Assessing the Cooperative’s Financial Health

If you want to increase your personal health, eating a balanced diet of healthy foods, exercising regularly, getting enough sleep and staying hydrated are a few of the steps you might take to reach that goal. Scheduling regular checkups with a healthcare provider and completing any recommended medical tests or procedures are also critical to a healthy lifestyle.

Maintaining Victory Electric’s financial health and stability is a primary responsibility of the Victory Electric Board of Trustees and management team. Board members regularly monitor financial reports and make strategic decisions as part of their fiduciary duty to the cooperative. To ensure fiscal responsibility, Victory Electric also hires independent financial experts and advisors to conduct annual audits and other evaluations.

Just as your doctor might check vital signs and examine test results to ensure you are functioning well and in good health, these standard financial checkups detect potential problems and guide decisions that will keep the organization strong and resilient for members.

What is a Cost-of-Service Study?

Power System Engineering (PSE) has been conducting an independent, comprehensive cost-of-service study (COSS) for Victory Electric. After initiating the study in 2023, PSE has been thoroughly examining the cooperative’s finances using industry-standard methods.

A COSS is a fundamental tool for evaluating how and why costs are incurred. Residential and commercial rate classes have unique load and service characteristics that affect costs for those classes. The consultants apply standard regulatory methods to analyze service costs for each Victory Electric rate class. The consultants also determine the cooperative’s revenue requirements for paying expenses and having adequate margins, then provide impartial recommendations based on their findings. These guidelines help the board allocate costs fairly to each rate class and make any rate or policy changes as needed.

As a not-for-profit cooperative, Victory Electric exists to serve member-owners with safe, reliable and affordable power. Unlike investor-owned utility companies, which are accountable to outside investors, electric cooperatives are accountable to their member-owners. As a self-regulated utility, Victory Electric’s trustees are responsible for setting reasonable, equitable rates and establishing fair electric service policies for the cooperative.

The board sets rates to generate enough revenue to pay operating costs, make payments on loans and provide an emergency reserve. If revenue exceeds operating costs, the difference is considered “margins.” Any margins are invested into the cooperative as operating capital for a period of time, then allocated to members in the form of capital credits. 

Victory Electric has been experiencing extensive growth, and the costs associated with adding substations, inflation and the need for more employees and contractors must be incorporated into the COSS. Some of these costs are offset by additional margins generated by new loads. 

The rate study process can be lengthy, and revisions take time because decisions about rates are based on actual usage and costs plus assumptions that account for future needs.  A COSS requires a lot of detailed data that needs to be reviewed carefully and validated. 

Just as keeping tabs on your personal health requires an ongoing commitment, maintaining the financial well-being of Victory Electric requires continuous attention and planning. By regularly evaluating financial indicators and conducting thorough studies by outside professionals, the trustees and management team ensure the cooperative will remain strong, resilient and prepared to meet the evolving needs of its member-owners for years to come. These practices safeguard the cooperative’s vitality, much like regular checkups and healthy habits preserve your own health.