Your Business - Capital Credits
Patronage capital or capital credits are an ownership of the cooperative and are a fundamental part of being a member of a non-profit utility. They measure the capital value of your ownership in the electric cooperative’s poles, wires, transformers and other equipment that makes it possible for you to get electricity. Because people move onto the lines and others move off, the cooperative “rotates” these capital credits approximately every 20 years. The cooperative also pays back (retires) a portion of the previous year’s capital credits allowing newer members to develop an understanding of cooperatives.
Capital credits are allocated based upon two factors each year. The most important factor is to make sure there is money to allocate. Electric cooperative rates are set so that there is enough money to cover all the costs associated with operating the cooperative and still have some money left over. Occasionally, the cooperative experiences major storm damage and the costs associated with repairs are unexpected excessive costs that the cooperative might have to pay in a year. Therefore, the cooperative will almost always have extra funds at the end of the year. We call these funds margins.
The second factor for allocating capital credits is how much electricity you use. Capital credits are allocated based on how much you contributed to the excess margins. When the accounting group determines how much money is to be allocated, they apply the credits to each member accordingly and then you get a statement of capital credits showing the dollar value of your cooperative ownership.
Capital credits are somewhat related to dividends of investor owned utilities such as Toledo Edison or American Electric Power. Every three months the board of the utilities looks at how much money they have made to determine if they can pay stock dividends to the shareholders. The fundamental difference is that stock dividends are an instant return and the stock can be sold.
When members move off the lines, we mail the members’ capital credit check annually. This is why it is important for the cooperative to have current addresses.
With your electric cooperative, you have ownership and can be comfortable knowing that no one is making a profit at your expense.