What are capital credits? At the end of each year, Southern Indiana Power calculates our operating margin, which is the amount by which our income exceeded our expenses during the year.
We then allocate the operating margin as “capital credits” to each member based on the amount of electricity he/she purchased throughout the year. When our board of directors determines it’s financially feasible and prudent, and when we meet the financial requirements stated in our loan documents, we retire the capital credits by sending a check to the members who had electric service with the co-op during the years that are up for retirement.
In the interim, we use the allocated, but unretired, capital credits to improve and expand our electric system and to meet our other capital needs. This reduces our need to borrow money and helps us provide reliable electric service.
You might wonder why we do this. As an electric cooperative, we are here to provide at-cost electric service. We aren’t here to make a profit, and we don’t have shareholders. As a member of an electric cooperative, you invest in the efficient operation of your co-op. Unlike an investor-owned utility, we don’t pay dividends or other amounts to shareholders who don’t purchase electricity from us.
Every year, Southern Indiana Power’s board of directors evaluates the cooperative’s financial position and capital needs, and approves a capital credit retirement plan.
This year, Southern Indiana Power retired nearly $220,000 in allocated capital credits from the year 1996. Members will receive their capital credit checks this month in the form of a bill credit.
Capital credits benefit all co-op members by keeping costs and electric rates as low as possible. Capital credit allocations help qualify Southern Indiana Power for cooperative status under federal income tax law. Capital credits also help to reduce the amount of debt the co-op has to borrow, which also keeps service costs down. The bottom line: Capital credits are just one of the many benefits of being a member of Southern Indiana Power.
If you leave the cooperative, please provide us your forwarding address to help ensure you receive your capital credits as they’re retired.