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CFC’s Financial Webinar SeriesConsidering Equity Management
Financial Webinar Series
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CFC’s Financial Webinar SeriesConsidering Equity Management
Financial Webinar Series
Financial Webinar Series
John Grant
CFC
Steve Kettler
CFC
Financial Webinar Series
What percent of those who started a
New Year’s resolution actually were
successful?
• 12%
• 20%
• 25%
• 30%
• 50%
Financial Webinar Series
Today’s takeaway:
Have a plan with smaller, bite-sized goals…
and you’re much more likely to achieve your
overall objective!
Financial Webinar Series
John Grant
CFCVP, Program and Planning Analysis
Financial Webinar Series
Loaded
with
examples
and
resources!
Financial Webinar Series
Steve Kettler
CFCVP, Portfolio Management
Financial Webinar Series
A Taste of
CFC’s
New
Guide
Financial Webinar Series
The Guide’s Chapters
• Introduction - Basics
• Developing an Effective Equity Management
Plan
• The Changing Business Environment
• The Impact of G&T Issues on Distribution System
Equity Management
• Ongoing Responsibilities
• Appendices
Financial Webinar Series
History of Equity Policy in the Electric
Cooperative Industry
• Earliest Days: REA (RUS) Policy and Mortgage
Provisions
• 1976: Capital Credits Study Committee
• 2005: Capital Credits Task Force
• 2012: CFC’s “Considering Equity
Management” Guide Released
Financial Webinar Series
Introduction - Basics
• Electric Cooperatives Need Cash
• Where Does the Cash for Capital Investment
Come From?
– Equity capital
– Debt capital
• Equity Level Risks
– Too low?
– Too high?
Financial Webinar Series
The Equity Continuum
0% 100%Equity
Risk
Lower
Higher Creates high interest cost and margin requirements
Creates the need for high margins to cover 100% of plant investment
Optimal equity results inlowest cost to the member
Financial Webinar Series
Measuring Equity
• Key Ratio Trend Analysis (KRTA)– Ratio #16 – Equity level as % of total assets
– Ratio #18 – Equity level as % of total capitalization
– Ratio #17 – Distribution equity (excludes G&T equity)
• Comparing Ratios Can be Instructive
Financial Webinar Series
Equity Development Plan
• Responsibilities– Board of Directors
– Management
• Setting an Equity Target– Typically a range
– A balancing act
Financial Webinar Series
“Optimal Equity Level”
Financial Webinar Series
Answering Key Questions – a Few Examples
• Outlook for Future Member Growth?
• What are Our Cash Flow Requirements?
• Are We Well Positioned to Respond to Storms, Etc.?
• Are We a Potential Takeover Target?
• Is There a Potential Merger in the Future?
• Is There a Potential Acquisition in the Future?
• Do We Have Concentration of Customers?
• What is the Condition of Our System?
Financial Webinar Series
Three Equity Numbers To Know
• Current Equity Level
– The starting point
• Optimal Equity Level
– Use four key decision points to calculate optimum
range
• Strategic Equity Range
– Optimum range adjusted for strategic issues
Financial Webinar Series
Financial Webinar Series
How Do You Get There?
• Modeling - Long Range Financial Forecast &
Others
• Benchmarking – KRTA
• CFC Regional Vice-President
• Equity Management Policy Template –
Appendix 5
• Manage to Achieve Goals
Financial Webinar Series
Today’s Approach
• Introduction
• Developing an Effective Equity Management Plan
• Changing Business Environment
• Impact of G&T Issues on Distribution System Equity Management
• Ongoing Responsibilities
• Appendices
Financial Webinar Series
Changing Business Environment
• Environmental Scan
• Increasing Power Costs
• Changing Patterns of Load Growth
• Competition, Growth, Economy, Etc.
• KRTA Connections
Financial Webinar Series
Today’s Approach
• Introduction
• Developing an Effective Equity Management Plan
• Changing Business Environment
• Impact of G&T Issues on Distribution System
Equity Management
• Ongoing Responsibilities
• Appendices
Financial Webinar Series
G&Ts and Equity Management
• Purchased Power Major Component of
Distribution Cost
• G&Ts Must Generate Margins
• Financing and the Capital Markets
• Coordination Between G&Ts and Member Systems Desirable
• Allocation Versus Retirement
Financial Webinar Series
Today’s Approach
• Introduction
• Developing an Effective Equity Management Plan
• Changing Business Environment
• Impact of G&T Issues on Distribution System Equity Management
• Ongoing Responsibilities
• Appendices
Financial Webinar Series
Ongoing Responsibilities
• Review and Update Annually
• Communicate, Communicate, Communicate
Financial Webinar Series
Today’s Approach
• Introduction
• Developing an Effective Equity Management Plan
• Changing Business Environment
• Impact of G&T Issues on Distribution System Equity Management
• Ongoing Responsibilities
• Appendices
Financial Webinar Series
Appendices
1. A Step-by-Step Guide to Developing an Equity
Management Plan
2. How to Calculate a Target for Margins
3. How to Calculate the Hypothetical Lowest-Cost
Equity Target
4. The Goodwin and the Boatman Theorem
5. Equity Management Policy Template
6. Glossary
Financial Webinar Series
Now…let’s turn it over to our audience!
Financial Webinar Series
How to Submit Your Question
Step 2: Click on the Send button.
Step 1: Type in your question here.
Financial Webinar Series
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your RVP.
Financial Webinar Series
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Financial Webinar Series
WWW.NRUCFC.COOP
Events &
Training Tab
Look for all of
our program
recordings
right here!
Financial Webinar Series
Mark Your Calendar For Our Next Event:
April 11,
1 p.m. Eastern Daylight Time
Uncollectables and the Rise of Uncollectables and the Rise of
Prepaid MeteringPrepaid Metering
Financial Webinar Series
For Directors, Our Next Event is:
April 19,
3 p.m. Eastern Daylight Time
Considering Equity Management:Considering Equity Management:
The Directors CutThe Directors Cut
Financial Webinar Series
This program—Considering Equity
Management—is a copyrighted presentation of CFC. No portion of this
program may be reproduced, used or distributed without CFC’s written consent.
Financial Webinar Series
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