Did you know electric cooperatives return money to their members in the form of capital credits? While you may like receiving those capital credit checks from your local cooperative, you may not be sure exactly why you receive them. It’s simple, really.
Capital credits reflect each member’s ownership in the cooperative. Electric cooperatives do not earn profits. Instead, any margins or remaining revenue after all expenses have been paid are returned to the cooperative’s members in proportion to their electrical usage.
How are capital credits returned to you, the member?
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Step 1: Allocation |
Step 2: Retirement |
Step 3: Payment |
| Your electric cooperative tracks how much electricity you purchase throughout a year. An allocation determines your share of the cooperative’s margin in a particular year. Each member’s portion is referred to as a “capital credit allocation.” | Once capital credits are allocated, they are retained by the co-op for a certain time. Capital credits are the most significant source of equity for the cooperative. Equity is used to help meet the expenses of the co-op, such as paying for new equipment to serve members and repaying debt. Capital credits help keep rates at an affordable level by reducing the amount of funds that must be borrowed to grow and maintain a cooperative’s existing electric system. | Upon completion of the rotation period, the board of directors will review the cooperative’s financial health and can declare a retirement (your cash payment), then a portion of your capital credits are returned to you. |
IT’S A CO-OP PRINCIPLE!
The allocation of capital credits is exemplified in one of the seven principles that guide all cooperatives. The principle states:
Members’ economic participation – Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing the cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.