2014 annual report.indd - Associated Electric Cooperative, Inc.

AECI’s mission is to provide an economical,
reliable power supply and support services
to its members.
Associated Electric Cooperative is part of a threetiered system unified by the common purpose of
serving electric cooperative members with affordable, reliable electricity.
Owned by six generation and transmission cooperatives (G&Ts), Associated was formed in 1961 to
provide the G&Ts a wholesale power supply. These
six G&Ts are owned by 51 distribution cooperatives
in Missouri, southeast Iowa and northeast Oklahoma. These local electric distribution cooperatives
are owned by about 875,000 member-consumers.
About 640 full-time Associated employees at
three main locations serve this three-tiered system.
The Association of Missouri Electric Cooperatives,
the Iowa Association of Electric Cooperatives and
the Oklahoma Association of Electric Cooperatives
also are an important part of this cooperative family.
MEMBER-CONSUMERS
DISTRIBUTION
COOPERATIVES
G&Ts
AECI
Table of contents
Message from the president of the board ................................................................................................................. 2
Message from the CEO and general manager ........................................................................................................... 4
Resourceful & resilient ............................................................................................................................................... 6
Associated’s board of directors and
senior management staff .................................................................................................................................. 20
Generation and transmission cooperatives
and their member distribution cooperatives ...................................................................................................... 21
Associated’s service territory .................................................................................................................................. 21
Ten-year statistical summary ................................................................................................................................... 22
Management’s discussion and analysis .................................................................................................................. 24
Independent Auditors’ Report and audited financial statements ............................................................................. 28
AECI capacity list and system facts booklet .................................................................................... inside back cover
On the cover: Associated Electric Cooperative has developed valuable resources to meet its mission and
the challenges of a changing industry. Resources include, clockwise from top, high-voltage transmission
assets; a dedicated, innovative workforce that includes employees like journeyman instrumentation technician specialist Jody Moss; and generation stations like Thomas Hill Energy Center.
Inside: Some of the 2014 recipients of Associated’s prestigious Excel awards are featured throughout
the report. These employees were nominated by their peers for their exceptional skills, work ethic and for
going above and beyond in meeting the challenges of 2014.
2014 highlights
Financial (in thousands)
Operating revenue
Net nonoperating income
Operating expenses
2014
2013
$1,142,320
$1,129,752
23,471
27,524
1,039,336
1,025,175
86,313
Increase
(Decrease)
% Increase
(Decrease)
$ 12,568
(4,053)
1.1
(14.7)
14,161
1.4
90,272
(3,959)
(4.4)
40,142
41,829
(1,687)
(4.0)
18,688,056
18,330,147
4,106,399
5,792,031
Member revenue per kWh sold (mills/kWh)
49.94
48.93
1.01
2.1
Cost of owned generation (mills/kWh)
42.37
40.20
2.17
5.4
4.67
4.53
0.14
3.1
Member peak demand (MWh)
4,598
3,905
693
17.7
Total capacity (MW)
5,827
5,827
0
0
20,254,545
21,251,950
Interest expense on long-term debt
(less interest capitalized)
Net margin
Operational
Energy sales (MWh)
Members
Nonmembers
Cost of transmission (mills/kWh)
Net generation (MWh)
Kilowatt-hour sales
Nonmembers – 4,106
18%
Operating revenue
Nonmembers – $209
18%
357,909
(1,685,632)
2.0
(29.1)
(997,405)
Operating expenses
Administrative and general,
taxes and accretion – $61
Generation maintenance – $60
Transmission – $87
Members – 18,688
Kilowatt-hours in millions
82%
Members – $933
Dollars in millions
82%
(4.7)
6%
6%
8%
Depreciation and amortization – $99
9%
Power purchased – $114
11%
Contracted generation – $197
19%
Generation operation – $421
41%
Dollars in millions
2014 ANNUAL REPORT
1
Message
from the
president of the board
In tough times, we often draw deeper upon our resources. We did that in 2014, a
challenging year for Associated Electric Cooperative, and relied on our tremendous generation
and transmission assets, as well as our resourceful workforce, to successfully meet our
mission of providing an affordable, reliable wholesale power supply to member systems.
Our resources also include the air, land and water
needed to generate electricity. We never take these
for granted, at the cooperative or at home, and continue to be good stewards of our environment.
Such resources are expected, discussed and
planned among wholesale electric supply utilities
like Associated. But when you want to find the root
of our resourcefulness and resiliency, dig down to
the people of this three-tiered system.
They continue to make the difference in everyday
and challenging times throughout our organization,
from our leadership to our employees to the end-ofthe-line member.
Associated’s informed, involved board of directors
is experienced and dedicated to serving members,
and I count it an honor to serve with such skilled
leaders.
The depth of our board is a tremendous advantage for Associated. The board includes the six
experienced CEOs of our owner generation and
transmission cooperatives and “director-directors”
like me who bring experience from other fields and,
most importantly, member representation. Collectively, our 12 board members have more than
320 years of experience in cooperative governance
and the utility business.
Our board members also serve in leadership roles
on national boards that benefit our three-tiered
system and cooperatives nationwide.
One example is Don McQuitty, who retired in
2014 as CEO of NW Electric Power Cooperative
and from our board after 43 years of serving cooperatives at the local, state and national levels.
Don started his career as a lineman at one of our
distribution cooperative members, went on to serve
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2014 ANNUAL REPORT
in the Missouri House of Representatives, work for
the Association of Missouri Electric Cooperatives in
government relations, and then serve as CEO of
NW Electric. He’s known for his service and leadership nationwide for cooperatives, as well as at
Associated, and we thank him for his service.
In addition to member governance at Associated,
our G&T owners are a tremendous resource when it
comes to operating, maintaining and constructing
the high-voltage transmission system that ensures
reliability for member systems.
G&T staff also works with Associated on transmission planning and compliance with federal reliability standards. Recently, for example, G&T staff
members’ expertise and participation were essential
in meetings with SERC Reliability Corp. on new
standards affecting substations.
When talking about collective years of experience
and skill sets, I also think of our senior management team as a resource that drives Associated to
be a high-performing organization for our members.
The depth of senior staff’s knowledge, which extends to all areas of Associated’s operations and not
just their own areas of responsibilities, is a resource
for the board and the organization as a whole. I see
the cross-divisional breadth of their expertise and
commitment to members every day in our operations, annual meetings and in working with business partners, local, state and federal agencies.
Supporting senior staff is the Associated workforce that continually exhibits the dedication,
innovation and skill needed to meet Associated’s
mission. You can see their resourcefulness and resiliency in the achievements and challenges of 2014.
Employees are behind the record run of our oldest
coal unit, record availability of our coal fleet and
completion of major maintenance outages.
Employees worked overtime to move coal to ensure reliable, affordable electricity for our members
during a year of inconsistent coal deliveries by rail.
They put in extra time and miles to ensure our gas
units were ready to operate during the extremely
cold days of winter last year.
Employees’ research and dedication have led to
significant savings in numerous areas, from compliance with environmental and reliability regulations
to financial investments, borrowings and procurement of parts. And every employee played a part in
helping Associated’s board hold rates steady for its
six G&T owners in a challenging year.
Our resourcefulness originates with those we
serve: the members at the end of the line who
formed, govern and rely on this three-tiered electric
cooperative system for clean, affordable, reliable
electricity.
In 2014 our members, along with co-op staffs
and statewide organizations, sent more than
297,000 comments – almost one-third of total
comments from cooperatives – to the Environmental Protection Agency regarding its plan to reduce
greenhouse gases. It’s a plan that threatens their
electric power supply, and their response is amazing. I hope the deluge of comments will make a
difference to regulators.
Our physical and human resources, highlighted
in this report, are quite diverse, ranging from wind
energy to coal-based plants, from coal yard equipment operators to accountants to power marketers.
All have one thing in common: They’re dedicated to
serving member-owners.
Associated Electric Cooperative is memberowned, member-governed, which keeps it focused
on its mission of providing an economical, reliable
power supply and support services to member
systems.
Member governance brings member representation throughout the three tiers of the system.
President Emery Geisendorfer is a fourth-generation farmer, businessman and member of Lewis
County Rural Electric Cooperative in northeast
Missouri. He was elected to the board of his local
distribution cooperative in 1994 and serves as
board president.
In 1996 he was elected to the board of Northeast
Missouri Electric Power Cooperative, the G&T that
provides power to Lewis County, and serves as
president of that board.
In 2004, Northeast Missouri Electric Power
elected him to serve on Associated’s board, where
he has served as board president since 2009.
Emery O. Geisendorfer, president
AECI Board of Directors
2014 ANNUAL REPORT
3
Message
from the
CEO and general manager
In the electric utility industry, we have occasional years that provide opportunities to test
our system, our business strategy, and our planning and preparations.
2014 was such a year. It tested our business
strategy on several fronts, yet Associated Electric
Cooperative turned out strong performance in key
areas, providing a reliable electricity supply in
extreme conditions and setting a number of production records. We proved again and again our
commitment and ability to provide our members an
affordable, reliable wholesale power supply.
Our focus on core business has led to investment in a robust mix of generation and high-voltage
transmission assets, and those resources were vital
in meeting the first test of the year.
The “polar vortex” weather system produced
extreme temperatures in January, and again in
February, that challenged utilities across the country. Associated’s member-system owners set a new
all-time peak of 4,598 megawatt-hours on Jan. 6,
2014, during a week of single-digit temperatures.
Overall, Associated fared very well under these conditions by reliably serving its members, as well as
neighboring systems in need of reliable power.
Our generation and transmission resources, financial strength and strategic alliances also helped
us manage with lower-than-normal coal stockpiles
throughout most of the year. This was due to coal
delivery problems that impacted our operations, as
well as those of utilities across the nation.
Again, our diverse resources meant that reliability
was never in question for our members, and our
strategic, longtime business relationship with BNSF
Railway meant we did not run out of coal. However,
we did rely more on our gas plants to conserve
coal, increasing our costs.
Challenge also affords opportunity, and Associated improved its performance in a number of key
areas. Top of the list: an all-time safety record.
Safety is our No. 1 strategic objective and a trait of
high-performing organizations like Associated. It’s
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2014 ANNUAL REPORT
rewarding to see this positive trend come from our
increased focus and training.
Associated employees also improved performance
of members’ generating assets, setting records for
coal fleet availability, net generation, fewer outage
days and running continuous days without an outage. Our oldest unit, built in 1966, set an all-time
coal fleet record of 211 days without an outage.
Our members’ gas units also performed well and
were especially valuable when we were selling
into neighboring systems during extreme weather
events. During the year, our employees also completed major inspections and outages at the gas
plants while maintaining top-notch starting reliability and availability.
A key element of our business strategy is financial
strength and flexibility, and Moody’s Investors Service’s upgrading of Associated’s secured debt rating
from A1 to Aa3 with a stable outlook was a result
of our commitment to that important objective.
Associated is now Moody’s highest rated generation
and transmission cooperative. We also are one of
only two G&Ts with an AA rating from Standard &
Poor’s, and we have Fitch’s highest rating of AA- for
any G&T in the country.
We ended 2014 with a sound $40 million margin. Our board also held steady our wholesale
power supply rates to members, even providing a
rate discount in 2014. This is due to our financial
strength and flexibility and the board’s conservative
practice of setting aside funds to help ensure rate
stability.
A ranking of G&Ts across the country shows
Associated is the third lowest-cost when it comes to
revenue per megawatt-hour from members.
Data from the National Rural Utilities Cooperative
Finance Corp. show our member systems pay less
for their wholesale power supply than nonmember
systems pay in Missouri and in the eight surrounding states.
One of our most difficult and ongoing challenges
continues to be regulatory risk, particularly our
carbon exposure. Last year our coal plants provided
nearly 80 percent of members’ energy.
The Environmental Protection Agency’s Clean
Power Plan released June 2, 2014, proposes to
reduce greenhouse gas emissions from existing
power plants 30 percent nationwide by 2030 and
will have a significant impact on our low-cost, coal
generating resources.
We will not know the full impact of the proposed
carbon rule until state implementation plans are
developed and legal challenges are settled; however, our diverse resource mix, especially our surplus
combined-cycle gas capacity, is an excellent hedge
against our carbon exposure and will ensure reliability for our member-owners.
With respect to noncarbon regulations and
standards, Associated has proactively invested in
environmental controls and was well-positioned
to meet the Cross-State Air Pollution Rule, which
EPA implemented Jan. 1, 2015, after a court lifted
the stay on the rule in late 2014. Our staff moved
quickly to ensure we were ready to comply, and we
are, but operating the controls to meet the rule will
increase our costs more than $10 million in 2015.
Associated also completed research and preparations in 2014 that will enable us to comply with
the Mercury and Air Toxics Standards, coal ash
disposal and water intake and discharge rules.
Associated is proud of its strong, proactive history
of environmental stewardship; however, it’s becoming increasingly more difficult to balance environmental compliance with our mission of providing
affordable and reliable electricity for members.
Another area of increasing regulation involves the
bulk electric system, and Associated continues to
be a leader in grid security, supported by a culture
of compliance that is essential to ensuring economical, reliable power for the three-tiered system.
Our changing industry promises more tests to
come, but 2014 showed our business strategy is
sound and grounded in our mission. I am confident
Associated will continue to set the curve when it
comes to being our members’ best option for an
affordable, reliable wholesale power supply.
Associated Electric Cooperative’s
five-point business strategy
• Focus on core business
• Financial strength and flexibility
• Proactive and conservative
management of risk
• Development and management of
strategic alliances
• Informed and involved
member-owners
James J. Jura, CEO and general manager
2014 ANNUAL REPORT
5
Resourceful & resilient
Associated Electric Cooperative set the curve by acing the first test of the year.
As extremely low temperatures blanketed the Midwest and Northeast in early January 2014
during an event dubbed the “polar vortex,” Associated continued to provide a reliable,
affordable power supply to member systems.
The event produced record high demands for
power, accompanied by historic volatility and
demand in the natural gas market that pushed up
energy market prices. It tested equipment and employees working in extremely low temperatures.
Member load reached an all-time integrated peak
of 4,598 megawatt-hours Jan. 6, 2014, when
temperatures averaged minus 6.3 degrees across
the system and stayed in the single-digits for days.
Weather throughout the month drove demand peak
hours above 4,000 MWh on several days.
