When you signed up to receive electric service from Covington Electric Cooperative, you became a member of our cooperative. While investor-owned utilities return a portion of any profits back to their shareholders, electric co-ops operate on an at-cost basis. So instead of returning leftover funds, known as margins, to folks who might not live in the same region or even the same state as you do, CEC allocates and periodically retires capital credits (also called patronage dividends, patronage refunds, patronage capital, or equity capital) based on how much electricity you purchased during a year.
Capital credits due are first applied to any account in arrears and, if payable to deceased eligible members, can be settled on a present-value basis to the legally appointed representative of those estates. Proper documentation is required to obtain these funds.
Understanding capital credits can be confusing, so we’ve included these questions and answers to provide some clarification for our members. If you have questions about capital credits, please feel free to contact CEC for more information.
What Are Capital Credits?
Capital credits are margins or profits credited to cooperative members based on their purchases from the cooperative. These credits are used by the cooperative as working capital for a period of time and then paid back to the membership as conditions permit. 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 set rates to generate enough money to pay operating costs, make payments on 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 electricity the member used). Member purchases may also be called patronage.
Are Capital Credits Retired Every Year?
Each year, the CEC board of trustees makes a decision on whether to retire capital credits based on the financial condition of the cooperative as permitted under Alabama law, the CEC bylaws and requirements of our lenders RUS, CFC and CoBank. 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 or rebuild power lines. These and other events might increase costs causing the board not to retire capital credits. For this reason, CEC’s ability to retire capital credits reflects the cooperative’s strength and financial stability.
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 CEC are maintained until such time as the board retires them.
How Will the Retirement Work?
Inactive or former members who no longer purchase electricity from CEC (but who purchased electricity during the years being retired) will receive a check. Due to the expense involved in processing printed checks, the minimum retirement check that will be written to current members is $15.00 or more. Active members who are getting less than $15.00 will see the retirement as a separate line item credit on their electric bill.
What If I Have Moved?
If you move or no longer have electric service with CEC, it is important that you inform the cooperative of your current address, so that future retirements can be properly mailed to you.
What Is the Method of Calculating Capital Credits/retirement?
The retirement is based on a percentage of the member’s total accumulated capital credit balance. The amount retired this year is subtracted from the total amount that was allocated in previous years. The retirement will be made from the capital credits of record that have been assigned to your account. Before distributing the capital credits, your board of trustees at CEC must first consider the financial condition of the cooperative and the needs for capital funds for the coming years. The percentage figure used to calculate the annual retirement of capital credits determined by the board is set at a level that maintains the financial integrity of the cooperative.