CAPITAL CREDITS OVERVIEW AND FREQUENTLY ASKED QUESTIONS
When a cooperative is first formed, it takes several years before it begins to show its first profit. Even then, the entire amount is reinvested to help stabilize the business and provide adequate cash flow for growth. Therefore, instead of receiving checks, members will receive capital credit allocations to serve as promissory notes. As the financial position of the cooperative becomes stronger, with larger cash reserves and higher equity levels, the cooperative will begin to "retire," or pay back, capital credits. Co-op members are entitled to share in the cooperative’s margins. Each year, shares for the preceding year are calculated based on the amount the member contributed to the margins. The members' shares are referred to as capital credits and are retired (refunded) to them based on the equity necessary to maintain the financial soundness of the cooperative.
The Cooperative shall allocate and retire capital credits in a manner that:
1. is consistent with state and federal law.
2. is consistent with operating on a cooperative basis under federal tax law.
3. is fair and reasonable to the Cooperative's patrons (members) and former patrons.
4. provides the Cooperative with sufficient equity and capital to operate effectively and efficiently.
5. protects the Cooperative's financial condition.
Subject to law, the Cooperative’s articles and bylaws governing capital credit allocations and retirements are the sole discretion of the Cooperative's Board of Directors ("Board"). The Cooperative shall allocate and retire capital credits according to the manner, method, timing, and amount approved by the Board. When the board of directors determines that the financial condition of the cooperative would not be adversely impaired, capital credit retirements(refunds) will be issued.
Frequently Asked Questions by Members
What are capital credits?
Capital credits are each member’s share of the cooperative’s margins. Margins are calculated each year by deducting the operating expenses of the cooperative from the income from the sale of electricity. These margins are allocated to each member’s capital credit account based on the electricity purchased by that member. The members’ capital credits represent ownership in the co-op and continue to accumulate based on the members’ purchase of electricity from the co-op. When the financial condition of the cooperative is adequate to meet all normal and emergency needs, the board of directors may approve the return of a portion of these margins to the member-owners through a capital credit retirement.
Allocation vs. Retirement?
Capital credits are allocated annually to each member based on the amount of electricity purchased the previous year. An allocation is the amount set aside into a separate account to be used as operating capital by the co-op over a given period of time.
Capital credits retirement is the amount each member will receive back as a capital credit payment. This amount is a percentage of a member’s total capital credits balance for the year(s) retired. The amount and which years to retire are decided upon annually by the Board of Directors based on the financial condition of the Cooperative.
Can allocations be used to pay my bill?
No. Allocations are used as operating capital of the Cooperative. They are not available until a percentage is retired and paid back to the members as directed by the Board.
Why aren’t allocations refunded all at once?
The members’ capital credit allocations are used as a source of capital to help the cooperative remain in good financial condition. This capital is used for operations and improvements, such as substations, power lines, and other electrical system facilities that serve and benefit our members. This allows cooperatives to continue to provide reliable electric service at the lowest cost possible.
How are capital credit retirements paid?
After deducting any final bills or bad debt amounts owed by the member or former member, capital credit retirements will be paid as follows:
Active members will receive their capital credit retirement applied as a credit to their electric bill if the credit is $50 or less. If the credit is more than $50 it will be issued as a check typically, in December, depending on their billing cycle.
Non-active members will receive their retirement in the form of a check sent in the mail, typically in mid December. However, if the retirement is less than the $10 check minimum, a check will not be issued, and the retirement will remain in the inactive capital credit account and will be paid in future years when the total retirement amount due equals $10 or more. It is important for past members to provide a forwarding address, as capital credits are often made a number of years after the credits are earned and allocated.
What if service has been disconnected?
As long as you maintain a current address with the cooperative, we will mail your capital credit retirement checks to you as the board approves them.
Why did my neighbor get a retirement (refund) and I didn’t?
Retirements are issued to those members who have capital credit balances only for the years included in the retirement as designated by the Board. In addition, those who owe the cooperative an outstanding final bill or bad debt balance in excess of the capital credit retirement amount will not receive a retirement (refund). If the account is inactive, a check will not be issued if the retirement is less than $10, which is the minimum check amount.
Why was my neighbor’s retirement (refund) larger than mine?
The amount of the capital credit retirement (refund) depends on the amount of electricity purchased by the member during the years included in the retirement. If one member’s usage during those specific years was greater than another member's, he/she would have received a larger capital credit allocation and thus a larger retirement (refund) than a member who used less electricity.
Will the total capital credit amount be retired (refunded) after I terminate electric service?
Early retirement of capital credits is not allowed when electric service is terminated. When capital credits are retired (paid back), inactive accounts are included in the retirement calculation until their balances are fully retired. Of course, capital credit refunds cannot be delivered correctly if the co-op is not informed of address changes, so it is important for former members to notify us of their current address.
If the person whose name is on a capital credit retirement (refund) check is deceased, can the payee name be changed?
No. The capital credit is assigned to the name in which the account is, or was, carried at the time of allocation. The check can be legally cashed only by that person or his/her legal heir. The member's heir must sign a form stating they are the sole legal heir, or if there are other heirs, they will disburse the check to the other heirs according to the appropriate legal documentation of the estate and in accordance with the cooperative bylaws.
What happens when capital credit checks are not cashed?
Unclaimed Capital Credits. Any patronage capital that has been retired, returned, refunded or tendered to a patron that has remained unclaimed by the patron appearing on the records of the Cooperative for more than two (2) years may be determined to be unclaimed. Unclaimed patronage capital may be used by the Cooperative for the benefit of the general membership of the Cooperative.