Intercounty Electric Cooperative will return $1.5 million to members from 1995, the organization announced last week.
When consumers sign up to receive electric service from Intercounty, they become a member of an electric utility. While investor-owned utilities return a portion of any profits back to their shareholders, electric co-ops operate as a not-for-profit business. Intercounty allocates and periodically retires capital credits (also called patronage dividends, patronage refunds, patronage capital or equity capital) back to the members based on how much electricity they have purchased during a year.
This year, members from 1995 will receive capital credit retirements through a check in the mail in November reflecting their contribution of capital to, and ownership of, the cooperative during that year. That may seem like a long time ago, Intercounty said, but those funds helped the co-op keep the lid on rates, reduced the amount of money they needed to borrow from outside lenders to build, maintain and expand a reliable electric distribution system and covered emergency expenses.
Intercounty said to better understand what capital credits are, it’s important to know that an electric cooperative operates on an at-cost basis by annually “allocating” to each member: based upon the member’s purchase of electricity, operating revenue remaining at the end of the year; later, as financial condition permits, these allocated amounts — capital credits — are retired. Capital credits represent the most significant source of equity for Intercounty. Since a cooperative’s members are also the people the co-op serves, capital credits reflect each member’s ownership in, and contribution of capital to, the cooperative. This differs from dividends investor-owned utilities pay shareholders, who may or may not be customers of the utility.
Member-owned, not-for-profit electric co-ops set rates to generate enough money to pay operating costs, make payments on any loans, and provide an emergency reserve. At the end of each year, operating expenses are subtracted from the operating revenue collected during the year. The balance is called an operating “margin.” Margins are allocated to members as capital credits based on their purchases from the cooperative—how much power the member used. Member purchases may also be called patronage.
Each year, the Intercounty board of directors makes a decision on whether to retire capital credits based on the financial health of the cooperative. During some years, the co-op may experience high growth in the number of new accounts, or severe storms may result in the need to spend additional funds to repair lines. These and other events might increase costs and decrease member equity, causing the board not to retire capital credits. For this reason, Intercounty’s ability to retire capital credits reflects the cooperative’s strength and financial stability. The board alone decides whether to retire capital credits.