A Message from the Chief Financial Officer
While 2020 was an unprecedented year for Arkansas Electric Cooperative Corporation (AECC) and as a country with the impacts of COVID-19, 2021 brought both the continued issues of COVID-19 as well as a new set of challenges. Supply chain disruptions, extreme weather, a tight labor market and an evolving regulatory landscape were a few obstacles impacting the electric utility industry. Despite these challenges, I am extremely proud of how AECC responded by delivering excellent results in 2021 by maintaining its financial and operational strengths.
AECC saw a bounce back year in energy and demand revenue compared to 2020. Energy MWh sales to members increased 7 percent over the prior year due largely to a combination of weather and higher usage by industrial members. Higher temperatures during the summer of 2021 led to higher demand revenue during 2021 as well.
AECC’s fuel rider serves as a recovery mechanism whereby AECC collects fluctuations in fuel and purchased power-related costs monthly from its 17 member cooperatives and wholesale members. Winter Storm Uri provided challenges to natural gas supply and created extreme peaks in electricity demand. As a result of these factors, AECC incurred an estimated additional $100 million of fuel and purchased power charges during the week of the Feb. 14 storm event alone. To mitigate the immediate rate impact on AECC members (and ultimately member-consumers) while ensuring the financial health of the entity, AECC’s board of directors voted to defer immediate collections of the full amount of the additional fuel cost charges and spread them over a period ending early 2022. Additionally, overall natural gas and purchased power rates were higher due to market prices. AECC experienced fuel expense of $47.9/MWh and purchased power expense of $53.5/MWh; increases of 21% and 126% above 2020, respectively, for 2021.
In addition to the fuel costs mentioned above, AECC had an increase in maintenance expense as work delayed in 2020 due to the global pandemic was completed in the current year and the company returned to more standard spend levels. In March, the finalization of decisions to retire two of AECC’s co-owned coal plants by the end of this decade resulted in higher depreciation during the second half of the fiscal year. Additionally, the AECC board elected to defer $15 million of 2021 revenues to cover costs expected to be incurred in 2022.
As a result of the above factors, AECC ended the year with approximately $25.6 million of net margin, favorable to projected plans and in-line with 2019 margins.
AECC’s financial metrics are an indicator of its financial health and are used by lenders and ratings agencies. AECC’s margin for interest ratio, which measures the sufficiency of a company’s operating profit, was 1.90, significantly higher than AECC’s internal target of 1.40 and its indenture requirement of 1.10. AECC’s equity as a percentage of total capitalization, which measures balance sheet health, was 36.6 percent, ahead of the cooperative’s 35.0 percent internal target. AECC’s overall financial strength enabled an ability to sustain strong issuer credit ratings of AA (Standard & Poor’s) and AA- (Moody’s/Fitch Ratings).
AECC continues to provide not just reliable power, but reliable financial results. AECC has kept base rates flat since 2016 and provides some of the lowest member revenue per MWh rates of any generation and transmission cooperative in the United States. AECC will continue its mission of providing affordable, reliable and responsible power to its members while continuing its commitment to AECC’s long-term financial health in 2022 and beyond.
Vice President/Chief Financial Officer
Arkansas Electric Cooperative Corporation