Cooperatives operate as not-for-profit organizations and return excess profits to members through capital credits. Any remaining money is known as margins after covering costs associated with providing electricity service.
These margins are returned as billing credits on members’ electric bills, and this year, BCREMC and Hoosier Energy are offering an extraordinary 33% retirement of 2019 margins back to members.
What is a capital credit?
Contrary to investor-owned utilities that generate profits for shareholders, not-for-profit electric cooperatives return any margins or profit earnings to members as the source of electricity purchase during that year. When electric co-ops earn margins or profits, some portion is allocated back into each member’s capital credit account depending on how much electricity was purchased at any one time – this accumulates over time until your cooperative can financially retire it and send you your refund check!
Your capital refund reflects your investment (through monthly bill payments) in our system to meet growth demands and enhance system improvements that benefit all members. When the Board of Trustees considers retiring margins, they consider several factors, including the impact on electric rates and the financial strength of our cooperative; refund amounts vary from year to year.
Once retired, margins are applied as a line item bill credit to your electricity statement. Every year, when margins are allocated, your capital credit balance will appear on the last page of your electric invoice. Your account information must remain current, so you receive allocation notices and retirement checks – many former members miss out because CEC did not receive their current mailing addresses for them.
As a cooperative member, you are entitled to billing and capital credit accounts. No matter where or when you move or how your billing account balance fluctuates, capital credits remain stable and may even be passed onto an heir in certain instances if certain conditions are fulfilled.
As your electric cooperative’s capital credits represent investments, they should not be subject to income tax for residential customers; however, you should consult your tax professional as the rules and regulations may change from year to year. Businesses may require different laws from the IRS regarding capital credits’ treatment; please speak with a business tax professional regarding how best to handle this matter.
How do I get a capital credit?
Community Electric offers capital credit refunds based on the monthly bill total divided by usage percentage. To qualify for your allocation of patronage capital credits, CEC must be aware of any address changes, as future budgets can only be sent directly. Your patronage capital allocations serve as long-term investments that help maintain reliable service while remaining financially strong for Community Electric. They won’t be liquidated until you request a refund or the Board approves these investments’ general retirement or unique retirement.
Who gets a capital credit?
As a cooperative member-owner, you will share in its retained margins each year as capital credit allocations, representing your equity stake. Rather than being used to operate its business operations directly, however, when financially feasible, this money is returned to members, one of the primary differences between cooperatives and investor-owned utilities.
As soon as you join, two accounts are established in your name – billing and capital credit accounts – both of which remain with you even after moving. When the Cooperative can return its funds to its members, their share will appear on their bill.
WH’s Board of Directors annually determines how to allocate and retire its margins using the First In, First Out (FIFO) process, which ensures that older, higher-margin margins are returned to members before newer, lower-margin margins are retired.
The Cooperative utilizes its retained margins to offset debt, keep rates affordable, and safely expand its electric system. Without its ability to use these margins for retirement purposes, borrowing money or raising rates would likely be required to cover expansion-related expenses.
Capital credits allocated by the Board of Directors to be retired will appear as entries on members’ permanent financial records when approved for retirement by them. When approved for retirement by them, money is returned directly to those members who purchased energy during that timeframe being retired.
OEC returns allocated capital credits to current and former members each year when financially feasible, reflecting them in your monthly electric bill as refunds of allocated capital credits. OEC also mails allocation and retirement checks out to former members who have moved away from our service area or left us altogether; therefore, your mailing address must always be current so the Cooperative can send these checks directly.
When do I get a capital credit?
Each time members pay their electric bill, they contribute a “capital” investment into KEC’s system – as a not-for-profit electric cooperative, those funds go toward making improvements that keep rates affordable for everyone. Capital credit refunds offer members a return on this system investment. They are assessed annually by the co-op’s Board of Trustees to decide how much to return – considering factors like rate impact and the cooperative’s financial strength. It should be remembered that margins used to purchase power for all members represent long-term assets that must not be returned simultaneously as this would significantly compromise its bottom line.
When the retirement amount is determined, half is applied against any unretired capital credits on the co-op’s books with the oldest age first, with the remaining half distributed pro rata to each member based on their percentage ownership of total outstanding margins. Our member-elected board reserves the right to retire less than all available margins annually if it serves the best interest of the co-op.
Once we’ve determined the dollar amount of each member’s refund, a check is mailed out, or bill credit is applied directly. Some members prefer having their refund applied directly to their invoice instead of receiving a statement; they can complete this form to indicate their preference.
Keep your current mailing address with the co-op up-to-date, even if you move or stop using our services; failing to do so could delay or forfeit future capital credit refunds.
