Patronage capital credits are your cash back

The basics of “cash back”

An electric cooperative does not earn profits in the sense other businesses do.

As a 501 (C) 12 electric cooperative, URE MUST operate as a not-for-profit business. Capital credit is a crucial principal of the not-for-profit business model, exempting electric cooperatives from income tax liability.

Simply put, after all expenses have been paid out of the co-op’s revenues, the remainder (margin) belongs to the members.

Building service reliability

Every business needs to maintain a suitable balance between debt and equity to ensure its financial health and stability. Cooperatives are no different.

When income exceeds costs in most businesses, the resulting profits are retained as shareholder value and/or paid as dividends.

In electric cooperatives, the profits are called margins. They are still retained as shareholder value, but the shareholders are the members. Sometimes, it is returned to the members, but for long periods it may be retained as equity.

Equity is necessary to meet the expenses of the co-op, such as paying for new equipment to serve members and repay debt on existing equipment. If the cooperative has a healthy equity level, we receive better interest rates on our loans - which is very important to a growing co-op like ours.

Equity built from patronage capital also helps keep rates at a competitive level. It reduces the amount of funds that must be borrowed and keeps interest rates down on what we must borrow.

Calculating and keeping track

Each year, in a process called “allocation,” the cooperative calculates the margin for each member. Those funds are tagged to be returned at a later date. No money changes hand in allocation. This only established the patronage capital balance.

Members are alerted to the allocation for the previous year on their bill. This notice usually appears in May or June.

Allocation is based on the individual member’s annual kilowatt hour (kWh) purchases as they relate to the total annual kWh’s purchased in the same rate class.

Every member has a separate patronage capital credit account number specific to the member. No matter how many electric accounts the member may have with the cooperative, each member has only one capital credit account.

The allocations in each capital credit account is tracked by year and separated into distribution and generation amounts.

"Cash Back" refund

At a time when the Board of Trustees determines the cooperative is capable, they may return patronage capital to the members. This is known as “retirement.” The Board determines what portion of the funds from what year will be returned, and those members who were part of the cooperative during that year

When retirements are made, each member receives a share in proportion its usage of the co-op’s service.

URE has typically followed the First-In-First-Out (FIFO) method retiring the oldest capital credit first. In recent years some Last-In-First-Out retirements were included as part of the refunded balance. As a result, more new members have received small Cash Back refunds.