2022 Capital Credit Retirement
March 15, 2022
To Our Members:
As a cooperative, Valley Electric does not distribute profits like most businesses. Any revenue in excess of Valley’s annual operating expenses is invested back into the cooperative and eventually returned to its members as capital credits. Capital credits are the equity allocated to members’ accounts and represent ownership in the cooperative. Valley’s board of directors approves retirements of capital credits when the cooperative is financially able to do so.
In the past only positive equity has been allocated to members’ capital credit accounts. Historically most years have resulted in positive margins. As of the end of 2018 Valley had an accumulated loss balance in excess of $35 million. The board has decided those losses need to be handled in the same equitable and fair manner as positive margins. All members’ capital credit accounts will be adjusted to reflect their portion of the loss allocation.
The board also decided to retire $1 million of capital credits to the membership based on the following:
$397,491 to 1991 cooperative members,
$102,509 to 1992 cooperative members and
$500,000 to 2016-2019 and 2020 cooperative members.
Members affected by the payout will be notified of their specific payout amount. All payouts in the amount of $25 or higher will be made by check. Amounts lower than $25 will be received as a credit on members’ monthly bills.
Board of Directors, Valley Electric Association, Inc.
2022 Allocation and Retirement FAQs
The Board decided to maintain a 30-year capital credit retirement cycle but also wanted to include newer cooperative members in this year’s retirement decision.
No, while the total accumulated loss in 2018 was $35,600,000, the balance is made up of multiple loss years. In each of those years, the Cooperative rate structure failed to cover total costs, resulting in a loss.
The Board determines when to allocate and retire capital credits. After reviewing the data and looking at the impact that the total accumulated losses of $35,600,000 would make to the Cooperative, they determined that the Cooperative would need to make a considerable profit each year to catch up and retire that amount. In other words, the Board believed that only allocating positive margin years was not financially responsible. The allocation of both positive and negative margins is the fairest way to identify a member’s true equity position. It is important to note that this will not result in any negative individual Capital Credit balances.
The Board of Directors and Management are committed to balancing the costs and revenues of the Cooperative now and in the future. As a demonstration of that commitment, the Board and the Management have and continue to manage operating costs since 2018.
There is a formula that will be used to calculate each year of the allocation loss per membership based on each member’s participation and will be spread out over several years from 1996 to 2018.
A letter has gone out detailing what the board of directors approved at the January Board meeting. This includes what the board has decided to allocate and retire.
For more information about capital credits, please visit our Capital Credit FAQs.