The most significant source of equity investment for most electric cooperatives is the retention of margins from the sale of electricity. These margins are allocated to patrons (members) as capital credits based on their purchases or patronage from Mountain Parks Electric (MPE). Since its inception in 1946, MPE has refunded $8.2 million in capital credits to its members.

For the year 2010, Mountain Parks Electric’s operating margins were approximately $1.4 million, which are allocated to MPE member/patrons based upon their dollars paid for energy during this past year. An average user of 650 kWh/month would be allocated back credits of $51.54 for 2010, or about 5.3% of their cost for energy.

Additionally, each year the Board of Directors of MPE reviews the cooperatives financial condition and, determines if it is viable to retire, or redeem, the booked capital credits of the members. In 2010, the MPE Board authorized the redemption of $712,313 worth of capital credits. Checks were then issued to 12,016 members representing the retirement of booked capital credits for 43% of the years 1989 ($350,105), plus 2% ($362,208) of capital credits issued for all remaining years (1990-2009).

Quite honestly, this is one of the most pleasant tasks of the electric cooperative business—returning money to our customers, as a demonstration of their ownership of the company!

All businesses need capital to operate, which is usually supplied by a combination of equity and debt. In the case of Mountain Parks Electric since its inception in 1946, the equity has been provided by our membership. The debt, at very attractive interest rates, is provided to MPE as loans from three sources:

• U.S. Department of Agriculture – Rural Utility Services
• National Rural Utilities Cooperative Finance Corporation
• CoBank – Member of the Farm Credit System

(Unlike investor owned utilities, cooperatives cannot issue stocks and pay dividends to shareholders).

The International Cooperative Alliance (ICA) of cooperatives worldwide has identified basic values shared by all cooperatives: “Cooperatives are based on the values of self-help, responsibility, democracy, equality, equity, and solidarity.”

The 3 rd principle of electric cooperatives: “Member Economic Participation” provides for benefiting the members in proportion to their transactions with the cooperative.

What are the business advantages of allocating and retiring capital credits?

• Reduced cost of doing business—as cooperative status under federal income tax law eliminates or reduces income taxes and associated costs.
• Reduced net cost of electricity for members—as capital credit retirements offset a portion of costs consumers pay for energy.
• Member education and public relations benefits—as co-op members receive a tangible reminder of the values and heritage that make cooperatives unique among electric service providers.

The Mountain Parks Electric Board of Directors, six elected representatives of the cooperative’s membership, has an obligation to balance the equity and debt levels of the cooperative to meet a variety of financial needs and criteria, including:

• Maintaining financial strength (MPE’s equity ratio is 50%)
• Meeting mortgage loan requirements (Long term debt is $28.7 million/35% of utility plant)
• Funding construction and maintenance (2011 Budget for construction and maintenance=$15 million)
• Retiring capital credits ($3.5 million over the past 5 years, 2005-2010)
• Ensuring fairness across generations (hybrid model)

The MPE Board has in recent years selected a “hybrid model” of capital credits retirement, which pays off the oldest (First In-First out, or FIFO) credits to the extent possible, while retiring a percentage (typically 2%) of all of the booked capital credits.

The MPE Board and Staff have determined not to issue checks if less than $10, as it is not cost effective to do so; rather, credits are accrued until the amount due for retirement exceeds $10.

Additionally, while MPE seeks to locate all members, current and past, through mailings and newspaper publications, some members cannot be located each year. Colorado law allows the cooperative, after three years of attempts to locate and return capital credits, to transfer the funds to the Mountain Parks Electric Educational Trust—these funds are then disbursed at the discretion of the Trustees to fund education programs, scholarships, teacher grants, and other educational purposes throughout MPE’s service territory.

Mountain Parks Electric is proud of its record of returning capital credits to our members and looks forward to doing more of this in the future!

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