Cooperative Principles
A different breed of business
BY KEBY THOMPSON
Editor's Note: This is the third in a series of stories on how Iowa's local electric cooperatives really work and how they're different (and better!) than other types of utilities.
There's a check waiting in the mail for you today. It isn't very big just a few dollars. Still, it's not the amount of the check that's important. What's important is what that check represents.
It's a dividend, or patronage, check from your local electric cooperative.
Electric co-ops are a different breed of business. Most companies exist to make a profit, but that's not the primary reason local electric cooperatives were created. They were started, instead, by people who came together with a common need: supplying electricity to rural areas.
"Compare us to investor-owned utilities, and it's easy to see just how big those differences really are," says Jeff Bean, manager of Western Iowa Power Cooperative (WIPCO) in Denison, Iowa. "For instance, if you buy stock in an investor-owned utility, you do that to make money. However, making money is not what the electric cooperatives are all about."
Co-op members, the people who actually own the utility, look to their electric utility to provide them with a quality service and product, to be efficient and to use their money wisely. "If we manage the co-op correctly and accomplish this goal," says Bean, "then, yes, the co-op has funds left over at the end of the year. This is important, because it helps keep co-op operational costs down. It also reduces the need to borrow money."
Iowa's local electric cooperatives are funded by their members. Revenues received when members pay their monthly electric bills provide the money the co-ops need to operate. A board of directors elected by each co-op's membership sets the rates charged for electricity. The board works to achieve a delicate balance, setting rates high enough to pay expenses and provide for an emergency fund, while protecting the members' interests by keeping power costs as low as is feasible.
"Because it's not possible for revenues and expenses to exactly balance each other out at the end of the year," says Bean, "the cooperative retains part of these funds so that we can continue to operate." At the end of the year, after the not-for-profit cooperatives' operating expenses are paid, the board allocates remaining funds to three different areas: reserves, education and patronage capital.
"Reserves," says Bean, "are set aside to be used to offset any unforeseen losses incurred by the cooperative, such as line damage from a major ice storm. And the education fund is there to help educate members about their cooperative."
For example, at WIPCO, some of the education fund is used to cosponsor a bus tour to the hydroelectric dams in the western part of the U.S. The purpose of the tour is to educate WIPCO members about the complexities of providing their homes, farms and businesses with electric power. WIPCO also teams with Basin Electric Power Cooperative, a generation and transmission facility in Bismarck, N.D., to provide college scholarships. In addition, WIPCO staff members volunteer their time to teach children at local schools how to use electricity efficiently and safely.
The third category of remaining funds for an electric co-op, patronage capital, represents the members' investment in the cooperative. The co-op makes good use of this money by constantly improving the cooperative to enhance the reliability and efficiency of the system.
"For instance," says Norm Braun, manager of Chariton Valley Electric Cooperative, Inc., in Albia, "we use patronage capital funds to replace worn lines and poles. It's a necessary evil since poles have an average life span of 50 years and lines less than that. However, because of patronage, we can fund the repairs ourselves. If it wasn't for patronage capital, we'd have to borrow the money an expense that could potentially raise our owner-members' rates."
Braun says that patronage also is used to help replace meters on farms, many of which were installed years ago with 60-amp breakers. This equipment must be replaced and brought up to the standards of the current electrical code. Sometimes this work means running larger wires or upgrading transformers too. Individual co-ops across the state make the decisions on how long they retain and use the patronage capital based on the co-op's economic needs in any given year. In some cases, this time period could be as short as one year, but more commonly the money is used five, 10 or even 20 years before dividends are returned to co-op members.
"This year," says Braun, "we'll pay out three years' worth of dividends to our members: remaining margins from 1985 and 1986 and a percentage of 1999. We hand out checks at our annual meeting. Patronage dividends are calculated on how many kilowatt-hours each member used during the given year of the return. This year, we'll be paying out approximately $295,000 in dividends. The way we figure it, it's just about a month's electric bill for each of our members. "A patronage dividend check doesn't make anyone rich. Still, it's a nice surprise a way to say thank you to our members for their support over the years," concludes Braun.
Jeff Bean of WIPCO echoes this sentiment. "Patronage is a very important way in which the electric co-ops show our appreciation to our members for making Iowa's electric cooperatives one of the most successful electric utilities in the country."
What's it like to be the owner of a local electric cooperative?
Just ask Carolyn Boeck. Not only is she a member of WIPCO, she also works there as an accounts payable/work order clerk. Boeck says that working for her local electric cooperative has given her a unique perspective and appreciation of just how electric co-ops really work.
"I feel that being a part-owner of the co-op gives me an opportunity to express my opinions on how co-op business should be handled, says Boeck. "I can walk down the hall anytime to discuss things that concern me. And I can help elect people I trust to the board of directors people I know have the co-op's best interests at heart."
Boeck's father-in-law, Virgil Boeck, spent many years on the board of directors. "He dedicated hours and hours working for the co-op's welfare, listening to member concerns and doing something about them," she says. "He truly cared."
As an owner-member of an electric cooperative, it gives Carolyn Boeck great pride when someone comes up to her and says that he or she likes the way the co-op is being run. "I know that we're trying to make the members' investment work in the most profitable way," she says. "Seeing the daily operations of the cooperative proves to me that we really do have their best interests at heart. I just want them to know that they can depend on us."