Money MattersJuly 2020
All SVEC employees are responsible for being continuously mindful of how consumer-members’ money is being spent. This is especially true for the finance and accounting group, which is dedicated to keeping the cooperative on firm economic ground.
The group keeps an eye on SVEC’s expenditures and manages the co-op’s revenues, loan funds, cash, and warehouse operations.
“We are a very capital-intensive industry,” says Chief Financial Officer Christine Moor. “It takes a lot of physical materials, and we have to build a whole lot of infrastructure to get power to our members.”
To help pay for that infrastructure, SVEC maintains relationships with three lenders: USDA’s Rural Utility Services (RUS), Cooperative Finance Corp., and CoBank. Their loans provide the majority of the cooperative’s funding — about 60%. The other 40% comes from consumer-members in the form of bill payments.
Some people might be surprised to learn that so much of the cooperative’s funds at any given time come from loans. But according to Moor, that isn’t unusual for the electric industry.
“It’s not just cooperatives. I’d say most utilities have a similar structure,” she says. “We could have zero debt, but our rates would have to be very high to compensate. So it’s to our benefit and to the benefit of our consumer-members to keep that debt piece there.”
Loans make it possible to invest in large-scale projects, like a new substation or a systemwide upgrade, without requiring members to pay the entire cost upfront. Instead, those expenses are spread out over a 30-year period, keeping electric rates affordable.
It also ensures that members are only paying for the service and system improvements that they use. If today’s members were asked to pay for every improvement to the system with their rates, they would also be paying for the service members will enjoy 30 years down the road. “This way, the members who benefit from an investment are the
ones paying for it,” Moor says.
A Road Map
Thinking decades ahead requires careful planning. Accordingly, the cooperative regularly updates its long-term financial plan to meet the organization’s evolving goals. Some of the plan’s metrics are set by lenders while others are dictated by SVEC’s board of trustees.
“Our lenders want to know that we’ll be able to repay them,” says Moor. “So we are required to maintain several financial ratios at or above specified minimums.”
One such ratio is the Times Interest Earned Ratio (TIER). TIER is a measure of SVEC’s ability to generate margins (revenues minus total expenses) sufficient to cover interest expenses on long-term debt.
Meanwhile, the board of trustees wants the security of knowing that in the event of an emergency, like a hurricane, SVEC has lines of credit that will provide quick access to the funds needed to recover. Ultimately, the financial plan provides a guide for staying within budget and a safe pathway forward.
Our annual operating and capital budgets must align with our long-term financial plan,” Moor says. “If they do, we believe our expenditures are at an appropriate level to move us in the right direction.
As required in the cooperative’s Bylaws, the board also causes the cooperative to undergo a full independent audit of the co-op’s accounts, books, and financial condition as of the end of every fiscal year. SVEC always receives clean audits with the highest assurance from auditors that the cooperative’s financial statements are accurate.