New Year, Stronger Foundation

Posted: January 1, 2020 at 7:00 am

Cloverland’s message in its 2018 Annual Report was entitled “Strength in Numbers.” The message delivered the board’s renewed focus on the cooperative’s long-term financial health. Toward that purpose, the board and management team developed financial and operational goals measured by standard industry metrics to guide decision making and establish a strong financial foundation. At the heart of the established goals were the overriding cooperative goals of providing safe, reliable, and affordable electricity.

Budget Highlights – It Starts With a Map

As Suze Orman is credited with saying “It’s impossible to map out a route to your destination if you don’t know where you’re starting from.” The board recognized that the cooperative’s debt position was costing hundreds of thousands per year in unnecessary interest expense and hindering its ability to spend the funds necessary to maintain its system. With a focus on debt reduction, as measured by an increase in the cooperative’s equity ratio toward a goal of 30%, the board approved a 2019 budget that focused spending on improving long term reliability, without increasing the rates paid by our members.  In the 2019 Annual Report (to be released April 2020), we are anticipating announcing financial results that surpassed expectations.

For 2020, we look to continue along the same path of financial improvement with a focus on long-term reliability. With 45 percent of all outages caused by trees on lines, we have increased our vegetation management budget with a goal of managing nearly 4,000 miles of distribution lines on a seven-year cycle. Also, we will conduct a right-of-way study to determine where we can identify greater efficiencies while controlling the cost of our vegetation management plan. The cooperative will also complete studies to assess the efficiency and condition of the hydroelectric plant focusing on maximizing efficiency cost-effectively.

With these specific goals in mind, Cloverland’s Board of Directors unanimously approved the 2020 budget at the October 2019 meeting. This budget will allow Cloverland to continue to build on the financial progress of 2019 while continuing our efforts to improve the reliability of our system. While we are proud of the progress made so far, we recognize there is more road yet to travel.

Capital Credits – Returning Your Investment

In consultation with senior management, the board elected not to retire capital credits in 2019. The board and management understand that retirement of capital credits, which represents a return of funds members have paid to support the cooperative’s growth, is an important facet of cooperative membership and a measure of success. However, funding capital credits by increasing an already heavy debt burden is not a sensible strategy. This factor is why Cloverland staff, working closely with the board, has a goal to fund capital credit retirements without negatively impacting the long-term goal of an optimal equity ratio. With expected strong financial performance in 2019 and a budget that continues to strengthen the financial foundation, we have budgeted $500,000 for capital credit retirement for 2020.  While this amount is less than what is needed to revolve equity capital on a 30-year cycle, it is a strong first step toward a consistent and sustainable capital credit retirement program.

Kind regards,
Michael (Mike) Heise