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FREQUENTLY ASKED
QUESTIONS
Q: What is Patronage Capital?
A: Patronage Capital, also known as Capital
Credits, comes from the money a cooperative
has left over after paying all of its expenses in a
given year. At the end of the year, that money
is credited to each member’s Patronage Capital
account according to the amount paid for
energy used.
Q: What are Margins?
A: Margins are what are left over at the end of the
year after KIUC has paid all expenses. Your
share of any operating margins is credited to
your Patronage Capital account. In other
business organizations, this would be called
profit.
Q: Why don’t you call this profit?
A: As a cooperative, we are here to provide a
service, not a profit. Any revenue collected
that is not needed to cover the cost of
providing service is set aside and divided
among the members in proportion to their
patronage (how much electricity they paid for
during the year).
Q: When will I get my Patronage Capital back?
A: Patronage Capital can be paid back to the
members upon approval from the Board of
Directors and our lender.
Q: If I move away, will I get my Patronage
Capital?
A: Yes, your Patronage Capital that has accumulated
in your account will remain in your name. It is
important that you keep KIUC informed of your
current address so that you will receive your
check when a general refund of Patronage
Capital is made.
Q: What line items on my bill are included in
determining Patronage Capital Refunds?
A: The following items are included: Kilowatt Hour
(kWh) Charge, Customer Charge, Energy
Adjustment, Minimum Charge, Resource Cost
Charge, Streetlight (SL) Fixture Charge, Demand
Charge.
Q: Do I have to pay taxes on my Patronage
Capital Refunds?
A: Please consult with your tax advisor for any
potential tax implications.
Q: Why don’t you send me the money?
A: As with any other business, it is necessary to
MEMBER GUIDE
TO PATRONAGE
CAPITAL REFUNDS
& ACCOUNTS
maintain a certain amount of equity capital.
Your Board of Directors determines annually
the prudent balance between retained equity
and patronage capital refunds. Also, we must
meet any requirements placed by our lender.
Q: Is interest paid on Patronage Capital?
A: No. Since KIUC is non-profit and member
owned, you do not receive interest or
dividends on your Patronage Capital Account.
4463 Pahee Street, Suite 1
Lihue, Hawaii 96766-2000
808.246.4300
www.kiuc.coop
KIUC is an equal opportunity provider and employer.
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PATRONAGE CAPITAL &
PATRONAGE CAPITAL
ACCOUNTS
As a member of an electric cooperative, you
receive a benefit reserved for owners of a
company — a return on your investment through
the disbursement of capital credits.
Capital credits come from the money a
cooperative has left over after paying all of its
expenses in a given year. At the end of the year,
that money is credited to each member’s account
according to the amount paid for energy used.
This account is your equity in the co-op.
When KIUC’s finances permit, that money will be
returned to members in the form of patronage
capital refunds.
A rural electric cooperative is a non-profit
business that exists solely to provide its members
with electricity. In a co-op, margins don’t belong
to the company; they belong to the individual
members who paid money on their monthly bills.
WHAT THIS M EANS FOR
M EMBERS OF KIUC
At KIUC, your equity is based on the amount
paid for energy used during the year — the more
you buy, the higher your share of equity. We set
up a credit account that shows the share of the
year’s accrued margins belonging to you. As
additional member equity funds come in year
after year, KIUC will be able to “retire” some of
its accrued capital credits from your account,
issuing patronage capital refunds to members.
Your elected Board of Directors and the bylaws
determine how and when capital credits are paid,
or “retired” to members. KIUC’s bylaws have a
provision for repayment of capital credits on a
rotating basis. The retiring of capital credits
depends on the successful operation of the
cooperative, its financial status and the level of
loan repayments.
In effect, the members of a cooperative are the
shareholders. Because of that, when the
cooperative takes in more money than is needed
to operate the business, pay outstanding loans and
pay any additional expenses, the owners are
entitled to a share. That’s the philosophy behind
member equity.
You might ask, “Why don’t you just break even?” A cooperative isn’t in business to make
money, so it might seem like it should establish a budget and rates that would allow it to
break even each year, rather than show a profit. While this may seem desirable, the
business of generating and distributing power is very expensive, and maintaining power
lines is subject to outside forces — most notably, weather. In addition, KIUC invests in
capital projects for future system reliability and growth.
It is impossible for KIUC’s management and board to plan the operations of KIUC so
precisely in advance that revenues and expenses come out perfectly even at the end of each
year. To prove to its lenders it is financially sound, some margin must remain after
expenses so we can continue to operate. Like any business, KIUC must have money on
hand to provide current operating funds and set up a reserve against emergencies.
G LOSSARY
OF
TERMS
Capital Credits
(see “Patronage Capital”)
Cooperative Principles
The cooperative principles are: 1) voluntary and
open membership; 2) democratic member
control; 3) member economic participation,
including limited return of surplus to members;
4) cooperative autonomy and independence; 5)
cooperative education, training and information;
6) cooperation among cooperatives; and 7)
concern for community.
Margins
The difference between a cooperative’s income
and its expenses; returned to members in the
form of patronage capital as the cooperative’s
financial status allows.
Patronage Capital
Margins credited to members of a cooperative
based on their purchases from the cooperative;
used by the cooperative as working capital for a
period of time, then paid back to the
membership; also called capital credits; should
not be confused with profits, which are a return
on capital; retirement of patronage capital is a
return of member-furnished capital.
Patronage Capital Accounts
An individual account containing all unpaid
margins; used by the cooperative for payment of
loans, purchasing fuel and overall operations.
QUESTIONS ABOUT
HOW IT WORKS?
Contact us at 808.246.4300
or visit www.kiuc.coop