Capital Credit Retirement
In December, Wasco Electric Cooperative retired the remainder of the 1990 and a portion of the 1991 capital margins back to members and former members.
The total capital credits returned to members who received service in 1990 and 1991 will be $500,000. In addition to these general retirements, the co-op retired $41,650 to the estates of deceased members during the year, bringing the total capital credits to be returned to members in 2020 to $541,650.
Capital credits are unique to cooperatives such as Wasco Electric. Investor-owned power companies make profits and pay dividends to stockholders, but cooperatives work on a not-for-profit basis and allocate their operating income back to their members.
Capital credits represent your share of the cooperative’s operating income—the 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 larger your share of the capital credits.
Each February, members who received service the prior year are mailed a statement of their prior year’s 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. Instead, they represent funds that have been invested in the co-op’s utility plant.
Most months, 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—that is, pay principal and interest on money it has borrowed.
The cooperative 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.
Your board of directors considers distribution of capital credits and the effect on the financial well-being of the cooperative each year. The board has the discretion to return capital credits as long as the co-op is financially fit to return them without any additional borrowing to pay capital credits.