Manager’s Message – January 2018
Capital Credit Retirement
Last month, Wasco Electric Cooperative retired all of the 1987 capital margins back to members.
The total capital credits sent to members who received service in 1987 was $343,464. In addition to these general retirements, the co-op retired $34,500 to the estates of deceased members during the year, bringing the total capital credits returned to members in 2017 to $377,964.
Capital credits are unique to cooperatives such as Wasco Electric. Private power companies make profits and pay dividends to stockholders, but cooperatives 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— the operating revenue that remains 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.
Next month, each member who received service last year will be mailed a statement of their 2017 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. They represent funds that have been invested in the co-op’s utility plant. 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, which is payment of principal and interest on money it has borrowed.
The cooperative also must 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 in order to pay capital credits.