Capital Credits

What Are Capital Credits?
Because Cherryland Electric Cooperative (CEC) is a cooperative, owned by its members, we technically do not earn profits. Instead, if revenues exceed the expense of doing business, the cooperative has earned “margins” or “capital credits” or "patronage capital" (similar to what other businesses call profit). Each year, margins earned are allocated (also called "assigned") to individual CEC members in proportion to the amount of kilowatt hours consumed during that year.  A notice of assignment will appear on your monthly electric bill.  If you are no longer a member, you will receive a letter notice of any assigned capital credits. 

Why Does Cherryland Not Pay Capital Credits When They Are Earned?
Prior to a refund like this one, the actual money is used to build and maintain the facilities needed to serve the cooperative’s members and to service our long-term debt. This money is considered to be capital furnished by the members-capital that will be returned to the members at a later date. Thus, we have the term “capital credits”.

When Are Capital Credits Returned To Members?
Capital credits are refunded (also called "retired") at the discretion of the board of directors whenever the board of directors determines that the financial condition of the cooperative will not be impaired.  Once a decision is made to refund capital credits, the Board of Directors will determine the total dollar value of the refund.  How the refund is distributed is determined by board policy which states, "The co-op will refund 25% of the previous year's margin, and the balance (up to a total of 5% of Total Members' Equity) will be refunded to the oldest accounts.  However, in no case would CEC refund less than $100,000 of the oldest accounts".  

What Is The Difference Between Allocated (Assigned) And Refunded (Retired) Capital Credits?
Allocated capital credits are the amounts assigned to each member who was billed for service during a year positive margins were earned. While the credits are assigned to members, they are retained by CEC for a period of time (20-25 years) and are used as capital to reduce borrowing from banks.
 

Assigned capital credits can NOT be used to pay current bills. Your notice of assignment is simply that, a notice that we have done the accounting necessary to divide the past year’s margins to each individual member. A credit to your electric account is not possible until a refund, also known as a capital credit retirement, is authorized by the board of directors.

Allocation of capital credits is done annually and recorded for each member while an actual capital credit retirement is done at the discretion of the board of directors.

What Happens To My Capital Credits If I Leave CEC’s Service Area?
Your capital credits will stay with CEC and be refunded to you in future general retirements. Therefore, it is in your best interest to keep the cooperative informed of any change in address.

What Happens To The Capital Credits Of A Member Who Is Deceased?
The capital credits of a deceased member may be paid without waiting for a general retirement. However, these estate payments are not automatic. A representative of the estate must provide a copy of the death certificate. Once received, a check will then be issued to the estate. This amount will be discounted to the present day value of money to reflect the early retirement.

What If I have More Than One Account Receiving a Refund?
Members with more than one account will have their individual refunds added together and credited on one of their bills.

The following attchment is a sample bill insert sent in conjunction with a capital credit allocation: