What are capital credits?
A cooperative does not earn profits in the same sense that other businesses do. At the end of each year and after all operating expenses have been paid, any remaining margins are allocated to each member based on the amount of services used that year. Capital Credits represent each members’ share in the ownership of the Cooperative.
Capital Credits are one of the many benefits of being a cooperative member. When you have Valley as your service provider you are part owner of the Cooperative. That means every time you pay your bill with Valley, you are investing in the equity of the Cooperative. Those equity investments are called Capital Credits. “Capital,” being equipment investments-such as lines, substations, upgrading systems, etc., and “credits” being possible future payments to our members.
To enhance the lives of those we serve!
When the amount collected exceeds the amount required to provide services-that difference is called a “margin.” That margin is not extra cash that sits in our bank account-it is invested back into our system.
A capital credit allocation is the process that is performed to take any positive or negative margins for a calendar year and spread them proportionally to the members during the year the margins occurred. The amount of funds allocated to each member’s account is based on the amount of services the member paid for during the year. Those funds are kept on the Cooperative’s books, until retired (refunded). Capital Credit retirement is the actual process of returning the capital credits back to the members. This process is performed when the Board of Directors determines that the Association is in an appropriate financial position.
Allocations are determined annually by the Board of Directors.
No. Capital credits are calculated based upon a member’s monthly bills. If you are billed for service for even one month, you will accumulate some capital credits, if VEA earned margins in that year.
No. Allocations only impact your capital credit balance. They are not cash retirements. Capital Credit retirements are cash and can be used towards bills. Any retirement payments in the amount of $25 or less are credited on your billing account.
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 request the credits with the necessary forms and have a copy of the death certificate. These will be considered by the VEA Board of Directors. If a retirement is approved by the Board, the capital credits will be discounted to reflect the net present value of making a capital credit retirement now rather than at a later date. A check is issued to the estate and the account closed. Please contact Valley Electric Association to begin this process.
Not necessarily. The Board of Directors must first authorize a retirement. When considering retirement, the Board analyzes the financial health of the organization and will release Capital Credits when they have determined it is in the best interest of the Cooperative
Your capital credits remain on the books in your name and member number until they are retired. Because payments are not determined until the Board of Directors make a retirement authorization, which may be several years after credits are earned, you should ensure that VEA always has your current mailing address.
Every business needs to maintain a suitable balance between debt and equity to ensure its financial health and stability. Capital Credits are the most significant source of equity for most cooperatives. That equity is used to fund the required capital investments of the Cooperative.