Explaining Capital Credits

When you signed up for electric service, you became a member-owner of this cooperative. Unlike other electric utilities, your cooperative exists to make sure your needs are always met, not to make a profit.

Any revenues over and above the cost of doing business are considered “margins.” These margins represent an interest-free loan of operating capital by the membership to the cooperative. This capital allows Shelby Electric Cooperative (SEC) to finance operations and construction, with the intent that this capital will be repaid to you in later years.

SEC recently returned $538,065.77 to both current and former members who paid bills for the year 1997.

As of May 2023, the cooperative has retired all capital credits up to the year 1997, totaling more than $6.75 million. Each year when capital credits are retired, many questions arise. We have provided answers to some questions below for a better understanding of capital credits.

What are capital credits?

Patronage capital is the cooperative’s margins, or money left after all expenses have been paid for that year. Shelby Electric uses these margins for capital investments, such as building or replacing power lines, substations, and other electric system improvements. After being used as working capital, the money is returned to members as patronage capital credits (like dividends). It represents each co-op member’s share or equity in the cooperative. Patronage capital is allocated to members in proportion to the dollar amount of electricity used. Capital credits are paid out as the cooperative’s financial condition permits with board approval.

How do I receive my capital credits?

Eligible members receive capital credit refunds as a credit on their electric bill. Members no longer on our lines receive their retirement amount in the form of a check mailed to the most recent address on file.

How are capital credits calculated?

The amount of capital credits you earn in a given year is based on the amount of capital you contribute to the cooperative through paying your monthly bill. The more electric service you buy, the greater your capital credits account – although the percentage will remain the same. The sum of your monthly bills for a year is multiplied by a percentage to determine your capital credits.

What percent of my bill is returned as capital credits?

The percentage of your total payment that is allocated as capital credits varies from year to year, depending on the success of the cooperative. Capital credits are only allocated for a year in which SEC earns margins. Since capital credits are a member’s share of the margins, no credits are allocated for a year without any margins.

What happens to the capital credits of a member that dies?

The capital credits of a deceased member may be paid at a discount without waiting for a general retirement. Estate payments are not automatic. A representative of the estate must request the credits by contacting the cooperative billing department. If a spouse jointly holds the membership, the estate will only be retired after both the member and spouse are deceased.

Will I receive a capital credit every year?

Not necessarily. The board of directors must authorize a retirement before you receive a credit. When considering a retirement, the board analyzes the financial health of the cooperative and will not authorize a retirement if SEC cannot afford it.

What happens to my capital credits when I leave the SEC service area?

They remain on the books under your assigned capital credit number until they are retired. You should make sure SEC has your current mailing address on file.

If you have questions concerning capital credits, or anything else related to your cooperative membership, please give us a call at 800-677-2612.