Frequently Asked Questions About Capital Credits
Q: What are capital credits?
A: Capital credits are one of the many benefits of co-op membership. As a cost-of-service energy provider, Rock Energy doesn’t earn profits. Instead, co-ops use the term margins, which is any revenue remaining at the end of the year after all bills are paid. Capital credits reflect each member’s equity in, and contribution of capital to, the cooperative. This differs from dividends that investor-owned utilities pay shareholders, who may or may not receive service from the utility.
Q: Where does the money come from?
A: Co-ops set rates to generate enough money to pay operating costs, make payments on any loans, and provide an emergency reserve. At the end of each year, we subtract operating expenses from the operating revenue collected during the year. The balance is called an operating margin.
Q: What’s the difference between allocation and retirement?
A: An allocation is your proportional share of the margins. We set this money aside to use as operating capital for improvements and maintenance. A retirement is the amount you receive as a credit on your statement. It is a percentage of your allocations accumulated over the years. Typically, after utilizing capital for 20 to 30 years, it is retired.
Q: Why does the cooperative need to accumulate equity?
A: Your equity in the co-op reduces the need for us to raise rates or borrow money to meet expenses. Co-ops receive their operating funds from two sources: the amount members pay for service and bank loans. Lenders require that co-ops maintain a minimum equity level, which is where capital credits come into play. Equity levels are a measure of financial strength. Higher levels give lenders more confidence that a loan will be repaid and allow them to offer lower interest rates. Without this equity, members’ rates would be extremely high.
Q: Are capital credits retired every year?
A: Each year, your board of directors decides whether to retire capital credits based on the co-op’s financial health. Rock Energy’s ability to retire capital credits reflects the cooperative’s strength and financial stability.
Q: Were more capital credits returned to me this year compared with previous years?
A: Yes. Since 2002, the board has voted to retire 3 percent of members’ capital credits balances. However, this year the board recognized that many members were experiencing financial difficulties because of the coronavirus pandemic and decided to retire 5 percent. That change resulted in an additional $830,000 being returned to members to help them during this crisis.
Q: What happens to my capital credits if I move?
A: Your capital credits remain on our books until they are retired. That’s why it’s important to let us know of any address changes. This year we issued checks totaling about $360,000 to past members.
Q: Why can’t I receive my total capital credits balance when I move and no longer receive service from Rock Energy?
A: Co-ops use the capital credits system to ensure fairness across generations. The equity of members who received service decades ago was used to help keep your rates affordable when you were a member. Now, the equity of former members is doing the same for current members.
Q: My capital credits balance is so small, does Rock Energy really need that money?
A: The balance of an individual former member may be small compared to the co-op’s total operating budget, but we have thousands of former members. If every former member asked for and received all their equity today, Rock Energy’s costs would increase, thus impacting rates.
Q: What happens to the capital credits of a member who dies?
A: A deceased member’s capital credits may be paid at a discount without waiting for a general retirement. A representative of the estate must contact us.
Q: What happens to unclaimed capital credits?
A: We do everything we can to ensure that former members get their retired capital credits. Each fall we publish a list of unclaimed capital credits. Any money that isn’t claimed is placed in the Federated Youth Foundation and used for educational purposes, including scholarships and youth programs in both Wisconsin and Illinois.