Here are the key risks and opportunities for 2018:
Cybersecurity and Big Data
Co-operatives can be proactive by implementing effective controls to prevent and detect cyber-crime. A successful cybersecurity campaign includes educating employees of potential phishing schemes. Potential effects of a co-op network infiltration can include shut down of an energy grid, re-direction of energy to a particular location, or theft of customer payment information. Management can use simple software applications to create data analytics which help in identifying trends in business and ultimately help make informed decisions.
Power Supply Costs
Even though a proposal exists to repeal the EPA Clean Power Plan, continue to investigate alternative sources of energy, such as wind, solar, and biomass, to further diversify power sources as well as work with communities to deploy energy storage and efficiency technologies. Explore wholesale power markets as a way to obtain reliable electricity at an effective cost.
Safety, Including Overtime Management
Safety is a major concern for co-operatives as their employees routinely work in dangerous conditions (i.e. downed power line in a thunderstorm) that, if not taken seriously, can expose the co-operative. Monitor overtime hours to help protect the safety of employees; this important oversight role is a vital way to control costs.
Community and Environmental Responsibility
As an electric co-operative, you have to balance providing affordable electricity to your community, while protecting it from environmental degradation. You can launch conservation programs in your community by providing information and resources to members about how they can individually reduce their energy costs. This not only saves the members money but also keeps you from wasting energy resources and protects the environment. The enhanced use of social media and technology will facilitate great success in this area.
Succession Planning
As co-operative executives continue to grow older and retire in larger numbers than in the past, there must be a greater emphasis on succession planning and staff development. This risk flows all the way down to recruitment of top talent as urbanization continues to increase in the U.S. and competition from other industry sectors for talent intensifies. Whether you decide to use an internal or external hire to replace key top management, take the necessary steps to ensure a smooth transition.
Adoption of the New Revenue Standard
Co-operatives will need to adopt ASU 2014-09 (Revenue from Contracts with Customers) in 2019 or 2020, depending on fiscal year end. This standard focuses on a five-step process to assess revenue recognition for products and services. The concept of transfer of control is used to dictate when revenue is recognized. Identify your significant revenue streams and apply the new revenue criteria to each stream. In addition to potential changes in revenue recognition, expanded disclosures will be required. Management should use 2018 to assess this standard appropriately.
Adoption of the New Lease Standard
Co-operatives will need to adopt ASU 2016-02 (Leases) in 2020 or 2021, depending on fiscal year end. This standard focuses on placing almost all leases on the balance sheet through a right of use asset and liability. The concept of transfer of control is used to define a lease. The most important step for management in 2018 is to start building an inventory of leases. After the inventory is built, determine the need for investing in lease software to properly track the new accounting requirements.Sources: America’s Electric Cooperatives, Ernst & Young, Coop News, Cooperative Energy, Vanderbilt UniversityElectric Co-operative Key Performance IndicatorsNote: Group consists of various Kentucky-based electric co-operatives.
| Measurement | Trend | 2016 | 2015 | 2014 | 2013 |
|---|---|---|---|---|---|
| Debt to equity | Positive | 1.18 | 1.29 | 1.40 | 1.49 |
| Equity to total assets | Positive | 43% | 41% | 38% | 37% |
| Current ratio | Stable | 1.00 | 0.99 | 1.05 | 0.97 |
| AP turnover | Stable | 15.48 | 17.72 | 16.58 | 15.59 |
| AR turnover | Stable | 13.10 | 16.13 | 14.60 | 16.19 |
| Operating margin %* | Decline | 4.2% | 6.0% | 6.2% | 5.6% |
| Cost of purchase %* | Stable | 70% | 70% | 71% | 72% |
| Capital expenditures %* | Stable | 9.7% | 8.3% | 7.3% | 7.6% |
* Percent of revenue
Overall, the results are positive and show the stability that exists in the electric co-operative industry in Kentucky. Operating margin slipped in 2016 due to a decline in revenue, attributed to weather patterns and increased energy efficiency programs.