What are capital credits?
One of the benefits of belonging to an electric cooperative is the members are the owners of the business. As such, members have the opportunity to share in the financial gains of the company. Electric Cooperatives do not record “profits,” as typically seen in the private business sector. Rather, when annual revenues exceed the expenses, the cooperative has earned “margins.” These margins are allocated to HEA’s members proportionate to the amount of energy used during that same period. These assignments are called “capital credits” which represent each member’s share in the ownership of the cooperative.
Are capital credits earned each year that I am a member?
No. During years where expenses exceed revenues or there is a loss, there are no margins to allocate. Margins are allocated to only active members for the years margins are earned.
If I am no longer a member of Homer Electric am I earning capital credits?
Only active members will be allocated margins. However, HEA maintains a permanent record of all previous and current capital credits earned by each member until the capital credit account is zero.
How do I know what my margin-allocations or capital credit amount is from the cooperative?
Allocated capital credits for active members will be printed on your May or June monthly energy bill typically by a special message.
Why do I have to wait so long for the capital credits to be refunded?
Annual margins are reinvested back into the cooperative to ensure HEA plants and facilities keep up with the growing demands of the membership. So, the refund or “retirement” of capital credits is not automatic. The HEA Board of Directors must authorize retirement, but will do so after carefully considering the financial impact on the cooperative. If an HEA member has died there are provisions to retire capital credits early.
How much will my capital credit refund be?
The amount of capital credits allocated is based upon the total amount of energy you were billed during the year the margins were earned. The more electricity you buy, the greater your capital credits allocation. However, the amount refunded will not necessarily be the total amount assigned to your capital credit account. The total amount refunded, called “general retirement,” may cover only a portion of the amounts credited over several years.
How often are capital credits refunded?
When considering a retirement, the Board of Directors analyzes the financial health of the co-op and will not authorize a retirement if HEA cannot afford it. Upon HEA Board of Directors’ approval a “general retirement” order will be given to HEA management.
What happens to my capital credits if I move away from HEA’s service area?
HEA will continue to account for your capital credits. Please keep a current address on file with HEA so that if a “general retirement” is ordered, you will receive your refund promptly.
Are capital credits taxable?
Typically, the allocation of capital credits is not taxable, but your “cash back” retirement of capital credits may be. You should seek the advice of your tax consultant for your situation.
Will I receive a capital credit check if I have an outstanding debt with Homer Electric?
The amount of your capital credit check will be reduced by any unpaid bills you may have. (This would include non-energy accounts)
Do I have to be a member for the entire year to earn capital credits?
No. Capital credits are calculated based on the member’s total bills during the year the margins were earned.
What happens to the capital credits of a member who is deceased?There are two options available for collecting the deceased member’s capital credits.
Option 1: Continue to receive refunds at the same time as future general retirements: the estate of the deceased patron will continue to receive capital credit refund payments according to the schedule set by the Board of Directors. These refunds will be at present day value and not discounted.
Option 2: Lump Sum Payment: If the legal representative requests a refund of the full amount of the capital credits of the deceased patron, after providing certain documentation (such as the death certificate, letters of testamentary, statement of appointment of personal representative), the total capital credits accumulated will be discounted at the net present value. This net present value is based on a formula intended to represent the fair value of the patronage capital when refunded earlier than scheduled.
If you have any questions about HEA’s capital credit program, please call our office.