Returning capital credits shows what being a cooperative means. Because of the cooperative nature of rural electric systems, every dollar that a member pays beyond the cost of providing electric service becomes a part of the cooperatives working capital.
The term for this payment in excess of costs is margin.
Cooperatives must produce a minimal margin at the end of the year in order to stay in business and continue to provide service to their consumers.
Margins constitute a members investment in the system and is not a profit to either the cooperative or its members. Margins are shown on the cooperatives balance sheet as equity, but are more commonly referred to as capital or patronage credits.
As early as 1949, Farmers Board of Directors formulated a policy outlining the assigning of and timely disbursement of capital credits to its members whenever financially possible and economically feasible.
Farmers first general retirement of capital or patronage credits was made in November 1987, when almost $160,000 was returned to consumers who were members during the years of 1950 through 1956. Under the terms and conditions of loans secured by the cooperative from the Rural Electrification Administration and the National Rural Utilities Cooperative Finance Cooperation, margins made by the utility cannot be distributed until member equity reaches 40 percent. This milestone was reached in 1986.
As a point of interest, Farmers RECC has refunded patronage credits to members through the year of 1990.