(June 7, 2016) — LCEC operates as a non-profit electric distribution cooperative. Cooperatives are not financed by investors and have no taxing authority.
So have you ever wondered how LCEC finances its long-term investment in the electric system? After all, maintaining a reliable electric grid in Cape Coral and across Southwest Florida requires continual maintenance and capital improvements.
One of the many unique features of an electric cooperative is that members provide the capital to operate the business simply by paying their electric bill.
Each year, when LCEC closes its books, any revenue received from members above the cost of providing electric services – which is called “margin” – is invested back into the cooperative as capital, which allows LCEC to replace equipment, make capital improvements, and pay debt.
These margins help to reduce the need to borrow funds that reduces interest expense, which helps keep electric rates competitive. It is a business model that works well for 350 million cooperative members throughout the United States.
Members are credited for their contribution to the operation of the cooperative through “equity credits,” also known as “patronage capital credits,” which are allocated annually to each member’s equity account based on the amount the member paid for electricity during the year. Until those capital credits are retired, they are not in the form of cash.
Each year, the LCEC Board of Trustees reviews the financial condition of the cooperative to determine whether a portion of previously allocated capital credits can be retired to current and former members in the form of a check or utility bill credit.
A retirement is approved when the Board determines that the cooperative’s financial condition is adequate to support the payout.
Economic participation is just one of the benefits of belonging to a financially strong electric cooperative such as LCEC. Many electric cooperatives are not able to retire credits annually. Over the years, LCEC has retired $231 million in equity.
And that is how LCEC get the funds to operate the electric system!