Capital Credits

Source: National Rural Utilities Cooperative Finance Corporation

What are capital credits?

Because a cooperative is incorporated as a not-for-profit business owned by its members, it does not technically earn profits. Instead, any revenues over and above the cost of doing business are considered “margins.” These margins represent capital furnished by the members to the cooperative for use as operating capital. This capital allows your cooperative to finance operations and construction, with the intent that this capital will be retired or returned to you in later years.

What’s the difference between allocated and retired capital credits?

Allocated capital credits appear as an entry on the permanent financial records of the cooperative and reflect your equity or ownership in the cooperative. When capital credits are retired, a check or credit is issued to you. These payments generally are made to members after a specified time period. Each cooperative maintains its own policy on when capital credits are retired.

How are capital credits calculated?

All members who purchase electricity during a year in which the cooperative posts margins earn capital credits based on how much electricity they purchase in that year. The more electric service you buy, the greater your capital credits account — although the percentage will remain the same. The sum of your payments for a year is multiplied by a percentage to determine the allocation of your capital credits.

What percent of my payment is returned as capital credits?

The percentage of your total payment that is allocated as capital credits varies from year to year, depending upon the margins of the cooperative. Capital credits are allocated only for a year in which your cooperative earns margins. Since capital credits are a member’s share of the margins, no credits are allocated for a year when there are no margins.

Do I have to be a member for an entire year to earn capital credits?

No. Capital credits are calculated based upon a member’s electricity usage. If you used power from your cooperative for even one month, you will accumulate some capital credits, if your cooperative earns margins in that year.

Can I use the capital credits allocated to me to pay for my electricity now?

No. Allocated capital credits may not be used to pay for electricity you use now. Your electric bill or payment is due now, whereas you may not be entitled to receive your capital credits for many years.

What happens to the capital credits of a member who dies?

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 verifying documentation required by your cooperative. Ask your cooperative how to submit a claim for a deceased member.

Will I receive a capital credits check or credit every year?

Not necessarily. The cooperative’s board of directors must authorize a retirement before you receive a check or credit. When considering a retirement, the board analyzes the financial health of the cooperative and will not authorize a retirement if it is not financially advisable.

What happens to my capital credits when I leave the cooperative?

Your capital credits remain on the books in your name and account until they are retired. Because payments generally are made years after you earn them, you should ensure that your cooperative has your current mailing address after you leave. If members who leave the cooperative do not later claim their capital credits, your cooperative makes a good faith effort to notify members or their estates that their capital credits are available.