Each month, our board reviews financial reports that track the cooperative’s performance against our budget. If you’ve ever looked at the board minutes and wondered what terms like “kWh sales,” “energy revenue,” “purchased power expense,” “TIER,” or “equity” mean, here’s a breakdown.
Monthly Budget for kWh Sales
We budget the number of kilowatt-hours (kWh) we expect to sell each month based on historical patterns, expected weather, and economic activity. When sales are over budget, it means members used more electricity than anticipated—often due to higher heating or cooling needs, increased business activity, or new load growth. This typically results in higher revenue, but also higher power purchase costs. When sales are under budget, usage was less than expected, which can lower revenue and impact our ability to cover fixed costs.
Energy Revenue
Energy revenue is the income the cooperative receives from selling electricity to our members. This number is tied directly to kWh sales, but can also be affected by rate changes, seasonal demand charges, or power cost adjustments (PCA). Over budget energy revenue means we collected more than planned—usually due to higher usage or higher rates in effect. Under budget means we collected less, which may require us to adjust other parts of our budget to stay financially balanced.
Purchased Power Expense
Purchased power expense is the amount we pay our wholesale power supplier for the electricity we deliver to members. This is our single largest expense, often representing 60–65% of our total costs. Over budget purchased power means we paid more than expected—usually because members used more energy or because market costs increased. Under budget means we paid less than planned, which could happen if sales are lower or wholesale prices dropped.
TIER (Times Interest Earned Ratio)
TIER is a financial ratio that shows how many times our net margins cover our interest payments. It is a key measure lenders and regulators use to evaluate our financial health. A TIER of 1.0 means we earned just enough to pay interest with no margin left over. A healthy cooperative typically aims for a TIER of 1.25–2.0, which indicates we are earning enough to meet obligations and reinvest in the system for reliability and future growth.
Equity
Equity represents the members’ ownership in the cooperative. It’s the portion of our assets that we own outright, without debt. Each year, we build equity by retaining margins (profits) until they are eventually returned to members as capital credits. A strong equity position means the cooperative is financially stable, can borrow at favorable rates, and is well-positioned to weather unexpected costs.
The monthly budget and financial indicators in our board minutes aren’t just numbers on a page—they tell the story of how your cooperative is performing and how we are managing resources to keep rates stable, maintain reliability, and build long-term financial health.
Lisa Graba-Meech
CFO
