Because Coastal Electric Cooperative is a cooperative, owned by its members, it does not earn profits. Instead, any revenues over and above the cost of doing business are considered “margins.” These margins represent an interest-free loan of operating capital by the membership to the cooperative. This capital allows Coastal Electric Cooperative to finance operations and – to a certain extent – construction, with the intent that this capital will be repaid to you in later years.
Video: How Capital Credits Work
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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.
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 electricity “at cost.”
Capital credit funds are used for 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 service for the benefit of the members we serve.
The amount of capital credits you earn in a given year is based on the amount of capital you contribute to the cooperative through payment of your monthly bills. The more electric service you buy, the greater your capital credits account – although the percentage will remain the same. The sum of your monthly bills for a year is multiplied by a percentage to determine your capital credits.
Allocated capital credits appear as an entry on the permanent financial records of the cooperative and reflect your equity or ownership in Coastal Electric Cooperative. When capital credits are retired, a check is issued to you and your equity in the cooperative is reduced.
Capital credits are calculated by Coastal Electric Cooperative for everyone who purchased electricity during a year in which the utility earned margins. No special action is required to start a capital credits account. Your membership with Coastal Electric Cooperative activates your capital credits account.
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 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 members’ costs by stabilizing rates.
Whenever Coastal Electric Cooperative’s finances permit, we return capital credits to our members. The decision is made by our board of directors after a thorough examination of the co-op’s financial position.
No. Allocated capital credits may not be used to pay current bills. Your electric bill is due now, whereas you may not be entitled to be paid your capital credits for many years.
Your capital credits remain on the books in your name and member number until they are retired. So, you should ensure that Coastal Electric Cooperative always has your current mailing address.
The capital credits of a deceased member may be paid without waiting for a general retirement. However, these estate payments are not automatic. A representative of the estate must request the credits by submitting a Certification of Entitlement form and a copy of the death certificate. These will be considered by the Coastal Electric Cooperative Board of Directors. If retirement is approved by the board, a check will be issued to the estate and the account closed.
You do not normally have to report your capital credits payment on your income tax. However, if you have questions concerning tax liability, contact the IRS or your tax preparer.
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