I have good news for you: Yes, so long as you meet certain criteria:
Assuming you meet the MAGI and filing status requirements, the key word is "or" in that first bullet. Because you are a co-owner, you can open a 529 account in your own name, list yourself as the beneficiary, and fund the account with proceeds from the EE Bonds (this needs to be done within 60 days of cashing the bonds). You'll need to file IRS Form 8815 to claim the exclusion on bond interest. Down the road you can change the beneficiary to your granddaughter, just be sure to change it to your daughter first to avoid any generation-skipping issues that can trigger tax consequences.
Alternatively, because your daughter is co-owner, she could cash the bonds, open a 529 account in her name, and change the beneficiary once to her own daughter. You would still be able to contribute to the account, but your daughter would have full control over it, including asset allocation and disbursement. So be careful if you go that route (e.g. not every family has full faith and confidence in their offspring; I could tell you some horror stories!).
Additional details are available in IRS Publication 970.
Brian Boswell VP, Research & Development
This information does not constitute tax advice and is provided for informational purposes only. Please consult your tax advisor, financial advisor, local taxing authority, and/or plan provider or sponsor for more information.