Capital Credit Questions and Answers
What are capital credits?
A cooperative does not earn profits in the sense that other businesses do. Instead, any margins, or revenues remaining after all expenses have been paid, are allocated to the members and used by the cooperative for capital needs until retirement. Capital credits represent each member’s share of the cooperative’s margins and ownership of the co-op.
How are capital credits allocated?
Capital credits are allocated to each member of the cooperative every year based on participation in the cooperative. The board of directors determines the basis for the allocation. The allocations for each member are based on their share of the total electric revenue.
How are capital credits retired?
The board of directors determines the retirement policy in accordance with bylaws set forth by the members, and loan requirements. The cooperative has established a cycle of 25 years for the retirement of capital credits.
What happens to a member's capital credits if the member dies?
Except as otherwise ordered by a court or instructed by a deceased individual member’s legal representative, the cooperative will assign or transfer the member’s capital credits to a close relative using the cooperative service at the location previously occupied by the member or to the member’s next of kin.
What happens to a member's capital credits if the member moves away from the system?
A member who terminates service no longer receives additional capital credits allocations. The balance in the member’s capital credits account is maintained until it is retired in full. It is the member’s responsibility to notify the co-op of any changes in address so that the member can be located when it is time for the co-op to retire capital credits allocated to the member’s account.
Does the member have to report capital credits on tax returns?
Capital credits are a return of money paid for electricity in a previous year and are generally not taxable income for residential consumers. Commercial and industrial consumers should discuss any capital credits retirements with their tax advisers.