3 minute read
President's Message
By Todd Ware, President & Chief Executive Officer
When will you start paying capital credits? This is a question we have heard many times during the past 20+ years. The Energy Cooperative last paid capital credits in 1999, although we allocate them to our members every year. Paying capital credits stopped when our equity position fell below 20%. As a requirement of our mortgage, we needed to wait until we were in a better financial position to return capital to our members.
Your board of directors approved the final piece of the retirement at its June board meeting. If you are new to our cooperative, you might be wondering what capital credits are and why we pay them.
What are Capital Credits?
Sharing excess revenue with members is a core cooperative principle. Margins that are not reinvested back into the system are allocated to members based on the energy they purchased during the year. Federal tax law provides cooperatives with certain preferences and exemptions, such as federal tax exempt status. This exemption requires we run our cooperative “at cost” not charging more than what it costs us to bring our members safe and reliable energy. Every cooperative board decides how and when to retire (pay) capital credits to its members.
Capital Credit Decisions
The board of directors chose a hybrid method of retiring capital credits based on total allocated margins in electric members equity as of December 31st of the payment year. Each year’s retirement amount will be towards the 40th and 20th years prior to the payment year, with 50% of the amount paid toward each year.
The following factors were considered by the board of directors:
• Amount to be retired: Cooperatives must balance the risk of harming their financial position by paying capital credits with its desire to return them to the electric members
• Age of capital credits: Cooperatives must balance the desire to retire old capital credits with a desire to include newer members
• Timing: Key points include when capital credits are retired, the amount being retired and how the cooperative communicates this to members.
The projected retirement for this year is $671,840. The retirement will be 50% towards the year 1981 and 50% toward 2001 so that we can retire to two different ages of capital credits. In addition, the board of directors approved a supplemental retirement of 50% of remaining 1980 allocated capital credits.
As in the past, the board of directors determines annually if retiring capital credits is possible (considering the financial position of the cooperative before approving that year’s retirement).
Retiring capital credits is an extremely exciting event for the board of directors and employees of Energy Cooperative. For those of us who have been around to see the growth and improved financial strength of Energy Cooperative this is another big step towards fully embracing the seven cooperative principles we try to live by each day with fulfilling principle #3: Members' Economic Participation. We look forward to providing you more information soon.
