The Power of Capital Credits

A core principle of co-ops grants new opportunities for community programs

By Vicki Hillhouse

Wewahitchka High School Principal Jay Bidwell uses extra funding from Gulf Coast Electric Cooperative’s capital credits retirement to fund art and music programs, including a ceramics class. Photo by Theresa Sterling

Jay Bidwell knew exactly how he wanted to spend the first capital credit check he ever received as principal of Florida’s Wewahitchka High School. Nine years ago, he took a portion of the credits retired from Gulf Coast Electric Cooperative and introduced fine arts to his school in the rural town of about 2,200 residents and one red light.

“You could see something was missing,” Jay says of the curriculum. “It was music and the arts, and it was
a big deal.”

Funds ranging from $2,000 to $4,000 have rolled in every year since, making up as much as 30% of Jay’s annual discretionary budget. The money has launched guitar, piano, chorus, drama and dance classes. It has also bolstered the school band, which was down to four students before Jay started reinvigorating the programs.

“There had never been any of that stuff outside of maybe little pockets of time in the past,” says Jay, a 1978 Wewahitchka alumnus. “We have been the Golden Age of fine arts at Wewahitchka High School.”

Capital credits are a staple of not- for-profit cooperatives, such as GCEC.

The credits come from the utility’s margins—profit left after expenses each year. Allocations to member-owners are based on their electric use.

For residential users, the model provides a bit of extra cash. In the case of a public school, the allocations are enough not only to build programs, but in some areas, they have the power to help improve the community in the process.

“We are the only show in town,” Jay says. “There’s no Walmart, no movie theater—no place to see a play. We are the academic, cultural and artistic center of all those things in our town. If we have a show, everyone in town turns out. If we have a ballgame, everyone attends. If it’s happening in Wewahitchka, it’s happening at the high school.”

Jay says the deeper students dive into the arts, the richer the experience is for town residents.

According to the National Rural Electric Cooperative Association, which serves and represents the country’s electric cooperatives, co-ops returned more than $1.4 billion in capital credits to their consumer-members in 2021. Between 1988 and 2020, they retired a reported
$19 billion to members.

How Do Capital Credits Work?

How co-ops invest their margins and the timelines for retiring credits varies depending on the individual needs of co-ops in the areas they serve. But the guiding principles are the same for everyone: Consumer rates are designed to generate enough money for co-ops to provide service, pay operating costs, cover debt payments and potentially provide emergency reserves.

At the end of each year, those expenses are subtracted from the revenue collected. What remains are margins, allocated as capital credits to members.

The established credits are not paid out immediately. Instead, the money is used by co-ops to help finance investments in their electric systems or other needed work. The improvements are meant to maintain system reliability that, ultimately, helps keep rates down. Co-op boards determine when to retire capital credits and then pay them out either as checks or energy bill credits.

The credits are given to members of record during the year they retire.

For instance, in 2022, the board at Oregon Trail Electric Cooperative in Baker City, Oregon, authorized the retirement of $3 million in capital credits to members and former members based on their billing dating back to 1996.

Members who move out of the service area should continue to update their contact information with their former co-ops to receive retired capital credits for the periods they had service.

Capital credits can also be donated to the co-op to support the organization’s good work.

Unclaimed credits—those from members with no forwarding information or members who die and have no heirs— may be used for charitable programs and projects in the communities served by each co-op.

At OTEC, unclaimed credits make a massive difference in education, says Lea Hoover, the co-op’s director of member and strategic services.

Unclaimed credits are put into an investment fund. The interest from the investments funds most of the co-op’s robust scholarship program to the tune of about $225,000 a year.

Among them are four full-ride scholarships for students planning to attend Eastern Oregon University. OTEC partners with the university, with each contributing half. Participating students work an unpaid internship at OTEC to qualify for next year’s tuition.

“We look at that as how they’re giving value back to the membership,” Lea says.

Interest from the co-op’s unclaimed credits also funds a $5,000 scholarship for a graduating student to their college of choice, a $5,000 scholarship for a returning college student or adult, $2,500 trade school scholarships, and $5,000 lineworker scholarships.

The co-op funds Youth Tour scholarships for students and—in what’s considered the first scholarship for the youngest members—Dolly Parton’s Imagination Library. This program gives free books to children from birth to age 5.

In addition to unclaimed credits, the investments receive a boost from members who donate their capital credits and estate credits.

Back in Wewahitchka, Jay says the extra funding has provided ways for students to engage in school differently.

“We have a lot of kids who don’t like to come to school,” he says. “I want to make it a joyous experience. I don’t want people to be miserable here. At a very basic level, if we can bring something here that interests them and gives them something to look forward to, learning will come.”

He says investments at the school from capital credits have gone well beyond fine arts. Students’ needs are also met through purchases for athletic programs and trades and fully funded field trips.

Nothing has been as big as developing a fine arts program from scratch.

“I’m not even a fine arts person,” Jay says of his own time in high school. “I was a basketball player. But that first year, when we got on course and had a little concert with maybe five or 6 songs, my students were silently rapt. I thought, ‘My goodness, this is just something in their soul they have been missing.’”