---

     

 

What is a Cooperative......

Most are familiar with the three major kinds of utility companies, the investor-owned, municipal, and cooperative. Municipal utilities are operated within a city or town's limits. Investor-owned corporations and cooperatives are state-chartered businesses and are organized and operate in a similar manner.

An investor-owned corporation is operated as a profit-making enterprise. It gains it's capital funding by issuing shares of stock that are purchased by investors based on their profit-making potential. Additional funding is derived from borrowing funds from banks or other financial institutions. Any profits made through the operation of the corporation are shared with the owners of the stock, based on the number of stocks owned by each investor. Investors may or may not use the service/product in which they own stock. As an investor, the number of votes they have are calculated according to the number of stocks they own. While the appearance of the investor-owned and cooperative organizations look similar, in that both provide similar services, employ personnel in similar jobs and charge similar fees for services/products, there are differences. Cooperatives raise capital funding through the sale of services/products to its members and by borrowing funds from the Rural Utilities Service (RUS) and other financial institutions. The difference in the two organizations is in how voting privileges are assigned and the manner in which profits are handled. As democratically controlled organizations, cooperatives are based on the one member-one vote principle. Each member of a cooperative has an equal voice in how the cooperative operates. As for how profits are handled, rather than having to make a return on investment for stockholders, a cooperative exists to provide services/products to their membership in the most economical way. Therefore, all profits are directly allocated back to the membership based on each member's patronage, or purchase of services/products. These allocations are referred to as Capital Credits. While the Capital Credits are allocated each year, they are not immediately paid back to the membership as the cooperative uses a portion as operating capital. Capital Credits are retired each year that it is financially possible after consideration is given to the cooperative's funding needs for the following year's operating requirements, system growth, and improvements.

 

---