As a Cooperative, South Kentucky Rural Electric Cooperative Corporation (South KY RECC) is owned by its members. Thus each member, has an ownership share in the financial results of the cooperative. When a Cooperative’s revenues are greater than its expenses in a given year, it results in income we refer to as Margins. Each member’s share in these margins are referred to as Capital Credits. A members share or allocation of these Capital Credits is based upon the amount of electricity used in a specified year in relation to the electric usage of all members at that time. The Cooperative retains these Capital Credits for use as working capital for a period of time, then they are paid back to individual members in the form of a General Retirement of Capital Credits.
How are capital credits calculated?
The amount of capital credits you earn in a given year is based upon the amount of capital you contribute to the cooperative through payment of your monthly bills. The more electric service you buy in relation to all members, the greater your share of capital credits will be for the year. The sum of your monthly bills for a year is multiplied by your share percentage to determine your capital credits allocation.
How are my capital credit allocations used until I receive them?
Capital credit allocations are pooled together and used as working capital so that we can serve our members. These funds pay for power reliability improvements and maintenance such as replacing power lines and keeping our Right of Way areas maintained.
If we refunded the total amount of allocations, we would have to borrow that amount of money in order to continue operating. Having working capital helps the cooperative minimize the amount of interest bearing money it must borrow, which in turn helps keep member’s costs lower by stabilizing rates.
What’s the difference between allocated and retired capital credits?
Allocated capital credits appear as an entry on the permanent financial records of the cooperative and reflect each member’s equity or ownership in South KY RECC. When capital credits are retired, a check is issued to the member and the member’s equity in the cooperative is reduced.
What do I have to do to start accumulating capital credits?
Capital credits are calculated by South KY RECC for every member who purchased electricity during a year in which the utility earned margins. No special action is required to start a capital credits account. Your membership with South KY RECC activates your capital credits account!
How are capital credits disbursed?
Whenever South KY RECC’s finances permit, we return capital credits to our members. The decision is made by our Board of Directors after a thorough examination of the co-op’s financial position. These return of capital credits will be mailed by check to members, both past and present, who received electric service from South KY RECC for the years specified and who are receiving a credit disbursement greater than $5.
Can I use the capital credits I have allocated to pay my electric bill?
No. Allocated capital credits may not be used to pay current bills. Your electric bill is due now, where as you may not be entitled to be paid your capital credits for many years.
Why can’t my capital credit allocations be refunded to me all at once?
Remember that capital credit funds are used for reliability improvements and maintenance—and these are long term investments. Capital credits cannot be refunded all at once because they help the cooperative remain financially sound, thereby ensuring a stable, reliable electric service for the benefit of the members we serve.
What happens to my capital credits when I leave the South KY RECC service area?
Your capital credits remain on the books in your name and member number until they are retired. So, you should ensure that South KY RECC always has your current mailing address. We will attempt to locate you, but if unsuccessful, we will hold your credits until we hear from you.
What happens to the capital credits of a member who dies?
The capital credits of a deceased member may be paid without waiting for a general retirement. However, these estate payments are not automatic. A representative of the estate must request the credits and then complete the Capital Credit Application. They will need a copy of the death certificate of the deceased, and a copy of the court order appointing them as administrator of the estate of the deceased or a statement from the funeral director that handled the burial arrangements for the deceased. You can apply for an estate payment of capital credits at any one of our offices.
Do I need to report capital credits on my income taxes?
Please check with your tax preparer, but generally, unless you deducted the cost of electricity on your tax returns, this check is treated as a reduction of those costs which is a non-taxable event. For businesses, the amount is generally taxable.
For more information, call 800-264-5112 and ask for the Capital Credits department.