Industry Trends | Power & Utilities

Lease Accounting Strategies for Electric Cooperatives

Funding Strategies for Short-Lived Assets

Electric cooperatives must balance modernization, regulatory requirements, and financial limitations while ensuring reliable service. Acquiring and managing short-lived assets—such as IT hardware, vehicles, and specialized equipment—requires a thoughtful funding approach to help maintain financial stability and operational efficiency.

In a recent webinar with CliftonLarsonAllen (CLA), Rachel Dodson of First American Equipment Finance and Luke Greden, Principal at CLA, shared financial strategies designed for electric cooperatives.

Exploring Funding Options

Electric cooperatives have multiple funding options for asset acquisition, each with distinct advantages and trade-offs. Cash reserves provide a straightforward solution but limit liquidity for other strategic initiatives. Grants can support large projects but often come with strict eligibility and reporting requirements.

Traditional financing offers flexibility by spreading payments over time, but it typically results in ownership at the end of the term, making it well suited for long-term assets. In contrast, leasing can provide both financial and operational flexibility by reducing upfront costs while offering the option to return, renew, or purchase equipment at the end of the lease. This structure helps enable cooperatives to better manage asset lifecycles and mitigate risks associated with ownership of equipment such as IT systems, fleet vehicles, and facility infrastructure.

Advantages of Leasing and Financing

For many cooperatives, leasing and financing strategies help unlock financial agility and can preserve cash flow for other priorities. Operating leases offer fixed payments for budget predictability, along with the flexibility to replace, upgrade, or return equipment as needs evolve. Additionally, leasing helps align cash flows by structuring payments to correspond with the anticipated revenue generation of the equipment. By investing in asset residual value, lessors can offer lower lease payments—helping cooperatives stretch their budgets further.

Common Assets to Lease or Finance

Leasing and financing can be applied to a broad range of essential cooperative assets, including:

IT hardware and software for metering and network connectivity.
Broadband infrastructure to support expanded service offerings.
Vehicles and material handling equipment, such as bucket trucks and trailers.
Office and warehouse renovations to enhance operational capacity.

Financing these assets can help cooperatives modernize operations, manage financial risk, and maintain liquidity.

Accounting Considerations

Understanding how lease accounting standards impact financial reporting is key to building an effective asset strategy. Under ASC 842, both operating and finance leases must be reflected on the balance sheet as right-of-use (ROU) assets and corresponding lease liabilities—changing how leases are tracked but not necessarily their financial impact.

“With the new standard, we now have to show a right of use asset, and then an operating or financing lease liability on the balance sheet.” - Luke Greden, Principal at CLA

During the webinar, Greden shared a practical example from his experience: a $224,913 utility vehicle lease structured over 72 months. Because this was an operating lease, the lessee records a single lease expense each month and shows all payments as operating activities on the cash flow statement. Notes to the financial statements include costs associated with all leases during the year under audit, cash flow information, and a maturity analysis of annual undiscounted cash flows for the lease liabilities for all future years.

Financial Statement Notes Example

For a more detailed walk through of these notes, watch the webinar recording.

This structure keeps monthly accounting simple while supporting long-term planning.

Leasing also allows co-ops to align funding with operational needs—whether it’s preserving cash flow, mitigating obsolescence, or leveraging tax benefits like Section 179 and bonus depreciation.

Solutions Tailored to Your Needs

Looking ahead to 2025, cooperatives face continued pressure to modernize infrastructure while managing rising costs and meeting the evolving compliance standards. Strategic funding plays a critical role—not just in acquiring equipment, but in building long-term operational resilience.

As discussed during the webinar, aligning funding structures with broader financial goals is key. Tools such as operating leases, sale leasebacks, and pre-approved lease lines offer flexibility to support ongoing investments without overextending balance sheets.

Approximately 80% of U.S. companies use some form of leasing or financing to acquire equipment—reflecting its value as a strategic tool for managing assets and capital.¹

With supply chain conditions shifting and capital equipment prices still elevated, now is an opportune time to reassess funding strategies. As grid modernization, broadband expansion, and fleet electrification remain top priorities, flexible structures can help cooperatives adapt while maintaining financial agility.

Source:

Equipment Leasing and Finance Association, Industry Overview, 2024

This has been prepared for informational purposes only and is subject to change at any time without notice. It is not intended to be used as tax, legal, or accounting advice. Consult with a tax, legal, or accounting professional for guidance.

All transactions are subject to credit approval. Eligibility for a particular service is subject to final determination by First American Equipment Finance. Some restrictions may apply.

About the Speakers

Luke Greden

Principal, CliftonLarsonAllen

Luke is an assurance principal with a decade of experience in public accounting, specializing in audits for rural electric cooperatives, nonprofit organizations, school districts, and other governmental entities. His expertise includes federal grant program audits, covering areas such as disaster relief, hazard mitigation, child nutrition, and COVID relief funding.

Luke frequently speaks at industry conferences, including those hosted by state rural electric cooperative associations and the National Society of Accountants for Cooperatives. His deep understanding of regulatory and financial reporting requirements helps electric cooperatives navigate evolving challenges with confidence.

Rachel Dodson

Relationship Manager, First American Equipment Finance

Rachel collaborates with electric cooperatives to develop tailored leasing and financing solutions that align with their financial and operational goals. She is committed to building long-term relationships and delivering strategies that help cooperatives maintain financial flexibility while modernizing critical infrastructure.

Her passion for the Power & Utilities industry comes from working with professionals who ensure the country’s energy reliability. As an active member of the National Rural Electric Cooperative Association (NRECA) and the American Public Power Association (APPA), she remains engaged in industry developments to provide informed financial solutions. Rachel holds a Bachelor of Science in business administration and interpersonal communication from SUNY Brockport.