Capital credits are unique to cooperatives like Wasco Electric. Private power companies make profits and pay dividends to stockholders. Cooperatives, on the other hand, work on a nonprofit basis and allocate their operating income back to their members.
Capital credits represent your share of the cooperative’s operating income (operating revenue remaining after operating expenses). The amount designated in your name each year depends on your energy purchases for the year. To calculate this, we divide your annual energy purchase by the cooperative’s operating income for the year. The more electricity you buy, the more capital credits you earn.
Yearly, each member who received service that year will be mailed a statement of their capital credit allocation. The member’s allocation amount is based on the year-end operating margin.
Capital credits are not necessarily dollars in a bank account somewhere, but rather they represent funds that have been invested in the cooperative’s utility plant.
During most months of the year, Wasco Electric receives more cash from operations than is necessary to pay for operating expenses. However, the cooperative needs cash for purposes other than paying for operating expenses. Wasco Electric must service its debt (payments of principle and interest on money the cooperative has borrowed). Wasco Electric must also use cash to pay for capital expenditures . The amount of cash needed for capital expenditures is largely determined by the growth of a utility and the replacement schedule of its aging system.
The distribution of capital credits and its effect on the financial well-being of the cooperative is an issue your Board of Directors deals with each year. It is the policy of the cooperative and the discretion of the board to return capital credits as long as the cooperative is financially fit to return them without additional borrowing or the need to raise rates to pay capital credits.