A cooperative does not earn profits in the way other businesses such as investor-owned utilities do. Instead, any profits or margins remaining after all expenses have been paid are returned to the members in proportion to their use of the co-op’s services through capital credit allocations and retirements.
Capital credits represent each member’s share of the cooperative’s margins and ownership of the co-op. Over time, allocated capital credits are paid back to members. For example, in 2018, the board of directors voted to pay back over $550,000 in capital credits to members who had electric service in 1993. The decision this year fulfills the cooperative’s goal of paying back capital credits to members on a 25-year cycle.
Since the cooperative has achieved this goal, the capital credits of a deceased member (estates) may now be paid without waiting for the 25-year general retirement cycle. This change in policy applies to both future and former estates. However, these estate payments are not automatic. A representative of the estate must request the early retirement of capital credits by contacting the Southern Indiana Power office and executing the proper forms.
In order to maintain financial stability and to be fair to all members, the cooperative discounts (reduces) the amount of the estate capital credits withdrawn early to reflect the time value of money.
The reason for discounting the capital credits is that they are being taken from the cooperative’s operating capital, and if this were performed routinely, the cooperative would need to borrow additional money or raise member rates to secure the necessary operating capital.
Administrators of estates can choose to either receive capital credits at the scheduled 25-year cycle retirement date with no reduction or to receive the remaining capital credits at the discounted rate.
If you have any questions on capital credit estates, please call our office at 812-547-2316.