As a not-for-profit electric cooperative, we are different than most utilities. We are owned by our consumer-members. Rates are set to generate enough money to pay operating costs, make payments on loans and provide an emergency reserve. But, unlike a for-profit, investor-owned utility, there is not a shareholder pool of money available to fund capital improvements, maintenance and operations, or to maintain financial strength of the company. In order to provide for those needs, any money left over after paying expenses each year becomes the co-op members’ ownership investment to build and maintain the electric distribution system. The funds from this shared financial responsibility of all current and past members are called capital credits, and we keep track of each member’s share.
So, this money is invested in the cooperative, and after a period of time we pay the money back to both current and former members. This capital investment continues to work for the cooperative even after someone moves from the lines and is no longer an active member because of the long-term nature of financing the improvements. Former members who were on the lines anytime in the co-op’s 83-year history were helping to assure availability and reliability of service for themselves, but also for those who would come after them. The same holds true for today’s consumer-members.
When the Board of Trustees determines we are financially able, capital credits are retired. The retirement is methodical, retiring some of the funds from the earliest year(s) not yet retired and some from the most recent year past. The Code of Regulations of the cooperative does not permit the retirement of capital credits out of sequence, except in the event of the death of a current or former member. The early retirement of capital credits to an estate is an option to assist the heirs in closing the estate. The deceased’s estate can choose to receive the remaining credits immediately at a discounted net present value of the funds, or continue to allow the retirements to be made in sequence until the full allocation is depleted. The funds are discounted because they will not continue to support the needs and help maintain the cooperative’s equity through a normal retirement or maturity period.
A portion of each member’s capital credits come from Pioneer’s power supply cooperative Buckeye Power. Buckeye allocates capital credits to Pioneer as its member-consumer and then Pioneer passes that allocation on to our members. Buckeye is investing the Pioneer funds in operating and maintaining the power plants, making needed improvements, and ensuring financial strength of that cooperative. Pioneer does not retire any of the Buckeye portion of capital credits to our members until those funds are actually paid to Pioneer.
Pioneer Electric Cooperative has been able to make general retirements of capital credits to current and former members since 1981. Those retirements, along with the discounted retirements to estates, have totaled more than $46 million.
If you would like more information about Pioneer’s capital credits, please contact us at 800.762.0997.