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COMMENTARY ARCHVES
   

JUNE COMMENTARY
by Share Brandt

Pay Your Electric Bill and Earn Equity

An electric cooperative is the only electric supplier that gives you credits for the dollars you spend on energy. It is not to encourage you to use more energy and thereby earn more credits; no, it is our unique business structure based on cooperative principles, one of which is Members’ Economic Participation.

The cooperative needs a combination of member equity and debt to finance day-to-day operations and maintenance. Capital credits are the primary source of equity for most cooperatives and allocating and retiring capital credits are two of the practices that distinguish cooperatives from other businesses. Allocating capital credits is also a legal requirement for electric cooperatives to qualify for federal tax-exempt status under the Internal Revenue Code (IRC) Section 501(c) (12). A co-op must allocate capital credits to patrons each year and maintain records to reflect the equity of each member in the assets of the cooperative.

Differing Dividends

The equity allocated to members is basically derived from the retention of margins from the sale of products and services. A member’s allocation of equity, or capital credits, is based on his or her purchases from the cooperative, or “patronage” of the cooperative. As I noted earlier, pay your electric bill and earn equity for what you purchase.

To have an equity share in other utilities any individual can pay cash to purchase, stock or a municipal bond. To consumers of investor-owned utilities, the margins are called profits and the dividends on profits are paid to investors—not to the ratepayers who made energy purchases. The ratepayer of that type of utility receives no additional value from purchases made—other than having electricity available whenever it’s desired.

The co-ops’ elected board of directors makes the decisions on how to allocate, when to retire (pay out), what percentage of member equity vs. debt meets mortgage requirements, and how to ensure fairness across generations of co-op members. A cooperative’s capital credits practices are grounded in cooperative principles. They are also governed by: federal laws and regulations, state laws and regulations, mortgage covenants and other contractual obligations, and the co-op’s articles of incorporation and bylaws. Typically, board members establish a policy to guide their capital credit decisions so they maintain a consistent philosophy governed by all the provisions listed above.

Automatically Invested

What is in it for the electric co-op member? You have a share of equity investment based on your patronage—or purchase of products and services—from the cooperative. You own a portion of the electric system that serves your electric needs and you have a vote to elect the board of directors who will make financial decisions at your co-op. You have an opportunity to attend the annual meeting and learn about your equity position and the overall financial stability of your utility. What you don’t have to do is seek out an investment counselor to purchase stock or bonds. Just pay your electric bill and the electric co-op allocates the value of your purchases to your equity account. Simple as that!

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