Advertisement

The CSOP-Financing Technique: Origins, Legal Concept and Implementation

  • Jens LowitzschEmail author
Chapter

Abstract

The Consumer Stock Ownership Plan (CSOP) applies the future savings principle to the financing of new utilities in the energy sector. This technique, invented in the 1950s by the American lawyer and investment banker Louis O. Kelso, is especially applicable to financing public utilities on regulated markets so that they are owned by consumers rather than outside investors; due to guaranteed prices, investments in the sector involve lower risk and thus are easier to finance. CSOP financing is based on the following core principles: (1) the allocation of borrowed investment funds sequestered in a special vehicle with its own legal personality, that is, a trust or a similar intermediate company, invested in a business enterprise or equity interest on behalf of the individual plan participants, namely consumers, employees or citizens; (2) the repayment of the loan from future earnings of the credit-financed shares—the essence of every profitable investment—instead of savings from foregone consumption; (3) the securing of the loan by the investment entity, preferably backed by a state guarantee. Kelso first introduced the CSOP in 1958 in California’s Central Valley by enabling almost 5,000 local farmers to become owners of a fertilizer processing plant the Valley Nitrogen Producers, Inc., of which they were the primary consumers. The overall investment of USD 120 million (today an equivalent of a billion euros) was success; by 1978 Valley Nitrogen, Inc. had four manufacturing plants in California and one in Arizona. This chapter describes the legal structure of the CSOP, together with a case study of the first 1958 pilot CSOP.

References

  1. Ashford, R. A. H. (1994). The binary economics of Louis Kelso: A democratic private property system for growth and justice. In J. H. Miller (Hrsg.), Curing world poverty: The new role of property, social justice review (pp. 101–102).Google Scholar
  2. BVerfGE. (1993). Rulings of the German Federal Constitutional Court, case of 26 May 1993 concerning the possession of rented apartments, BVerfGE, Vol. 89, p. 1ff, esp. p. 6; see compare also BVerfGE, Vol. 24, p. 267ff, esp. 389; Vol. 50, p. 290ff, esp. 339; Vol. 53, p. 257ff, esp. 289.Google Scholar
  3. ESOP Association. (n.d.). ESOP statistics. Retrieved May 5, 2017, from http://www.esopassociation.org/medialmedia_statistics.asp.
  4. Gauche, J. N. (2000). Binary economic models for the privatization of public assets. Journal of Socio-Economics, 8. Retrieved April 10, 2013, from http://www.kelsoinstitute.org/pdflbinaryeconomicmodes.pdf.
  5. Herbes, C., Brummer, V., Rognli, J., Blazejewski, S., & Gericke, N. (2017). Responding to policy change: New business models for renewable energy cooperatives–barriers perceived by cooperatives’ members. Energy Policy, 109, 82–95.CrossRefGoogle Scholar
  6. Holstenkamp, L., Centgraf, S., Dorniok, D., Kahla, F., Masson, T., Müller, J. R., Radtke, J., & Yildiz, Ö. (2017). Bürgerenergiegesellschaften in Deutschland. In L. Holstenkamp & J. Radtke (Eds.), Handbuch Energiewende und Partizipation (pp. 1057–1076). Wiesbaden: Springer.Google Scholar
  7. Kelso, L. O. (1989, October/November/December). Why I invented the ESOP LBO. Leaders, 12(4).Google Scholar
  8. Kelso Institute. (1976, November 8). Documentation. Valley Nitrogen Producers, Inc.Google Scholar
  9. Kogdenko, N. (2013). Public acceptance: Why does it frequently become a ‘show stopper’? EDI Quarterly, 4(4), 16–17.Google Scholar
  10. Lowitzsch, J. (2017). Community participation and sustainable investment in city projects: The Berlin water consumer stock ownership plan. Journal of Urban Regeneration & Renewal, 10(2), 138–151.Google Scholar
  11. Lowitzsch, J., & Goebel, K. (2013). Vom Verbraucher zum Energieproduzenten. Finanzierung dezentraler Energieproduktion unter Beteiligung der Bürgern mittels sog. Consumer Stock Ownership Plans, Zeitschrift für neues Energierecht, Heft 3, 237–244.Google Scholar
  12. Lowitzsch, J., Kudert, S., & Neusel, T. (2012). Legal opinion on the German trust model. Viadrina working paper.Google Scholar
  13. Mühlenhoff, J. (2011, September). Kosten und Preise für Strom Fossile, Atomstrom und Erneuerbare Energien im Vergleich, Hintergrundinformation der Agentur für Erneuerbare Energien Renews Spezial Ausgabe 52 I.Google Scholar
  14. NCEO. (n.d.). NCEO statistics. Retrieved May 5, 2017, from http://www.nceo.org/articles/esops-by-the-numbers.
  15. Pendleton, A., & Robinson, A. (2010). Employee stock ownership, involvement, and productivity: An interaction-based approach. Industrial and Labor Relations Review, 64(1), 3–29.CrossRefGoogle Scholar
  16. Puka, L., & Szulecki, K. (2014). Beyond the “Grid-Lock” in electricity interconnectors. DIW Discussion Papers 1378, p. 12 ff 4.3. Why financing is not a major impediment.Google Scholar
  17. Röttgen, N. (2013). Energiewende schafft neue Chancen auf dem Arbeitsmarkt, March 26, 2012. Retrieved April 11, 2013, from http://www.bmu.de/bmu/presse-reden/pressemitteilungen/pm/artikel/erneuerbare-energien-geben-in-deutschland-bereits-mehr-als-380000-menschen-arbeit/.
  18. Stockton’s Port Soundings. (1978, June). Valley Nitrogen Names Lindley, 1(7).Google Scholar
  19. trend:research/Leuphana Universität Lüneburg. (2017). Definition und Marktanalyse von Bürgerenergie in Deutschland (Studie im Auftrag der Initiative “Die Wende—Energie in Bürgerhand” und der Agentur für Erneuerbare Energien). Bremen and Lüneburg: trend:research and Leuphana Universität Lüneburg.Google Scholar
  20. Valley Nitrogen Producers Inc. (1969). Announcement of the chairman of the Valley Nitrogen Producers Inc. Carl H. Hass to the stakeholders on 27, June.Google Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  1. 1.European University ViadrinaFrankfurt (Oder)Germany

Personalised recommendations