About Electric Cooperatives
It’s a fact. Electric co-ops are:
- Private, locally operated electric utility businesses
- Owned and regulated by their customers
- Established to provide near-cost electric service
- Governed by a board of directors elected from the membership, a board that sets policies, procedures and rates to be implemented by the cooperative’s professional staff
MREA’s electric cooperatives:
- Employ about 3,200 people in Minnesota
- Serve 813,000 customer meters or about 1.7 million people of Minnesota’s 5.1 million residents. The median sized co-op is 8,366 members. Cooperatives range in size between 1,900 to more than 129,000.
- Supply over 15 million MWh per year (about 18 percent of Minnesota’s electricity)
- Range in size from 1,900 to more than 129,000 members. The median sized co-op has 8,366 members.
- Operate the largest distribution network in the state by far, with more than 148,000 miles of electric distribution lines. More than Xcel Energy’s Minnesota operation (28,718), or the three private power companies in Minnesota combined (40,722).
- Average 7.4 consumers per mile of distribution line, compared with 38 consumers per mile for investor-owned electric utilities and 48 customers per mile for municipal electric utilities.
Capital credits: one of the many benefits of being a
Cooperatives are nonprofit, member-owned electric utilities. Co-ops have two basic sources of capital to finance long-term investment in electric utility infrastructure: debt and equity. Debt is money borrowed from outside sources such as banks. Equity is money invested by co-op member-owners. Equity investments made by members of the cooperative are called capital credits.
When a cooperative collects more money than it spends to provide electric service, the difference is called a margin. Having a margin for a given year does not mean there is excess cash in a bank account. Often, the money that appears as a margin on the books has been invested in the electric system. The capital in the term capital credits refers to funds from cooperative member-owners that have been invested in capital equipment such as power lines and substations.
Margins are allocated or assigned to members who belong to the cooperative during the year in which a margin is generated. Margins are allocated proportionally based on the total amount a member paid for electricity during the margin year. This is accomplished by dividing the total margins by total revenue and multiplying the resulting percentage by each member’s energy consumption for the year. Each member’s portion is referred to as a capital credit allocation.
Cooperatives are allowed by law to use capital credit allocation funds for:
- Payment of the principal portion of the co-op’s long-term debt, as required by its mortgage agreements
- The cost of adding new power lines to a growing electric system
- Costs associated with upgrading outdated infrastructure
Capital credits may be paid at a future date if the cooperative’s financial position is adequate to return a portion of equity to member-owners. The co-op’s board determines whether to make a general capital credit retirement to current and former members. A retirement is approved only if the board determines that the financial condition of the cooperative is adequate to support the payout. When the board of directors authorizes a portion of previously allocated capital credits to be returned to members or former members, the amount is said to be retired. Because the cooperative is a nonprofit organization, no interest or dividends are paid on capital credits.
After a member moves out of the co-op’s service are, most cooperatives keep the capital credits accumulated, to be refunded with the general retirements. When a former member cannot be located to receive a capital credit retirement, many cooperatives use the unclaimed money to fund scholarships for area students.
Some cooperatives do not use a capital credit model.
Many of Minnesota’s electric cooperatives participate in a program called Operation Round Up®. Funds are contributed by electric co-op members who agree to round up their electric bills to the next dollar, usually not more than 50 cents per month, or an average of $6.00 per year per customer bill.
An Operation Round Up Trust Board, independent of the co-ops’ board of directors, is established for each co-ops’ program. Most trustees are appointed by the co-op’s board and usually are comprised of community leaders and members. The contributions have supported public schools, pre-school and day care programs, fire departments, hospitals, community centers, food shelves, Salvation Army HeatShare, CAP agencies, Reach Out for Warmth, boy and girl scout programs, museums and historical societies, local public libraries, emergency responders, hospice, individuals, 4-H programs, agencies for the disabled, American Red Cross, American Cancer Society, United Way, the Tree Trust and a myriad of local organizations and needs.
In the first ten years, members gave more than $4.8 million to local charities through Operation Round Up®.
Because they are owned by their members, Minnesota electric cooperatives are an integral part of the communities they serve. With more than 70 years of experience in providing affordable and reliable electric service, cooperatives are a ready-made delivery system for improving the economic health of their rural and suburban communities.
As a result, cooperatives do more than just supply power. They aggressively work to attract new businesses and help expand existing businesses. Cooperatives often undertake projects that improve infrastructure and quality of life, cornerstones of economic development and job creation. Cooperatives, for example, spur job creation by guaranteeing zero-interest loans secured through the USDA Rural Development Service. Projects funded by these loans benefit entire communities, not just areas served by electric cooperatives.
The economic development efforts of Minnesota electric cooperatives are an extension of the rural electrification program’s original goal to provide a quality of life for all citizens no matter where they live.
The GreenTouch project is a partnership between Minnesota’s Touchstone Energy® cooperatives and the Minnesota State Park system. The electric cooperatives stand for, Integrity, Accountability, Community Involvement and Innovation. The state park sponsorship fits well with the Touchstone Energy commitment. Each cooperative that participates in this annual event recruits members and employees to volunteer at state parks within or near their service area.
The GreenTouch project is a partnership between Minnesota’s Touchstone Energy cooperatives and the Minnesota State Park system. Electric cooperatives in Minnesota have donated $320,000 over the last ten years to the Minnesota Department of Natural Resources to help fund the State Park guide and Junior Park Naturalist program. Over that time, GreenTouch has provided 7,300 volunteers who have worked nearly 24,700 hours hours for the Minnesota State Park system.