Capital Credits

Power Perks – Membership Has Its Perks

Capital Credits & the Cooperative Model

  • Capital credits are a unique feature specific to the cooperative business model.
  • SEMO Electric operates as a not-for-profit organization.
  • It does not raise capital from outside shareholders or investors.
  • Capital credits primarily fund long-term capital investments such as new electric facilities, electric system upgrades, and equipment.
  • Capital needs are financed from just 2 sources: capital credits and long-term debt.

Balancing Capital Credits & Debt

  • 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, along with a percentage of the most recent year’s profits.
  • SEMO Electric’s financial statements at year-end determine whether revenue exceeded costs and resulted in a profit.
  • This profit is “allocated” to electric members’ accounts as capital credits based on their electricity usage and payments throughout the year.

Annual Budgeting & Challenges

  • The annual budgeting process is always a work in progress, based on potential income and necessary expenses.
  • Weather plays a significant role, as it is unpredictable and affects operations.
  • Balancing between returning capital credits and adjusting rates is a complex and active management process vital for providing essential services.

Power Perks Checks & Address Updates

  • Member-owners should watch their mailbox in October as Power Perks checks are mailed to their most current address 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.
  • Members who cease to purchase energy from SEMO Electric Cooperative are urged to keep their address updated for future capital credit refunds.

Please call (800) 813-5230 to update your information. Keeping your details current helps ensure you receive your capital credit refunds promptly.

What are capital credits?
  • A cooperative, such as SEMO Electric, 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.
How do capital credits work?

You need to know 2 things about capital credits in order to understand how they work for you:

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.

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.
When and how are capital credits returned?

Step 1: 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 2: 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.

Unclaimed Capital Credits