CFC s Financial Webinar Series Capital Planning: What do I do now? How to Submit Your Question. Financial Webinar Series. Financial Webinar Series

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1 CFC s Capital Planning: What do I do now? How to Submit Your Question Step 1: Type in your question here. Step 2: Click on the Send button.

2 CFC s Capital Planning: What do I do now? Today s speakers Steve Kettler, CFC Jasen Bronec, Glacier Electric Cooperative Kim Colberg, Linn County REC Polling Question What was the most successful hoax in history? A. The Great Swiss Spaghetti Harvest of 1957? B. The purchase of the Liberty Bell by Taco Bell in 1996? C. The Left-handed Burger King Whopper in 1998? D. Big Ben changing to a digital clock face in 1980? E. Moving the Eiffel Tower from Paris to Euro Disney in 1986?

3 Steve Kettler Vice President, Portfolio Management CFC Plant Investment: A Real Balancing Act Rates Reliability Questions to be Answered 1. Why do we make long term plant investments? 2. How are investments planned and constructed? 3. What are of the impacts of those investments? 4. Are we investing too much or too little? 5. Changes are needed, now what? 6. How can we monitor?

4 A Cooperative Story Actual cooperative example Slow growth in meters and sales Under investment in utility plant Strong balance sheet Competitive rates Strong cash position The Rest of the Story Are the cooperative s electric rates competitive? Is the cooperative retiring patronage capital? How is the cooperative s distribution system performing? Climbing Out of a Hole Education of directors and staff is critical It takes time to dig out of a hole developed over decades It takes money... lots of money!

5 The Result System performance Financial condition Membership s reactions Jasen Bronec General Manager Glacier Electric Cooperative Cut Bank, MT Company Overview Approx 7485 meters and 1893 miles of distribution line Approx 3.95 meters per mile Residential 50%, Small Commercial 37%, Large Commercial 9%, Oil wells 3%, Irrigation 1% Annual Sales 165 million kwh Serve Blackfeet Indian Reservation and East side of Glacier National Park

6 Mission Statement Committed to being Competitive, Reliable, and Innovative for our membership. History Between 1997 and 2001 Glacier Electric Rapidly Invested in Technology. Capital Investments Included: GIS Automated Staking System Mobile Computer Systems SCADA 8 Substations and 60 Line Devices AMR Hunt Technologies Fiber Glass Poles Electronic Relays; OCR and Regulator Controls History Continued Technology projects can get out of control Technological based capital projects can result in scope creep and loss of focus Technology capital projects were difficult to justify cost vs. benefit Ongoing operating costs; software upgrades, beta testing, and software maintenance fees created significant rate pressure. Departments had pet projects. Lost focus.

7 Financial Impacts Long-term debt levels increased from $14 million in 1997 to $25 million in 2001 Equity as a percent of assets declined to 25.5% in 2001 Long-term interest as a percent of revenue was 12% Total Utility Plant increased from $31 million in 1997 to $42.5 million in 2002 Board Strategic Planning Desired conditions in 5 years Debt Reduction Plan Equity Management Plan Long and Short Range Work Plans Financial Education The Plan Financial Forecast 5 year outlook Management Action Plan Support from the Cooperative Family

8 Management Action Plan TARGETED ITEM CURRENT STATUS ACTION REQUIRED RESOURCES REQUIRED DATE OF COMPLETION TWACS System Need stabilization and updating of current AMR system Complete 1200 single phase meter change outs to TWACS Complete 200 three phase meter change outs to TWACS Purchase of 500 disconnect collars Purchase of 300 In Home Displays Reconciliation of meter Credits General Manager Manager of Technical Services March 2011 March 2011 January 2011 January 2011 April 2011 Capital Purchases Annual Budgeted Capital Safety Clothing Purchases Line Truck Backhoe Mower Deck Substation Generators General Manager Operations Manager December 2011 September 2011 April 2011 April 2011 August 2011 Lessons Learned Continue to focus on Balance between Operating Budget, Capital Budget, and Cash Budget Technology Projects Hidden Costs Vendors Over Simplify Chasing all the Bells and Whistles Stay Focused Project Planning and Administration Watch Depreciation Schedules Lessons Learned Cont. Slow and steady change to correct financial condition. 10 year process for Glacier Electric Important to stay focused on the plan and stay within the Financial Means of the cooperative. Important to complete work plans, strategic planning sessions, financial forecasts, and management action plans. Stay focused on the mission and values of the cooperative.

