Capital Credits Add Up to Big Money for Electric Co-op Consumers

The following article was reprinted with permission from CFC Solutions News Bulletin, 17 January 2017, Vol. 19, No. 2.

Capital credits retired by not-for-profit electric distribution cooperatives in 2015 topped $1 billion for the first time, according to recently published data from NRECA, with patronage capital retirements over the past five years increasing about 10 percent annually on average (see chart in full online and print versions). The tally translates into a whopping cumulative total capital credits payout for electric cooperative consumers—nearly $14 billion returned by distribution systems since 1988.

“Retiring capital credits provides tangible evidence of cooperative ownership and demonstrates a chief difference between cooperatives and other types of businesses,” says CFC Vice President and Controller Bob Geier. “CFC shares our members’ commitment to returning margins, and we’re proud to have retired patronage capital for 37 consecutive calendar years.”

In October 2016, CFC retired $42 million in patronage capital to 842 systems, representing half of its fiscal year 2016 allocation. CFC has now returned roughly $1.6 billion in capital credits to member-owners since 1980.

According to NRECA, the number of electric cooperatives making retirements climbed from 585 in 2011 to 613 in 2015. In addition, tried-and-true methods for retiring capital credits are still in vogue: first-in, first-out (FIFO); percentage of total allocated capital credits; percentage method/FIFO hybrid; and FIFO/last in, first out hybrid. While FIFO continues to be the most popular, hybrid approaches are gaining traction since they demonstrate the value of cooperative membership to newer members more quickly.