Today’s international equity markets run seven days a week, 24 hours a day in most cases. Investments purchased can quickly be converted to investments sold.
In addition to capital gains, which may be realized with the sale of equity investments, investors might also look forward to quarterly or annual dividends from owning a portion of well-managed companies.
Co-ops are different, and that difference can be summed up by the third cooperative principle—members’ economic participation.
When the first electric co-ops formed in South Carolina 75 years ago, investments were in the form of a $5 purchase of a membership card. Founding members trudged many a dirt road asking their neighbors to put up the $5 (equivalent to $83.86 today) to become a future member of their local electric cooperative.
Not until there were enough members and enough $5 membership cards purchased could the first pole be erected, the first span of wire strung. Even then, that investment was not liquid.
Members knew that their initial $5 was tied up in wires and poles, which later became substations, offices, investments in renewable electricity and multimillion-dollar information technology systems—the very things necessary for the operation of a reliable electricity grid.
There is no around-the-clock trading in co-op “stock.” In addition, dividends are more likely to take the form of a growing community, well supplied with affordable and reliable electric power.
Why would co-op members accept this fundamental difference in investment opportunity and return? Initially, it was the only way to get electricity. Traditional investors expect a significant and predictable return on their investment, and there wasn’t enough profit potential to entice investor-owned utilities to serve sparsely populated areas. Wall Street took a pass on building in rural America.
Only by squeezing out the middle man—the need for profit—was there potential to deliver affordable electricity to rural areas. Thus, those who needed power the most were the only ones willing to invest in rural electrification via cooperatives. Part of their investment was a concession that dollars put into the co-op were not dollars that could come immediately out.
This distinction between stock investment and co-op membership continues even today. Within the last several years, South Carolina electric cooperatives have led the nation in modernizing their policies for paying out capital credits to members. Capital credits are created when the co-op generates surplus funds. These funds are allocated to members in the form of capital credits, reinvested in new wires, poles and other system improvements, and then eventually retired and paid back to the members.
Why so much attention to detail as it relates to capital credits? Dollars paid in never cease to be members’ dollars. Our accounting systems meticulously track all funds invested in the co-op, which remain payable to members in the form of capital credits. However, members also recognize that, as long as they remain part of the co-op, they have a continuing obligation to keep those funds at work, building and maintaining the power grid that is the backbone of the local community.
The Seven Cooperative Principles
1. Voluntary and open membership
2. Democratic member control
3. Members’ economic participation
4. Autonomy and independence
5. Education, training and information
6. Cooperation among cooperatives
7. Concern for community