Q) What is equity ownership?
A) Equity ownership is the dollar value of members’ contribution in LCEC. Each year that LCEC earns a positive net margin, a percentage of what members pay for electricity is credited as equity. The equity ownership account reflects the total dollars credited over the entire life of the LCEC membership. Throughout the year LCEC pays all of its operating expenses from money collected through monthly billing. Once all the operating expenses are paid, the amount left at year-end is our net margin. Since LCEC is a not-for-profit organization these margins are allocated (or credited) to the members’ accounts in an amount based on the amount of electricity purchased throughout the year.
Q) Is equity the same as accumulated profits?
A) No. Cooperatives are not in business to make profits, but to serve members. LCEC depends on contributions from members to operate and maintain the system. Equity is not in the form of cash (or reserves) and it is not sitting in the bank. Equity minimizes the need for high-interest loans and is one way in which LCEC is able to offer electric rates that are among the lowest in Florida.
Q) What is equity capital?
A) Equity capital represents the customers’ share of net margins. Capital credits are the margins that are left over after all operating expenses are deducted from revenue. Equity capital is used to partially finance long-term capital projects, and a minimum level is required by lenders in order to extend loans to LCEC. A higher level of equity capital can reduce the cost (interest rate) of borrowed money.
Q) Is equity paid out to customers every year?
A) Whether or not your equity ownership is retired and how much is retired is evaluated annually by LCEC’s Board of Trustees. An annual retirement is dependent on the financial position of LCEC. There are certain mortgage clauses from lenders that require LCEC to maintain minimum levels of specific financial ratios. If approved by the Board of Trustees, a percentage of the equity account balance is usually returned in the form of a check, but in some cases will appear as a credit to the electric bill or payment of a bad debt with LCEC. Over the years, LCEC has returned more than $268 million.
Q) Why doesn’t LCEC pay all equity to members right now?
A) Remember, equity is not in the form of cash. It is in the form of poles and wires and other equipment. Similar to the equity that a home owner has in a home. LCEC would have to borrow in order to pay all equity which would result in much higher electric rates. Currently, LCEC retires and returns a portion of equity in proportion to the financial requirements from lenders. On average, over the past five years, LCEC has returned at least $10 million to active and inactive members annually.
Q) What happens to equity after an account is inactive?
A) A member who is no longer receiving electric service keeps their equity ownership account and will continue to receive retirement checks based on the remaining value of the equity ownership as approved by the Board. The Board determines when a final retirement can be made.