This holiday season, many of us will watch George Bailey struggle to keep his family’s locally owned bank afloat through the Great Depression in the classic film It’s a Wonderful Life.
When anxious depositors ask to withdraw all their savings, George explains something that echoes what electric cooperative leaders want their members to understand: Their money isn’t sitting in a safe, George tells them. It’s invested as mortgage loans in their neighbors’ homes and businesses.
While a bank deposit isn’t the same as your equity in your co-op, it provides similar local economic benefits to that which the fictional George Bailey describes in the 1946 film. Your co-op puts your equity to work building and maintaining the poles, wires, transformers, substations, trucks, and other assets that keep electricity flowing to you and everyone in the co-op’s service territory.
This is the core financial difference between a co-op and other types of electric utilities. Shareholders own an investor-owned utility. A local government owns a municipal utility. An electric cooperative is owned by the people, businesses, schools, and other organizations it serves.
In the first two articles of this series about electric co-ops, we explored how member ownership makes co-ops especially responsive to their members. In this article, we dig into the topic of consumer-members’ equity in their co-ops, how that equity — like George Bailey’s precious deposits — is invested in the community, how it is different from equity in a private business, and when and how portions of that equity are returned to members.
We also look at how co-ops rely on low-interest loans from the federal government and other sources to build and maintain their electrical grids.
WHAT IS YOUR EQUITY IN YOUR CO-OP?
Each co-op publishes an annual report with a financial statement that shows its total revenue, or income, for the year. After expenses are subtracted — the largest being the cost of purchased power, which Colorado co-ops buy from Tri-State Generation and Transmission Association and other wholesale suppliers — what’s left over at the end of the year is known in the co-op world as margin or operating margin, and that margin is allocated to members as patronage capital (also called patronage equity or capital credits).
“If annual revenue exceeds the cost of service, the excess margin is allocated to members based on their patronage, or how much they spent on electricity that year,” explained Donnie Schell, chief financial officer at Grand Valley Power and former CFO at Sangre de Cristo Electric Association. “That allocation records each member’s ownership in the co-op.”
In other words, your co-op doesn’t lump all the cash from its annual margins together and forget whose payments helped create it. It allocates a share of those margins as equity in the name of every household, business, or other entity that bought electricity that year — with the amount of equity determined by how much they paid in electric bills.
So, can you sell your equity stake in your co-op, like an investor who owns shares in an investor-owned utility?
In a word, no. This equity is an essential source of financing for your co-op. “The co-op members are not just buying electricity; they’re helping finance the utility,” said Schell. That means paying for a new substation to serve a growing neighborhood, replacing old poles and conductors, and providing the working capital for bills and day-to-day operations. This equity also assures lenders that a co-op is financially sound and not overly reliant on debt.
Why don’t co-ops pay interest on their members’ patronage capital? That would be like robbing Peter to pay Paul, as the proverb goes. Since a co-op’s primary source of income is selling electricity, paying interest on capital credits would have to be funded by collecting more from members through higher rates.
Equity is periodically returned to members when a co-op’s board approves retiring, or giving back, some of the capital credits accrued by members in prior years. Every co-op handles this differently. They all follow the principle of returning a small percentage of patronage capital to members when the co-op’s financial position is strong enough to do so. Co-op boards ensure this does not jeopardize its standing with lenders or its ability to withstand unexpected expenses and future periods of lower revenue — which can occur with mild winters, for example, when members use less electricity.
Grand Valley Power follows an equity-management policy that aims to retire at least 3% of its cumulative unretired patronage capital annually when conditions allow. “Our goal is to return member capital consistently but not at the expense of grid reliability and financial strength,” said Schell.
For 2025, $1,095,728 was GVP’s general retirement amount. GVP sends checks to members, while some other co-ops issue bill credits to current members, unless members have moved. (That is why it is important to update your address with your co-op if you move off its service lines.)
WHY SO MUCH DEBT?
Alongside the patronage capital your co-op relies on to operate and maintain a reliable electric grid, another major funding source is borrowing. This is mostly in the form of low-interest loans from the United States Department of Agriculture’s Rural Utilities Service or from cooperative lending institutions such as the National Rural Utilities Cooperative Finance Corporation and CoBank.
You can find your electric co-op’s debt level in its annual report. And while debt levels vary from co-op to co-op, it’s not unusual for a co-op with 10,000 or 20,000 members to have tens of millions in debt on its balance sheet.
At first glance, this may seem odd or even alarming. But in fact, low-interest loans have been part of the co-op story from the beginning. Electric cooperatives were created because rural communities were left behind during the early years of electrification. Extending power lines to sparsely populated rural areas was expensive and not an attractive business for investor-owned utilities. So, Congress authorized low-interest loans with the Rural Electrification Act of 1936.
“A group of farmers got together to borrow money from the federal government to build the electric systems, to put in the poles and wires,” said Rita Sanders, GVP director of member services and communications.
“Our distribution grid was expensive to build when it was built originally,” Schell said. “It continues to be more and more expensive to construct new lines and maintain reliable service.”
Along with the members’ equity, loans are a financial necessity for co-ops. “It would be difficult if not impossible for us to grow and provide reliable service to our members and make the upgrades that are necessary to keep our system reliable if we couldn’t borrow,” said Sanders.
Indeed, investments in electricity infrastructure provide service for 20, 30, 40, or even 50 years. It wouldn’t make much sense to require today’s members to pay the entire cost of those assets today.
That’s why borrowing is an important part of the cooperative model. By combining member equity with affordable debt, a co-op can spread the cost of a long-lived investment over many years — so future members who benefit from that equipment help pay for it too.
George Bailey would have understood the principle. It’s a Wonderful Life is set in the same Depression-era United States in which rural electric cooperatives first took root, made possible in large part by low-interest federal loans. At about 32:10 in the film, George confronts the hard-hearted Henry Potter, who thinks working families should wait to buy a home until they’ve saved the entire purchase price. “Wait? Wait for what?!” George demands. “Until their children grow up and leave them? Until they’re so old and broken-down that — you know how long it takes a workin’ man to save five thousand dollars?”
George was talking about mortgages, not electric lines. But the principle was much the same: Sometimes a community can’t afford to wait until it has all the money it needs. Affordable credit lets people build today what they will use — and pay for — for decades to come.
Jim Hight is a writer, research analyst, and consultant who recently traded Colorado’s mountains for Arizona’s desert.
Photo by Geroge Marks / Retrofile RF via Getty Images
