Capital credits represent each member’s ownership of the cooperative. They are the margins credited (or allocated) to the members of the cooperative based on their purchases from the cooperative during the previous year. These margins are used by the cooperative as capital to operate the business for a period of time.
Capital credits should not be confused with profits, which are a return on capital. Retirement of capital credits is a return of member-furnished capital. Cooperatives exist not to make a profit but to provide low-cost services.
Allocations are made annually for each member, based upon the amount of services purchased the previous year. An allocation is the amount set aside into a separate account to be used as operating capital for reliability improvements and maintenance over a period of years. Your allocation notice will be mailed to you.
A retirement is the amount you receive back as a capital credit refund. It is a percentage of your total capital credit balance. The percentage to retire is decided by the board of directors annually, based upon the financial condition of the cooperative.
No. Allocations are used as the operating capital of the cooperative. They are not available until a percentage is retired and refunded back to you as the Cooperative’s financial condition warrants and the board of directors approves.
Remember that capital credit funds are used for reliability improvements and maintenance— and these are long term investments. Capital credits cannot be refunded all at once because they help the cooperative remain financially sound, thereby ensuring a stable, reliable service for the benefit of the members we serve.
Capital credit allocations are pooled together and used as operating capital so that we can serve our members with reliable service. These funds pay for service reliability improvements and maintenance.
If we refunded the total amount of allocations, we would have to borrow that amount of money in order to continue operating. Having operating capital helps the cooperative minimize the amount of high-interest money it must borrow, which in turn helps lower member’s costs by stabilizing rates.