“capital credits”? How do they benefit me?
are two questions you probably have when learning about your
cooperative. Capital credits are the maximum possible value for
your rate dollar, and your share in the development of an
expanding, progressive enterprise that is an active partner in the
growth of the area you call home.
The members of
the cooperative earn equity each year from the profits of the
business. These profits are termed margins and are allocated to
the patrons buying power that year. In essence, these retained
earnings displace the need for a portion of otherwise debt
cooperative, capital credits, like debt, need to be paid back to
the lender. The lenders of debt are Rural Utilities Service (RUS),
Cooperative Finance Corporation (CFC), Federal Finance Bank (FFB) and CoBank.
The lenders of equity are the customers who are paid back on a
rotation basis with no interest. This is why the patrons are in
essence equity owners of the cooperative. The value of your equity
is realized in the reduced cost of operation with this type of
active members receive credit on their July 31st billing statement and inactive members receive a Capital Credit check based on a percentage of prior years
earnings. In the event of a members death the estate can continue
to receive an annual check or cash out the capital credits at
It becomes a
fine balance to maximize equity growth to obtain the lowest
interest on loans, while attempting to return capital credits and
maintain the lowest possible rates on the energy our members
If Wild Rice
Electric could not use the members’ equity or “capital credits” to
fund construction, we would have to borrow the funds. The
additional interest expense on this debt would raise rates. Looked
at that way, you do get a lot of value in exchange for allowing
the cooperative to use your share of the margins.
Are your capital
Under the current law, no part of the capital credits allocated to
you by Wild Rice Electric are taxable until actually paid.
When you actually receive a capital credit
retirement, it is subject to taxation only to the extent that your
electric costs were deducted as an expense on your income tax
return for the year the credit was allocated.
For example, a
farm or other business claiming 75 percent business use of their
electric costs would have to include 75 percent of the cash
payment for the capital credits when received as income. The
non-business portion is not subject to taxation.
who take no deductions for electric costs would not have to show
any of the cash retirement as income.