Capital credits are just one of the many reasons it is great to be a member of an electric co-op. This month, Victory Electric is retiring capital credits and returning $2.1 million to members, $563,000 of which represents net margins issued to members who purchased electricity between 1995 and 1998. In addition, at the 2020 annual meeting, the members voted to give the board of trustees more flexibility in determining the timing and method of retiring capital credits. The board chose to exercise this flexibility to retire $1,537,000 million received from the capital credit distributions of our three power suppliers, otherwise known as generation and transmission (G&T) cooperatives, to Victory Electric members who purchased electricity in 1995, 1996, 2008 and 2012.
So, what is a capital credits retirement? Electric cooperatives are not like other utilities. We operate on a not-for-profit basis, which means we operate at cost. But even not-for-profit businesses can have money left over after all expenses are paid in a given year. The difference is, at the end of the year, we allocate that money (but not immediately retire) to each member’s account according to the amount of electricity purchased. We collect only enough revenue to run and expand business without the need to generate profits for distant shareholders. Victory Electric works hard every day to keep rates as low as possible. But it’s sure nice to know when there are extra margins at the end of the year, they go back to members and members receive cash back over time.
As a not-for-profit utility, Victory Electric is limited to two options for raising capital: borrowing or raising capital from its members. By combining capital credits funding obtained from members with borrowed money on which Victory Electric must pay interest, the cooperative is able to lower its cost of capital. Therefore, capital credits help Victory Electric remain in good financial standing and keep rates as low as possible for our members. The capital is used for improvements, such as substations, power lines and other electrical system facilities that serve our members. It also helps to build and sustain the cooperative in an industry experiencing massive changes and even more technological advances.
After each fiscal year, and once the determination has been made that the financial condition of the cooperative is stable and adequate to meet operating costs and debt covenants, the board of trustees may elect to return excess capital by retiring capital credits to Victory Electric members. After evaluating the health of the cooperative in 2020, Victory Electric’s board of trustees voted to retire $2.1 million.
Members receiving $50 or less will receive a bill credit on their December electric bill. Checks are expected to be mailed to members who are receiving more than $50 in early to mid-December. If Victory Electric does not have a current address on file, a check will not be issued. Victory Electric members who may be leaving or have already left the cooperative service area are encouraged to provide Victory Electric with a current mailing address so capital credits can be returned as they are retired. If you think you may be a former member without a current address on file, please contact our office to arrange for your capital credits payment to be issued.
Only your local electric cooperative makes every customer an owner of the business. It is just another way we are looking out for our members.