What are Capital Credits
How Capital Credits Work Infographic (PDF)
In a perfect world, a not-for-profit business could write a budget on January 1st to cover all expenses and end the year with a profit of exactly zero. In the real world, we must always budget a bit more than projected costs because we can’t predict the weather or big, expensive storms.
- Every year leftover profits may amount to as little as $10,000 or as much as $400,000 or more
- All those profits are gradually returned to consumers in the form of Capital Credit payments
Capital Credit Returns
Every year the Co-op’s Directors look at the Co-op’s financial health and decide how and when to return Capital Credits.
- Some years the profits are too small to warrant payments
- In other years when the profits are greater, the board has a few options:
- The board may decide to retain some of the profits to be used as working capital or to upgrade a portion of the electric system
- Some Credits are returned to members in cash
How are Capital Credits Paid
Historically, Ravalli County Electric Cooperative has paid Capital Credits in order of “first in, first out.”
- The 1930’s were paid, then the ’40’s, the ’50’s, the ’60’s, 1970, 1971, 1972, 1973 and so on
- Ravalli Electric has paid off all Credits due for all years up to and including 2002
- Most Co-ops around the country are similarly still paying Credits from approximately 25 years ago
Changes to the Formula
- From 2009 to 2016 the board of directors chose to pay only the older years
- In 2017, the board of directors elected to change the formula for payments so the Co-op paid a portion of the oldest year on file and a portion of the new year
- This change resulted in thousands of newer consumers getting a Capital Credit check for the first time
Capital Credits are Hard Assets
- Some consumers assume that Capital Credits are like savings accounts with cash set aside for each member
- Capital Credits are actually in the form of hard assets – poles, wire, trucks, and buildings
- It would make no sense for the Co-op to pay back large Capital Credit payments and then borrow money from the bank to replenish working capital
- Interest payments for borrowed money would be passed on to the consumer
Keeping Rates Low
- Returning Capital Credits is a balancing act
- No one wants to raise electric rates in order to raise revenue available to pay back Credits
- It’s better to keep rates as low as possible and pay back Credits slowly but surely