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Capital Credits

As a member of Black Hills Electric Cooperative, Inc., the concept of capital credits may be new to you. Here are answers to the questions our members most frequently ask us.

What are capital credits?

Capital credits are the profits - called margins by cooperatives - that are left over from revenues after all operating expenses are deducted. Margins, along with borrowed funds, are used to finance capital improvements, such as electrical lines, poles, transformers, substations, etc. Each year, these margins are allocated, or credited, to members receiving electrical service and are paid back to the members at a future date.

Why do we have capital credits?

Electric cooperatives are non-profit, but must produce margins in order to cover interest on loans and to develop equity, which assures financial strength. Black Hills Electric Cooperative's electric rates are designed to produce an operating margin based upon the Cooperative's financial needs. Presently, our lenders (mortgage holders) - the Rural Utilities Service and the National Rural Utilities Cooperative Finance Corporation - encourage us to maintain at least $1.50 of margin for every $1 of interest.

How are capital credits allocated?

Capital credits are allocated annually to each member. To determine your individual capital credit allocation, the margin percentage is applied to the amount you paid for electric service for the year. Once a year, Black Hills Electric will send you a notice informing you of the amount allocated to you in capital credits. This capital credit allocation notice is not a bill. It is a statement of your equity, or ownership, in your Cooperative.

Can capital credit allocations be applied to my bill?

No. Because equity would be adversely affected, money which accumulates in your capital credit account cannot be used to pay your electric bill.

Do I earn interest on my capital credits?

Since the Cooperative is operated on a user-owned, non-profit basis, you do not receive interest or dividends on your capital credits. To pay you interest, we would have to raise electric rates to all BHEC member/owners.

Are capital credits refundable?

Yes, however, whether or not capital credits are refunded, how, when and to whom depends on the approval of your Board of Directors and on the finances of the Cooperative. BHEC's lenders will only allow capital credit "retirements," or refunds, based on the financial condition of your cooperative. The Board of Directors also determines the method of retirement to be used. Usually, the board retires a percentage of the previous year's capital credits and a percentage of the oldest capital credits.

What if I move?

If you move from Black Hills Electric's service area, the capital credits accumulated in your account will remain in your name. It is important to keep the Cooperative informed of your current address so that we can send your refund when a general retirement is made. The last year you receive service from the Cooperative is the last year you will earn capital credits.

What if I die?

When a human member (versus a corporation or partnership member) dies, the estate has three options regarding capital credit refunds: 1. Continue to receive the capital credits under the deceased's name. 2. Assign the capital credits to an heir and continue to receive. 3. Take a discounted refund of the total amount immediately. The discount rate is based on a six percent present value table.

How about businesses?

Capital credits are allocated to businesses in the same manner as they are to human members. Businesses receive refunds when the Board of Directors makes a general retirement. When a corporation, partnership or sole proprietorship dissolves, capital credits may be assigned to the owner or owners. However, they are not eligible for a discounted refund. Discounted refunds are only paid to estates of deceased human members.

Will I be notified?

When the Board of Directors approves a capital credit refund, members will be notified by mail and through the monthly newsletter. Capital credit refunds will be credited to active accounts or mailed to the last known address. Names of members with unclaimed checks are published in the newsletter twice. If the checks are still unclaimed, the money becomes donated capital and used for BHEC's scholarship program.

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