Capital Credits
Capital Credits are unique to cooperatives such as Wasco Electric. Private power companies make profits and pay dividends to stockholders. Cooperatives, on the other hand, work on a nonprofit basis and allocate their operating income back to their members.
Capital Credits represent your share of the Cooperative’s operating income: operating revenue remaining after operating expenses. The amount designated in your name each year depends on your energy purchases for the year. To calculate this, we divide your annual energy purchase by the Cooperative’s operating income for the year. The more electricity you buy, the more capital credits you earn.
Recently, each member received a statement of their 2010 Capital Credit allocation. Member’s allocations are based on year-end operating margins of $880,930 divided by the total patronage from 2010 sales of $8,160,360.43. This equates to 10.80 percent of each members’ 2010 billings being allocated back as capital credits.
Capital Credits are not necessarily dollars in a bank account somewhere, but rather they represent funds that have been invested in the cooperative’s utility plant.
Most months, Wasco Electric receives more cash from operations than is necessary to pay for operating expenses. That is because the cooperative needs cash for purposes other than paying for operating expenses.
Wasco Electric must pay the principle and interest on money it has borrowed, and use cash to pay for capital expenditures. The amount of cash needed for capital expenditures largely is determined by the growth of a utility and the replacement schedule of its aging system.
The distribution of capital credits and its effect on the financial well-being of the cooperative is an issue your board of directors considers each year.
It is the policy of the cooperative and the discretion of the board to return capital credits as long as the cooperative is financially fit to return them without additional borrowing or the need to raise rates to pay capital credits.
In 2010, Wasco Electric returned $100,124.82 dollars in general retirements of the 1984 capital credits. Additionally, the cooperative paid $86,078.22 dollars in special retirements to the estates of deceased members.
