Frequently Asked Questions
A number of members have expressed interest in learning more about Capital Credits. Here are the answers to some of the most frequently asked questions.
- Q: What are capital credits?
- A: Capital Credits are one of the many benefits of cooperative membership. Because Big Horn Rural Electric is a not-for-profit cooperative, it does not technically earn profits. Instead, 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. From these margins the cooperative builds equity with the intention of repaying the member’s investment, which is done through the retirement of capital credits.
- Q: Why does the cooperative need to accumulate equity?
- A: Accumulated equity decreases the need for Big Horn REA to raise electric rates or borrow money for infrastructure improvements. It also makes it easier for the co-op to absorb costs associated with recovery from devastating events like widespread and severe storms.
- Q: How are capital credits accumulated?
- A: Capital credits are allocated to every member who purchases electricity during a year in which the cooperative earned margins. For that year, capital credits are allocated proportionally according to the amount of energy purchased. No special action is required on the member’s part in order for capital credits to accumulate.
- Q: What happens to the capital credits when a member moves off the co-op’s lines?
- A: Regardless of whether you are an active or inactive member, the capital credits you’ve earned belong to you. However, capital credits do not become payable upon disconnection of the service, they remain on the books in the member’s name until the credits are retired or the member dies. The existing Capital Credit balance will be maintained in a Capital Credit account in your name until it is retired in full. When and if the Big Horn REA Board of Directors elects to retire any Capital Credits in the future, a check will be mailed to the last forwarding address on record. NOTE: It is the former Member’s responsibility to maintain a correct mailing address with Big Horn REA.
- Q: Does someone have to be a member for an entire year to earn capital credits?
- A: No. Capital credits are calculated based upon a member’s monthly bills. If a member is billed for electricity for even one month, they will accumulate some capital credits, provided Big Horn REA earns margins in that year.
- Q: What is the difference between allocation and retirement of capital credits?
- A: In a capital credit allocation, the margins for a particular fiscal year are spread proportionally among the members. The amount of funds allocated to each member’s account is based on the amount of electricity the member purchased during that year. These funds are kept on Big Horn REA’s books until they can be retired. Capital credit retirement is the process of returning the accumulated credits back to the members.
- Q: Is a general retirement issued every year?
- A: Not necessarily. General retirements are issued at the discretion of Big Horn REA’s board of directors. Each year, based on the cooperative’s present financial condition and other considerations, the board of directors determines whether to issue a retirement, and if so, in what amount. Since 1997, the board has retired capital credits every other year in March on an approximate 30-year cycle (i.e. capital credits earned in 1978 were eligible for retirement in 2009; credits from 1979 were eligible for retirement in 2010, etc.).
- Q: Are payouts to estates handled differently from general retirements?
- A: Yes. Big Horn REA allows that the next of kin can apply for Capital Credits that were assigned to the deceased member while that person was on our service. They have the option of either taking a lump sum distribution at a discounted value; or to leave the money in for distribution over the normal retirement period.
- Q: Why are capital credit payouts discounted?
- A: The board of directors has approved the policy of discounting early capital credit payouts so that all are made on a fair and equal basis. For example, $10 received in cash today is worth more than $10 received 20 years from now. So, to put early pay outs on an equal basis with those who will have to wait for their payments, we discount them.
- Q: In the event of a member’s death, does the type of membership affect how the capital credits are paid?
- A: Yes. For individual memberships, capital credits are handled as discussed above. In the event the capital credits belong to a joint membership (i.e. husband and wife) and one of the accountholders dies, the accumulated capital credits will transfer in their entirety to the surviving person’s account, and their membership will be converted from joint to individual status.
- Q: What Does Big Horn REA Do With Unclaimed Capital Credits?
- A: Big Horn REA seeks out the former member-owners who are due capital credits, even if they are no longer on our system. Big Horn REA will post the names of the member-owners who have unclaimed capital credits on our website. If the member-owner does not claim them and the capital credits remain unclaimed for 2 years or more, then they are transferred to a fund for charitable and educational purposes.
- Q: Is my capital credit allocation taxable?
- A: For individuals, capital credits are generally not taxable. We suggest you seek the advice of a tax professional for any specific questions.
- Q: Can I use the capital credits I have allocated to pay my electric bill?
- A: No. Allocated capital credits may not be used to pay current bills. Your electric bill is due now, whereas you may not be entitled to be paid your capital credits for many years. Capital credits are kept in a separate accounting system apart from your billing account. When the Board decided to retire/disburse capital credits, members will receive a check made payable to the member(s) listed on the account.
If the second option is taken, the capital credit account would then go to the heir(s) assigned, and it would be received as the money is retired. All applications for the lump sum distribution require a photocopy of the death certificate and an Affidavit, which must be signed before a notary as well as filed with the county clerk and a certified copy presented to Big Horn REA before any estate funds can be released. If the estate was probated, we will need a copy of an Order of Distribution from the court along with the Affidavit. Also, please remember we cannot process any type of retirement of Capital Credits until the deceased’s account shows an Inactive status.