Equity
Basics |
FAQ |
Forms
Equity Basics
LCEC’s Board of Trustees has approved a final retirement distribution of equity for customer accounts that have been closed since the year 2001. This final retirement distribution will occur in September 2009.
Ownership equity in LCEC is not equivalent to cash or liquid assets. Equity represents members’ investment in LCEC’s electrical system in the form of substations, poles, lines, transformers and other facilities. The amount of equity allocated to each member each year is calculated based on the amount of electricity used by the member in the period.
While the region’s growth has leveled off, LCEC is still feeling the impact of the substantial investment in the infrastructure that was made to support several years of explosive growth. The Board of Trustees recently reviewed LCEC’s financial position to determine if a portion of equity ownership could also be generally distributed to active members. To do so, LCEC would have to borrow additional funds, which could add pressure to increase electric rates. Therefore, a general distribution of equity for 2009 will not be made this year. Our CFO/Director of Finance stated that "We have a fiduciary responsibility to our customers to operate the business in a fiscally sound manner. This decision helps ensure LCEC’s financial position remains strong and our customers’ investments well protected into the future."
Customers who purchased power from LCEC during 2008 still receive an allocation of total 2008 customer patronage into their equity accounts, the balance of which will continue to be eligible for any future Board-approved distributions.
What is equity capital?
Equity capital represents the customers’ share of net margins. Capital credits are the margins (profits) 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.
What are net margins?
Net margins are what remains after expenses are deducted from the revenue earned by LCEC during the year.
Do all customers receive equity capital?
Customers are allocated equity capital annually if revenues exceed expenses. The amount of equity is determined by the amount of electricity the customer purchased during the year. The allocated equity capital accumulates in the individual member’s equity account.
If a customer has equity credit allocated to their account, why can’t they receive it in a lump sum?
The equity account is not a cash account; it reflects the value of ownership (equity) in LCEC and is invested in equipment and facilities. Equity also helps finance capital improvements such as electrical lines, poles, transformers and substations.
Is equity paid to customers every year?
Annually, the board of directors reviews LCEC’s financial position in order to determine if a portion of equity capital can be distributed (paid out) to members. There are certain mortgage clauses from our lenders that require LCEC to maintain minimum levels of specific financial ratios.