Frequently Asked Questions

What are capital contributions, patronage capital and capital credits?  Are they all the same thing?

Rural Electric Cooperatives belong to the "Members" who have purchased electric service from the Coop.  This membership interest is based on member equity investments known as "Capital Credits" or sometimes "Patronage Credits".  It has similarities to the ownership of stock in a conventional corporation. Members receive these capital credits out of the margin of the Cooperative and they are allocated to each member based on the purchases of the member throughout the year. Capital contributions, patronage capital, and capital credits are all words to define the amount of ownership, or capital, that each member earns from their purchases from EMC.

How are EMCs financed?

Electric Cooperatives are financed through a number of sources:

1. The National Rural Utilities Cooperative Finance Corporation (“CFC”) is a privately owned, non-governmental organization that provides financing to EMC’s.

2. The Rural Utilities Service (“RUS”) , a part of the United States Department of Agriculture, provides financing for new  construction and for maintaining existing electric infrastructures.

3. The Capital Credits that are retained by the EMC for a short period of time also provide internal financing of the EMC.

What are the obligations that EMC Directors and Officers owe to the members and former members of their respective cooperatives?

Members of the board of directors of a Cooperative have the same duties and responsibilities as do board members of any other business. In addition, they have a few other responsibilities and duties that are unique to Cooperative board members.

Cooperatives are member organizations, unlike most other businesses. This places a unique responsibility on Cooperative directors to be sensitive to the needs of both present and former members and balance their conflicting interests. Therefore, director decisions are based not only on what is most profitable, but also on what are the needs of the members.  Board members have a fiduciary duty to the members to operate the EMC in a careful, prudent manner, and to return, over time, any capital credits to the members who earned those credits.

One important function of the Cooperative board is to educate members about their organization. Effective member control is impossible without information. It is the duty of the directors to provide the membership with that information.

In the recent past a trend has emerged whereby courts will look more closely at the decision making process itself to determine if the directors acted reasonably as fiduciaries of the members of the EMC.

Are there differing obligations to current members versus former members?

Board members have a fiduciary duty to both current and former members.  In the case of former members, board members have an obligation to rotate the capital credits, and return these capital credits to former members over time.

What are basic Electric Cooperative Principles?

Voluntary and Open Membership

Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.

1. Democratic Member Control

Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. Members have equal voting rights - one member, one vote.

2. Member’s Economic Participation

Members contribute equally to, and democratically control, the capital of their Cooperative. A Cooperative business returns margins to their patrons. Any margins (or profits) are credited to each member's capital credit account. Each member's share of the capital credits for the year depends on the amount each individual paid into the Cooperative during that year and on the total margins of the Cooperative for the year. Capital credits are retained for a number of years and the money is used as operating capital. Retaining capital credits reduces borrowing needs. Capital credits are paid to all people who were members in a certain year. Each year members receive a notice showing the amount of capital credits that have been credited to their account for the past year.

3. Autonomy and Independence

Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their Cooperative autonomy.

4. Education, Training, and Information

Cooperatives provide education and training for their members, elected representatives, managers and employees so they can contribute effectively to the development of their Cooperatives. They inform the general public about the nature and benefits of Cooperatives.

5. Cooperation Among Cooperatives

Cooperatives serve their members most effectively and strengthen the Cooperative movement by working together through local, national, regional, and international structures.

6. Concern for Community

While focusing on member needs, Cooperatives work to improve the quality of life in the areas they serve.

What are Margins?

Every month when a member pays the bill for electric or telephone service, the Cooperative pays the expenses of providing that service.  Any funds left over at the end of the year are called "Margins" that in a conventional corporation would be "Profit".  These margins provide equity for the Cooperative and are allocated to the members in proportion to their purchases during the year.  The member's share of the margins is the member's capital credits or patronage credits.

I've heard the term "At Cost" used when describing Cooperatives.  What does that mean?

The US Internal Revenue Code requires Cooperatives to operate at cost to be considered non-profit and avoid taxation of margins.

How long do I need to have been a Member/Owner to expect capital
credits?

A member earns credits on every transaction in which a member pays the Cooperative for goods and services.  At the end of the first year of membership, the Cooperative allocates the portion of the Cooperative’s margin to each member’s account.

How long are EMCs entitled to hold the money before they distribute capital contributions?

Cooperatives are obligated to return these credits to members over time and the period of time it takes the Cooperative to repay capital credits is known as "Rotation".  Rotation periods of 10 to 20 years are reasonable.  Unreasonable rotation periods are excessive and potentially violate state and federal law.

How can I find out if I or a family member is involved in an EMC?

Write or call the EMC that you think you or a family member might belong to. The EMC is required to keep a record of each Member’s allocated capital credits, whether they be a current or a former member.  If you are a Member, the EMC should have a record of that membership.

What if a member dies?

If a member dies, the capital credits can continue to be paid to your spouse under a joint membership, or to an estate.  Or, the executor of the estate may choose to have any outstanding capital credits paid depending on the policies of the Cooperative.

If my family member is deceased and their estate is already settled can anything be done to collect?

If an estate is settled, and you later discover that the deceased was a member of an EMC, the EMC should still have record of that membership and the allocated amount of capital credits on their books.  Deceased members are former members. 

Will they credit me on future bills or make a payment to me?

EMC’s can repay capital credits in several ways.  Former members that hold capital credits are usually paid by check.  Former members should be careful to keep their last known address on file with the EMC so they can send these former members a check.

Current members will either receive a check by mail or as a credit against their electric bill.

I've moved out of the Cooperatives service area.  Can I still collect?

Even if members move out of the Cooperative service territory and cease to purchase service, these "Former Members" retain ownership their capital credit allocation.  These members are legally entitled to receive any capital credit payments made for the years that the former member bought electricity from the EMC.

Has there been other litigation against Cooperatives who have not properly rotated capital credits?

There are lawsuits filed by members of EMC’s pending in Texas, Arkansas, Missouri, South Carolina, and Georgia based on the failure of their EMC to rotate their capital and return the capital credits to the owners of the Cooperative.