentially more willing to try out a program with an as-yet-unproven effect on the utility’s bottom line, but with the immediate potential to help member-owners and wean the region off fossil fuels. “Because they’re customer-owned, because they’re intent on customer satisfaction, it made sense to start with them,” says Justin Maxson, president of MACED.

The program is a small step forward in a region of the country underserved by renewables, but one with the potential to grow. “What we love is that it has a shot to make energy efficiency much more scalable,” says Maxson. “That’s especially important in Appalachia, where we’re so over-dependent on coal as our primary source of energy.”

Most of the nation’s electric cooperatives were founded on the idea that small steps can beget big change. Many such cooperatives date back to the 1930s (Jackson Energy started in 1938), when the electricity divide in the United States was stark: Approximately 90 percent of urban homes had power, and 90 percent of rural homes did not. For-profit utilities had little interest in building transmission lines in sparsely populated areas, so the federal government offered loans and encouraged farmers and ranchers to set up their own electric cooperatives. By the mid- ’40s, some 50 percent of rural Americans had electricity; by the mid-’50s, the vast majority did.

Now cooperatives form the largest electric utility network in the nation, serve some 42 million people in 47 states, generate $45 billion in annual revenue, and employ nearly 130,000 people. Approximately 78 percent of U.S. counties are served by electric cooperatives. Clean-energy advocates hope that network can be harnessed to bring big changes once again to America’s energy landscape.

A transformative influence?

The Rural Electrification Administration brought electric power to rural communities many of whom built community refrigerators for meats and farm produce. Photo from early 1940s.

Co-op electricity, like that of the nation as a whole, comes from a mix of sources that varies by region—and because of cooperatives’ strong presence in coal-producing regions, their reliance on coal-fired power is higher than the national average. Still, 90 percent of electric cooperatives have at least some renewable power in their portfolios, and 96 percent offer some sort of energy efficiency program. As of 2007, co-ops got 3 percent more of their energy from renewable sources than did the nation’s utility sector as a whole.

Cooperatives around the country are pushing to do better. In 2008, a number of them banded together to form the National Renewables Cooperative Organization, an umbrella group that supports local co-ops in making the switch to renewable energy. The organization found that renewables make sense for cooperatives for more than environmental reasons. Diverse power sources can insulate members from volatile prices, and renewable energy projects can create jobs in the communities where members live.

In Tennessee, a cooperative is offering members direct stakes in a new solar farm. A Montana cooperative helped a city in its coverage area rebuild a failing hydroelectric plant. In Minnesota, an electric co-op is researching ways to combine hydro and wind power to achieve a more stable power supply. An Indiana co-op is operating 14 landfill gas-to-energy plants. A cooperative in Hawai‘i, which was set up 11 years ago when the petroleum-powered, for-profit utility went up for sale, is planning to provide 50 percent of its power from renewable sources within the next 10 years.

Co-ops find many reasons to pursue energy efficiency—as in South Carolina, where the energy demands of a quickly growing population threatened to overload the grid. Reluctant to take on the cost of building new nuclear or natural gas plants, a group of cooperatives created an on-bill financing pilot program similar to How$martKY. Since South Carolina has the nation’s highest percentage of manufactured homes (which, on average, use far more energy per square foot than traditional homes), efficiency is an easy target. Eventually, the co-ops hope to retrofit more than 200,000 homes, saving customers $280 million a year.

Photo from Library of Congress.

Electric co-ops are also pushing forward with “smart grid” upgrades—advanced technologies that increase efficiency, reliability, and the integration of new power sources. A consortium of cooperatives won a $68 million stimulus grant to test how in-home displays of energy consumption change consumer behavior and improve efficiency. Other co-ops have pursued similar projects on their own. In 2012, the Federal Energy Regulatory Commission found that cooperatives lead the industry when it comes to the adoption of advanced metering systems. These let customers know how much energy they’re using, so they can scale back, and how strained the grid is, so they can save money by waiting until off-peak hours to use energy-intensive appliances.

Innovations adopted by cooperatives can quickly ripple out into the broader industry. Unlike for-profit utilities, which tend to be proprietary with their information, cooperatives make a point of collaborating. “While the co-ops are very much independent of each other in terms of the ultimate decision that gets made in the boardroom, there’s a lot of collaborative work that goes on,” says Martin Lowery, a vice president of the National Rural Electric Cooperative Association, which provides support services to about 1,000 electric cooperatives across the nation.

It’s a potentially powerful mix of local accountability and national connectivity. For example, Alaska’s Kotzebue Electric Association, located north of the Arctic Circle, is developing both wind and solar thermal generation projects in an effort to move away from expensive diesel fuel. As a result, cooperatives around the nation can learn from Kotzebue’s findings on battery storage in extreme conditions.

Beyond utilities

Some cooperatives have green energy written into their missions. Kaua‘i Island Utility Cooperative, for example, describes itself as “committed to reinventing how Kaua‘i is powered.” But many other co-ops would not go so far. Their goal is to provide reliable, low-cost energy to their members—whatever the source. Just like their investor-owned counterparts, many electric cooperatives have opposed environmental regulations, including the EPA’s decision to regulate greenhouse gases as pollutants. The choices of electric co-ops depend on their members: Renewables and energy efficiency are only a priority if members want them.

Still, the fact that so much of the nation runs on electricity that’s cooperatively managed represents a significant opportunity—particularly since many rural areas have lagged behind in efficiency and renewable power. Cooperatives have “a diverse infrastructure that’s hard to paint with one brush,” says Maxson. “But [they have] the potential to be a powerful point of leverage in supporting energy efficiency and economic opportunity in rural communities.”

Lowery also believes cooperatives can spur deeper conversations among members about their values and their communities. That, after all, is the real difference between cooperative utilities and those owned by stockholders. Value to stockholders is narrowly defined: It means “profit.” But the members of electric cooperatives have the possibility of defining value in their own terms.

As members learn to recognize and utilize that power, Lowery envisions a much stronger push toward more sustainable energy. But he doesn’t stop there. His long-term goal is for members to use their cooperatives to solve problems that go beyond energy.

“It’s about being a facilitator, a catalyst for a dialogue about what’s going to be needed for a healthy and sustainable community in the future. That could mean responding to the needs of aging populations in rural America, the need for healthcare and broadband services, water quality and availability, educational opportunities for kids,” said Lowery.

“Electricity is a means to an end. We’re not utilities. We never were utilities. We’re there to meet the needs of communities and thereby improve their quality of life.”