Associated served member systems reliably, then
sold energy into the market to utilities wanting power to meet their customers’ needs. The cooperative
accomplished this as neighboring utilities struggled
with record high demand, increased prices, operational alerts and requests to conserve power.
Before winter began, Associated had completed a
winterization preparedness study and tested equipment – demonstrating its strategic objective to
proactively manage identified risks.
When meteorologists forecasted the 2014 polar
vortex, Associated went into action. Power marketers checked scheduled resources. Staffing plans
were adjusted. Gas and oil units were started and
tested. System operations worked with Associated’s
six owner G&Ts, which postponed transmission outages and ensured equipment was ready.
Overall, the system performed very well.
But, it was tested. During the peak, some gas
units did not perform due to extreme temperatures.
And when natural gas supply at the Holden station,
traditionally Associated’s lowest-cost peaking unit,
became uneconomical, staff quickly opted for alternate, lower-cost solutions. Staff called on strategic
business relationships with natural gas suppliers
to run its Nodaway and Essex peaking stations at
lower prices.
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2014 ANNUAL REPORT
Reliability for Associated’s member systems was
never in doubt due to Associated’s business strategy
manifested in leadership, diverse generation and
transmission assets and a resourceful workforce
dedicated to serving members.
The cooperative’s diverse and flexible mix of
resources includes low-cost coal units; efficient
combined-cycle natural gas plants and peaking
simple-cycle gas plants, some with dual-fuel capability; contracted hydropower and wind energy; and
an energy efficiency program.
Associated also uses a diverse mix of natural gas
suppliers and fueling options to meet its mission.
Five different pipelines supply Associated’s six natural gas plants.
Associated members’ integrated, high-voltage
transmission system ensures reliability, enabling
Associated to buy power when needed, as well as
sell energy not needed by members to other utilities.
Due to the depth and diversity of its resources,
Associated is well-positioned with capacity to serve
members’ forecasted load growth.
Associated also has the culture of never resting on
its laurels. During and after the winter months, staff
learned lessons, extensively analyzed issues and
made significant improvements to improve reliability for members.
Providing an affordable, reliable wholesale power
supply to its six owner G&Ts, which serve 51 local
distribution cooperatives, which in turn deliver electricity to about 875,000 members, is never without
its challenges.
2014 was no exception, but challenge often
brings out the best in people. It brings out the resourcefulness and resiliency of an organization that
are highlighted in this annual report.
Lynn Farnen, human resources manager, 2014 Excel
Distinguished Service Award recipient
Restaffing for reliability
Holden Power Plant
A diverse generation mix and efficient plant
operations are not all that’s needed to keep the
lights on for member-owners. It also takes “people
power.”
In 2014 a record number of open positions,
particularly at the power plants, put Associated
to the test. A contributing factor to the number of
openings was nearly 70 retirements in 2013 across
the cooperative, many occurring in December.
Of that number, more than half chose early retirement due to the positive impact of low interest
rates on their retirement benefits provided by
Associated. Many of those had joined Associated
in the 1980s, when the largest coal unit was
constructed, and had decades of experience on
the units.
At Thomas Hill Energy Center alone, there were
170 open positions in 2014, reflecting retirements,
internal movements, leased workers, new employees, temps and interns. Forty Thomas Hill employees had retired, including four of the six department heads for the plant.
Current employees stepped into interim roles.
They were complemented by leased workers, including experienced former Associated employees
assisting on special projects.
Human Resources Manager Lynn Farnen and her
team approached the challenge strategically, hiring
workers with skill sets to fill current and future
job openings for general utilities, yard equipment
operators, welders and technicians.
2014 ANNUAL REPORT
7
Challenge motivates performance
Challenge did not deter Associated employees from setting a number of performance
records in 2014 as they concentrated on efficient operations, reduced maintenance costs and
improved availability of the units for members.
Most importantly, while
All-time safety record achieved
recordable incident rate
employees completed main25
tenance outages, solved
21.50
problems and improved
operations, they set an all20
time safety record. A safe
workplace is Associated’s
15
top strategic objective, and
Recordable incident rate
focused training, consistent
communication and increased
10
employee awareness and
responsibility are making a
5
difference.
1.12
Employees set their lowest recordable incident rate
0
1984
1989
1994
1999
2004
2009
2014
of 1.12, which represents
Associated employees focus on safety first, putting accidents on a downward trend and
seven recordable injuries for
setting a recordable incident rate record of 1.12 in 2014. The national average for fossil
1,254,956 hours worked at all
fuel electric generation systems was 1.8 in 2013, the latest available figure. Recordable
locations. Employees at each coal incidents are defined as injuries requiring more than first aid.
plant set all-time low rates, consurpassed its goal and achieved 89.4 percent availtributing to Associated’s overall record.
ability – an all-time record.
And by year-end, Thomas Hill employees had
New Madrid Power Plant accomplished net genworked 925 days without a lost-time accident,
eration and all-time plant availability records.
which is an accident that causes employees to miss
Records were complemented by a downward
their next scheduled shifts. New Madrid employees
trend in maintenance costs at the coal units, with
marked 430 days without a lost-time accident.
$56 million in 2014 the lowest in several years.
At the gas plants, Associated employees retained
As Associated works to set the pace in power
their remarkable record of zero recordable or lostplant operations, management attributes improved
time accidents for the past 16 years.
performance to skilled staff, reliability-centered
Safety achievements were on top of new records
maintenance, quality repairs, optimized operations
for coal fleet availability, net generation, fewer outand reduction in the number and length of outages.
age days, units running continuous days without an
outage and lowered maintenance costs.
Gas fleet adds diversity
The 48-year-old Thomas Hill Unit 1, the oldAssociated’s gas fleet achieved 90.4 percent
est coal unit in the fleet, set an all-time coal fleet
availability and 96.6 percent starting reliability –
record of running 211 days without an outage.
best-in-class numbers that served members well
Three other coal units set top 10 records for longest
during extremely low temperatures last winter.
periods of continuous operation.
Employees also finished two major inspections of
Such records helped drive improved availability
combustion turbines at Holden Power Plant under
throughout the fleet. Overall, Associated’s coal fleet
budget and ahead of schedule.
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2014 ANNUAL REPORT
Michelle Austin, control room operator, 2014 Excel
Employee of the Year in an Operational Field
Teaching to the mission
In the highly skilled and regulated utility industry,
training and mentoring employees are part of a
continuous process. Add to that 24/7 operations in
multiple locations, and the complexity increases.
In 2014 Associated hired 91 full-time employees, replacing a host of employees that included
retirees with decades of experience, including
operation and maintenance of complex, massive
generation stations.
Michelle Austin, an experienced control room
operator at Thomas Hill Energy Center, understands learning and teaching others are critical to
Associated’s mission. She knows it’s more than
giving co-workers the information to do their jobs.
It’s also listening to what they say and explaining
things in a way they understand.
Like Michelle, those responsible for training
Associated’s workforce also serve as mentors,
going beyond “how” to “why.” They foster an
environment of learning that breaks down complex
processes into malleable information.
They seek alternative ways of providing highly
effective and efficient training. They strike the right
balance between hard skills, like technical competence and compliance, and soft skills, such as
professional development in leadership or supervisory skills.
Chouteau Power Plant
2014 ANNUAL REPORT
9
Diversity mitigates adversity
Associated kept reliability on track for member systems in 2014 despite fewer cars loaded
with coal coming down the tracks to Associated’s New Madrid and Thomas Hill coal stations.
Nationwide, utilities’ coal stockpiles dwindled as
railways dealt with a number of issues. Extreme
winter conditions and higher natural gas prices
increased use of coal and lowered stockpiles, while
an improving economy increased demand for rail
shipment by intermodal, crude oil and grain producers. Then flooding occurred in early summer along
the upper Mississippi River, taxing already limited
rail crews and resources.
Associated met coal supply challenges with a
combination of coal conservation and unprecedented planning, tracking, communication and coordination of market conditions, burn projections and
coal inventory management.
Associated implemented coal conservation measures from June to October 2014, decreasing generation from coal units during off-peak hours. This
affected the efficiency of these baseload units and
increased costs. Associated employees also worked
overtime in the coal yards, moving coal from longterm storage to ensure a continuous supply to the
units.
Associated’s gas units ran when needed. While
these units are competitive, their variable operating
costs are higher than Associated’s low-cost
coal units.
Associated kept in close communication with
BNSF Railway, a longtime strategic partner, to
ensure the cooperative never ran out of coal. Developing and managing strategic alliances is a key
component of Associated’s business strategy. BNSF
is now the sole railway for Associated’s generation
stations, a result of a new contract with BNSF for
the New Madrid Power Plant that began Jan. 1,
2014.
Although coal stockpiles dipped into single-digit
days of burn during the year, reliability was never in
question due to Associated’s diverse mix of generating resources and transmission assets.
However, coal conservation did affect the cost
to serve members due to less coal generation and
missed opportunities for off-system sales that help
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2014 ANNUAL REPORT
Availability remains on right track
92
90
percent availability
Five-year coal fleet availability
89.4
88
86
86.1
84
82
80
82.5
82.2
2011
2012
81
78
76
2010
2013
2014
Challenges did not derail employees in 2014, when they
achieved an all-time availability record for the coal fleet.
lower members’ energy costs.
Associated continues to work closely with BNSF.
Coal stockpiles were increasing year-end 2014, and
levels are expected to continue improving throughout 2015.
Best practices for members
Associated received Combined Cycle Journal’s
2014 Best Practices award for innovative work
completed at the simple-cycle, dual-fuel Holden
Power Plant. The projects will improve durability of
major equipment, enabling units to run longer between major inspections. This lowers maintenance
costs and increases availability.
Associated’s Chouteau 1 combined-cycle, natural
gas plant was the first in the country to successfully
install and start up using new controls technology
from Siemens. The project enables original 2000
equipment to communicate with new controls
systems until all can be replaced as part of a gas
fleetwide upgrade, projected to cost almost
$20 million when complete in 2018.
Walter Hyde, maintenance planner, 2014 Excel Employee
of the Year in a Technical Field
Adopting best practices
Working smarter and harder are truly necessary
to keep power plants operating at optimal levels.
Associated implemented its reliability-centered
maintenance program in 2011 to do just that –
increase availability by anticipating problems
before they occur, lowering forced-outage and
planned-outage rates and adopting best-in-class
practices.
In 2014, staff completed numerous projects
aimed at that goal. Results include:
• Four coal units set top 10 records for longest
periods of continuous operation.
• The coal fleet achieved its lowest outage factor related to boiler tube failures, a leading cause
of forced outages, with continued use of boiler
reliability initiatives of the Electric Power Research
Institute.
• Coal-yard and rotary car dumper projects at
Thomas Hill improved efficiency of coal traveling
through chutes and into the plant.
• Completed New Madrid’s outage that addressed steam piping and coal-yard maintenance.
New Madrid’s Walter Hyde is yet another example of employees’ resourcefulness. He observed
it was taking time to assemble parts needed for
common jobs. He then came up with the idea of
putting parts for particular jobs in a tote in the
warehouse. Now employees pick up parts in an
easy-to-carry kit.
New Madrid Power Plant
2014 ANNUAL REPORT
11
Focus on members drives
environmental stewardship
Among Associated’s greatest assets are natural resources, the air, land and water needed
to generate an affordable, reliable power supply for rural electric cooperative members.
Protecting the environment has always been
important to members. They depend on natural resources for their livelihoods, enjoy the outdoors and
value the quality of life that clean, affordable and
reliable electricity brings to their communities.
At Associated, its resourcefulness may shine
brightest in its proactive, environmental stewardship of these resources in balance with its mission.
That work continued in 2014, when the cooperative remained in full compliance with myriad
local, state and federal rules while planning ahead
to meet further regulations on air quality, coal ash,
water and new greenhouse gas emissions that
threaten the affordability of members’ wholesale
power supply.
Associated and its members have invested more
than $1 billion in the last 20 years to improve air
quality, and the cooperative has led the way with
research into lower-cost, effective technologies for
protecting the land, air and water.
Environmental control measures and their operations cost Associated and its members about
$55 million in 2014.
As a result of its strategy to manage risks, including the uncertainties enveloping environmental
regulations, the cooperative was ready when a test
came late in 2014. The U.S. Court of Appeals for
the D.C. Circuit lifted the stay on the Cross-State
Air Pollution Rule Oct. 23, 2014, and the EPA then
moved to implement it by Jan. 1, 2015.
Associated’s flexible workforce responded, preparing selective catalytic reduction (SCR) equipment
for operations at New Madrid Power Plant as the
first part of its plan for compliance. Associated was
one of the first utilities to install SCRs on large coal
units nearly 15 years ago. It completed that work
in 2009 to meet the Clean Air Interstate Rule, the
2005 predecessor to the cross-state rule, and the
cooperative has remained in full compliance with
CAIR while the cross-state rule was litigated.
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2014 ANNUAL REPORT
In the first phase of the cross-state rule, Associated must achieve a 71 percent reduction in annual nitrogen oxides emissions when compared to
operating without SCRs. Associated plans to operate its SCRs and monitor the market for NOx allowances, which can be a cost-effective alternative to
operating SCRs for compliance. Complying with the
cross-state rule is expected to increase Associated’s
operating costs more than $10 million annually.
Associated also has worked ahead to meet the
Mercury and Air Toxics Standards (MATS) that
become effective in April 2016.
As one of the nation’s first to burn 100 percent
low-sulfur coal 20 years ago, Associated continues
to use the highest quality low-sulfur coal. This coal
is naturally lower in mercury and chlorine, both
regulated by MATS, and is a foundation for Associated’s environmental compliance plan.
Associated led the way with refined coal technology, voluntarily reducing mercury emissions from its
four cyclone units since 2010. Working with Clean
Coal Solutions, Associated also reduced its fuel
costs by $8.2 million in 2014 with refined coal.
In 2014 Associated installed Clean Coal Solutions’ M-45PC refined coal technology on Thomas
Hill Unit 3, a pulverized unit that could not use the
same refined coal as the cyclone units.
In addition, engineers completed physical flow
studies that identified ways to improve electrostatic
precipitators at half the cost of an earlier study.
Associated will complete retrofits on two New Madrid electrostatic precipitators and on Thomas Hill
Unit 2 at an estimated cost of $26 million. Associated also will install activated carbon injection systems and additional air monitoring to meet MATS.
Associated is well-positioned to meet the new
mercury rule, as well as new land and water quality
standards, but compliance measures will add millions of dollars in costs for the cooperative.
