Capital Credits Q & A
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, these allocated amounts – CAPITAL CREDITS – are retired. Capital credits represent the most significant source of equity for P.K.M. Electric Cooperative. 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 cooperatives 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.”
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.
Are capital credits retired every year?
Each year, the P.K.M. Electric Cooperative 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, P.K.M. Electric’s ability to retire capital credits reflects the cooperative’s strength and financial stability. The board alone decides whether to retire capital credits.
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 P.K.M. Electric Cooperative are maintained until such time as the board retires them. Prior to this year, P.K.M. Electric retired all capital credits through 1993.
How often do members receive capital credit retirements?
The P.K.M. Electric Cooperative 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 are high enough, the board directs staff to retire some portion of past years’ capital credits.
How will retirement work?
Inactive or former members who no longer purchase electricity from P.K.M. Electric Cooperative (but who purchased electricity during the years being retired) will receive a check. Active members will receive the retirement in the form of a credit on their monthly bill.
What if I have moved?
If you move or no longer have electric service with P.K.M. Electric, it is important that you inform the cooperative of your current address, so that future retirements can be properly mailed to you. If you purchased electricity during the years being retired, then you are entitled to a capital credit retirements, even if you move out of the P.K.M. Electric service area.