As a member of the Board of Trustees and, for several years, the president of your co-op’s governing body, I can look back on hard times and good times at Buckeye Rural Electric Cooperative… But never have I felt prouder than today. What’s the reason?

Your cooperative is in excellent financial shape. We are meeting our goals of modernizing and strengthening the distribution system. Outage times are down per consumer. Our satisfaction survey results are tracking upward. And – what gives me the most pride – BREC is returning money to its member-owners through capital credit retirements.

Checks totaling over $725,000 were mailed to BREC members in June and July as we retired capital credits for two full years and, for the first time, reimbursed a percentage of the capital credit accrual for 2006. We sent out over 18,000 checks in amounts ranging from $10 to in excess of $5,000.

Two local school districts served by BREC received capital credit reimbursements of over $4,500 each. The largest single capital credit check totaled $5,848.

It has been almost a decade since your co-op was able to conduct a general retirement of capital credits. We have always followed the traditional formula for timing reimbursements: FIFO (first-in, first-out). As a result, members had to wait 20-30 years or more to see the benefit of their capital credit accrual.

Your Board of Trustees and co-op staff last year started studying ways that the capital credit retirement system might be modified to affect more members. At the statewide level through Ohio Rural Electric Cooperatives and Buckeye Power, Inc., we participated in meetings with other co-op trustees where the handling of capital credits was the main topic. Also, the National Rural Electric Cooperative Association (NRECA) and Cooperative Finance Corporation (CFC) formed a national Capital Credits Task Force to conduct a study of the allocation and retirement of capital credits among the nation’s rural electric cooperative.

The Task Force’s report was published in 2005. We consulted the report and incorporated its recommendations in our decision-making process. I want to quote from a special message from the Task Force before going further:

“Establishing a capital credit policy is one of the most important responsibilities of a co-op’s board of directors.”

We took this comment to heart. Accounting for, allocating, and retiring capital credits is at the core of the cooperative business model. It’s what makes us different from other utilities.

Co-op members are often told, “You are the owners.” As owners, what can you expect to get from this business? Sure, you receive electric service. You deserve reliability and reasonable rates. This is what BREC strives to provide. But don’t you expect something more?

The “more” is your contribution to the capital structure of the cooperative. It’s the equity you help build through payment of your electric bills. It’s the evidence of your ownership.

The BREC Board of Trustees, armed with facts and figures, came at this issue from a new angle. Yes, we wanted to resume general capital credit retirements for past years, but we also wanted to find a means of broadening the scope of the retirement method and shortening the waiting period.

Electric rates and contributions to equity are much higher today than 30 years ago. As a board, we became convinced that BREC needed a modern approach to capital credit retirement that would recognize the contributions of today’s member-owners as well as those from decades past.

What we decided on, after much deliberation, was a percentage/FIFO hybrid method of retirement. FIFO retirements will continue regularly as determined by the Board of Trustees based on the fiscal condition of BREC. In addition, we want to retire a percentage of the allocated capital credits from the most recent business year, again subject to the co-op’s financial status.

The Board of Trustees will review the numbers and decide whether to retire a percentage of the previous year’s capital credits in combination with a FIFO retirement. Common sense dictates that you never borrow money to retire capital credits, and you don’t need to defer major projects if it can be helped.

One of the reasons we could not conduct a general retirement over the past four years was the Federal Emergency Management Agency (FEMA) ice storm project. The opportunity to receive 75 cents on the dollar from FEMA for repair of electric system damage caused by the 2003 President’s Day ice storm meant we had to earmark nearly all cash in excess of operating costs and debt service.

Although our TIER (times interest earned ratio) and bottom line were healthy, spare dollars were funneled into satisfying BREC’s 25-percent of the overall FEMA project cost.

The FEMA work concluded this summer. So far this fiscal year, BREC’s financial performance looks to be on track. We do not anticipate any adjustment of the distribution rate (the portion of your power bill that supports BREC) for 2-3 years, although there will be wholesale rate (cost of power) increases beyond our ability to control. We will meet later this year during 2008 budget deliberations to decide on next year’s capital credit retirement.

It is mine and the other trustees’ hope that this retirement process will continue into the future. We recognize that contributions to the equity of the co-op are like a loan, and our members must be paid back. As president of the Board of Trustees, I take great pleasure in seeing those capital credit checks being mailed and hearing from friends, neighbors, and strangers that they received something unexpected from BREC… and it wasn’t a bill.