Capital Credits FAQs
|Former CBS This Morning Co-host Jane Robelot explains Capital Credits in this video|
What are capital credits?
Capital credits represent each member’s ownership of the cooperative. They are the margins credited (or allocated) to the members of the cooperative based on their purchases from the cooperative the previous year.
These margins are used by the cooperative as capital to operate the business for a period of time.
You may also see capital credits referred to as “patronage capital” or “equity capital”.
What capital credits are not:
Capital credits should not be confused with profits, which are a return on capital. Retirement of capital credits is a return of member-furnished capital. Cooperatives exist not to make a profit but to provide at-cost service.
What’s the difference between an allocation and a retirement?
Allocations are made annually for each member, based upon 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 for reliability improvements and maintenance over a period of years. Your allocation amount will be printed on your electric service bill, usually in April.
A retirement is the amount you receive back as a capital credit refund. It is a percentage of your total capital credit balance. The percentage to retire is decided upon annually, based upon the financial needs of the cooperative.
Can I use my capital credit allocation to pay on my bill?
No. Allocations are used as the operating capital of the cooperative. They are not available until a percentage is retired and refunded back to you as the Cooperative’s financial condition warrants and the Board approves.
Why can’t my capital credit allocations be refunded to me all at once?
Remember that capital credit funds are used for expensive reliability improvements and maintenance—and these are long term investments. Capital credits cannot be refunded all at once because they help the cooperative remain financially sound, thereby ensuring a stable, reliable electric provider for the benefit of the members we serve.
How are my capital credit allocations used until I receive them?
Capital credit allocations are pooled together and used as operating capital so that we can serve our members with reliable power. These funds pay for expensive power reliability improvements and maintenance such as replacing power lines or building substations.
If we refunded the total amount of allocations, we would have to borrow that amount of money in order to continue operating. Having operating capital helps the cooperative minimize the amount of high-interest money it must borrow, which in turn helps lower member’s costs by stabilizing rates.
When do you refund (or retire) capital credits?
When the cooperative is in sound financial condition and when there are excess funds left over at the end of a year, the Board of Directors has the authority to approve a certain percentage of the capital credit funds to be retired (or refunded) to the membership.
How will I receive my capital credit refund?
Current members receive a credit on the December bill. For former members, a check will be mailed to during the month of December.
Why do you use a capital credits system?
Cooperatives operate on a set of seven ethical principles that include a self-supporting system of operations. This system calls for a portion of any funds left over at the end of the year after all expenses are covered to be returned to those who used and paid for their services: the member-owners.
Capital credit allocations help a cooperative qualify for cooperative status under federal income tax law, which reduces cost to the member-owners.
Further, the capital credits system of allocations and refunds helps keep member’s rates lower by reducing theamount of debt we have to borrow.
What happens to my capital credits if I move?
Always keep the cooperative informed of address and telephone changes. Your capital credits remain on our books in your name until they are retired. Because capital credit retirements are made a number of years after the credits are earned and allocated to your account, you should always keep the cooperative informed of your current mailing address.
Capital credits cannot be refunded when you move because they are used for long term investments and operating the cooperative to provide reliable service to its members.
What are the steps to receiving a capital credit refund?
Step 1: The capital credits process begins with being a member. As you purchase electricity from the cooperative, you build ownership in Broad River Electric.
Step 2: Each year, we designate a portion of what you pay in purchases to your capital credits account. This is called an allocation and we determine the amount of the allocation by using a multiplying factor that is common to all members. This ensures each member’s allocation is a fair and equitable percentage. The statement of allocation is mailed each year, usually in April or May.
Step 3: Finally, each year capital credits are retired when authorized by the Board of Directors as the financial condition of the cooperative allows. Capital credits are your investment in the cooperative and our goal is to return them to you on a reasonable, systematic basis.
There is another step to take in order to receive capital credits if a member passes away:
If a member passes away, the administrator of their estate must notify the cooperative in order to claim the remaining capital credit balance. A death certificate as well as any other necessary completed paperwork will be required.