Annual Capital Credits Overview - November 2023 CCL CEO Article
By Ruth Marks, MVEA CEO
The Cooperative Advantage
The capital credits allocation and retirement process is one of the most unique and rewarding aspects of being an electric co-op member. It is also a common topic for member questions because the business model is not common in our daily lives and the terminology may differ from co-op to co-op. Even though it is such an important aspect of co-op membership, it can be a bit confusing. This month, ahead of our annual capital credits retirement process in December, we will answer the most frequently asked questions about capital credits.
WHAT ARE CAPITAL CREDITS?
As a Mountain View Electric Association member, you are more than a customer: you are both a member and an owner of the cooperative. In fact, you invest in the cooperative each time you pay your monthly electric bill. Your investment in the cooperative helps to ensure the financial health and stability of the co-op and is returned to you through the allocation and retirement of capital credits. It’s an aspect of being a co-op member that is unique: When financial conditions allow, every member of an electric co-op gets a piece of the pie. It really does pay to be a co-op member!
Electric cooperatives aren’t like other utilities. We operate at cost — collecting enough revenue to run the co-op, without the need to generate profits like investor-owned utilities. In fact, as a co-op, MVEA’s rate of return is half of that of an investor-owned utility. The co-op’s rates and fees are set by an elected Board of Directors to generate revenue to cover operating costs, pay debts on construction loans, and provide an emergency financial reserve. Any surplus revenue generated is reinvested to improve services or returned to members as capital credits.
ALLOCATION VS. RETIREMENT
MVEA members receive a capital credits allocation every year after the cooperative’s audit for the previous year is complete. Net margins, the difference between MVEA’s income and its expenses, are “allocated” (or assigned) to members who belong to the cooperative during the year in which a net margin is generated. An allocation is your share of the net margins MVEA sets aside into a separate account with your name on it. Capital credits allocation notices are provided on your billing statement annually.
MVEA members share in the financial prosperity of the cooperative through the retirement of capital credits. A retirement is the amount of cash you receive back from your capital credits allocation. The amount retired is decided annually by the MVEA Board of Directors. After a number of years, if financial conditions permit, and MVEA’s mortgage requirements and by-law provisions are met, the Board may decide to retire (which means “pay”) capital credits back to MVEA members.
How are capital credits used to benefit the cooperative and its membership before retirement? They are put to work and used as operating capital for reliability improvements and maintenance over a period of years. Capital credits are a source of equity and help to fund the growth and maintenance of the system. This operating capital reduces the amount of money that MVEA needs to borrow through loans to meet the demands of our growing electric cooperative.
The amount of the capital credits retirement for 2023 will be available in the December issue, including details such as how payments will be made and the amount of the retirement. Depending on how long you have been an MVEA member, you may also receive a capital credits retirement payment in December.
Make sure to look at your November bill to review your 2022 capital credits allocation. If you have any questions about your capital credits allocation or retirement, please call 800-388-9881.