What Are Capital Credits?

By Julie R. Wilke, Director of Administration & Finance

Capital credits are a benefit to belonging to a cooperative. You, and every member who receives electric service from Southern Illinois Electric Cooperative (SIEC), own part of Southern Illinois Electric Cooperative.

Like all businesses, SIEC earns revenue and pays expenses. The difference between revenue earned and expenses incurred is called profit for most businesses. But for cooperatives, like SIEC, this difference is called margins. Because SIEC is a non-profit utility, SIEC returns positive margins to members at a later time based on a decision by the board of directors to retire allocated capital credits. Thus, capital credits represent your share of SIEC’s margins as well as your ownership of SIEC.

Here's how they work…

1. Allocation: Each year, members are allocated the previous year’s margins based on the amount of electricity purchased in relation to the total amount of electricity purchased from all members. An allocation is issued by the board of directors. An allocation represents the member’s share of ownership in a nonprofit, member-owned cooperative.
2. Retirement: The margin allocations accumulate over time in the member’s name. They are periodically retired (refunded) when directed by the board of directors based on the financial condition of SIEC.

Frequently Asked Questions

What happens to a member’s capital credit if the member no longer has an account with SIEC?

A member who terminates service no longer receives additional capital credit allocations. The balance in the member’s capital credit account is maintained until it is retired in full.

It is the member’s responsibility to notify SIEC of any address changes so that the member can be located when it is time to retire capital credits allocated to the member’s account. Even if you are no longer on the SIEC system, please keep your contact information current. Remember, a member’s capital credits are their ownership of SIEC. Thus, this ownership is an asset that belongs to the member.

What happens to a member’s capital credits if the member dies?

Capital credits earned by a deceased member are paid to the member’s estate. To assist the member’s heirs in closing the estate, SIEC offers a special capital retirement of the outstanding balance of the deceased member’s capital credit account, at a discounted rate.

Why are some capital credits retirements discounted?

In the interest of fairness to all members, SIEC discounts special retirements to estates to reflect the net present value of making a capital credit retirement now that would otherwise be paid later. The smaller amount received today, if invested until the normal retirement date, would be equal to the normal retirement amount.

I have an account that is in my deceased parent’s names. Should I obtain membership in my name?

Yes. A membership is required by the person who is receiving electric service. Also, when you obtain a membership in your name, you will be able to retire the deceased parent’s capital credit account (see previous frequently asked question).

Does the member have to report capital credits on tax returns?

Capital credits are a return of money paid for electricity in a previous year and are generally not taxable income for residential consumers. Commercial and industrial consumers should discuss any capital credit retirements with their tax advisers.

If you would like to know additional details about capital credits, please do not hesitate to contact our office at 618-827-3555.