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  • Employee Stock Ownership Plans

The Employee Stock Ownership Plan (ESOP) is the most well known of the binary economic tools for broadening capital ownership. Conceived by Louis O. Kelso and first implemented in the United States in 1956 with a company known as Peninsula Newspapers, Inc. of Palo Alto, California, the ESOP in the United States has grown into one of the most widely used methods for broadening capital ownership (NCEO, 1996). An interesting example of the application of employee ownership principles to the privatization of public assets is the February, 1993, privatization of the Russian Saratov Aviation Plant of Moscow (Battilega, 1993).

  • Consumer Stock Ownership Plans

The Consumer Stock Ownership Plan (CSOP) was conceived as a means of providing broad equity participation in regulated public utilities.1 These entities in the United States are particularly good candidates for the application of binary economic tools in that their regulated status (a) assures that they make a profit (thereby reducing the risk of applying borrowed capital for their acquisition) and (b) their customer base defines a clearly identifiable class of individuals with an economic relationship to the entity. Public utilities in the United States are generally private corporations with publicly held shares which provide electrical, gas, water, sewer and telecommunications services to the public. Typically, these have been monopolistic entities with returns regulated by the

appropriate represented

governmental entity. a lower order of

By virtue of their investment risk

regulated returns, public utilities have than is present in a non-regulated

environment. Thus, the public utility environment presents associated with new capital formation is lower than would represents an excellent opportunity for the application broadening capital ownership.

a context in which the otherwise be expected of binary techniques

risk and for

The process of CSOP financing to broaden capital ownership begins with the creation by the public utility of a Consumer Stock Ownership Plan. The CSOP is managed by independent trustees authorized to borrow funds for the acquisition of shares in the public utility on behalf of the utility consumers. The ownership of the shares acquired by the trust is allocated among the CSOP consumer beneficiaries in proportion to their respective purchases from the utility. With respect to the shares acquired by the CSOP, all of the utility income in excess of depreciation associated with the CSOP shares must be distributed to the CSOP. These revenues are applied to repay the debt assumed by the CSOP for the purchase of the public utility shares. Once the acquisition indebtedness is amortized the revenue to the CSOP is distributed as rebates (income) to the shareholders. The advantage of public utility funding through a CSOP is that the regulatory authority can provide the guarantee against risk to the financing lenders by agreeing to set rates for


Kelso & Kelso (1986). The original CSOP, Valley Nitrogen Producers, Inc., Fresno, California, was created by Louis Kelso in 1957. While Valley Nitrogen was not a regulated public utility, it had the characteristics of a public utility in that its owners, agro-business and large farmers, were long-term consumers of its product, fertilizer, just as utility producers and consumers are linked by a continuous flow of product, electricity, gas, water, or steam.


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