Refund Applied To December Electric Bill
December 10th, 2018 by By: Todd Schroeder, General Manager/CEO
As a not-for-profit business, MEC exists to provide reliable electricity to our members, not to make a profit. You are our owners and our stakeholders, therefore, when we are successful, so are you. It is for this reason that we are pleased to announce a one-time credit on your December bill, in addition to the annual capital credit retirement you may have received on your November bill. You might be wondering how we are able to do this; therefore, I would like to take a moment to explain the rationale behind this refund.
As a locally owned cooperative, when profits or margins exceed what was budgeted, we can choose to give cash back to our members. In 2018, due to both extreme winter and summer temperatures, as well as continued fiscal responsibility for our expenses, our cooperative experienced those excess margins. At the November 30 board meeting, the board of directors unanimously voted to refund an estimated $1,000,000 back to our members. This refund is based on revenue for electricity purchased from January 1 to November 30, 2018 and is being allocated to all members who had an active account during this time.
How is this refund different than your capital credits? As you may know, MEC annually retires capital credits. As a not-for-profit organization owned by you, our member-owners, the money to cover day-to-day operating costs of the cooperative comes directly from the members paying their monthly electric bills. Each year, MEC subtracts those operating costs from the amount of money collected and the remaining balance is called the margin. These margins become patronage capital and are used by the cooperative for operating capital, necessary reserves, storm damage, and other contingencies. Once all expenses are met, funds left over are allocated to your capital credit account based upon the amount of money you paid for your electric bill, otherwise known as patronage. In October of each year, the board of directors retires capital credits based upon the financial stability of the cooperative.
While this one-time December refund is different from our annual capital credit retirement, it is important that you understand the importance of the capital credit process. Capital credits represent each member’s share of the cooperative’s margins and ownership of the cooperative. Here are answers to a few frequently asked questions regarding capital credits.
What does MEC do with capital credits?
Every business needs to maintain a suitable balance between debt and equity to ensure financial health and stability. Capital credits are the most significant source of equity for most electric cooperatives. Equity is used to help meet the expenses of the cooperative, such as paying for new equipment to serve members and repaying debt. Capital credits help keep rates at a competitive level by reducing the amount of funds that must be borrowed.
How does the cooperative determine who receives capital credits?
Capital credits are allocated to each member based on their economic participation with the cooperative: in other words, how much they paid into the cooperative for electric service throughout the year. Each year, the board of directors determines whether the cooperative’s financial position permits the retirement of capital credits and to what extent (amount). The board also decides the method for determining which capital credits are returned. At this time, MEC retires capital credits using the First-in, First-out method. This means that the capital credits that have been invested in the cooperative for the longest period of time are returned to members first. MEC is generally on a 15 to 17 year cycle, which means capital credits allocated in 2003 were returned to members in 2018. The total amount of capital credits refunded this year was $1,215,319.61.
Why does the co-op not charge lower rates instead of retaining capital credits?
The board of directors has a fiscal responsibility to maintain the financial integrity of the cooperative in a way that provides competitive rates and allows the return of capital credits to members. Having a sound equity management plan and a commitment to serving the members are both key to achieving this.
In conclusion, it is our hope that this refund will be of benefit to you and your family as we wrap up 2018. On your December bill, you will notice a line that states “2018 MEC Refund”, where your portion of the allocation amount has been applied. At MEC, we want you to know that every decision we make is designed to be in our members’ best interest and it is our goal to be as transparent as possible in our decision making processes. Finally, if you have questions regarding this special refund or our capital credit process, please feel free to contact us at (660) 385-3157. I hope that you have the happiest of holidays and a wonderful new year.