2014 Excel Innovative Action award recipients, from left,
are engineers Ken Clarkson, Doug Hart, Brian Uhlhorn
and Matthew Pacobit.
Navigating NERC complexities
Navigating unfamiliar territory takes innovative
thinking by a resourceful staff.
Perhaps nowhere is that more evident and challenging than in the hundreds of requirements on
the books to meet North American Electric Reliability Corp. standards. Meeting these ever increasing requirements enables Associated to maintain
its first-rate culture of compliance, continue the
reliability of the bulk electric system and meet its
mission.
Requirements cover everything from employee
training to records management to control room
system procedures. Technical, resource and cost
management challenges are the norm.
A team of Power Production engineers researched two NERC standards requiring modeling
of critical electrical and mechanical systems on
Associated’s 22 generating units. They challenged
the past practice of hiring a contractor to perform
the work and brainstormed a new approach.
The result was a home run – a new software
program and hardware that will capture generating unit data; save millions of dollars during the
lifetime of the equipment; and significantly reduce
the effort required to manage compliance with
these standards.
Productive, restored landscape
at Thomas Hill Energy Center
2014 ANNUAL REPORT
13
Care extends to land & water quality
While meeting new regulations on air, land and water quality will be costly, Associated is
working ahead to find the most effective, low-cost technologies to protect natural resources
and members’ clean, affordable, reliable electricity.
Associated has
Members’ power supply remains low-cost leader
¢/kWh
garnered the U.S.
7.5
Department of Interior’s highest award 6.6
Distribution cooperative purchased power costs
twice for restoring
5.7
once-mined land
and water quality.
4.8
It continues to care
for these resources
3.9
while preparing to
meet additional
3.0
1985
1990
1995
2000
2005
2010
2013
requirements.
Average of co-ops in 8 states surrounding Missouri
AECI-served distribution co-ops
EPA issued its
final rule on coal
Associated’s business strategy has helped it mitigate increasing environmental control costs,
ash residuals Dec. 19, enabling Associated’s board to hold steady wholesale power rates since 2009 and provide rate
2014, keeping coal
discounts to the six G&Ts in 2010, 2011, 2012, 2013 and 2014. As a result, 2013 data from the
combustion products as National Rural Utilities Cooperative Finance Corp. show member distribution cooperatives served by
Associated and its six owner G&Ts continue to buy power at a lower cost than the average paid by
nonhazardous materinonmember distribution cooperatives in Missouri and the surrounding eight states.
als. While staff evalulenges. After years of debate, that test took form in
ates the rule for compliance and costs, proactive
June 2014 with release of EPA’s Clean Power Plan.
work continued at both plants to prepare for new
It calls for a 30 percent nationwide reduction of
regulations.
greenhouse gas emissions by 2030.
Already, Associated has converted to dry fly ash
Nearly 80 percent of members’ energy comes
handling systems at both coal plants; increased
from Associated’s low-cost coal units, and the cargroundwater monitoring and constructed a utility
bon rule will increase the cost of serving members.
waste landfill at New Madrid; and is removing ash
However, Associated has worked to mitigate its
from ash retention ponds at Thomas Hill Energy
carbon footprint by adding energy efficiency; diverCenter to comply with the new rule.
sifying its generating resources with low-emissions,
EPA also issued its long awaited 316(b) rule
gas-based generation and contracted wind energy;
regulating water intake structures in August 2014,
and researching carbon capture technologies. As a
and Associated will conduct additional studies on
result, its carbon emissions rate has steadily deeffective ways to comply with the rule.
creased.
Water is an important resource for electricity
EPA plans to issue the final rule in summer 2015,
generation. Associated returns 99.9 percent of the
and the impact on member systems will greatly
water it uses to the source in good condition and
depend on how it is implemented at the state level.
within its permit requirements.
Associated is working with state agencies developCarbon plan takes shape
ing plans for Missouri, Oklahoma, Arkansas and
While meeting all these regulations, Associated
Kansas, where Associated has generation assets.
is preparing for one of its greatest long-term chal7.5
6.6
5.7
4.8
3.9
3.0
14
2014 ANNUAL REPORT
Dave Ramsey, energy efficiency program manager, 2014
Excel Employee of the Year in a Professional Field
Shining light on energy efficiency
and distributed generation
Never one to shy away from a challenge that
offers benefits to member-owners, Associated
Electric Cooperative worked with its diverse
member systems to lay the groundwork for more
distributed generation opportunities.
With changing consumer preferences, industry
changes and dropping prices, Associated stepped
up its support and education for member systems
to help them address members’ growing interest in
solar energy.
In addition to offering fact sheets and online resources, Associated’s energy efficiency manager,
Dave Ramsey, gave more than 30 presentations
to cooperatives, associations, boards and national
G&T organizations, traveling at least 10,882 miles
last year.
In August, Dave worked with Associated’s board
to develop a structure that distribution cooperatives could use to develop community solar projects to meet their members’ needs while preserving all-requirements contracts of the three-tiered
system. These long-term contracts, a key strength
noted by bond rating agencies, allow Associated to
plan generation resources for the entire system.
Platte-Clay Electric Cooperative will complete its
community solar project in April 2015, and it will
be the first member system to offer community
solar to its members in June.
Flat Ridge 2 Wind Farm
Photo courtesy of BP Wind Energy
2014 ANNUAL REPORT
15
Transmission lines lead to reliability
Associated has a tremendous resource in its six owner G&Ts, which operate, maintain and
construct the high-voltage transmission system that brings power generated by Associated to
member distribution cooperatives.
Associated and the six G&Ts collaborate to plan,
protect and invest in high-voltage transmission
facilities and technologies that ensure reliability
and full compliance with requirements of the North
American Electric Reliability Corp.
In 2014 Associated and its six owner G&Ts
invested $35 million on new primary transmission
facilities, those energized at 138 kilovolts or higher,
to serve the entire system.
Associated spent an additional $18 million on
capital transmission projects last year to improve
reliability.
Associated’s board has approved a long-range
transmission plan that projects a $115 million
investment in new primary transmission facilities from 2014 to 2023. This is less than forecast
in previous years due to slower load growth and
completion of major projects in the last five years.
In addition to these primary transmission investments, the G&Ts each invest in facilities energized
at less than 138 kV to serve their respective member-owner distribution cooperatives. In 2014 the
G&Ts spent nearly $45 million on these regional
transmission facilities. Their planned secondary
investments during the next 10 years are estimated
at $440 million.
Complexities draw resources
Along with planning, operating and maintaining
the high-voltage transmission system, Associated is
working hard to protect its members’ transmission
assets in a changing industry.
As neighboring regional transmission organizations expand their footprints, as MISO has done
with integration of utilities to the south of Associated, energy flows are increasing across Associated’s
and its members’ high-voltage transmission system.
Focused on reliability, Associated joined other
concerned utilities to intervene before the Federal
Energy Regulatory Commission following integra-
16
2014 ANNUAL REPORT
tion of MISO Midwest and MISO South. Associated
is working to preserve its ability to reliably move its
generation to load and to be fairly compensated for
use of its transmission system.
The cooperative continues to monitor energy
flows, closely coordinating congestion that negatively impacts the affordability and reliability of
members’ power supply.
Industry changes also are limiting the number
of counterparties for energy sales, but Associated
prepared and positioned itself to conduct energy
marketing business where it previously was not
operating. In 2014 RTOs played a larger role as
Associated’s counterparties for energy transactions.
Culture cultivates compliance
As a transmission owner and operator, Associated takes its responsibilities very seriously and is a
leader in grid security and compliance with multiple
and increasing NERC requirements and standards.
Associated and its six owner G&Ts work together
as a joint registration organization to ensure reliability for members and full compliance with NERC.
Associated also works with its reliability coordinator, the Tennessee Valley Authority, a key strategic
alliance for the cooperative.
Associated’s reliability compliance and cybersecurity staffs work together to manage increasing
pressure on all utilities as the government and industry attempt to deal with myriad issues, including
protecting cyberassets and infrastructure.
In 2014, Associated continued to prepare for
more regulations, including Version 5 of the Federal
Energy Regulatory Commission’s Critical Infrastructure Protection Reliability Standards; new physical
security standards for substations; transmission
planning standards; and a Reliability Assurance
Initiative, which deals with the risk assessment of
an individual utility’s impact on the national grid.
Sho-Me Power Electric Cooperative
Merging complementary strengths
Sportsman Acres-to-Blackberry 345-kV
transmission line in northeast Oklahoma
The three-tiered system can be viewed as an
inverted pyramid, with the end-of-the line memberowners at the top, then member distribution cooperatives, the G&Ts and Associated at the bottom.
System resources flow down, up and through
each tier to strengthen every part of the system.
The G&Ts are a key resource for the whole
system, playing the central role of building, operating and maintaining high-voltage transmission
facilities.
They also provide member governance for
Associated, whose board is comprised of the six
G&T CEOs and six directors representing member
distribution cooperatives. The board determines
the strategic direction for Associated, tests its
business strategy, approves key investment decisions and sets the wholesale power supply rate.
G&T staffs also work with Associated on
transmission planning, environmental regulations,
reliability of the bulk electric system – providing
additional resources that strengthen the threetiered system for all members.
Statewide organizations work with the entire
system on legislative and governmental regulations, as well as provide training.
Member distribution cooperatives are the face of
the system to the end-of-the-line member, sending electricity to homes, farms and businesses
and providing community ties for the three-tiered
system.
2014 ANNUAL REPORT
17
Strategy brings stability
While 2014 did not go according to Associated’s yearly financial plan, it did go by
Associated’s business strategy to keep electricity affordable and reliable for member systems
while ensuring the cooperative remains financially strong and flexible.
Challenges that impacted Associated’s 2014
financial plan included high gas prices, along with
higher member load, early in the year that increased the cost to serve members; mild weather
the rest of the year that adversely impacted operating margins; and coal conservation measures.
By design, Associated’s leadership had the resources and flexibility to deal with the challenges.
Due to the conservative nature and foresight of
its board of directors, Associated drew on member
revenue set aside in prior years for the purpose of
providing rate stability for member systems.
Associated’s board used this deferred revenue to
avoid a rate increase in 2014 and to fund a temporary rate discount of 1 mill per kilowatt-hour to
member systems, reducing revenue required from
members by $18.7 million last year. All totaled,
Associated used $47.4 million of deferred revenue
recognition to keep members’ rates stable.
Associated’s board has not increased wholesale
rates to member systems since 2009, reviewing the
cooperative’s position annually to ensure revenue is
adequate to maintain strong financial metrics.
In 2014 Associated produced a solid net margin
of $40.1 million, which is sufficient to meet financial obligations and provide operating flexibility.
The cooperative returned $10.9 million in patronage capital to its owner G&Ts, bringing the total
returned since 1993 to $164.7 million.
Associated strengthened its balance sheet by
paying off more debt than it borrowed in 2014, and
debt added was at very favorable interest rates.
After several years of significant environmental
and generation projects, depreciation was greater
than investment in the power plants.
As a result, Associated’s equity-to-capitalization
ratio improved. Capital expenditures continued on a
downward trend, dropping to $54 million in 2014
compared to $327 million in 2010.
18
2014 ANNUAL REPORT
Off-system sales exceeded an aggressive budget
and brought in revenue that helped keep members’
rates low and stable. Sales were boosted early in
the year by extremely cold temperatures. However,
mild weather, lower natural gas prices and subsequent lower energy market prices the rest of the
year dampened off-system sales volumes.
Jan. 21, 2014, Associated took another step
to ensure fuel cost stability and the quality of its
low-sulfur coal supply, which is an essential part
of its plan for compliance with existing and new air
quality regulations.
The cooperative signed a new long-term coal
contract with Peabody Energy, extending a nearly
50-year-old working relationship with this strategic
business partner. While the old contract did not
expire until year-end 2015, Associated noted advantageous market conditions and started on a new
contract in 2013, inviting competitive suppliers.
Working ahead, sticking to mission and business
strategy are some of the reasons Associated is a
top-rated G&T by the major credit agencies.
In 2014 Moody’s Investors Service upgraded
Associated’s secured debt rating from A1 to Aa3
with a stable outlook, making it Moody’s highest
rated generation and transmission cooperative.
Associated is one of only two G&Ts with an AA rating from Standard & Poor’s, and the cooperative is
Fitch’s highest rated G&T at AA-.
Those grades are important to Associated’s mission, but the marks that really matter come from its
member-owner systems.
Member satisfaction surveys show the systems
served by Associated have among the highest
scores nationwide.
Such high marks are not taken for granted, and
Associated remains focused on setting the curve as
member systems’ top option for a clean, affordable
and reliable wholesale power supply.
Chariton Valley Electric Cooperative members take action
to keep their electricity affordable.
Informing, involving members
The significance of Associated’s focus on
keeping member-owners informed and involved
was clearly demonstrated during the Action.Coop
campaign in 2014. Associated’s member-owners
collectively told the Environmental Protection
Agency not to enact greenhouse gas regulations in
the Clean Power Plan that would raise their rates.
Nationwide, cooperatives submitted more than
1.1 million comments opposing EPA’s greenhouse
gas plan, with Missouri cooperatives leading the
nation.
Associated, the six G&Ts, 51 distribution
cooperatives and statewide organizations worked
to inform members of the potential impacts of
the Clean Power Plan through annual meetings,
publications and an awareness campaign that
included radio, billboards, print messages and
social media. Statewide organizations coordinated
the grass-roots campaign, joining forces with the
Cooperative Action Network, the advocacy hub for
America’s electric cooperatives.
The success of the grass-roots effort was possible because Associated’s three-tiered system
never forgets for whom they work – the members
at the end of the line.
Associated Electric’s 2014 annual meeting
2014 ANNUAL REPORT
19
Board of directors
Associated Electric Cooperative’s board of directors and officers are, from left, back, Donald W. Shaw, Central Electric Power Cooperative;
David L. McDowell, NW Electric Power Cooperative Inc.; Gary L. Fulks, Sho-Me Power Electric Cooperative; Thomas W. Howard,
Central Electric Power Cooperative; R. Layne Morrill, secretary, KAMO Power; Dan A. Singletary, Sho-Me Power Electric Cooperative;
T.E. “Jake” Fisher, treasurer, M&A Electric Power Cooperative; Douglas H. Aeilts, Northeast Missouri Electric Power Cooperative; and
seated at table from left, John B. Killgore, vice president, NW Electric Power Cooperative Inc.; Daryl R. Sorrell, M&A Electric Power
Cooperative; J. Chris Cariker, KAMO Power; and Emery O. Geisendorfer, president, Northeast Missouri Electric Power Cooperative.
