The cooperative business model – how revenue is allocated?

Q. The City Manager states that LCEC is holding on to profits that are excess funds that should be returned to ratepayers. Is this true? If so, would independent auditors approve of these financial practices? Susan M. – Cape Coral

A. The cooperative business model has been utilized across the world since the 1800’s. It has survived that long because it is beneficial for the members who belong to the cooperative. The primary goal of a cooperative is not to make profit but to serve its members. A cooperative must generate sufficient revenue to cover expenses and ensure growth, which requires contribution by the members.

There are 838 distribution cooperatives providing electricity to an estimated 42 million people in 47 states. Their service territories cover 56% of the nation. More than 72,000 people are employed by electric cooperatives in the United States. Over $800 million in capital credits are retired (returned) annually by electric cooperatives.

Like all of these cooperatives, LCEC is not-for-profit and any revenue that is left after paying expenses is allocated to members in the form of capital credits, or equity. These credits are not cash in the bank. They are a contribution by members to help maintain the system, keep rates low, and allow for low-interest loans. When possible, LCEC retires credits and they are returned back to active and inactive members.

This question and answer published April 17, 2017. See more questions and answers, and ask your own question. We will publish it on the Questions & Answers page.

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