The cooperative business model is unique, leveraging local control and nonprofit cost advantages for co-op members. This is particularly effective for rural electric utilities, which provide reliable electricity at competitive electricity rates while receiving about 25% the amount of revenue per mile of line compared to the rest of the electric industry.
As a nonprofit company, TVEC can operate with lower revenue margins without the need to satisfy outside investors or owners. Instead, TVEC members own the co-op through their monthly electricity bill and the use of capital credits.
What are Capital Credits?
While for-profit companies may have private owners or stockholders who have invested money to gain equity, co-op members build ownership of the company over time with each electric bill they pay. The capital credits system is the way members’ ownership stake is tallied, and it is how any excess revenue (which would be profit in a for-profit company) is returned to members fairly.
While each co-op has slightly different ways of handling capital credits, it is a time-tested system for sound fiscal management of an organization with so many member-owners.
How TVEC Capital Credits Work
Members purchase electricity from TVEC. It sounds simple, but your monthly bill buys more than electricity. It is an investment in our shared electrical grid throughout the TVEC service area, covering the rural areas in parts of five counties.
At the end of each year, if the company has received revenue above its expenses, that amount is recorded as additions to each member’s capital credits account. The amount accrued to each member is based on how much electricity was purchased for the year. Over time, each member’s equity grows, and your investment allows for the co-op’s continued operation, line upgrades and repairs, equipment purchases and new technology.
At the discretion of the TVEC Board of Directors, when financial conditions allow, members are paid back a portion of their capital credits balance. Capital credit retirement typically focuses on refunding the oldest credits. In this way, as time goes by, ownership of the company is transferred to newer members, and legacy members are repaid their equity in the company.
Your Investment Comes Back To You
Over the last 10 years, TVEC has paid back more than $32 million in capital credits to members. Most recently, in 2018 the TVEC board approved a $4.88 million capital credit retirement (Link to story).
Capital credit retirements are returned to members in two ways. Current members are given their refunds as a bill credit. Former members receive a check, mailed to the address we have on file.
Former Members – Please be sure to keep TVEC updated with a current address, so that any capital credit retirement refunds can be processed promptly.
Non-Taxable Income – Capital credits are a return of money paid for electricity, and are generally not taxable income for residential consumers. Commercial and industrial consumers should discuss any capital credits retirements with their tax advisers.