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What Are Capital Credits And How Are They Distributed

Although Southeastern is actually a nonprofit entity, we do generate more revenue than expense during each calendar year. This is necessary to provide the business with working capital to fund the day-to-day operations of your electric cooperative and to comply with specific mortgage requirements and loan covenants that we have with the USDA Rural Utilities Service (formally known as the Rural Electrification Administration-REA) and other lenders.

The “bottom line” of our annual Statement of Operations represents revenues in excess of expenses plus interest income, non-operating margins and capital credit allocations from cooperatives that Southeastern belongs to such as our power supplier, East River Electric Cooperative. This “bottom line” is the total capital credits earned by the members for the year.

Capital Credit Allocations

At the end of each year, once the “bottom line” has been verified and the books audited by our CPA auditors, we allocate those capital credits to all of the members that received electric service during the year. That allocation is based on your cooperative’s total electric revenue. Each member is allocated the same percentage on your total electric bill and those dollars are accumulated in your capital credit account. Theoretically, your capital credit account is the amount you, as a member, agreed to invest in your electric cooperative. That investment in Southeastern by all members, through their capital credit allocations, represents member ownership and will appear as equity on our Balance Sheet.

Capital Credit Refunds

Refunds of capital credits are only made under certain conditions. It is the Board of Directors responsibility to determine that a refund will not adversely impact the financial condition of your cooperative and will comply with the bylaws and loan covenants before they grant approval. The Board of Directors also establishes the method of refunding capital credits by adopting policies of general application.

Member Estates

If a member dies before the balance of their capital credit account has been refunded, the estate has these options:

Wait until the balance of the account is returned through future general membership funds.

Request an early refund of the capital credit account. Under current policy, the value of an early refund is based on the discounted present value of anticipated future membership refunds from the capital credit account. A request from an estate for an early refund must be approved by the Board of Directors.

Frequently Asked Questions

Q. If I move out of Southeastern’s service area, can I receive a check for my capital credits balance?
A. 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 Southeastern unless the Board of Directors authorizes a refund at some point in time. Your best bet is to make sure Southeastern has your current address on file to ensure that you will receive any future membership refunds.

Q. Do I earn interest on the capital credits in my account?
A. The answer is no, and the reason is similar to the previous question – you have no vested interest in your capital credits until a refund is authorized by the Board of Directors.

Q. What about businesses and capital credits?
A. Under Southeastern’s current bylaws, businesses are treated the same as any other member. They receive capital credit allocations, capital credit refunds and are even eligible for estate refunds if they provide proof that the business has ceased to exist in the eyes of the law.

Q. What’s the difference between buying stock in an Investor Owned Utility (IOU) and having capital credits with Southeastern?
A. When you invest in an IOU, your stock may increase in value and even pay dividends because the goal of an IOU is to maximize the profits for their stockholders. Stock ownership also gives you voting rights.
Similarly, as a member of an electric cooperative, you have a say in the business through your voting rights and ability to serve on the Board of Directors. However, the big difference is the fact that electric cooperatives are non-profit and strive to keep electric rates as low as possible rather than maximize profits for their stockholders. In essence, as your capital credits are refunded to you in the future, you will have received your electric service at cost.


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