President and Chief Executive Officer
A Message from the President and Chief Executive Officer
Arkansas Electric Cooperative Corporation’s (AECC’s) mission is to provide reliable, affordable electricity and services, safely and responsibly. During 2020, our mission was challenged by a global pandemic that, at the onset, created incredible uncertainty and fear with many people sheltering in place and working from home. Many families were also tasked with the job of home schooling their children. The need for affordable and reliable power has never been greater than it was in 2020, and I am very proud of the employees of AECC as they responded to the challenge and continued to fulfill our mission.
Our market ratings remained stable in 2020 with a continued Aa3 from Moody’s Investors, a AA rating from Standard & Poor’s, and a AA- rating from Fitch Ratings. We remain at the top of the performance rankings for any peer generation and transmission (G&T) electric cooperative.
Our 2020 revenues were $739.6 million, which was $51 million below our 2019 revenues of $790.7 million. The reduction in revenues was primarily due to lower fuel costs in 2020. AECC has fuel and transmission riders in place to recover our costs in excess of certain base amounts. During the past year, our fuel adjustment rider was 10% lower than in 2019, and lower than we have seen in the last 10 years. Additionally, due to the pandemic, AECC saw a 2.7% reduction in load for the year. However, AECC’s net margins for fiscal year 2020 were $50.6 million, more than double our 2019 margins. The primary drivers for this increase in margins are delayed maintenance costs to future years due to the pandemic and reduced interest expense. In connection with the 2019 federal Farm Bill, AECC was able to take advantage of paying off higher interest rate debt, resulting in our average weighted interest rate dropping to 3.55%.
For the third year in a row, AECC returned $20 million in the form of patronage to Arkansas’ 17 distribution cooperatives. These cooperatives, in turn, can utilize these distributions to invest in their local distribution systems and return patronage capital to their members. This is great news given the economic stress put on our members in 2020.
Fiscal year 2020 was also a year that produced a lower wholesale power cost than in 2019, going from $49.60/MWh in 2019 to $48.16/MWh in 2020. Our members benefited from low natural gas prices and AECC’s prudent operation decisions with respect to our generation assets. This 3.0% cost reduction over previous years was achieved through high-performing and fuel diverse generating plants as well as increased power purchases from the Midcontinent Independent System Operator (MISO) and Southwest Power Pool (SPP) energy markets. AECC leverages power market signals and purchases energy from MISO and SPP when optimal. AECC’s average purchased power cost in 2020 was $24.13/MWh compared to $29.26 during fiscal year 2019. AECC continues to deliver on our mission of affordable and reliable electricity, and we remain among the lowest-cost G&Ts in the country.
AECC suspended operations at the Bailey Power Plant on July 10, 2020 and is evaluating future options for the site. AECC’s energy portfolio remains similar to that in fiscal year 2019, but we increased our percentage of hydroelectric, wind and solar energy by 16 percent in fiscal year 2020. AECC’s long-term contracted coal generation was dispatched 40 percent less in 2020 due to low natural gas prices, resulting in net market purchases equal to 24 percent of member energy requirements in 2020. This particular statistic shows the impact of low natural gas prices and the financial value of AECC’s ownership of a diversified portfolio, consisting of company-owned generation as well as participation in the MISO and SPP energy markets. Our diversified portfolio once again showed its value in managing optionality and keeping our member’s wholesale power rates affordable.
AECC also began the process of developing a strategic plan to serve as a roadmap to 2030 and anticipates completing that plan in 2021. Although the plan is still in development, we remain committed to the pillars of our mission, which is the provision of reliable, affordable, and responsible electricity and services for our member owners. This mission will remain unchanged as we continue to chart new challenges into the future.
2020 was my first full year as the president/chief executive officer of AECC. We began the year with a solid operations plan, and when the global pandemic hit, we were also required to develop and execute a Pandemic Response Plan. Arkansas also experienced several severe storms in 2020 that compounded the complexity of reliable operations in the middle of a pandemic. I am very proud of how AECC successfully navigated these challenges and continued to execute our mission of providing reliable, affordable, and responsible power. We were required to think on our feet and be flexible and resilient. I attribute our success to an engaged board of directors, a talented and motivated leadership team, and great employees using solid cooperative principles and core values to guide decision making.
I remain excited about the future of AECC and look forward to finalizing our strategic plan and continuing to serve the Electric Cooperatives of Arkansas in 2021.
Arkansas Electric Cooperative Corporation