Frequently Asked Questions About Capital Credits
Below is an explanation of capital credits, one of the many benefits of being a member of a locally owned cooperative.
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 returned as capital credits to the members in proportion to their usage during each year. Capital credits represent each member's share of Columbia Basin Electric Cooperative margins.
What do cooperatives do with the capital credits?
Every business needs to maintain a suitable debt-to-equity balance to ensure its financial health and stability. Capital credits are the most significant source of equity for most electric cooperatives. Equity is used to help meet co-op expenses, such as paying for new equipment to serve members and repaying debt. Capital credits help keep rates at a competitive level by reducing the amount of funds that must be borrowed.
How does the co-op determine who receives capital credits?
Capital credits are allocated to each member of the cooperative every year based on patronage in the cooperative. The board of directors determines the basis for the allocation.
How are capital credits disbursed?
Each year, the board of directors determines whether the cooperatives financial position permits the return-or retirement-of capital credits. A certain percentage of the margins are paid out each year.
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 allocation. The balance in the member's capital credit account is maintained until it is retired.
Why does the co-op not charge lower rates instead of retaining capital credits?
The board of directors has a fiscal responsibility to maintain the financial integrity of the cooperative in a way that provides and allows the return of capital credits to members. Having a sound equity management plan and a commitment to service is key to achieving this goal.
Board members are cautious about retiring capital credits, but are mindful of the obligations of the future. They must balance the equity of today's members against the equity of yesterday's and tomorrow's members.
Capital credits management requires reliable information, a commitment to the financial health of the cooperative and a commitment of the cooperative community. Revolving through the year, capital credits allow members to participate in the financial health of their cooperative, while they enjoy the benefits of its service.