Senior staff
Associated Electric Cooperative’s senior management team is comprised of, from left, in back, David W. McNabb, chief financial officer;
Patrick A. Baumhoer, general counsel and chief compliance officer; Kenneth S. Wilmot, director of Power Production; Joseph E. Wilkinson,
director of Member Services and Corporate Communications; from left in front, James J. Jura, CEO and general manager;
Shawn P. Calhoun, director of Human Resources; Roger S. Clark, director of Engineering and Operations; Tiffany E. Jump, executive
assistant; Brent W. Bossi, chief information officer; and John F. Bussman, senior manager, reliability compliance and audit services.
20
2014 ANNUAL REPORT
Associated serves six G&Ts operating in three states
Central Electric Power Cooperative
Jefferson City, Missouri
Boone Electric Cooperative
Columbia, Missouri
Callaway Electric Cooperative
Fulton, Missouri
Central Missouri Electric Cooperative Inc.
Sedalia, Missouri
Co-Mo Electric Cooperative Inc.
Tipton, Missouri
Consolidated Electric Cooperative Inc.
Mexico, Missouri
Cuivre River Electric Cooperative Inc.
Troy, Missouri
Howard Electric Cooperative
Fayette, Missouri
Three Rivers Electric Cooperative
Linn, Missouri
Flat Ridge 2 Wind Farm
Central Electric
Power Cooperative
Barber Co., Kansas
KAMO Power
Vinita, Oklahoma
Barry Electric Cooperative
Cassville, Missouri
Barton County Electric Cooperative Inc.
Lamar, Missouri
Central Rural Electric Cooperative
Stillwater, Oklahoma
Cookson Hills Electric Cooperative Inc.
Stigler, Oklahoma
East Central Oklahoma Electric Cooperative Inc.
Okmulgee, Oklahoma
Indian Electric Cooperative Inc.
Cleveland, Oklahoma
Kiamichi Electric Cooperative Inc.
Wilburton, Oklahoma
Lake Region Electric Cooperative Inc.
Hulbert, Oklahoma
New-Mac Electric Cooperative Inc.
Neosho, Missouri
Northeast Oklahoma Electric Cooperative Inc.
Vinita, Oklahoma
Osage Valley Electric Cooperative Association
Butler, Missouri
Ozark Electric Cooperative
Mt. Vernon, Missouri
Ozarks Electric Cooperative Corp.
Fayetteville, Arkansas
Sac Osage Electric Cooperative Inc.
El Dorado Springs, Missouri
Southwest Electric Cooperative
Bolivar, Missouri
Verdigris Valley Electric Cooperative Inc.
Collinsville, Oklahoma
White River Valley Electric Cooperative Inc.
Branson, Missouri
M&A Electric Power Cooperative
Poplar Bluff, Missouri
Black River Electric Cooperative
Fredericktown, Missouri
Ozark Border Electric Cooperative
Poplar Bluff, Missouri
Pemiscot-Dunklin Electric Cooperative
Hayti, Missouri
SEMO Electric Cooperative
Sikeston, Missouri
Osage
Wind Farm
Under development
Wind farms
Coal plants
Gas plants
Gas/oil plants plants
Northeast Missouri Electric Power Cooperative
Palmyra, Missouri
Access Energy Cooperative
Mt. Pleasant, Iowa
Chariton Valley Electric Cooperative Inc.
Albia, Iowa
Lewis County Rural Electric Cooperative
Lewistown, Missouri
Macon Electric Cooperative
Macon, Missouri
Missouri Rural Electric Cooperative
Palmyra, Missouri
Ralls County Electric Cooperative
New London, Missouri
Southern Iowa Electric Cooperative Inc.
Bloomfield, Iowa
Tri-County Electric Cooperative Association
Lancaster, Missouri
NW Electric Power Cooperative Inc.
Cameron, Missouri
Atchison-Holt Electric Cooperative
Rock Port, Missouri
Farmers’ Electric Cooperative Inc.
Chillicothe, Missouri
Grundy Electric Cooperative Inc.
Trenton, Missouri
North Central Missouri
Electric Cooperative Inc.
Milan, Missouri
Sho-Me Power Electric Cooperative
Marshfield, Missouri
Crawford Electric Cooperative Inc.
Bourbon, Missouri
Gascosage Electric Cooperative
Dixon, Missouri
Howell-Oregon Electric Cooperative Inc.
West Plains, Missouri
Intercounty Electric Cooperative Association
Licking, Missouri
Laclede Electric Cooperative
Lebanon, Missouri
Se-Ma-No Electric Cooperative
Mansfield, Missouri
Southwest Electric Cooperative
Bolivar, Missouri
Webster Electric Cooperative
Marshfield, Missouri
White River Valley Electric Cooperative Inc.
Branson, Missouri
Platte-Clay Electric Cooperative Inc.
Kearney, Missouri
United Electric Cooperative Inc.
Maryville and Savannah, Missouri
West Central Electric Cooperative Inc.
Higginsville, Missouri
2014 ANNUAL REPORT
21
Ten-year
statistical summary
Year (calendar-year basis)
Member peak demand (MWh)
,
excluding current maturities)
Total capacity (MW)*
2014
2013
2012
2011
2010
$1,142,320
$1,129,752
$1,081,899
$1,083,734
$1,055,103
22,794,455
24,122,178
23,257,842
23,366,696
23,269,001
18,688,056
18,330,147
18,078,911
18,603,536
18,962,284
3,755,050
3,680,320
3,522,610
3,571,431
3,580,599
6,792,200
6,528,534
6,201,160
6,436,559
6,461,680
1,795,459
1,737,674
1,716,541
1,729,026
1,820,964
1,305,431
1,321,433
1,255,265
1,251,396
1,267,895
1,774,683
1,780,568
1,778,823
1,869,618
1,911,351
3,265,233
3,281,618
3,604,512
3,745,506
3,919,795
4,106,399
5,792,031
5,178,931
4,763,160
4,306,717
4,598
3,905
4,354
4,441
4,495
45.8
53.1
46.7
47.3
47.6
2.0
17.7
1.4
(10.3)
(2.8)
(2.0)
(1.9)
(1.2)
$3,737,915
$3,672,637
$3,610,868
$3,546,039
$3,444,278
$2,956,254
$2,988,262
$2,972,181
$2,971,028
$2,852,098
$1,812,663
$1,849,113
$1,830,572
$1,810,387
$1,773,982
5,827
5,787
5,895
5,895
5,255
49.94
48.93
49.21
47.51
45.75
*2014 capacity does not include capacity sold to other utilities, which was listed in previous years.
22
2014 ANNUAL REPORT
6.1
4.7
2009
2008
2007
2006
2005
$988,058
$1,084,770
$908,866
$865,062
$873,266
22,352,129
23,417,139
23,141,280
22,397,441
22,766,363
17,866,111
18,447,072
18,242,620
17,336,688
17,223,287
3,342,947
3,481,427
3,495,591
3,253,018
3,229,456
6,098,183
6,238,584
6,036,320
5,828,218
5,720,358
1,627,620
1,690,910
1,701,493
1,599,342
1,604,348
1,215,679
1,247,307
1,239,613
1,175,563
1,199,656
1,705,372
1,692,162
1,673,609
1,556,034
1,552,388
3,876,310
4,096,682
4,095,994
3,924,512
3,917,081
4,486,018
4,970,067
4,898,660
5,060,753
5,543,076
4,292
4,268
4,248
4,159
3,999
46.9
51.1
51.0
49.9
51.4
1.1
0.5
5.2
2.1
0.7
4.0
7.0
8.7
$3,100,486
$2,861,374
$2,628,860
$2,325,158
$2,129,726
$2,562,417
$2,267,904
$2,016,853
$1,821,764
$1,704,311
$1,619,099
$1,334,712
$1,169,701
$963,947
$972,636
5,237
5,237
5,228
4,758
4,808
45.89
41.16
34.20
32.77
29.81
(3.2)
0.6
Diversity brings flexibility
Associated has steadily diversified its resources, which began with
hydropower and baseload coal units.
Associated began adding natural
gas generation in the 1990s and today has 2,143 megawatts of combined-cycle capacity and 610 MW
of simple-cycle gas generation.
The cooperative began receiving
contracted wind energy in 2007 from
Missouri’s first utility-scale wind
farm, which Associated helped bring
about by signing long-term purchase
agreements and high-voltage transmission interconnections. Associated has 750 MW of contracted wind
energy in its portfolio.
One of members’ most cost-effective resources is Associated’s Take
Control & Save energy efficiency program, which helps member-consumers save on their electric bills. Since
2008, Associated has invested
$34 million in the program, which
will save 1,247,908,958 kilowatthours during the lifetime of the
measures.
The program includes home energy
audits, weatherization incentives, rebates for appliances, air conditioners
and heat pumps, business lighting
programs, pilot projects and educational seminars.
2014 ANNUAL REPORT
23
Management’s
discussion and analysis
Associated Electric Cooperative Inc. is owned by and provides wholesale power to six
regional generation and transmission cooperatives. In turn, these six regional generation and
transmission cooperatives are owned by and provide wholesale power to 51 local electric
cooperative systems in Missouri, southeast Iowa and northeast Oklahoma. Associated’s
mission is to provide an economical, reliable power supply and support services to its
members.
Associated operates on a not-for-profit cooperative
basis. Accordingly, revenues in excess of current
period costs in any particular year are designated
on the statement of revenues and expenses as “net
margin.” Member margins (as computed for federal
income tax purposes) are credited to patronage capital and assigned to the members on the basis of
patronage. Patronage capital assigned to members
is available for refund to the members when authorized by Associated’s board of directors and subject
to certain restrictions contained in the indenture
between Associated and Commerce Bank, N.A.,
dated Oct. 1, 1998. Since 1993, Associated’s
board of directors annually has resolved to retire
2 percent of the prior year-end equity balance. As a
result, $164.7 million has been refunded to members since that time.
Associated furnishes electric power and energy
to its members pursuant to the all-requirements
wholesale power contracts that extend through
2050. The wholesale power contracts require each
member to purchase all its electric power and energy needs from Associated.
Pursuant to the wholesale power contract, each
member is obligated to pay scheduled demand and
energy charges designed to cover all of Associated’s
costs as determined by Associated’s board of directors. These rates are the same to each member. At
such intervals as it deems appropriate, but not less
frequently than once a year, the board of directors of Associated reviews and may revise the rate
schedule.
24
2014 ANNUAL REPORT
Associated obtains the electric power and energy
needed to serve its members from a combination
of generation that Associated owns and operates;
generation owned by others but operated and/or
dispatched by Associated; and purchased power.
All units dispatched by Associated are dispatched
on an economic basis (that is, units producing the
lowest-cost power are dispatched first).
In October 1998 Associated completed a transaction that replaced Associated’s former Rural Utilities
Service (RUS) mortgage with an indenture of trust.
The indenture constitutes a lien on substantially all
of the property of Associated and places all secured
lenders in parity. Subject to the indenture and various debt agreements, the board of directors of
Associated has the power to self-regulate Associated.
During 2002 Associated and its members added
the Shoshone language to the wholesale power contracts. This amendment provides that the members
may not take certain actions that might have an
impact on the ability of Associated to repay its longterm debt without either the approval of the Rural
Utilities Service or repayment of a part of Associated’s debt by the members.
Earnings overview
Net margin for the year ended December 31,
2014, was $40.1 million, a decrease of
$1.7 million from the prior year. Following are some
significant factors that affected 2014 net margin as
compared with 2013.
Operating revenue
Megawatt-hour sales and operating
revenue from members
Operating revenue from members was
$933.3 million in 2014, an increase of
$36.4 million or 4.1 percent from 2013.
These revenues represent sales to members of
18,688,056 megawatt-hours in 2014 compared to
18,330,147 MWh in 2013, an increase of
2.0 percent. The increase in sales volume was primarily due to colder winter temperatures in 2014
compared to 2013 that resulted in increased sales
in the first quarter of 2014 of 549,597 MWh, or
10.8 percent. A temporary rate discount to members, effective in 2014, reduced member revenue
by approximately $18.7 million as compared to the
2013 temporary discount, which reduced member
revenue by approximately $27.5 million. Additionally, member revenue subject to refund of
$47.4 million was recognized, which was an increase of $27.4 million over the amount of deferred
revenue recognized in 2013. Offsetting these increases was a reduction in member billing demand
in 2014 as compared to 2013, which reduced
member revenue by approximately $7.5 million.
Total member revenue was $49.94 per MWh, an
increase of 2.1 percent over the 2013 average rate
of $48.93 per MWh.
Operating revenue from nonmembers
Operating revenue from nonmembers represents
energy and transmission sales to nonmembers. Energy sales to nonmembers are of two types: capacity sales and nonfirm interchange sales. Associated
is not required to curtail service to its members under any condition as a result of these nonfirm sales.
Nonmember sales help to reduce Associated’s cost
of service to its members.
In 2014, these revenues totaled $209.0 million
compared with $232.8 million in 2013, a decrease of $23.8 million or 10.2 percent. In 2014,
energy sales to nonmembers were $179.5 million, a decrease of $24.5 million or 12.0 percent
from 2013. The decrease was primarily due to a
decrease in nonfirm interchange sales volume to
nonmembers of 1,685,599 MWh, or 29.1 percent.
Offsetting the decrease was a 21.5 percent increase
in the average market price per MWh as compared
to 2013. Market prices were higher in 2014 as
compared to 2013 in large part due to higher average natural gas prices. Transmission revenue was
$29.7 million in 2014, an increase of $0.8 million,
or 2.8 percent in 2014 as compared to 2013.
Operating expenses
Generation operation
Generation operation includes costs to operate
Associated’s owned generating units and primarily
consists of the cost of fuel. Generation operation
expense was $421.2 million in 2014, an increase
of $5.1 million or 1.2 percent from 2013.
Associated’s owned generating units produced
15,091,426 MWh in 2014 at an average cost of
$27.91 per MWh compared to 15,868,460 MWh
at a cost of $26.22 per MWh in 2013.
Higher fuel prices drove the average cost of generation for both the coal and gas fleets up in 2014
as compared to 2013. The weighted average cost
of delivered coal increased 16.8 percent in 2014
as compared with 2013, primarily due to a new rail
contract for the New Madrid coal facility. There also
was a 16.4 percent increase in the average Henry
Hub price of natural gas as compared to 2013.
