Investor-owned utilities have a primary goal: the need to make money for their investors. In other words, they must make a profit over and above actual operating costs. When electricity was coming to our neck of the woods, no for-profit company wanted our territory with too few customers to line ratio. Cobbling these orphan areas together created the awkward and disjointed territory WOEC now covers.
A cooperative model solved the problem of supplying electricity to difficult areas while not over-charging, so someone far away can make a profit. According to Bob Perry, former General Manager, “We’re a $40,000,000 not-for-profit corporation with about $10,000,000 in revenue each year. We’re a business. We have a margin that we have to make, but we’re not going to charge any more than we have to, so we can operate at cost.”
The expenses WOEC incurs to operate the utility include repair and maintenance of its infrastructure, salaries for employees, depreciation on equipment, and interest on loans. Any profit over those expenses is considered a margin.
The margin WOEC makes may sound like profit—or surplus income—but lenders require the co-op to make a certain margin to ensure repayment of loans. Those covenants are agreements the co-op will have a certain amount of money set aside, and are based on a percentage of the amount of interest the co-op is budgeted to pay each year.
Source: Understanding Capital Credits, Ruralite May 2017 Page 4