Power Perks - Membership Has Its Perks
Capital credits are a unique feature specific to the cooperative business model. As a not-for-profit organization, SEMO Electric does not raise capital from outside shareholders or investors. Capital credits are primarily used by SEMO Electric to fund long-term capital investments, such as new electric facilities, electric system upgrades, and equipment. Capital needs are funded from just two places: capital credits and long-term debt. While SEMO Electric could incur debt for 100% of its capital needs, this would result in additional interest expense that SEMO Electric would need to recover through increased electric rates. Likewise, SEMO Electric could fund 100% of its capital needs through capital credits; however, this too would result in increased electric rates.
An underlying principle of the cooperative business model is to strike an appropriate balance between capital credits and debt. Over time, capital credits are returned to members on a first-in, first-out (FIFO) basis plus a percentage of the most recent year. At the end of each year, SEMO Electric’s financial statements show whether revenue exceeded costs and resulted in a profit. This profit is “allocated” to electric members’ accounts as capital credits based on how much electricity each member uses and pays for throughout the year. The annual budgeting process is always a work in progress based on potential income and necessary expenses. As you know, weather plays a large part because we can't predict Mother Nature's actions. Hopefully, the information above helps explain why we return money on one hand and adjust rates on the other hand. It really is a serious balancing act that we actively manage as we provide essential services to you.
Member-owners should watch their mailbox in October as Power Perks checks are mailed to member-owners’ most current address listed on the Cooperative’s records. If the amount of the retirement is $10 or less, the amount will be carried over to the following year. If you cease to purchase energy from SEMO Electric Cooperative, please keep us informed of your address in future years. This will enable us to forward payment when the capital credits are refunded for the year or years of your membership.
Please call 800-813-5230 to update your information.
Frequently Asked Questions:
The difference between a cooperative such as SEMO Electric and an investor-owned utility is that a cooperative is owned by the member-customers it serves. As a member-owner, you share in the profits of the co-op. At the close of each fiscal year, all revenue received in excess of expenses (i.e. profits) is allocated back to the membership in the form of capital credits. This allocation is based on the dollar amount of electricity purchased during the same year.
You need to know two things about capital credits in order to understand how they work for you:
1. Allocations: Each year, you are "allocated" your portion of the previous year's profit based on the amount of electricity you purchased from SEMO Electric in relation to the total amount of electricity purchased by all members during the year. This amount is put into a "holding account" for a number of years and used by SEMO Electric to fund capital needs for items such as power line construction, transformers, trucks, inventory and other equipment. This is an underlying principle of the cooperative business model and is one more way we keep your electric rates as low as possible.
2. Retirement: This is what you will get in cash at a later date. SEMO Electric uses the amount "allocated" to you for a time, but then returns this amount to members in the form of "retirements," which are actual "cash back" dollars to you.
Step One: Allocation
First, an allocation determines each member’s share of the cooperative’s margin for a given year. Margins are allocated—or assigned—to members who purchased electricity from the cooperative during the year in which the margin was generated in proportion to the electrical sales for that year. Each member’s allocation is determined by his/her kilowatt-hour consumption for that year. The co-op keeps a permanent record of each member’s capital credit account, which is where the allocated amount remains until it is paid—or “retired.”
Step Two: Retirement
After reviewing the financial health of the cooperative, the Board of Directors may declare a retirement, at which time all or part of each member’s allocated amount is paid. SEMO Electric uses a first-in, first-out method (FIFO), meaning earlier years are paid before later years.
The member should inform our office of any changes in his or her mailing address. It is a member's responsibility to make sure the cooperative has up-to-date address information at all times. Each year, hundreds of refund checks are returned to the cooperative with invalid addresses. Please call 800-813-5230.
A rightful heir can complete a Certification of Entitlement form, which must be notarized, and provide the appropriate documentation to transfer the capital credits into his/her name.