Offsetting the higher fuel prices was reduced
generation, which was 1.9 percent lower for the
coal fleet and 15.6 percent lower for the natural
gas fleet in 2014 as compared with 2013. Of the
total production from Associated’s owned generating
resources, 80.8 percent was produced by coal generation and 19.2 percent by natural gas generation.
Contracted generation
Contracted generation consists of firm capacity
received from Associated’s hydropower contract and
generating units that Associated has contracted to
dispatch up to a given quantity of power, for at least
one year, and for which Associated has operating
expense responsibility. In 2014 these resources
included:
• Grand River Dam Authority Unit 2 (38 percent
owned by KAMO Power)
• Chamois Unit 1 and Unit 2 (previously owned
by Central Electric Power Cooperative) ceased operations in September 2013
• New Madrid Unit 1 (owned by the city of New
Madrid)
2014 ANNUAL REPORT
25
• Southwestern Power Administration (hydropower contract)
Associated has a contract with Southwestern
Power Administration, effective through April 2031,
that entitles Associated to purchase 478 megawatts
of firm capacity. The contract price, subject to certain adjustments, has both a demand charge and
an energy charge. As of December 31, 2014, these
were $4.50 per kilowatt-month and 17.4 mills per
kilowatt-hour, respectively.
In 2014 contracted generation produced
5,737,773 MWh at a cost of $197.5 million, or
$34.43 per MWh. This compares to 5,941,184
MWh at a cost of $185.4 million, or $31.20 per
MWh, in 2013. The increase in cost was largely
due to increased fuel and maintenance costs related
to New Madrid Unit 1 in 2014 as compared to
2013. Offsetting the increase was a decrease in
Chamois expenses due to the closing of the facility
in 2013.
Purchased power
Purchased power includes expenses related to
the purchase of megawatt-hours from interchange
partners on the wholesale market, supplemental hydropower and energy purchased from wind
farms. Associated buys available power from the
wholesale market when it is more economical to
purchase than to produce with available generating
resources.
In 2014 total purchased power expenses were
$113.6 million, which was a decrease of
$1.2 million or 1.1 percent from 2013. Total volume of purchased power decreased by 14.5 percent as compared to 2013.
The largest component of purchased power
expense was wind farm purchases. Associated
purchased the output from five wind farms. Associated does not have fixed cost obligations and pays
only for the energy produced. These purchases are
at a contracted price for 20 and 25 years. In 2014,
Associated purchased a total of 2,117,767 MWh of
wind energy, which was an increase of 6.4 percent
over 2013. In 2014, wind energy purchases were
at an average price of $44.48 as compared to
$44.91 per MWh in 2013.
As part of its contract with Southwestern Power
Administration, Associated is entitled to purchase
26
2014 ANNUAL REPORT
excess energy, known as supplemental hydropower,
at a rate of $9.40 per MWh. Supplemental hydropower purchases, power made available to Associated dependent upon rainfall, were lower in 2014
than in 2013 by 225,925 MWh or 41.5 percent.
On the wholesale market in 2014, Associated
purchased 422,902 MWh at an average price of
$38.85 per MWh compared with 807,195 MWh
at an average price of $25.40 per MWh in 2013.
The decrease in the volume of energy purchased
on the wholesale market was due in large part to
the decrease in available counterparties as a result
of integration into Regional Transmission Organizations (RTOs) and the increase in average market
prices, which was driven by the increase in natural
gas prices and RTO operating fees incurred.
Transmission
Transmission expense includes three components:
1. Expense related to operation and maintenance
of Associated’s and its six members’ portions of the
transmission grid in Associated’s service territory;
2. Transmission charges that Associated pays on
interchange purchases and sales; and
3. Transmission expense related to purchases of
transmission service from others to serve members.
Transmission expense for 2014 was $87.2 million,
which was an increase of $4.2 million, or
5.1 percent compared to 2013. Transmission
expense increased primarily due to increased rents
paid to third parties for transmission service and
the maintenance and operation of Associated’s and
its six members’ portions of the transmission grid in
Associated’s service territory.
Generation maintenance
Generation maintenance includes maintenance
on Associated’s owned generating units and was
$59.9 million in 2014, a decrease of $8.1 million,
or 11.9 percent from 2013. The decrease is primarily due to a 14.8 percent decrease in coal unit
outage hours as compared to 2013. In addition,
there was a reduction in variable maintenance expense on gas units due to a 15.6 percent decrease
in generation as compared to 2013.
Interest
Interest on long-term debt for 2014 was
$86.7 million, a decrease of $4.5 million, or
4.9 percent, which was due to a reduction in the
outstanding long-term debt balance and an overall
decrease in the average interest rate as compared
to 2013. Interest capitalized on long-term debt
was $0.3 million, a decrease of $0.5 million or
59.7 percent. The decrease can be attributed to an
overall decrease in projects subject to capitalized
interest for 2014.
Significant balance sheet changes
Significant changes in the balance sheet at
December 31, 2014, from December 31, 2013,
include:
•Utility plant, at original cost, increased
$65.3 million primarily due to changes in the valuation of asset retirement obligations, the terminal
elimination project at the St. Francis substation,
and various turbine and transformer projects at the
coal plants.
•Deferred regulatory debits, including the current
portion, increased $32.4 million primarily due to
deferred mark-to-market losses on Associated’s diesel and interest rate hedging activities. Associated’s
board of directors has established a policy to defer
unrealized fair value gains and losses associated
with hedging activities and recognize in earnings
only at the settlement of those instruments.
•Fuel inventory decreased $20.9 million primarily due to a decrease in tons on the ground at
coal facilities due to railroad constraints impacting
deliveries.
•Other current assets – held for sale decreased
$14.1 million due to the sale of the Essex 2 equipment.
•Patronage capital increased $29.2 million as a
net result of $40.1 million in net margins for the
year and patronage capital retirements of
$10.9 million. At December 31, 2014, patronage
capital and other equities were 23.1 percent of
total capitalization.
•Long-term debt, including current maturities,
decreased $39.0 million. Associated had scheduled
principal payments of $86.8 million of existing debt
in 2014. Offsetting the decrease were new borrowings from FFB totaling $37.7 million and a
$10 million increase in the balance outstanding on
lines of credit at the end of 2014 as compared to
2013.
•Deferred regulatory credits, including the current
portion, decreased $57.9 million primarily due to
$47.4 million of deferred revenues recognized in
2014 through a board of directors’ action. In addition, deferred revenue collected for the conversion
of coal facilities of $5.7 million was recognized;
the regulatory liability for maintenance decreased
$3.6 million; and the deferred gain related to diesel
swaps decreased $1.7 million.
•Other deferred liabilities increased $14.5 million
primarily due to a $7.8 million increase in the longterm liability related to diesel hedging activity and
a $7.7 million increase in the long-term liability
related to a floating-to-fixed interest rate swap.
•Asset retirement obligation, including the current portion, increased $18.9 million primarily due
to cash flow revisions as a result of the issuance
of the EPA’s final draft rule on the disposal of coal
combustion residuals and changes in timing for the
remediation of ash disposal facilities.
•Other current and accrued liabilities increased
$16.4 million primarily due to a $14.6 million
increase in the short-term liability related to diesel hedging activity and a $2.2 million increase in
the short-term liability related to a floating-to-fixed
interest rate swap.
Capital requirements and liquidity
Associated is required, under the terms of its
long-term debt agreements, to maintain a minimum
margins and equities level of $160 million. As of
December 31, 2014, patronage capital and other
equities were $569 million.
Associated maintains a borrowing relationship
with the Rural Utilities Service of the U.S. Department of Agriculture, CoBank, the National Rural
Utilities Cooperative Finance Corp., Metropolitan
Life Insurance, American United Life, Hare and
Company, Pioneer Mutual Life, The State Life
Insurance Company and New York Life. Associated
also maintains substantial liquidity through credit
facilities with several lenders. As of December 31,
2014, total credit facilities equaled $550 million
and total available credit under these agreements
was $460 million. Please see footnote 12 to the
financial statements for additional information regarding long-term debt and liquidity instruments.
2014 ANNUAL REPORT
27
KPMG LLP
Suite 1000
1000 Walnut Street
Kansas City, MO 64106-2162
Independent Auditors’ Report
The Board of Directors and Members
Associated Electric Cooperative Inc.:
Report on the Financial Statements
We have audited the accompanying financial statements of Associated Electric Cooperative Inc., which
comprise the balance sheets as of December 31, 2014 and 2013, and the related statements of revenues and
expenses, comprehensive income, patronage capital and other equities, and cash flows for the years then
ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with U.S. generally accepted accounting principles; this includes the design, implementation,
and maintenance of internal control relevant to the preparation and fair presentation of financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted
our audits in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of
the risks of material misstatement of the financial statements, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Associated Electric Cooperative Inc. as of December 31, 2014 and 2013, and the results of its
operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting
principles.
KPMG LLP is a Delaware limited liability partnership,
the U.S. member firm of KPMG International Cooperative
(“KPMG International”), a Swiss entity.
28
2014 ANNUAL REPORT
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued a report dated February 10, 2015,
on our consideration of Associated Electric Cooperative Inc.’s internal control over financial reporting and
our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and
other matters. The purpose of that report is to describe the scope of our testing of internal control over
financial reporting and compliance and results of that testing, and not to provide an opinion on the internal
control over financial reporting or on compliance. That report is an integral part of an audit performed in
accordance with Government Auditing Standards in considering Associated Electric Cooperative Inc.’s
internal control over financial reporting and compliance.
/s/ KPMG LLP
Kansas City, Missouri
February 10, 2015
2014 ANNUAL REPORT
29
ASSOCIATED ELECTRIC COOPERATIVE INC.
Balance Sheets
December 31, 2014 and 2013
(In thousands of dollars)
Assets
Utility plant:
Electric plant in service
Construction work in progress
2014
$
3,697,636
40,279
3,654,038
18,599
3,737,915
3,672,637
(1,684,129)
(1,583,519)
2,053,786
2,089,118
19,077
13,012
4,591
14,983
13,012
4,797
36,680
32,792
213,364
23,733
206,962
32,914
237,097
239,876
69,914
84,067
54,343
83,378
153,981
137,721
Current assets:
Cash and cash equivalents
Restricted short-term investments
Accounts receivable
Materials and supplies inventory
Fuel inventory
Other current assets – held for sale
Other current assets
Current portion of deferred regulatory debits
102,704
109,152
116,511
74,821
35,128
—
19,592
16,802
89,791
113,174
124,047
70,734
56,000
14,147
20,862
—
Total current assets
474,710
488,755
2,956,254
2,988,262
Less accumulated depreciation
Total utility plant
Other property and investments:
Member construction advances, net
Nonutility property
Net investment in direct financing leases
Total other property and investments
Restricted and designated long-term assets:
Other restricted and designated assets
Investments in associated organizations, at cost
Total restricted and designated long-term assets
Other long-term assets:
Deferred regulatory debits
Other deferred assets
Total other long-term assets
Total assets
30
2013
2014 ANNUAL REPORT
$
ASSOCIATED ELECTRIC COOPERATIVE INC.
Balance Sheets
December 31, 2014 and 2013
(In thousands of dollars)
Capitalization and Liabilities
Patronage capital and other equities:
Memberships
Patronage capital
Other equities
Accumulated other comprehensive loss
$
Total patronage capital and other equities
Long-term debt, excluding current maturities:
Federal Financing Bank
CoBank
National Rural Utilities Cooperative Finance Corporation
Other
Total long-term debt, excluding current maturities
Other long-term liabilities
Deferred regulatory credits
Other deferred liabilities
Asset retirement obligation
Accumulated provision for postretirement benefits
Total other long-term liabilities
Current liabilities:
Accounts payable
Current maturities of long-term debt
Payable to member cooperatives
Other current and accrued liabilities
Current portion of asset retirement obligation
Current portion of deferred regulatory credits
Total current liabilities
Total capitalization and liabilities
$
2014
2013
12
519,037
55,540
(5,595)
12
489,798
55,540
(261)
568,994
545,089
1,255,834
356,881
46,667
153,281
1,277,929
362,509
50,000
158,675
1,812,663
1,849,113
190,967
48,262
44,647
28,948
249,453
33,810
25,666
24,729
312,824
333,658
108,505
84,061
27,983
36,767
3,885
572
113,045
86,655
36,376
20,417
3,909
—
261,773
260,402
2,956,254
2,988,262
See accompanying notes to financial statements.
2014 ANNUAL REPORT
31
ASSOCIATED ELECTRIC COOPERATIVE INC.
Statements of Revenues and Expenses
Years ended December 31, 2014 and 2013
(In thousands of dollars)
2014
2013
933,317
209,003
896,934
232,818
1,142,320
1,129,752
421,170
197,542
113,617
98,786
87,236
59,860
56,325
3,731
1,069
416,086
185,361
114,865
97,360
83,042
67,981
56,008
3,625
847
1,039,336
1,025,175
102,984
104,577
86,662
(349)
91,138
(866)
86,313
90,272
Operating margin
16,671
14,305
Nonoperating:
Interest and dividend income
Other nonoperating income
Interest expense
22,313
1,221
(63)
22,445
5,148
(69)
23,471
27,524
40,142
41,829
Operating revenues:
Members
Nonmembers
$
Total operating revenues
Operating expenses:
Generation operation
Contracted generation
Power purchased
Depreciation and amortization
Transmission
Generation maintenance
Administrative and general
Taxes
Accretion of asset retirement obligation
Total operating expenses
Operating margin before interest expense
Interest on long-term debt
Less interest capitalized
Total nonoperating
Net margin
See accompanying notes to financial statements.
32
2014 ANNUAL REPORT
$
ASSOCIATED ELECTRIC COOPERATIVE INC.
Statements of Comprehensive Income
Years ended December 31, 2014 and 2013
(In thousands of dollars)
2014
Net margin
Other comprehensive income (loss):
Actuarial adjustment of actuarial losses
Comprehensive income
$
$
2013
40,142
41,829
(5,334)
15,522
34,808
57,351
See accompanying notes to financial statements.
2014 ANNUAL REPORT
33
ASSOCIATED ELECTRIC COOPERATIVE INC.
