Capital Credits

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