From a Director—Cindy Condon

November 01, 2021
Article

Capital Credits . . . A Capital Idea!

Salem Electric members are owners of Salem Electric and receive more than just power and good service from us. Salem Electric’s primary source of revenue is selling power to our member/owners. As a not-for-profit electric cooperative, a 501(c)12 corporation, Salem Electric must generate enough revenue to meet the operating and capital needs of the business. At the end of the year, if revenues exceed expenses, our member/owners receive a benefit. Each member that received electric service during the year is allocated or credited a share of the margin (aka profit in the for-profit world) based on the amount they paid to Salem Electric for power and service during the year. This allocation is referred to as capital credits. Each spring members receive a Notice of Allocation which specifies what their allocation is for the past year.

For illustration, if you paid $1,000 to Salem Electric and SE generated revenue of $20,000,000 and a margin of $1,000,000 in the year, you would be allocated $50 in capital credits. 

These credits add up over the years and eventually are paid out to member/owners after about 20 years. Member equity on the balance sheet from the most recent annual report was $39,229,782. Salem Electric currently has a policy to retire, or pay out, 5% of the member equity each year on a first-in, first-out basis, IF the financial condition of the cooperative allows for such distribution. Salem Electric has paid out capital credits every year since 1978! Capital credits earned this year will likely be paid out in 2041.

Salem Electric’s most current annual report, includes member equity balances, the statement of income and expenses, and more.