returns $938,000 in capital credits
At the Oct. 21 meeting, Cape Hatteras Electric Board of Directors
authorized the return of $938,382 for its annual capital credit
Capital credits represent each member’s ownership or “equity” in the
cooperative. Patronage capital, the sum of that “equity,” can be
likened to the retained earnings of a for-profit or investor-owned
utility. Capital credits are similar to the dividends paid to the
for-profit entity’s stockholders.
Each member of a non-profit electric cooperative has a capital credit
account that tracks his or her ownership in the cooperative. In June of
each year, CHEC members receive notice of the amount credited to their
account for the prior year. The allocation factor for every $100
dollars spent by a member on electric service in 2009 was $10.18.
Of the $938,382, 50 percent was retired on the last-in, first out
(LIFO) basis, to members with service in 2009. The remaining 50 percent
was retired on a first-in, first-out (FIFO) basis and will completely
retire the patronage balances for members with service in the years
1976, 1977, 1978, and 1980. Zero margins were assigned for 1979.
The refund amount approved equals 60 percent of the cooperative’s 2009
margins. This is a significant increase over previous retirements,
which have generally been 25 percent of the prior year margins.
However, because 2009 margins were over-budgeted margins by
approximately $1 million, CHEC directors and management felt it was
important to refund capital credits more aggressively than previous
To put it in perspective, prior to this retirement, CHEC had retired
more than $5.1 million in capital credits since its inception in 1945.
The 2010 retirement will increase that number to a total of nearly $6.1
million. This year’s retirement is 16 percent of the total amount
retired in the last 65 years.
CHEC implemented a rate increase in May, 2009, in anticipation of
significant increases in its wholesale power cost. However, the
economic recession decreased demand for electric service and decreased
natural gas prices, which resulted in lower wholesale power cost and
higher margins for 2009.
Although demand has increased for 2010, primarily due to extreme
weather conditions, gas prices remain low and CHEC has continued to
experience lower wholesale power cost and higher margins.
Because of the numerous mounting pressures that will ultimately
increase wholesale power cost, this trend is not expected to continue
long-term. As long as it does, the non-profit electric cooperative says
it will return a significant portion of those margins, not to
stockholders, but to the members that it serves.