Statements of Patronage Capital and Other Equities
Years ended December 31, 2014 and 2013
(In thousands of dollars)
Memberships
Balance at December 31, 2012
2013 net margin
Other comprehensive income
Patronage capital retirements
Total
457,923
41,829
—
(9,954)
55,540
—
—
—
(15,783)
—
15,522
—
497,692
41,829
15,522
(9,954)
Balance at December 31, 2013
12
489,798
55,540
(261)
545,089
2014 net margin
Other comprehensive loss
Patronage capital retirements
—
—
—
40,142
—
(10,903)
—
—
—
—
(5,334)
—
40,142
(5,334)
(10,903)
12
519,037
55,540
(5,595)
568,994
$
See accompanying notes to financial statements.
34
Other
equities
12
—
—
—
Balance at December 31, 2014
$
Patronage
capital
Accumulated
other
comprehensive
loss
2014 ANNUAL REPORT
ASSOCIATED ELECTRIC COOPERATIVE INC.
Statements of Cash Flows
Years ended December 31, 2014 and 2013
(In thousands of dollars)
2014
Cash flows from operating activities:
Net margin
Reconciliation of net margin to net cash provided by operating activities:
Depreciation and amortization
Net loss on sale of assets held for sale
Net (gain) on sale of property, plant, and equipment
Amortization of loan costs and other
Change in deferred regulatory debits
Change in asset retirement obligation
Changes in deferred regulatory credits
Prepayment on Retirement Security Plan
Changes in current assets and liabilities:
Accounts receivable
Fuel inventory
Materials and supplies inventory
Accounts payable
Other current and accrued liabilities
Other operating activities, net
$
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Reimbursement of capital expenditures
Proceeds from sale of assets held for sale
Proceeds from sale of property, plant, and equipment
Purchases of available-for-sale investments
Purchases of held-to-maturity investments
Sales of available-for-sale investments
Sales of held-to-maturity investments
Purchases of investments in associated organizations
Sale and/or maturity of investments in associated organizations, net
Direct financing lease proceeds
Other investing activities, net
Net cash used in investing activities
Cash flows from financing activities:
Net investments from member cooperatives
Issuance of long-term debt
Retirement of long-term debt
Retirement of patronage capital
Net cash provided by (used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
2013
40,142
41,829
105,110
147
(118)
1,537
(564)
(546)
(55,614)
—
103,134
—
(2,012)
3,110
22,799
44
(8,683)
(37,087)
(1,112)
20,872
(4,087)
(5,959)
(452)
(3,626)
2,531
14,963
(4,088)
4,050
(19,824)
(17,314)
95,730
103,452
(54,250)
9,070
14,000
50
(481)
(118,704)
266
117,114
(17)
12,628
627
(4,780)
(102,419)
—
—
8,356
—
(142,339)
—
125,707
(34)
4,941
627
(2,777)
(24,477)
(107,938)
(8,393)
112,735
(151,779)
(10,903)
(2,484)
237,316
(220,367)
(9,954)
(58,340)
4,511
12,913
25
89,791
89,766
Cash and cash equivalents, end of year
$
102,704
89,791
Supplemental disclosure of cash flow information:
Cash paid for interest (net of amount capitalized)
$
86,585
90,410
Supplemental disclosure of noncash activities:
Change in capital expenditures included in accounts payable
$
1,419
2,575
See accompanying notes to financial statements.
2014 ANNUAL REPORT
35
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
(1)
Summary of Significant Accounting Policies
Associated Electric Cooperative Inc. (Associated or the Cooperative) is an electric generation and
transmission cooperative that provides wholesale service to six members, all of which are generation and
transmission cooperatives. Each of the members in turn provides wholesale electric power to their member
distribution cooperatives located in Missouri, Iowa, and Oklahoma.
Associated maintains its accounting records in accordance with the U.S. Department of Agriculture Rural
Utilities Services (RUS) Uniform System of Accounts. The financial statements and the accompanying notes
to the financial statements have been prepared on the basis of U.S. generally accepted accounting principles
(GAAP).
(a)
Utility Plant, Property, and Equipment
Utility plant, property, and equipment are stated at cost. Generally, ordinary utility plant asset
retirements and disposals are charged against accumulated depreciation with no gain or loss
recognized. Gains and losses are recorded for retirements of general plant assets and entire asset
groups. Maintenance and repairs are charged to expense as incurred. Major inspections, rework, and
refurbishing are deferred and amortized over five years, which is the period that these costs are
recovered in rates.
The cost of utility plant is generally depreciated on a straight-line basis over the estimated economic
useful lives:
Generation plant
Transmission plant
General plant
Estimated
useful life
Composite
depreciation
rate
32–33
36
5–42
3.00%–3.10%
3.00%
2.40%–20.00%
Upon indication of possible impairment, Associated evaluates the recoverability of long-lived assets
by comparing the carrying amount of the relevant asset group against the related estimated
undiscounted future cash flows expected over the remaining useful life of the asset group. When an
evaluation indicates that the future undiscounted cash flows are not sufficient to recover the carrying
value of the asset group, the carrying value of the asset group is reduced to its estimated fair value.
(b)
Asset Retirement Obligation
Associated has asset retirement obligations arising from regulatory requirements to perform asset
retirement activities at the time certain property is disposed. A liability is initially measured at fair
value and is subsequently adjusted for accretion expense and changes in the amount and timing of the
estimated cash flows. The corresponding asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset and depreciated over the asset’s useful life. Associated’s asset
retirement obligations include the costs associated with asbestos removal and disposal, reclamation of
ash disposal areas, reclamation of landfill sites, removal of fuel oil tanks, and removal of certain water
lines contained in Associated’s generating plants (note 4).
36
2014 ANNUAL REPORT
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
(c)
Capitalized Interest
Interest incurred in connection with the construction of capital assets is capitalized and totaled $349
and $866 in 2014 and 2013, respectively. The average capitalization rates for 2014 and 2013 were
2.79% and 3.64%, respectively, which is based on Associated’s cost of financing.
(d)
Restricted and Designated Assets
Restricted and designated assets consist of assets segregated for specific purposes including
investments in patronage allocations from various membership cooperatives, funds invested to retire
future RUS/Federal Financing Bank (FFB) debt, and cash funds reserved for the generation,
environmental, and insurance reserve fund, member revenue subject to refund, and deferred
compensation.
(e)
Investments
Debt securities, except for those classified as cash equivalents, in which Associated has the intent and
ability to hold to maturity are classified as held-to-maturity securities and are reported at amortized
cost. All other securities are classified as available-for-sale and are carried at fair value with unrealized
gains and losses included as a component of other comprehensive income. Upon sale, these unrealized
gains and losses are recognized in net margin. Realized gains and losses are computed based on the
difference between amortized costs and proceeds received on a specific security identification basis.
Investments with maturities greater than one fiscal year are classified as other restricted and designated
assets (note 6).
(f)
Cash and Cash Equivalents
All unrestricted highly liquid investments with an original maturity of three months or less are
considered to be cash equivalents and are stated at cost, which approximates market value. At
December 31, 2014 and 2013, Associated’s cash and cash equivalents balance was $102,704 and
$89,791, respectively.
(g)
Member Construction
Associated advances funds for the construction of various member primary transmission and
generation projects. These advances are subsequently amortized over the life of the asset by Associated
as transmission or contracted generation expense. The balance of these advances, net of amortization,
totaled $19,077 and $14,983 at December 31, 2014 and 2013, respectively, with related 2014 and 2013
amortization of $656 and $2,150, respectively.
(h)
Inventories
Inventories of fuel and materials and supplies are valued using the average-cost method. Inventory that
is obsolete or excess is written down to its estimated disposal value.
2014 ANNUAL REPORT
37
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
(i)
Payable to Member Cooperatives
Associated provides a short-term investment program to its member cooperatives and their cooperative
members. The funds invested with Associated earn interest at rates established by Associated. The
average rate was 0.14% and 0.15% in 2014 and 2013, respectively. The interest expense is reflected
as nonoperating interest expense. At December 31, 2014 and 2013, the members had invested $27,983
and $36,376, respectively, classified as payable to member cooperatives.
(j)
Regulatory Matters
The Cooperative is subject to the authoritative accounting guidance applicable to rate-regulated
organizations. The Board of Directors of Associated has full authority to establish electric rates.
Certain items collected in rates have been recorded as regulatory liabilities. These amounts will be
recognized as revenue in future periods as costs for which the amounts have been collected are
incurred, or when the return of the amounts collected to the members is authorized by the Board of
Directors (note 13). Certain expenses have been recorded as regulatory assets and management
believes these amounts are probable of future rate recovery (note 10).
(k)
Revenues
Revenues from the sale of electricity are recorded based on energy delivered to customers and on
contracts and scheduled power usages, as appropriate.
Concentration of credit risk with respect to total accounts receivable is due to Associated’s customer
base. Approximately 66% of accounts receivable at December 31, 2014 is due from Associated’s six
members and from the City of New Madrid power plant. The credit risk for accounts receivable is
controlled through management monitoring procedures.
(l)
Contracted Generation
Contracted generation is the expense of generating units for which the Cooperative has energy and
capacity contracts in excess of one year (note 5).
(m)
Patronage Capital and Other Equities
In accordance with Associated’s bylaws, taxable member margins are allocated to members based on
their patronage. For the year ended December 31, 2014, taxable margins of $44,141 were allocated to
members. Cumulatively, $1,714,226 has been allocated, and $1,549,534 is unpaid at December 31,
2014. For financial reporting, book net margins are allocated to patronage capital.
(n)
Accumulated Other Comprehensive Loss
The following table provides the component of accumulated other comprehensive loss:
December 31
Component
Postretirement benefits actuarial losses
38
2014 ANNUAL REPORT
2014
$
(5,595)
2013
(261)
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
(o)
Estimates
The preparation of financial statements is in conformity with accounting principles generally accepted
in the United States of America, which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities,
and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(p)
Litigation
In the normal course of business, Associated is involved in legal proceedings. In accordance with
accounting principles generally accepted in the United States of America, Associated accrues a liability
for such matters when it is probable that a liability has been incurred and the amount can be reasonably
estimated. When only a range of possible loss can be established, the most probable amount in the
range is accrued. If no amount within this range is a better estimate than any other amount within the
range, the minimum amount in the range is accrued.
(q)
Emission Allowances and Renewable Energy Credits
As a result of the operation of its generating resources, Associated generates or is allocated Sulfur
Dioxide (SO2) and Nitrogen Oxide (NOX) allowances and renewable energy credits (RECs) under
various environmental regulations. Allowances that are granted to Associated at no cost do not result
in an expense when used. Associated purchases NOX allowances, which are recorded in fuel inventory
and expensed when used or no longer have value. NOX allowance purchases in 2014 and 2013 were
$1,158 and $1,035 with related expense incurred of $2,101 and $962, respectively. Proceeds from sales
of allowances and RECs in excess of cost are recorded as a gain. During 2014 and 2013, $1,593 and
$1,606 of proceeds from sale of allowances and RECs were received, respectively.
(2)
New Accounting Pronouncements
Upon issuance of exposure drafts or final pronouncements, Associated reviews new accounting literature to
determine the relevance, if any, to its business. The following represents a summary of pronouncements that
Associated has determined relate to its operations:
(a)
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (FASB) issued guidance to clarify the
principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and
International Financial Reporting Standards (IFRS). The core principal of the guidance is that an entity
should recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services. This guidance affects any entity that either enters into contracts with customers to
transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those
contracts are within the scope of other standards. An entity should disclose sufficient information to
enable users of financial statements to understand the nature, amount, timing, and uncertainty of
revenue and cash flows arising from contracts with customers. This guidance is effective for nonpublic
entities for reporting periods beginning after December 15, 2017. The adoption of this guidance will
2014 ANNUAL REPORT
39
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
require additional disclosures, but is not expected to have a material impact on Associated’s financial
condition or results of operations.
(b)
Derivatives and Hedging
In January 2014, the FASB issued guidance to address concerns of private company stakeholders by
providing an additional hedge accounting alternative within Topic 815 for certain types of swaps that
are entered into by a private company for the purpose of economically converting a variable-rate
borrowing into a fixed-rate borrowing. This additional hedge accounting alternative acts as a practical
expedient to qualify for cash flow hedge accounting under Topic 815 if certain conditions are met.
This amendment applies to all entities, expect for publicly held entities, not-for-profit entities,
employee benefit plans, and financial institutions. Under the simplified hedge accounting approach, a
private company has the option to measure the designated swap at settlement value instead of fair
value. Because Topic 815 permits election of hedge accounting on a swap-by-swap basis, a private
company can elect to apply this approach to any qualifying swap, whether existing at the date of
adoption of this Update or entered into after that date. The simplified hedge accounting approach will
be effective for annual periods beginning after December 15, 2014. The adoption of this guidance is
not expected to have a material impact on Associated’s financial condition or results of operations.
(c)
Presentation of Comprehensive Income
In February 2013, the FASB issued guidance on the presentation of reclassifications out of
accumulated other comprehensive income. Publicly held and nonpublic entities will be required to
report the effect of significant reclassifications out of accumulated other comprehensive income on the
respective line items in net income if the amount is being reclassified in its entirety to net income. For
other amounts that are not reclassified in their entirety to net income in the same reporting period, an
entity is required to cross-reference other disclosures required under U.S. generally accepted
accounting principles that provide additional detail about those amounts. This guidance is effective for
nonpublic entities for the reporting periods beginning after December 15, 2013. The adoption of this
guidance did not have a material impact on Associated’s financial condition or results of operations.
(d)
Fair Value Measurement and Disclosures
In May 2011, the FASB issued additional guidance on fair value measurement and disclosure. The
purpose of the additional guidance is to align the fair value measurement and disclosure requirements
between U.S. generally accepted accounting principles and International Financial Reporting
Standards. The amendment allows entities to assess the fair value of financial instruments held in a
portfolio as a net asset or liability. Additionally, entities should use a premium or discount when
assessing the fair value of assets or liabilities classified as Level 2 or Level 3 within the fair value
hierarchy. Entities are required to supply additional disclosures about the valuation process and the
sensitivity of the unobservable inputs used in the fair value measurement for assets or liabilities
classified as Level 3 within the fair value hierarchy. Entities should disclose the use of a nonfinancial
asset if that asset has been measured for fair value or when its fair value is disclosed on the basis of its
highest and best use and is not used in such a manner. Lastly, entities should disclose the fair value
hierarchy of assets or liabilities that are not valued as such in the statement of position, but for which
fair value disclosure is required under the FASB guidance of other presentation matters for financial
instruments. This guidance is effective for nonpublic entities for the annual periods beginning after
40
2014 ANNUAL REPORT
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
December 15, 2011. Associated adopted this guidance for the year ended December 31, 2012. In
February 2013, the FASB issued a clarification of the fair value disclosure requirements for nonpublic
entities. Nonpublic entities are not required to provide the disclosure of the level of the fair value
hierarchy within which the fair value measurements are categorized in their entirety at Level 1, 2, or
3, for items disclosed at fair value but not measured at fair value in the financial statements. The
adoption of this guidance did not have a material impact on Associated’s financial condition or results
of operations.
