Capital Credits -- What are they?
Tongue River Electric Cooperative (TRECO) tracks how much electricity you used and paid for throughout the year. At the end of the year, TRECO's financial statements show whether revenue exceeded costs and resulted in a margin. TRECO allocates the margins to members as capital credits based upon their use of electricity during the year. TRECO's Board of Directors and employees work to ensure that your Cooperatives financial strength allows capital credits to be paid.
The difference between a cooperative like TRECO and an investor-owned utility is that a cooperative is owned by the members it serves. As a member owner, you share the profits of the Cooperative. As a nonprofit electric cooperative, TRECO allocates our annual operating margins, or profits, to members receiving service during the year. At the close of each fiscal year, these margins are allocated back to the membership. It is based on the dollar amount of electric service each member paid for that year compared to the total electric service paid for by all members. Those allocations are called capital credits. Capital credits are used by TRECO for operating capital or retired (paid back to our members) when the financial position of TRECO permits and bylaw provisions are met.
Each member has a capital credit account, which represents the member's ownership in the Cooperative. When capital credits are allocated at the end of each year, all members who received electric service during that year will receive an allocation notice.
Each year, you are "allocated" your portion of the previous year's profit (margin) based on the amount of electricity you used and paid for from TRECO in relation to the total amount of electricity purchased by all the members during the year. This amount is put into a "holding account" for several years (Target is 20 years) and used by TRECO to fund capital needs for items such as power line construction, transformers, trucks, inventory, and other equipment. Each year the Board evaluates the Cooperatives financial standing and decides which allocated years to approve for the distribution of allocations, The Cooperatives good financial standing is an underlying principle of the cooperative business model and is one more way we keep your electric rates as low as possible. This "allocation" adds to your equity in the Cooperative and is maintained in a separate account assigned to you.
TRECO requests that members and former members keep their mailing information always correct. When the board approves the retirement of allocated capital credits, we will use the former members mailing information on file to send a check for retired capital credit allocations. If we do not have updated mailing information, then the allocations may become designated as unclaimed if we are unable to contact the former member. Any forfeited or unclaimed allocations become a part of the education fund for Tongue River Electric Cooperative. This fund provides student scholarships and training opportunities to other members that we serve.
Capital credits transfer to the deceased members estate and with board approval, early retirement will be offered at a discounted rate. If the deceased has no estate, the funds will remain with Tongue River Electric. If there is usage within the current year, that will be offered the following year. Please contact the office if you are the personal representative of a deceased member as there are legal documents that need to be filed with us.
NEW! Capital Credit Discounting Program
The Tongue River Electric Cooperative (TRECO) Board of Trustees have decided to establish an equity discounting program as allowed within TRECO’s bylaws. In this program TRECO will be offering members and former members all their existing allocated equity (capital credit) balances to be paid by check at a discount. Included in the program, all active members may also elect to receive current years and future patronage capital allocation in the year the allocations are made at a discount. The discounts are based on the same discount currently offered by TRECO to any deceased members estate which is as follows; The discount shall be based on a 20-year amortization schedule with an interest rate determined by the National Rural Utilities Cooperative Finance Corporation (CFC) 20-year fixed rate plus a 4% premium factor. Capital credit balances paid that are older than 20-years will be paid at the full capital credit balance.
Every member or former member with a capital credit balance will be mailed a capital credit letter. These letters will be mailed to the current address we have on file for each member or former member. When you receive your capital credits letter, you need to decide if you would like to leave your allocation alone and collect capital credits on the normal 20-year cycle (if the Board votes to do so at that time) or select your options. The two options will be, first to receive all your capital credit allocations at the discount rate as presented in the letter and second to receive future year allocations at a discounted amount. You can select one or both options. To receive your capital credit check, you must complete and return the form by the specified deadline within the letter. If you would like to leave your allocation alone, you may disregard your letter. An election to participate or not participate in the Tongue River Electric Cooperative (TRECO) Early Discounted Capital Credit program is made by the TRECO member account holder on a voluntary basis.
It is important to recognize that the difference between the capital you contributed each year and the discounted amount you could receive early is not forfeited by you. The amount of the difference, also known as the discount, will be maintained in an equity account in your name. It is non-redeemable. However, in the unlikely event the Cooperative were dissolved as a corporate entity, the amount of your permanent investment would be the basis by which your portion of any net proceeds available following dissolution would be determined. This is unlikely to occur, and such an investment in TRECO should be viewed as both illiquid and permanent in nature.