Q: LCEC has millions of dollars in member equity. I realize that the money is used for improvements and maintenance, but we’re talking a lot of money being held back for a very long time. Why won’t LCEC just lower how much equity it keeps and give the rest back to the members?
Member on Sanibel
A: We get this question often John. The City recently suggested ALL member equity should be returned immediately, leaving us with no ability to invest in the system or maintain financial reserves required by lenders.
What we have explained to City staff and consultants many times is that equity is not in the form of cash sitting in the bank. That’s just not how it works.
The reality is, it is in the form of equipment and facilities that LCEC needs to provide reliable electric service. It is very similar to the equity you may have in your home. That home equity is there, but it is not liquid until you sell your home, right?
Members of the cooperative invest in the operation and maintenance of the electric system and in turn they are allocated equity and the need for costly loans is reduced. This helps to keep rates low.
Even with the investments from members, loans are still required and financial ratios require a certain level of equity be maintained. If levels are not met, interest rates are higher putting pressure on electric rates. Also, since equity is not cash, in order to pay out more, LCEC would need to take out additional loans which would have to be paid by remaining members through higher rates. LCEC has been able to find a good balance by retiring and returning more than $242 million in equity while reducing rates five times in the last three years.