Capital Credits
NCE is a nonprofit electric co-op that is owned by the members we serve. Since we operate on a not-for-profit basis, all margins are allocated to each member’s capital credit account based on the member’s year-to-date revenue (patronage). Each year the board of directors decides if and when a portion of the capital credits will be distributed, while ensuring the financial health of the co-op. In addition to our general retirement policy, capital credits can be paid to heirs of deceased members in the settlement of estates.
Any revenues over and above the cost of doing business are considered “margins”. These margins contribute to the operation of your co-op and are distributed in the form of capital credits. They also reflect each member’s ownership in the co-op.
Please keep your information current. If you move off our co-op lines, notify our office of your address change. Each year we attempt to find former members but some capital credits go unclaimed.
When you are settling an estate, we ask that the heirs of a NCE member contact our office to arrange for settlement of any outstanding accrual of capital credits.
Capital Credit Retirement - How it works
Since 2000, Nobles Cooperative Electric has returned nearly $17,000,000 to members!
Because electric co-ops operate at cost, any excess revenues (called margins) are allocated and retired to members in the form of capital credits.
What are Capital Credits and How the Cooperative System Works:
What they are:
- Margins returned to members: When a cooperative has revenue exceeding its expenses (called "margins," not profits), those margins are allocated to members based on their participation in the cooperative (usually based on how much they purchased or used the co-op's services).
- Representing ownership: Capital credits demonstrate ownership in the cooperative. Members aren't just customers; they have a stake in the co-op's success.
- Not dividends: Unlike dividends paid to shareholders in investor-owned businesses, capital credits are not guaranteed and are not the primary reason people join cooperatives.
Why cooperatives use them:
- Keeping costs down: Reinvesting capital credits allows cooperatives to reduce their reliance on debt financing, keeping rates lower for all members.
- Improving services: Capital credits can be used to fund infrastructure improvements, expand services, and enhance the long-term sustainability of the cooperative.
- Upholding cooperative principles: Capital credits embody the cooperative principles of member ownership and democratic control. They ensure that the co-op operates for the benefit of its members, not outside investors.
How they work:
- Allocation: Capital credits are allocated to members annually based on their use of the co-op's services.
- Revolving funds: Co-ops typically don't return all capital credits immediately. They retain a portion to fund operations and future investments.
- Retirement: The co-op's board of directors determines when and how much in capital credits to retire (pay back) to members, considering the co-op's financial health and long-term needs.
Capital Credit FAQ
It pays to be a Nobles Cooperative Electric (NCE) member. As a member of a non-profit electric cooperative, you are a part owner. One great advantage of being an owner is we allocate or assign our margins back to our members in the form of capital credits.
Between the time capital credits are allocated and the time they are refunded to you, the money is used to maintain, improve and ensure dependable service. If NCE could not use the members’ equity or capital credits, we would need to borrow the funds resulting in additional interest expense and increased rates. In short, members get a lot of value in exchange for allowing the cooperative to use their share of the margins.
General retirements, or payouts of capital credits, are made in later years as determined by the financial condition of the cooperative. At that time our board of directors determines which years will be retired. Those who were on our service during those years would receive a check or have the amount applied to their current bill.
Each year, members receive a notice of the patronage capital credits earned during the previous year. These credits have the effect of reducing the cost of the service provided. Under current tax law, no part of the capital credits allocated is subject to taxation until actually paid in cash.
When a member receives cash or a credit for his allocated credits, the member is only subject to taxation to the extent that the payment for the service was deducted on the income tax return for the year. For example, an individual claiming 75 percent business use of his utility cost would have to include 75 percent of the cash for the capital credits received.
Under current IRS regulation, a 1099 form will be issued only if the capital credit payment is $600 or greater in any calendar year.
When a member moves out of NCE’s service area it is important to keep us updated with any address changes, as former members will continue to receive capital credit payouts in the form of general retirements.
Any checks that are returned as undeliverable are held as unclaimed for a period of time and are eventually paid out through our Operation Round Up and Scholarship Fund.
The exception to paying out capital credits through general retirements is made when a member or former member of NCE passes away. Capital credits of a deceased member may be paid out to the heirs in a discounted lump sum upon the completion of the appropriate paperwork.
This is a common misconception about capital credits. Unfortunately, you have no vested interest in your capital credits until a refund is authorized by the board of directors. In other words, as a member, you agreed that your capital credit allocation is a permanent investment in NCE unless the board of directors authorizes a refund at some point in time. Your best bet is to make sure NCE has your current address on file to ensure that you will receive any future membership refunds.
Yes! Capital credits are paid to members or former members who were purchasing electricity in the years that are being retired. Even if you are not currently a member, these capital credits still belong to you.
Have questions?
Your Cooperative team is here to assist with your membership and service questions.