You Get Credit.
You Get Credit. That’s the Cooperative Difference.
By Steve Foss, CEO
FreeState Electric Cooperative isn’t like an investor-owned or municipal utility—you, as a member own a portion of the cooperative. One benefit of that membership involves the allocation of excess revenue, called margins, in the form of capital credits.
FreeState operates at cost— collecting enough revenue to run and expand the business without raising rates for profit. Margins are allocated back to members as capital credits. FreeState has retired $850,000 in capital credits to members in 2017.
As we brought LJEC and Kaw Valley Electric Cooperative together, the board decided to adjust the process in which we allocate and pay out capital credits. We have moved to a hybrid retirement cycle to benefit more members and get both districts using the same formula and cycle. We are now operating a First-in-First-Out (FIFO) and Last-in-Last-Out (LIFO) hybrid retirement cycle for both districts. This approach to capital credits means a larger percentage of current membership gets money back every year.
Allocating and retiring margins to members helps distinguish cooperatives from other utilities. We’re proud to be able to credit member’s accounts and putting money back into the local economy and pockets of those we serve. It’s what makes the cooperative business model unique.
The retirement of capital credits is dependent on FreeState’s financial status. We hold onto allocated capital credits to cover emergencies, such as a natural disaster, and other unexpected events, and to expand its electric system, all of which may require the large-scale construction of poles and wires. This action decreases the need to raise rates or borrow money to pay for the infrastructure. After some years, if financial conditions permit, the board can and may decide to retire a set amount of capital credits.
Members are annually allocated capital credits based on the amount of electricity they consumed during a year. Margins earned from electric revenues are the only real source of equity for not-for-profit electric cooperatives, and it is essential for FreeState to maintain a balance between retiring capital credits to members and retaining sufficient equity to operate.
This year FreeState provided bill credits rather than paper checks. We did this because it was a cost-effective way to provide the return, and it would help members with their bills in a month where higher usage is common. We will still provide paper checks to those folks who have moved off the system and are no longer members.
In 2017 the cooperative virtually doubled in size, and retiring capital credits using a hybrid system allows us to assist more members. It’s just one more way that FreeState is looking out for our members.