CFO Report

Michael Henderson

Michael Henderson

Executive Vice President and Chief Financial Officer

A Message from the Chief Financial Officer

Each year has its own challenges and rewards for Arkansas Electric Cooperative Corporation and its Members and 2020 was no different. AECC started the year with normal plans for meeting the reliability needs of its members, holding down costs and producing low-cost electricity to ensure AECC maintains its stature as one of the strongest, financially sound generation and transmission cooperatives in the nation. AECC also welcomed in a new Chief Executive Officer to ensure its long-term future was solidified.

By March, the COVID-19 pandemic had impacted the traditional way of doing business and forced AECC to recreate processes and re-identify priorities. AECC had been diligent in establishing business continuity plans and disaster response plans but none of the plans in place fit the reality of COVID-19. However, those plans did provide resources from which to draw upon and the AECC team crafted a response that resulted in continued reliability, improved employee and customer safety and maintaining low-cost electricity.

While AECC did see Revenues decline by 6.5% it saw Operating Margins increase by 174% or $31.4 million. Net Margins increased by 105% compared to 2019. Our members benefited from low natural gas prices, and from using only our most efficient resources to serve AECC’s members. Fuel expense $18.47/MWh was 10% less than 2019 and Purchased Power expense $24.13/MWh was 18% less than 2019.

Financial metrics are a key tool to determine if AECC is on target to meet the expectations of its members, lenders, and credit rating agencies. The Times Interest Earned Ratio was 2.64 times which was significantly higher than the 1.71 times earned in 2019 and the AECC target of 1.40 times. The Debt Service Reserve Ratio was 2.23 times which was significantly higher than the 1.80 times earned in 2019 and the AECC target of 1.40 times. The Margin For Interest Ratio was 2.65 times which was significantly higher than the 1.64 times earned in 2019 and the AECC target of 1.40 times. AECC’s Indenture requires an MFI of 1.1 times. In addition, AECC’s Equity to Assets of 35.8% in 2020 was significantly higher than the 33.7% for 2019. AECC’s Equity to Capitalization percentage of 44.7% in 2020 was significantly improved over the 41.6% in 2019.

The ability for AECC to manage through a year like 2020 and improve its financial strength is one of the many reasons AECC has been able to grow and sustain its strong credit ratings of AA/A-1+ by Standard & Poor’s, AA-/Prime-1 by Moody’s as well as AA-/F-1+ by Fitch Ratings.

We attribute this strong financial position to a supportive Board of Directors, committed and talented staff and loyal financial/business partners. We are blessed and privileged to serve the rural electric members in Arkansas.