Aiken Electric Cooperative in South Carolina recently announced it was paying out $4 million in capital credits to its 48,000 member-owners. The utility’s CEO said that was more than double the usual annual payout, and that payments also will be accelerated by more than six months so that co-op members get them now. In a tweet praising the Aiken co-op, Scott Peterson, a senior vice president at the National Rural Electric Cooperative Association in Arlington, said the South Carolina utility’s action was a “meaningful show of support during #COVID-19.”
So what are an electric co-op’s capital credits and will Virginia’s electric co-ops follow Aiken’s lead by increasing and accelerating their payments to member-owners during the current crisis?
Millions of Americans today get their electric power from some 900 electric cooperatives that were established during the Great Depression to bring electricity to rural America. Unlike big investor-owned utilities—such as Dominion Energy and Appalachian Power—electric co-ops are owned by their consumers, not by shareholders. What’s more, electric co-ops are tax-exempt nonprofits.
While forbidden to make and keep profits, these co-ops generally have revenue exceeding expenses each year and the annual excess is called “margins.” Each year, a co-op’s margins are allocated on the co-op’s books as “capital credits” to each member-owner (i.e., the co-op’s customers) in proportion to each member-owner’s patronage (electricity consumption) during the year. It’s normal for the co-op to retain these capital credits for a time and invest them in the business. That’s what makes them capital credits. But the funds are supposed to be eventually returned to the members (albeit without interest), if business conditions permit.
My co-op, Rappahannock Electric Cooperative, has increased its total retained capital credits from around $200 million to more than $400 million in a little over a decade.
That’s a huge amount, which belongs to the co-op’s member-owners, some of whom struggle financially, even in good times. Co-ops holding onto these funds for decades amounts to borrowing from consumers at zero interest. Co-op boards are supposed to be protecting member-owners, but are they?
Unfortunately, not all electric co-ops are transparent about their capital credit policies and practices. Rappahannock does not even annually tell each member-owner what his or her total accumulated capital credit balance is, despite efforts urging it to do so. Nor does the co-op tell member-owners what its capital-credit policies are, other than offering vague bromides, saying capital credits are returned to member-owners “as financial conditions allow.”
Virginia legislators and the press pay little attention to how electric co-ops in the commonwealth handle their hundreds of millions of dollars in capital credits belonging to their member-owners.
That, when combined with undemocratic board election practices, can leave a co-op essentially unaccountable to its owners.
In these trying times, it’s more important than ever for Virginia’s electric co-ops to be fully transparent about their capital credit policies.
They should make every effort to return large amounts of member-owners’ investments to the member-owners as soon as possible. If a South Carolina electric co-op can do that, so should Virginia co-ops.