Capital credits are a unique benefit of being a member-owner of an electric cooperative. Because cooperatives operate on a not-for-profit basis, any margins—revenues remaining after all operational expenses are paid—belong to the members themselves. These capital credits reflect each member's ownership stake and are returned based on how much electricity they used during the year the margins were generated. The process involves two main steps: allocation and retirement.

The first step is Allocation. Each year, the cooperative determines its margins, and your share is calculated based on your electric usage for that period. This amount is formally assigned or "allocated" to your capital credit account. Your co-op meticulously tracks the amount allocated to each member to ensure accuracy when the time comes for these credits to be returned.

The second step is Retirement, which refers to the actual payment of capital credits back to members. Before retirement happens, the allocated capital credits are retained by the cooperative, often for a period up to 25 years, forming the cooperative's equity. This equity is crucial; it's the most significant source of funding for the co-op, used to cover essential expenses like maintaining and upgrading the electric system (poles, wires, equipment), meeting financial obligations, and reducing the amount of money that needs to be borrowed. By using this member-provided equity, the cooperative can help keep electricity rates more affordable.

Finally, the decision to retire capital credits rests with the Board of Directors. Each year, the Board evaluates the cooperative's financial health and stability. If conditions are favorable and it's deemed financially prudent, the Board will approve the retirement (payout) of capital credits allocated for a specific past year or years. When capital credits are retired, members who received electric service during those designated years receive their share, typically as a check or bill credit.