The Energy Cooperative last paid capital credits in 1999, although we allocate them to our members every year. Paying capital credits stopped when our equity position fell below 20%. As a requirement of our mortgage, we needed to wait until we were in a better financial position to return capital to our members.
Your board of directors approved the final piece of the retirement at its June board meeting. If you are new to our cooperative, you might be wondering what capital credits are and why we pay them.
What are capital credits?
Sharing excess revenue with members is a core cooperative principle. Margins that are not reinvested back into the system are allocated to members based on the energy they purchased during the year. Federal tax law provides cooperatives with certain preferences and exemptions, such as federal tax-exempt status. This exemption requires we run our cooperative “at cost” not charging more than what it costs us to bring our members safe and reliable energy. Every cooperative board decides how and when to retire (pay) capital credits to its members.
Capital Credit Decisions
The board of directors chose a hybrid method of retiring capital credits based on total allocated margins in electric members equity as of December 31st of the payment year. Each year’s retirement amount will be towards the 40th and 20th years prior to the payment year, with 50% of the amount paid toward each year.
The following factors were considered by the board of directors:
- Amount to be retired: Cooperatives must balance the risk of harming their financial position by paying capital credits with its desire to return them to the electric members
- Age of capital credits: Cooperatives must balance the desire to retire old capital credits with a desire to include newer members
- Timing: Key points include when capital credits are retired, the amount being retired and how the cooperative communicates this to members.
The projected retirement for this year is $671,840. The retirement will be 50% towards the year 1981 and 50% toward 2001 so that we can retire to two different ages of capital credits. In addition, the board of directors approved a supplemental retirement of 50% of remaining 1980 allocated capital credits.
As in the past, the board of directors determines annually if retiring capital credits is possible (considering the financial position of the cooperative before approving that year’s retirement).
Retiring capital credits is an extremely exciting event for the board of directors and employees of Energy Cooperative. For those of us who have been around to see the growth and improved financial strength of Energy Cooperative this is another big step towards fully embracing the seven cooperative principles we try to live by each day with fulfilling principle #3: Members’ Economic Participation.
Frequently Asked Questions
The Cooperative pays the bills for things like power generation, maintenance and operations. The money left over after those bills are paid each year is called a margin. Margins provide equity for the Cooperative and are assigned to you – the members – through capital credits.
Capital credits are distributed in two ways. Current members’ capital credits are applied toward their bill. Former members, who no longer have a bill where credits can be applied, will receive a check in the mail.
Only those people who were electric members during 1980, 1981 and/or 2001 will receive a check or bill credit this fall.
A total of $671,840 is projected for the 2022 retirement.
The retirement will be 50% towards the year 1981 and 50% toward 2001 so that we can retire to two different ages of capital credits. In addition, the board of directors approved a supplemental retirement of 50% of remaining 1980 allocated capital credits.
Capital credits represent the assigned share of the Cooperative’s margins based on the proportionate amount of kilowatt hours each member used for that year.