Capital Credit Breakdown - NEC Coop
Dec 5, 2019
As a member of Nueces Electric Cooperative, you get the credit—Capital Credits that is. Because when you signed up to receive electric service from NEC, you became a member of the cooperative. While investor-owned utilities return a portion of any profits to their shareholders and investors, electric co-ops allocate any excess revenue to members as capital credits. We retire (or pay) these out to our members when the co-op’s financial condition permits.
In the coming weeks, members will start receiving notices about their capital credit retirements. The amount of each allocation and retirement is based on how much the member paid the co-op for electric service during that period.
Capital credits represent the most significant source of equity in NEC. 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. It is time for the members who helped build and sustain this co-op to get the credit… through capital credits. Below are a few of the most commonly asked questions regarding this cooperative benefit.
WHERE DOES THE MONEY COME FROM?
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, we subtract these necessary operating expenses from the operating revenue collected during the year. The balance is called an operating “margin.”
HOW ARE MARGINS ALLOCATED?
Margins are allocated to members as capital credits each year based on their purchases from the cooperative—how much power the member used. Member purchases may also be called patronage.
DOES AEP OR CPS ENERGY RETIRE CAPITAL CREDITS?
No. Within the electric industry, capital credits only exist at not-for-profit electric cooperatives owned by their members.
ARE CAPITAL CREDITS RETIRED EVERY YEAR?
Each year, the Nueces Electric Cooperative 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, NEC’s ability to retire capital credits on a year to year basis reflects the cooperative’s overall strength and financial stability. The board alone decides whether to retire capital credits.
HOW OFTEN DO MEMBERS RECEIVE CAPITAL CREDIT RETIREMENTS?
The NEC Board of Directors makes a decision each year by October whether or not to retire capital credits. When the cooperative is strong enough financially and member equity levels high enough, the board directs staff to retire some portion of past years’ capital credits.