As a member of an electric cooperative, you build ownership in HEA through your kilowatt-hours purchase. There is not stock to be purchased or sold; our members own the business.
Capital credits reflect each member’s ownership in the cooperative. Electric cooperatives like HEA do not earn profits in the sense that investor-owned utilities earn profits for their investors. Instead, any margins or revenues related to the sale of electric service remaining after all expenses have been paid are returned to the cooperative’s members in proportion to their electrical usage.
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.
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.
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.
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.
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.
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.