Have you ever received an unexpected check in the mail from your electric co-op? Or noticed a credit on your power bill that you didn’t quite understand? If so, you’ve benefited from one of the best perks of co-op membership – capital credits! But what exactly are capital credits, and how do they work? Read on for a simple, friendly explanation of this unique system.
Capital credits represent your ownership stake in your electric co-op. As a co-op member, you’re both a customer and an owner. Each year, co-ops allocate margins (leftover revenues after expenses are paid) to members in the form of capital credits based on how much electricity you purchased.
Unlike investor-owned utilities that pay dividends to shareholders, co-ops operate on a non-profit basis. So instead of pocketing leftover funds, they refund them back to you and other members. Capital credits aren’t profits – they reflect your equity in the co-op. The more electricity you buy, the more capital credits you earn.
How Do Cooperatives Generate Capital Credits?
Co-ops are unique in that they set rates to cover costs and maintain an emergency reserve. At the end of each year, total operating costs are subtracted from the co-op’s total revenue. The remaining balance is called the “margin.”
These margins are then divided up and allocated to each member as capital credits based on individual electricity purchases for that year. The more power you used, the bigger your allocation.
Why Do Cooperatives Refund Capital Credits?
Refunding capital credits puts one of the seven cooperative principles into action – members’ economic participation. Returning margins to members in proportion to their electricity purchases provides direct financial benefits.
Refunds also furnish the cooperative with operating capital for a period of time before being paid back to members. Ultimately, retiring capital credits supports the co-op and its members.
When Are Capital Credits Retired?
The board of directors determines when and how much capital credits are retired based on the co-op’s financial health each year. During periods of high growth or major storms, less may be retired in order to maintain fiscal stability.
Co-ops aim to refund credits on a consistent rotation, typically every 15-20 years. Although you may have to wait awhile, regular retirements reflect the co-op’s strong financial position. Patience pays off!
How Do Members Receive Retired Capital Credits?
When capital credits are retired, credits of $25 or more are refunded by check. Smaller amounts are rolled over to apply as a bill credit until they reach $25.
If you move, it’s important to keep your address updated with the co-op so retirement checks can reach you. Capital credits belong to you even if you relocate. Co-ops make diligent efforts to track members down and return their credits.
What Happens If a Member Moves?
Your capital credits remain intact if you move outside the co-op’s service area. Be sure to keep them updated with your current address so you receive your retirement checks down the road.
Co-ops reserve your credits even if you move because the physical electric system that your credits helped fund is a long-term, fixed asset. Your credits can’t simply be liquidated when you leave.
Capital Credits and Estates
If a co-op member passes away, capital credits are disbursed to spouse and heirs through the estate. Estates can also request an early payout at net present value rather than waiting for the normal retirement cycle.
For joint memberships, half of the credits transfer to the surviving member. Estate representatives should contact the co-op to begin the retirement process.
Do Capital Credits Play a Role in the Capitalization of the Catholic Church?
Business and Organizational Capital Credits
Co-ops allocate capital credits to any member entity, whether an individual, business, trust, etc. The same capital credit principles apply.
However, tax implications of refunds vary. Businesses should consult their accountants when dissolved to best handle outstanding credits. It’s wise to plan ahead.
Why Use a Capital Credits System?
Capital credits allow co-ops to operate on a self-sustaining basis according to cooperative principles. Member equity replaces a need for outside investments.
Credits also provide co-ops with tax benefits under federal law. Overall, the capital credits system provides financial stability that ultimately benefits co-op members.
In summary, capital credits represent your member ownership in an electric co-op. Margins are allocated to members, then later retired on a rotating basis. Refunds provide members monetary benefits and give co-ops operating equity.
Capital credits are a unique advantage of belonging to a cooperative rather than an investor-owned utility. They put member ownership into practice. Next time you receive a credit on your bill or retirements check, remember it’s one of the many perks of being a member-owner!