WHAT ARE CAPITAL CREDITS?
An electric cooperative operates on an at-cost basis by annually “allocating” to each member, based upon the member’s purchase of electricity, operating revenue remaining at the end of the year; later, as financial condition permits and approved by the Board of Directors, these allocated amounts—capital credits—are retired. Capital credits represent the most significant source of equity for Canoochee EMC. Capital Credits provide equity for investment in long-term assets, and reduces the amount of financing needed. Since a cooperative’s members are also the people the co-op serves, capital credits reflect each member’s ownership in, and contribution of capital to, the cooperative. This differs from dividends investor-owned utilities pay shareholders, who may or may not be customers of the utility.
WHERE DOES THE MONEY COME FROM?
Member-owned, not-for-profit electric co-ops, as defined by the IRS as a 501 (c)(12) corporation, set rates to generate enough money to pay operating costs, make payments on any loans, and provide an emergency reserve. At the end of each year, we subtract operating expenses from the operating revenue collected during the year. The balance is called an operating “margin.”
NOT-FOR-PROFIT COOPERATIVE (CO-OP) – A 501 (c)(12) cooperative must receive 85% of its income from members. Pole attachments, cable TV, and phone cables are not member income. An electric cooperative may/may not qualify for the tax treatment in any given year, dependent upon member income evaluation.
HOW ARE MARGINS ALLOCATED?
Margins are allocated to members as capital credits based on their purchases from the cooperative—how much power the member used. Member purchases may also be called patronage.
DOES GEORGIA POWER RETIRE CAPITAL CREDITS?
No. Within the electric industry, capital credits only exist at not-for-profit electric cooperatives owned by their members.
ARE CAPITAL CREDITS RETIRED EVERY YEAR?
Each year, the Canoochee Board of Directors makes a decision on whether to retire capital credits based on the financial health of the cooperative. During some years, the co-op may experience high growth in the number of new accounts, or severe storms may result in the need to spend additional funds to repair lines. These and other events might increase costs and decrease member equity, causing the board not to retire capital credits. For this reason, Canoochee’s ability to retire capital credits reflects the cooperative’s strength and financial stability. The board alone decides whether to retire capital credits. RUS also provides minimum equity levels for Boards to declare retirements.
DO I LOSE MY CAPITAL CREDITS IN THE YEARS THE CO-OP DECIDES NOT TO MAKE RETIREMENTS?
No. All capital credits allocated for every year members have been served by Canoochee are maintained until such time as the board retires them. Prior to this year, Canoochee retired all capital credits through 1981.
HOW MUCH WILL BE RETIRED IN TOTAL IN A GIVEN YEAR?
This varies from year to year.
HOW MUCH HAS CANOOCHEE PAID IN TOTAL CAPITAL CREDITS RETIREMENTS SINCE IT BEGAN IN 1938?
Canoochee has paid over $10 million in capital credits retirements to current and former members to date.
HOW OFTEN DO MEMBERS RECEIVE CAPITAL CREDIT RETIREMENTS?
The Canoochee Board of Directors makes a decision each year whether or not to retire capital credits. When the cooperative is strong enough financially and member equity levels high enough, the board directs staff to retire some portion of past years’ capital credits. We also retire capital credits to deceased members, and pay their capital credits to their estate, or family members.