(3)
Utility Plant
Utility plant, at original cost, at December 31, 2014 and 2013, consisted of the following:
Generation
plant
December 31, 2013, ending
Additions
Retirements
$
December 31, 2014, ending
Construction work in progress
Accumulated depreciation
Total utility plant
$
Transmission
plant
General
plant
Total
3,316,352
31,010
(1,657)
268,077
14,534
(2,038)
69,609
1,977
(228)
3,654,038
47,521
(3,923)
3,345,705
280,573
71,358
3,697,636
30,903
7,101
2,275
40,279
3,376,608
287,674
73,633
3,737,915
(1,512,386)
(128,970)
(42,773)
(1,684,129)
1,864,222
158,704
30,860
2,053,786
Depreciation for the year ended December 31, 2014 was $105,110, of which $98,786 was charged to
depreciation expense and $6,323 was included in contracted generation and generation operation expense.
Depreciation for the year ended December 31, 2013 was $103,134, of which $97,360 was charged to
depreciation expense and $5,774 was included in contracted generation and generation operation expense.
(4)
Asset Retirement Obligation
Associated has accounted for the asset retirement costs associated with certain tangible long-lived assets.
Associated has recorded obligations for the removal and disposal of asbestos in Associated’s Thomas Hill,
New Madrid and Chamois power plants, the reclamation of the landfill site at the New Madrid power plant,
reclamation of ash ponds at the New Madrid, Thomas Hill and Chamois facilities, the removal of fuel oil
tanks at the Dell and Holden power plants, and the removal of certain water lines contained in Associated’s
generating plants. Because Associated’s business is subject to the accounting requirements for regulated
operations, costs incurred upon the adoption of the asset retirement obligation accounting guidance were
recorded as a regulatory asset to be recovered in future rates (note 10).
2014 ANNUAL REPORT
41
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
The following is a reconciliation of the beginning and ending aggregate carrying amount of asset retirement
obligations:
Carrying Value of Asset Retirement Obligation
Chamois
December 31, 2013, ending balance
Less current retirement
obligations
$
Thomas
Hill
New
Madrid
Holden
Dell
Total
2,801
11,460
14,577
315
422
29,575
(1,823)
(1,528)
(558)
—
—
(3,909)
978
9,932
14,019
315
422
25,666
Current period settlements
Accretion expense
Cash flow revisions
(156)
43
2,730
(1,344)
702
667
(387)
543
16,105
—
21
—
—
33
—
(1,887)
1,342
19,502
December 31, 2014, ending balance
5,418
11,485
30,838
336
455
48,532
Less current retirement obligations
(2,801)
(809)
(275)
—
—
(3,885)
2,617
10,676
30,563
336
455
44,647
Long-term
retirement
obligations
Long-term
retirement
obligations
$
The 2014 cash flow revisions are primarily due to the issuance of the EPA’s final rule on the disposal of coal
combustion residuals resulting in increased cost estimates and changes in timing for remediation of
Associated’s ash disposal facilities.
(5)
Contracted Generation
Contracted Generation consists of firm capacity received from Associated’s hydropower contract and
generating units that Associated has contracted to dispatch up to a given quantity of power, for at least
one year, and for which Associated has operating expense responsibility.
Under the terms of an agreement with the City of New Madrid, Missouri (the City), Associated operates the
City’s power plant at New Madrid. The agreement is effective for 50 years after commercial operation
(October 1, 1972). Associated purchases power at cost from the City. In 2014 and 2013, Associated’s cost
of power purchased from the City was $111,084 and $92,519, respectively.
Under the terms of an agreement with one of its members, Associated is required to reimburse costs
associated with the member’s ownership interest in the Grand River Dam Authority (GRDA) Unit 2 coal
facility, and entitles Associated to the member’s share of power. In 2014 and 2013, Associated’s cost related
to the operation of the GRDA Unit 2 was $48,937 and $47,752, respectively.
Associated has a contract with Southwestern Power Administration (SWPA), effective through April 2031,
that entitles Associated to purchase a fixed amount of firm capacity. In 2014 and 2013, Associated’s cost of
firm power purchased from SWPA was $36,428 and $34,366, respectively.
42
2014 ANNUAL REPORT
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
(6)
Investments
Investments at December 31, 2014 consisted of the following:
Available for sale
Unrealized
Unrealized
gains
losses
Cost
Fair value
Held to
maturity
Amortized
cost
Total
Restricted short-term investments:
RUS Cushion of Credit
$
—
—
—
—
109,152
109,152
$
—
—
—
—
109,152
109,152
$
5,833
—
—
—
—
—
—
—
—
5,833
—
—
—
5,146
194,039
5,833
5,146
194,039
—
—
—
—
1,279
1,279
—
—
—
—
7,067
7,067
5,833
—
—
5,833
207,531
213,364
Other restricted and designated
assets:
Mutual funds
Pension reinvestment
RUS Cushion of Credit
U.S. government agency
securities
U.S. government treasury
bills
$
Associated entered into a Cushion of Credit agreement with the RUS in 2002. At December 31, 2014 and
2013, Associated had on deposit with the U.S. Treasury $303,191 and $301,863, respectively, restricted for
future RUS/FFB debt service payments. Interest earned is applied to future debt service.
Investments at December 31, 2013 consisted of the following:
Available for sale
Unrealized
Unrealized
gains
losses
Cost
Fair value
Held to
maturity
Amortized
cost
Total
Restricted short-term investments:
RUS Cushion of Credit
$
—
—
—
—
113,174
113,174
$
—
—
—
—
113,174
113,174
$
5,316
—
—
—
—
—
—
—
—
5,316
—
—
—
4,623
188,689
5,316
4,623
188,689
—
—
—
—
1,269
1,269
—
—
—
—
7,065
7,065
5,316
—
—
5,316
201,646
206,962
Other restricted and designated
assets:
Mutual funds
Pension reinvestment
RUS Cushion of Credit
U.S. government agency
securities
U.S. government treasury
bills
$
2014 ANNUAL REPORT
43
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
Annual maturities of the investments at December 31, 2014 are classified as follows:
Available for sale
Cost
Fair value
Within one year
After one year through five years
(7)
$
—
5,833
—
5,833
Held to
maturity
amortized
cost
109,152
207,531
Nonoperating Income and Other Revenue
Interest income from investments totaled $16,704 and $16,731 in 2014 and 2013, respectively. Associated
received $2,117 and $2,393 in 2014 and 2013, respectively, of interest income related to the leasing of
transmission line and related equipment and assets used by the City of New Madrid Power Plant.
Patronage capital allocations received from others were $3,491 and $3,321 in 2014 and 2013, respectively.
In 2013, Associated received $3,443 in insurance proceeds for work related to an insurable generator failure
event at the New Madrid power plant that has not yet been incurred.
Associated recognized a loss of $26 and a gain of $1,447 on the sale of nonutility property in 2014 and 2013,
respectively. The remaining $1,248 and $258 primarily relates to rental income on nonutility property for
2014 and 2013, respectively.
(8)
Investments in Associated Organizations
Associated conducts business with various cooperatives including the Cooperative Finance Corporation
(CFC) and CoBank. As a result of these business relationships, Associated holds membership rights in these
organizations, which include the right to receive patronage allocations.
Investments in associated organizations at December 31, 2014 and 2013 consisted of the following:
2014
CoBank patronage capital equity
CFC capital securities
CFC held-to-maturity securities
CFC patronage capital certificates and memberships
Other
2013
$
16,037
—
3,759
3,678
259
15,259
10,000
3,893
3,522
240
$
23,733
32,914
At December 31, 2014, future maturities of the CFC held-to-maturity securities at amortized cost are: after
1 year through 5 years, $666; after 5 years through 10 years, $1,931; and after 10 years, $1,162. The CFC
capital securities had a maturity date of February 3, 2044, but were called in 2014. The remaining investments
in associated organizations do not have a stated maturity.
44
2014 ANNUAL REPORT
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
(9)
Leases
(a)
Net Investment in Direct Financing Leases
Associated’s leasing activities consist of the leasing of a transmission line and related equipment. The
construction of these facilities was completed in 1992 with all costs incurred by Associated. The
transmission line leases expire in 2028. The leases are classified as direct financing leases as follows:
2014
Total minimum lease payments receivable
Less:
Unearned income
Current portion
Net investment in direct financing leases
$
$
2013
8,533
9,160
(3,315)
(627)
(3,736)
(627)
4,591
4,797
Future minimum lease receipts related to direct financing leases for the next five years will be:
2015
2016
2017
2018
2019
Thereafter
(b)
$
627
627
627
627
627
5,398
$
8,533
Operating Leases
Associated leases a total of 973 railcars used in the delivery of coal to the New Madrid power plant as
of December 31, 2014. Rental expense for these cars was $3,307 and $2,503 for the years ended
December 31, 2014 and 2013, respectively. Future minimum lease payments for these cars are as
follows:
2015
2016
2017
2018
2019
Thereafter
$
2,897
3,332
1,915
1,894
1,727
1,727
$
13,492
2014 ANNUAL REPORT
45
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
(10) Deferred Regulatory Debits
At December 31, 2014 and 2013, deferred regulatory debits consisted of the following regulatory assets:
2014
Loss on hedging activities
Maintenance costs
Energy efficiency costs
Impairment loss on equipment
Asset retirement obligations
$
Less current portion of deferred regulatory debits
Long-term deferred regulatory debits
$
2013
43,511
24,821
9,428
6,177
2,779
11,223
22,678
10,327
6,283
3,832
86,716
54,343
(16,802)
—
69,914
54,343
Regulatory assets are recorded for expenses that are deferred and will be recovered through rates charged to
members in future periods. Such deferrals are made at the discretion of Associated’s Board of Directors.
Associated does not earn a return on these regulatory assets.
Associated’s Board of Directors has established a policy to defer unrealized fair value gains and losses
associated with hedging activities and recognize in earnings only at the settlement of these instruments. As
of December 31, 2014 and 2013, Associated had deferred $43,511 and $11,223 of unrealized losses on
hedging activities, respectively (note 17). The current portion of hedging activities is included as a current
asset on the accompanying balance sheets and consists of $14,582 in unrealized losses on diesel swaps and
$2,220 in unrealized losses on an interest rate swap as of December 31, 2014.
Deferred maintenance costs represent the cost of major maintenance projects that are capitalized in the year
incurred. These costs are being amortized and recovered through rates over a period of five years.
The costs associated with the Cooperative’s energy efficiency initiatives are capitalized. These costs are
amortized and recovered through rates over a period of five years.
In 2011, due to changes in projected capacity needs, Associated’s Board of Directors elected to market
certain generation equipment for sale. This created a triggering event requiring an assessment of these assets
for impairment. A loss of $20,062 was recorded for the difference in carrying value as compared to fair
value, which Associated’s Board of Directors has elected to recover through rates charged to members over
33 years. In December 2013, Associated’s Board of Directors elected to accelerate $13,000 of the impairment
loss, in addition to scheduled amortization of $614. In 2014, scheduled amortization was $203.
The costs recognized upon the adoption of the accounting guidance for asset retirement obligations were
deferred as a regulatory asset. These costs are being amortized over the life of the underlying asset.
46
2014 ANNUAL REPORT
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
(11) Other Deferred Assets
At December 31, 2014 and 2013, other deferred assets consisted of the following deferred assets:
2014
City of New Madrid power plant purchase installment
NRECA pension prepayment
Long-term receivable on New Madrid substation
Preliminary surveys
Prepayment of payment in lieu of taxes
Long-term debt financing fees and losses
Other
2013
$
30,000
25,961
8,785
8,346
5,012
3,850
2,113
25,000
29,669
8,237
7,836
5,490
4,637
2,509
$
84,067
83,378
Other deferred assets are long-term assets that are not otherwise classified as other property and investments
or restricted and designated long-term assets.
In 2014 and 2013, Associated made a nonrefundable payment of $5,000 and $25,000 to the City of New
Madrid, respectively. The payments were made pursuant to an agreement with the City to purchase the City
of New Madrid power plant. If all scheduled payments are made pursuant to the agreement, ownership of
the plant will transfer to Associated in 2022. Associated has the right to accelerate the purchase or terminate
the agreement at any time during the term.
In February 2013, Associated made a prepayment of $37,087 to the NRECA Retirement Security Plan.
Associated is amortizing this amount over 10 years. The long-term portion of the prepayment is $25,961 as
of December 31, 2014.
Associated entered into an agreement to engineer, construct, own, operate, and maintain a 345/500 kV 750
MVA transformer at a greenfield site adjacent to the New Madrid Station in which two other parties are to
share equally in the cost of construction. The total construction cost of the substation was $26,947. One party
elected to pay their one-third share of the construction cost in 2014. The other party will pay their share of
the construction costs over 20 years. The long-term receivable associated with this project was $8,785 at
December 31, 2014.
Associated has engaged engineers to perform preliminary surveys on various projects that could result in
capital additions. If a capital addition results from the surveys, then the costs are included in the capital
project costs, otherwise the survey costs are expensed.
Associated entered into an agreement to a make a prepayment of $5,729 for a payment in lieu of taxes. The
long-term portion of this payment is $5,012. The prepayment will be amortized into expense from July 2014
through 2026.
Associated has incurred fees on various FFB loans and losses on bond refunding that will be amortized at
various rates through 2034.
