Capital Credits

You need to know two things about capital credits in order to understand how they work for you:

1. Allocations: Each year, you are "allocated" your portion of the previous year's margins based on the amount of electric service and power delivery you purchased from OTEC in relation to the total amount purchased by all members during the year. This amount is used by OTEC to fund capital needs for items such as power line construction, transformers, trucks, inventory and other equipment. This is an underlying principle of the cooperative business model and is one more way we keep your electric rates as low as possible. This "allocation" becomes your equity in the cooperative and is maintained in a separate account assigned to you.

2. Rotation or “retirement”: This is what you will get in cash at a later date. OTEC uses the amount "allocated" to you for a time, but then returns this amount to members. When it is your turn in the retirement rotation, this is when you get actual “cash back” dollars. 

Per cooperative bylaws, your locally elected Board of Directors determines the amount of rotation cycled (cash back) each year, based on the financial condition of the cooperative and other considerations. These payments are usually made in December in the form of checks or bill credits.

The member should inform our office of any changes in his or her mailing address. It is a member's responsibility to make sure the cooperative has up-to-date address information at all times. By keeping your contact information up to date, you can take full advantage of the services your Oregon Trail Electric Cooperative offers.

Each member has a separate capital credit account, which represents the member's ownership in the cooperative. When capital credits are allocated at the end of a year, all members who received electric service during that year will receive an allocation notice showing their current year's allocation and their accumulated balance of all prior years’ service.

For individuals, capital credits are generally not taxable. We suggest you seek the advice of a tax professional for any specific questions.

There is one special condition when a capital credit balance may be “cashed out” or refunded before the 30-year maturity date. When a member dies, OTEC’s Bylaws allow the surviving spouse or executor of the estate to apply for early retirement of all balances.[1] There are three options for the spouse, executor, or heirs to consider:

• The first option is to continue and wait for the capital credit refund to be processed through the normal annual retirement schedule. (up to 30 years)

• The second option is to apply for early retirement of the deceased member’s capital credit account. To ensure all members are treated fairly, particularly those who are not receiving full cash-outs before the rest of the membership, the capital credit balance is discounted or reduced to the present value.

• The third option is to donate the entire capital credit balance to OTEC’s scholarship fund. In 2020, 32 deserving students received scholarships to continue their education beyond high school. For more information visit our Community page.

Net Present Value (NPV) formulas are used to determine today’s value of money that would otherwise have been paid in a series of payments through OTEC’s normal retirement process over 30 years. Capital credits earned one year ago have less value than those earned 20 years ago. The three key factors in NPV formulas are time, NPV rate, and balance. OTEC currently uses a 20-year maturity, and a 5.45% discount rate when calculating the current worth of the capital credit account balances.

Example:

Mary Jones’ daughter applied for early retirement of capital credits after her mother’s death. Mary Jones’ capital credit account shows a balance of $1,400 which is an accumulation of a series of margins allocated from 1999 to 2016.

Net Present Value Explained

Click here to see the calculation table