Capital Credits Make Co-op’s Distinctive
Co-ops are different from businesses. What makes them diﬀerent is the way the members participate in the business, and one of the most notable forms of this participation comes about in the way members contribute to the economic success of the business. Members of the cooperative do this every time they pay a bill for electric service. With every bill that is paid, co-op members help provide the funding to build and maintain the electric distribution system that delivers electricity to them.
Because Central Texas Electric Cooperative is a nonproﬁt organization, bill payments that are not used to pay for whole-sale power and other operating expenses are invested in the distribution system. The revenues over and above the cost of doing business are considered “margins.” These margins are an interest-free loan of operating capital by the membership to the co-op. This capital allows CTEC to ﬁnance operations and construction, with the intent that such capital will be repaid to members in later years.
Margins for Members
Each member’s share of capital is referred to as “patronage capital” or “capital credits.” Capital credits reﬂect each member’s portion of the margins earned by the co-op. CTEC allocates margins to all members each year that a positive margin is earned. This means that an entry is made on the permanent ﬁnancial records of the co-op reﬂecting each member’s equity or ownership in Central Texas Electric Cooperative. CTEC allocated 2021 margins in the amount of $15,307,118.50. Eventually, the capital credits that have been allocated will be returned to the members in the form of credits on their electric bills or capital credits checks. Because the margins earned by the co-op are relatively small, it takes up to 30 years before all the capital credits allocated in a given year are returned or retired. CTEC’s bylaws establish a process for returning capital credits that emphasizes payout of the oldest unretired capital credits. The process also returns a larger share of capital to members who have paid larger bills and contributed more capital over the years. Last year, more than $2.5 million in capital credits were returned to CTEC members.
The capital credit retirement process involves several steps. First, the CTEC Board of Directors determines the amount of capital to be retired each year. The board will retire capital credits only when doing so will not impair the ﬁnancial condition of the co-op.
After the retirement amount has been determined, one-half of the authorized retirement amount is applied against the oldest unretired capital credits on the co-op’s books. The remaining half of the retirement amount is then determined on a pro rata basis, based upon each member’s percentage share of the total outstanding capital credit balances of all members. In other words, if a member owns 1 percent of the unretired capital credits on the books of the co-op, he would receive 1 percent of the capital credits retired in this fashion. After the dollar amount of each member’s refund is determined, it is applied to reduce his oldest unretired capital credits on record.
Members with active accounts can keep track of their capital credits by simply reviewing their June electric bills. The amount of capital credits allocated to each account is listed on the bill each year, following the allocation by the board of directors. When capital credits are retired, active members each receive a bill credit in the amount of the retirement amount, which is reﬂected on their billing statements.
Patrons who no longer have active accounts receive allocation notices and retirement checks by mail. Unfortunately, many former members miss out on these communications because they have not provided the co-op with a current address. Every year, thousands of dollars in capital credit retirements are unclaimed. Eventually, these unclaimed funds are transferred to the State of Texas. The forfeiture of these accounts could be avoided simply by keeping the co-op informed of address changes.
Keep Info Current
Capital credits also require attention when a member or patron passes away. The representative of the deceased person should provide the co-op with a death certificate and letters of testamentary or other evidence of the representative’s authority to handle the deceased person’s affairs. Questions about handling these accounts can be directed to CTEC’s Capital Credit Department in the Fredericksburg office. A utility like CTEC requires serious investment to sustain its operations, especially when the system is growing the way it is. Members’ capital is one of the ingredients that helps ensure that our corner of the Hill Country will continue to enjoy affordable, reliable electric energy.
Find out more about capital credits here.