Community Building: Capital Credits
Lane Electric retires $264,253 to members
For many of Lane Electric’s longtime members, capital credits are not a new topic. Many have been part of the cooperative since the beginning in 1939.
For newer members and those wanting a refresher, the following is an overview of capital credits and what they mean to our cooperative and our members.
When you signed up to receive electric service from Lane Electric, you became a member of a cooperative. Cooperatives are private, not-for-profit entities. They are led by members like you, and are governed by a board of directors elected by the membership.
Cooperatives return excess money to their members. Capital credits represent the excess revenue after expenses the cooperative accumulates each year. This is different than other utilities. That is the cooperative experience: You benefit from excess revenues—not a shareholder.
This summer, current and former Lane Electric members will be asked to decide what they would like to do with their share of a credit from 2016 and 2017 authorized by your board of directors. Current members will receive a bill insert this month and former members will receive a letter with choices regarding your capital credits.
You may do nothing and receive credit on your September bill.
If you are no longer a Lane Electric member, you will receive a check for your portion instead of a bill credit. You may also choose to wait 30 years for the full value, donate to the Member Assistance Program or donate to renewable resource development.
The credit is a percentage of your allocation of capital credits. Your May 2018 billing statement contained your allocation for 2017. Your July 2017 statement contained your 2016 allocation.
The credit you receive on your bill will be a percentage of the allocation amounts listed for 2016 and 2017. If your allocation for 2017 was $83.23, you would receive a credit for $20.22. If your allocation for 2016 was $70.45, you will receive a credit for $17.97. Your amounts will vary.
Lane Electric will retire capital credits for 1987-88 at their full value later this fall. If you were a member during this time, please make sure we have your current mailing address.
What are capital credits?
An electric cooperative operates on an at-cost basis by annually allocating to each member their share of excess operating revenue based on each member’s amount of electricity used. Later, if the financial condition of the co-op allows, these allocated amounts are “retired” by returning them back as capital credits to members. Capital credits represent the most significant source of equity for Lane Electric.
Where does the money come from?
Your annual capital credit allocations are used by the co-op to help finance infrastructure that has an average 30-year service life. Until paid back to you, your capital credits strengthen the co-op financially as member equity, which helps reduce the cost of operations.
Your sharing in the equity/financing cost is cooperative principle No. 3 of the Seven Cooperative Principles: Member’s Economic Participation.
Other utilities collect this money, but only co-ops specifically identify it and offer to pay it back to you in the future.
What is this credit I received on my bill?
The credit you received is the net present value of your 30-year capital credit for the year 2017. The present value calculation uses the interest rate Lane Electric would otherwise pay its lender to borrow capital for a 30-year term.
Net present value capital credit retirement returns money to members now instead of having to wait 30 years to receive a credit or check. This option must be offered to every member served that year regardless of the size of the capital credit refund.
Are capital credits retired every year?
It depends. Each year, your Lane Electric Board of Directors decides whether to retire capital credits based on the financial health of the co-op. Some years the co-op may experience high growth in the number of new accounts. Other years, severe storms may result in the need to spend additional money to repair lines.
These and other similar unplanned events might increase costs and decrease member equity, causing the board to not retire capital credits in that year.
What if I have moved?
If you move or no longer have electric service with Lane Electric, it is important that you inform the co-op of your current address so future capital credit retirements can be properly mailed to you. If you buy electricity during the years being retired, then you are entitled to a capital credit retirement even if you move out of the co-op’s service area.
