FreeState Electric Cooperative Retires Capital Credits
Cooperative returns $750,000 to members in July
Thousands of FreeState Electric Cooperative members will get a nice reprieve on their July electric bill with a bill credit after the Board of Trustees approved a capital credit retirement of $750,000.
FreeState’s board determined the method for returning capital credits is a hybrid method called Last-in-First-Out/First-in-First-Out, or LIFO- FIFO. This method manages equity by retiring a combination of the oldest and newest years and provides value to new and long-time members.
The FIFO retirement covers 2017 for FreeState. The LIFO retirement includes Leavenworth-Jefferson Electric Cooperative years 1984, 1985, 1986, and part of 1987, and Kaw Valley Electric Cooperative credits for part of 1992.
Active members will receive a bill credit on their July bill. Members who are entitled to capital credits but are no longer active members are mailed a physical check.
To further explain this retirement and what this means for members, it is essential to understand that a member-owned co-op does not technically earn profits. Any revenues above the cost of business are considered margins.
"Capital credits are our margins, or what is left over after all the costs to operate are paid," said Steve Foss, FreeState's CEO. "Investor-owned utilities would have profits that would go back to shareholders, but cooperatives are different. We retain money to reinvest into our system and then return it to our members when the financial health of the cooperative is stable."
These margins represent an interest-free loan of operating capital by the membership to the co-op. These funds allow FreeState to finance operations with the intent to repay in later years, either through allocation or retirement.
The amount of capital credits each member is entitled to be determined by how much electricity members purchased from the cooperative during the margin allocation year