Capital Credits Explained

Capital credits are a unique feature specific to the cooperative business model. At the end of each year, BARC’s financial statements show whether revenue exceeded costs and resulted in a margin. This margin is “allocated” to electric consumers’ accounts as capital credits based on how much electricity each consumer uses and pays for throughout the year. Capital credits are primarily used by BARC to fund long-term capital investments, such as new electric facilities, electric system upgrades, and equipment. Over time, capital credits are returned to consumers (called a “retirement”) on a first-in, first-out (FIFO) basis.

As a not-for-profit organization, BARC does not raise capital from outside shareholders or investors. Capital needs are funded from just two places: capital credits and long-term debt. While BARC could incur debt for 100% of its capital needs, this would result in additional interest expense that BARC would need to recover through increased electric rates. Likewise, BARC could fund 100% of its capital needs through capital credits; however, this too would result in increased electric rates. An underlying principle of the cooperative business model is to strike an appropriate balance between capital credits and debt. Each cooperative has different circumstances, and thus the right balance for BARC may not be the ideal balance for another cooperative. The ultimate goal of the board and management team is to maintain a balance that provides for the capital needs of the electric system and maintains affordable electric rates.

Several financial factors influence retirements, including margins, cash and equity. During some years, the Co-op may experience high growth in new services, requiring significant capital expenditures. Similarly, severe storms may result in the need to spend unbudgeted funds to repair lines. Each year, BARC’s Board of Directors considers these factors and decides whether to retire capital credits based on the financial health of the Cooperative.

BARC requests that current and former electric consumers keep their mailing information current at all times, even if they move off-system. At the time of retirement, if BARC does not have updated mailing information, then retirements will be designated as unclaimed and revert to the Cooperative after a period of time.