Board of Trustees approves early distribution of capital credits
Electric cooperatives aren’t like other utilities—you, as a consumer-member, own a portion of the business, and one of the benefits to your membership involves the allocation of excess revenue, called margins, in the form of capital credits.
Typically, REC pays capital credits in December each year. However, due to the current pandemic, REC's Board of Trustees voted for a special allocation of over $829, 000 to be returned.
This special allocation is for the retirement of the 2019 margins allowing for members who were members in 2019 to receive a bill credit. Historically, when REC returns capital credits it is to the members who have been members the longest. However, by allowing for this special retirement of the 2019 margins would allow for the majority of our membership to benefit. REC's Board of Trustees voted for this special allocation to help our membership who may be experiencing a financial hardship due to the current pandemic.
Electric co-ops operate at cost—collecting enough revenue to run and expand the business but with no need to raise rates to generate profits for distant shareholders. When money is left over at the end of the year, it is allocated back to the consumer-members as capital credits. When the co-op’s financial position permits, the co-op retires, or pays, the capital credits to members as a bill credit or a check.
“Allocating and retiring excess revenue to members helps distinguish cooperatives,” points out CEO Dale Nye. “We are proud to support our communities by putting money back into the local economy—and into the pockets of those we serve. It makes our business model special.”
The retirement of capital credits, so-called because members provide capital to the cooperative for it to operate and expand, depending on the co-op’s financial status. REC holds onto allocated capital credits to cover emergencies, such as natural disasters or other unexpected events, and to expand its electric system, all of which may require large-scale construction of poles and wires. This action decreases the need to raise rates or borrow money to pay for the infrastructure. After a number of years, if financial conditions permit, REC may decide to retire a set amount of capital credits.
Consumer-members are annually allocated capital credits based on the amount of electricity they consumed during a year.
Margins earned from electric revenues are the only real source of equity for not-for-profit electric cooperatives. Retiring capital credits is just one more way REC is looking out for its membership.