9 End Results Equity as a percent of assets is 46% Long-term debt level at $16.5 million Total Utility Plant at $51 million Continue to invest in value added technology Retired $1.2 million in capital credits in 2010 Two rate increases in 10 years. 7% in 2007 and anticipated 8% in Oct. of 2011 Is the oldest coin in the world today made from A. Gold B. Silver C. Electrum D. Obsidian E. Copper Polling Question Kim Colberg General Manager Linn County REC

Service Area LCREC Growth Economic Development Efforts Iowa s Defined Service Territories Urban Growth Spillover Growth Numbers 2000

10 Service Area LCREC Growth Economic Development Efforts Iowa s Defined Service Territories Urban Growth Spillover Growth Numbers Services (Begin Yr) 15,277 20,207 24,417 New Services 841 1, TUP $ 45,484,689 64,177,056 91,753,481 Employees

11 Show Me the Money New Services More Load System Upgrades Additional Employees More Equipment Space! Capital Budget Percentage New Services 35.35% System Improvements and Upgrades 48.57% Substation Construction 1.63% Total of New Services, Sys Improve and Subs 85.55% SCADA/OMS/GIS 6.97% Vehicles 5.38% Buildings/Grounds/Office/Computers 2.10% Staying Ahead Of the Curve Add Employees or Add Contractors Employees for Member Oriented Work Contractors for URD Replacement, Substation Work, Staking Line Construction Limited to Capacity Needs and Member Requests

12 Deposits Subdivision Emphasis Upfront Dollars No Interest Refundable Retain If Held 10 Years Availability of Funds November 1997 RUS Buyout Power Vision Loans 1998 $13 Million 2002 $15 Million $25 Million; Raised Max. Debt Limit $34 Million Equity as a Per Cent of Assets

13 Distribution Rate Change History Rate Change New Revenue Services Assets % ($88,087) 10,498 $18,019, % $993,335 11,521 $24,135, % $1,442,653 18,376 $51,398,539 Dec-10 25,645 $91,753,481 Planning Tools Engineering Work Plan Long Range Engineering Plan G&T Annual 20 Year Load Forecast CFC Financial Forecast Partnerships Cities and Counties Vendors Contractors Neighboring Utilities

14 CFC Tools Knowledgeable Staff Regular Visits Responsive Banker Key Resources Available From CFC Education courses Long-Term Plant Investment Trade Off Between Debt and Equity Financing Strategic and Business Planning Understanding Financial Statements Effects of Board Decisions on Your Financials What the CFC Banker Sees Capital credits Resources Available From CFC KRTA - Key Ratio Trend Analysis COMPASS - long range financial forecast model BudgetPro - annual operating and capital budgeting Specialized models, guidance and assistance as requested just ask

15 Resources Available From CFC Accessed through the Regional Vice President and/or the Associate Vice- President Give them a call or today Don t Know Them: Check out CFC s website or call CFC s HQ and ask who my RVP or AVP is CFC s website also contains resources Now let s turn it over to our audience! How to Submit Your Question Step 1: Type in your question here. Step 2: Click on the Send button.

16 Are you getting our ? Are you getting our ? Ask IT to Whitelist Magnet Mail The IP address numbers Have a problem? Drop me a line. Please take a minute to complete the NRECA survey. Your responses will help us improve the broadcast quality of these Web conferences!

17 Events & Training Tab Look for the replay of this program early next week Want to learn how CFC can help you with your capital planning? Then contact your Regional Vice President for more information. Send it to: Have an idea for a Web conference? Bill.Clayton@NRUCFC.coop

18 Mark Your Calendar For Our Next Event: May 11, 1 p.m. Eastern Time Co-op op Investment Strategies

CFC s Financial Webinar Series The CFC KRTA: Five Key Ratios for Directors. How to Submit Your Question. Financial Webinar Series

CFC s Financial Webinar Series The CFC KRTA: Five Key Ratios for Directors. How to Submit Your Question. Financial Webinar Series CFC s The CFC KRTA: Five Key Ratios for Directors How to Submit Your Question Step 1: Type in your question here. Step 2: Click on the Send button. CFC s The CFC KRTA: Five Key Ratios for Directors Today