What are Capital Credits? Big Country Electric Cooperative is a cooperative organization and is, therefore, a non-profit business. As a member-owner, you and all BCEC member-owners have capital credits allocated to you most years. Capital credits are refunded at such time as the Board of Directors and General Manager believe sufficient reserves are on hand. To date, over $10 million in capital credits has been returned to members or their heirs. Net margins earned by BCEC are credited to each member’s capital credit account most years. Capital credits are assigned in proportion to each member’s patronage or total electrical revenue during the year.
Capital credits are one of several advantages enjoyed by BCEC members. The members own the system – they elect fellow members to the Board of Directors who make the policies that control the operation of the cooperative. BCEC is in business to furnish service or products to the membership and not to make money for a few distant investors. It is owned and controlled by the members; this is why we say Big Country Electric Cooperative is “Owned by those we serve.”
What do cooperatives do with capital credits? 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 electric cooperatives. Equity is used to help meet the expense of the co-op, such as paying for equipment and repaying debt. Capital credits help keep rates competitive by reducing the amount of funds that must be borrowed.
How does the cooperative determine who receives capital credits, how are they disbursed, and by what method? Capital credits are allocated to each member based on the amount of electricity they use for the year. The board of directors determines whether the co-op’s financial position permits the return, or retirement, of capital credits and, if so, what amount of capital credits will be retired. The method of return is also determined by the board of directors using generally accepted methods of return, based on the best interests of the Cooperative.
What happens if I move out of BCEC service area? A member who terminates service no longer receives additional capital credit allocations. The balance in the member’s capital credit account is retired as the account becomes eligible until the account is retired in full. A former member should keep the co-op advised of their correct mailing address so that they are sure to receive future capital credit refunds. If capital credit checks are returned and no forwarding address information is available to the cooperative within three years of the capital credit retirement date, the funds are required to be submitted to the state comptroller's office. Once funds are submitted to the comptroller's office, they become unclaimed funds and can be claimed by the rightful owner from www.claimittexas.org.
Do I have unclaimed capital credit money? Click here to visit www.claimittexas.org to find out.
What happens to a member’s capital credits if the member dies? Capital credits in a member’s account belong to the member’s estate. In order to assist the member’s heirs in closing the estate, a retirement of the remaining balance can be made at a 40% discount. Certain requirements must be met before the estate can be retired and the retirement must be approved by the board of directors of the cooperative.
Why are estate capital credit retirements discounted? In the interest of fairness to all members, the retirements are discounted to reflect the net present value of making a capital credit retirement now that would otherwise be made at a later date. The smaller amount received today, if invested until the normal retirement date, would be equal to the normal retirement amount.
Why doesn’t the co-op charge lower rates instead of retaining capital credits? The board of directors has a fiscal responsibility to maintain the financial integrity of the cooperative in a way that provides competitive rates and allows the return of capital credits to members. Having a sound equity management plan and a commitment to serving the members are key to achieving this.
Does the member have to report capital credits on tax returns? Capital credits are a return of money paid for electricity in a previous year and are generally not taxable income for residential consumers. Commercial and industrial consumers should discuss any capital credit retirements with their tax advisers.