2014 ANNUAL REPORT
47
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
(12) Long-Term Debt
Long-term debt consists of mortgage notes payable to the United States of America acting through the FFB,
CFC, and CoBank, as well as others. Substantially, all of Associated’s assets are pledged as collateral for the
borrowings noted in the table below, except those noted as unsecured. The terms of the notes are as follows:
2014
FFB mortgage notes at various rates from 2.41% to 6.96%,
due quarterly through 2046
Private placement notes, due quarterly through 2041
at rates from 4.65% to 6.39%
CoBank term loan, due quarterly through 2029 at
5.88% interest
CoBank notes, due quarterly through 2031 at 7.41%
average interest
CoBank revolving line of credit, due in the year 2016 at
average interest rate of 1.07% (unsecured)
CoBank notes, due quarterly through 2024 at 6.33% interest
CFC notes payable, due annually through 2029 at various
rates from 6.60% to 6.65%
CoBank Term loan, due quarterly through 2023 at 1.07%
average interest (unsecured)
CFC notes payable, due quarterly through 2014 at
7.00% interest
$
Less current maturities
$
2013
1,315,540
1,339,777
158,675
163,911
114,000
118,617
78,314
80,728
90,000
57,820
80,000
61,986
50,000
53,333
32,375
36,075
—
1,341
1,896,724
1,935,768
(84,061)
(86,655)
1,812,663
1,849,113
In 2010, Associated entered into two agreements with RUS through FFB for $199,275 and $490,000 for a
capital projects loan and a plant construction loan, respectively. In 2014, $8,786 and $15,222 were advanced
on the capital projects loan, which matures on January 3, 2045, and bears interest rates of 3.324% and
2.742%, respectively. These were the final advances against the capital projects loan. In 2014, $5,515 was
advanced on the plant construction loan, which matures on December 31, 2040, and bears an interest rate of
2.534%. As of December 31, 2014, this loan had $12,098 available to advance.
In 2012, RUS approved a loan guarantee commitment of $24,628 for a transmission projects loan. In 2014,
Associated received its final advance against this loan in the amount of $8,212, which matures on
December 31, 2046, and bears an interest rate of 2.569%.
During 2013, Associated entered into an agreement with CoBank for $37,000, which matures on August 16,
2023, and bears an average interest rate of 0.97% as of December 31, 2014. The interest rate is a variable
rate with several reset options. The purpose of the term loan was to finance a prepayment to the
defined-benefit pension plan sponsored by the National Rural Electric Cooperative Association (NRECA)
(note 14).
48
2014 ANNUAL REPORT
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
As of December 31, 2014 and 2013, Associated had $550,000 of committed lines of credit with scheduled
expirations of $115,000 in 2015, $385,000 in 2016, and $50,000 in 2017. On October 6, 2014, Associated
entered into an agreement with Regions Bank to extend its current agreement to a maturity date of
February 17, 2015. On December 29, 2014, Associated and Branch Banking and Trust Company (BB&T)
entered into an agreement for a $50,000 unsecured three-year term credit facility. As of December 31, 2014
and 2013, Associated had $90,000 and $80,000 outstanding on the lines of credit bearing an interest rate of
0.97% and 1.07%, respectively. The interest rate is a variable rate with several reset options.
Associated has an $850 standby letter of credit that is required by the United Mine Workers of America
(UMWA).
Annual maturities of long-term debt for the next five years are as follows:
2015
2016
2017
2018
2019
2020 Thereafter
$
84,061
65,599
77,959
92,675
80,511
1,495,919
$
1,896,724
The terms of these debt agreements contain, among other provisions, requirements to maintain a minimum
level of total margins and equities, current ratio and margin for interest ratio, and other financial ratios.
Associated is in compliance with the terms of these agreements.
(13) Deferred Regulatory Credits
Regulatory credits are established for obligations to Associated’s customers based on actions of Associated’s
Board of Directors. These amounts will be included in income in the year that they are applied to future costs
or otherwise returned to members. At December 31, 2014 and 2013, deferred regulatory credits consisted of
the following:
Generation, environmental, and insurance reserve fund
Member revenue subject to refund
1990 Clean Air Act Amendment reserve, net
Regulatory liability for maintenance
Deferred gain on hedging activities
$
Less current portion of deferred regulatory credits
Long-term deferred regulatory credits
$
2014
2013
157,921
24,561
8,485
—
572
157,921
72,000
14,222
3,582
1,728
191,539
249,453
(572)
—
190,967
249,453
2014 ANNUAL REPORT
49
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
Associated’s Board of Directors established a fund for costs to comply with federal environmental
legislation, future generation expenditures, uninsured losses, and future unplanned power supply cost. This
fund is referred to as the generation, environmental, and insurance reserve fund (GEIF). In 2014 and 2013,
there were no additions into this fund and none of the funds previously deferred for this purpose were
recognized in the statements of revenues and expenses. During 2014 and 2013, Associated’s Board of
Directors designated $5,000 and $25,000 of this fund to be used for the purchase of the City of New Madrid
power plant, respectively. Upon purchase, Associated will amortize into income this amount over the
depreciable life of the asset (note 11).
In 2009, a regulatory credit was recorded for amounts collected from members and deferred as a result of
the Board of Directors designating these member collections in that year as being subject to refund. In 2014
and 2013, amounts collected from members in prior years were recognized as member revenues as a result
of actions taken by the Board of Directors. The amount of such revenue recognized in 2014 and 2013
was $47,439 and 20,000, respectively. Total member collections recorded as a deferred regulatory
credit was $24.561 and $72,000 at December 31, 2014 and 2013, respectively. These amounts are
subject to future decisions that may be made by the Board of Directors.
Associated previously incurred an obligation for future costs to comply with the 1990 Clean Air Act
Amendments (the Act). This deferred regulatory credit is being amortized into member revenue on the
statements of revenues and expenses in an amount equal to the amortization of the related costs that have
been capitalized to comply with the Act. In 2014 and 2013, amortization was $5,737 and $5,773,
respectively. Accumulated amortization was $203,841 and $198,104 at December 31, 2014 and 2013,
respectively.
In 2001, Associated incurred an obligation for maintenance of its simple cycle gas units based on the number
of unit operational starts. The balance of the reserve will be amortized to income as these maintenance costs
are incurred. In 2014, $3,582 in maintenance cost for the Holden power plant was incurred, which reduced
the deferred credit balance from $3,582 at December 31, 2013 to $0 at December 31, 2014.
Associated’s Board of Directors has established a policy to defer unrealized fair value gains and losses
associated with hedging activities and recognize in rates only the current period settlement of these
instruments. As of December 31, 2014 and 2013, Associated had deferred $572 and $1,728 of unrealized
gains on hedging activities, respectively (note 17). The current portion of hedging activities is included as a
current liability on the accompanying balance sheets and consists of $572 in unrealized gains on Financial
Transmission Rights (FTRs) and Transmission Congestion Rights (TCRs) as of December 31, 2014.
(14) Pension and Other Postretirement Benefits
Associated participates in the NRECA Retirement and Security Plan (RS Plan). The legal name of the plan
is the NRECA Retirement Security Plan; the employer identification number is 54-0116145 and the RS Plan
number is 333. Plan information is available publicly through the annual Form 5500. The RS Plan year is
January 1 through December 31. The RS Plan is a defined-benefit pension plan qualified under Section 401
and tax-exempt under Section 501(a) of the Internal Revenue Code. Contributions are required by a
collective bargaining agreement, which expires on June 30, 2017. Employees hired on or after January 1,
2014, are not eligible to participate in the RS Plan.
50
2014 ANNUAL REPORT
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
In February 2013, Associated elected to make a prepayment of $37,087 to the RS Plan. Associated is
amortizing this amount over 10 years. Associated’s total contributions to the RS Plan in 2014 and 2013
represented less than 5% of the total contributions made to the RS Plan by all participating employers.
Associated’s total contribution to the Plan, including the prepayment, was $8,724 in 2014 and $50,064 in
2013.
For the RS Plan, a “zone status” determination is not required and, therefore, not determined under the
Pension Protection Act (PPA) of 2006. In addition, the accumulated benefit obligations and plan assets are
not determined or allocated separately by an individual employer. In total, the RS Plan was over 80% funded
on January 1, 2014 and January 1, 2013 based on the PPA funding target and PPA actuarial value of assets
on those dates. Because the provisions of the PPA do not apply to the RS Plan, funding improvement plans
and surcharges are not applicable. Future contribution requirements are determined each year as part of the
actuarial valuation of the plan and may change as a result of plan experience.
Substantially all of the employees of Associated participate in the NRECA Select RE Plan 401(k) plan
(the 401(k) Plan). Under the 401(k) Plan, Associated contributes amounts not to exceed 2.5% of the
employee’s full salary for nonrepresented and base pay for International Brotherhood of Electrical Workers,
dependent on the employee’s level of participation for employees hired prior to January 1, 2014. For
employees hired on or after January 1, 2014, Associated contributes amounts ranging from 6% to 13%
depending on the employee’s contribution to the plan and years of service. Associated contributed $1,187
and $1,155 to the 401(k) Plan in 2014 and 2013, respectively.
Associated has a deferred compensation plan that permits directors and certain employees to defer a portion
of their compensation and accrue earnings on the deferred amounts. The assets of the plan are held in a rabbi
trust and included in other restricted assets and other deferred liabilities.
Associated provides noncontributory healthcare benefits to its retired UMWA employees and their eligible
dependents (UMWA Plan). These employees became eligible for benefits upon reaching age 55 while
working for Associated and having 20 years of credited service at retirement. Also eligible were UMWA
retirees who had 10 years of credited service and were age 55 or older at termination from Associated.
Associated has a standby letter of credit pledged as collateral (note 12).
2014 ANNUAL REPORT
51
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
The UMWA Plan qualifies for the federal subsidy for prescription drug coverage under the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003. As such, an assumption regarding the
subsidy is included in the actuarial valuation of the UMWA Plan. The effect of the subsidy on the
accumulated pension benefit obligation as of December 31, 2014 was a reduction of $5,400, which serves to
reduce the net periodic cost by $557 annually.
2014
Change in accumulated benefit obligation:
Accumulated benefit obligation, beginning of year
Interest cost
Actuarial (gain) loss
Benefit payments
Medicare subsidy
Accumulated benefit obligation, end of year
Funded status:
Accumulated benefit obligation
Net liability recognized
$
26,941
1,165
5,333
(2,523)
156
42,412
1,500
(14,697)
(2,440)
166
$
31,072
26,941
$
(31,072)
(26,941)
$
(31,072)
(26,941)
2014
Net periodic benefit cost:
Interest cost
Amortization of actuarial loss
Total net periodic benefit cost
Amounts recognized in the balance sheets consist of:
Other current and accrued liabilities
Other deferred liabilities
Accumulated other comprehensive loss
Amounts recognized in accumulated other comprehensive
loss:
Net actuarial loss
Weighted average assumptions used to determine benefit
obligation at December 31:
Discount rate
Weighted average assumptions used to determine net
periodic benefit cost for the year ended December 31:
Discount rate
52
2014 ANNUAL REPORT
2013
2013
$
1,165
—
1,500
824
$
1,165
2,324
$
(2,124)
(28,948)
5,595
(2,212)
(24,729)
261
$
(25,477)
(26,680)
$
5,595
261
$
5,595
261
3.61%
4.51%
4.51%
3.63%
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
For measurement purposes, a 5.1% annual rate of increase in medical and prescription cost trend rates was
assumed for 2015 and 2016. The annual medical trend rate decreases over time to the ultimate trend rate
after 2060 of 3.8%. The annual trend rate for vision expense was assumed to increase 5% per year through
2060. A 1.0% increase in assumed healthcare cost trend rates would increase total service and interest costs
by $127 and increase the postretirement benefit obligation by $3,436. A 1.0% decrease in assumed healthcare
cost trend rates would decrease total service and interest costs by $108 and decrease the postretirement
benefit obligation by $2,908.
Associated expects approximately $197 of the actuarial loss to be recognized as a component of net periodic
benefit cost in 2015.
Associated contributed $2,523 and $2,440 in 2014 and 2013, respectively, to the postretirement benefit plan.
Based on actuarial projections, Associated expects to contribute $2,124 to the postretirement benefit plan in
2015. No discretionary contributions are planned in 2015.
Estimated future benefit payments and subsidy receipts, which reflect expected future service, as appropriate,
for each of the next five years and thereafter are as follows:
Benefit
payments
2015
2016
2017
2018
2019
2020–2026
Subsidy
receipts
$
2,425
2,425
2,417
2,388
2,350
15,460
(301)
(311)
(318)
(331)
(337)
(2,403)
$
27,465
(4,001)
(15) Income Taxes
Associated is subject to federal and state income taxes on nonpatronage sourced taxable income. A detail of
the provision for income taxes in 2014 and 2013 is as follows:
2014
Current
Federal
State
Change in valuation allowance
Income taxes charged
to operations
2013
Deferred
Current
Deferred
$
—
—
—
(31,994)
(5,233)
37,227
—
—
—
(39,817)
(6,454)
46,271
$
—
—
—
—
Total income tax expense differs from the amounts computed by applying the federal statutory rate to pretax
income primarily due to the patronage dividend deduction and changes in the valuation allowance.
2014 ANNUAL REPORT
53
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
Deferred income taxes reflect the net tax effect of temporary differences between the financial statement and
tax basis of assets and liabilities. Associated’s temporary differences relate primarily to operating loss
carryforwards, accelerated depreciation for tax purposes, and other reserves deductible for tax purposes only
when paid.
The components of the net deferred income tax asset at December 31, 2014 and 2013 are as follows:
Deferred tax asset:
Net operating loss carryforwards
Mine reserves
AMT credit carryforwards
Postretirement benefits
Other
$
Total deferred tax asset
Deferred tax liability:
Property related
Deferred debits
Total deferred tax liability
Valuation allowance
Net deferred tax liability
$
2014
2013
310,992
1,692
2,890
1,717
2,756
274,345
2,256
3,061
2,839
2,781
320,047
285,282
(12,079)
(2,308)
(13,884)
(2,965)
(14,387)
(16,849)
(305,660)
(268,433)
—
—
Associated has federal net operating loss carryforwards for income tax purposes of $830,187, which are
available to offset future taxable income. If not utilized, these loss carryforwards expire between 2019 and
2034.
Associated also has alternative minimum tax credit carryforwards for income tax purposes of $2,890, which
are available to offset future taxes payable. The alternative minimum tax credits do not expire.
A valuation allowance of $305,660 has been established primarily to reflect net operating loss carryforwards
estimated to expire before utilization. The valuation allowance increased by $37,227 in 2014.
Associated evaluates and accounts for uncertainty in income taxes in accordance with the authoritative
accounting guidance for income taxes. This guidance outlines the requirements for the recognition and
measurement of uncertainty in income tax positions. At December 31, 2014 and 2013, the Cooperative did
not have any unrecognized tax benefits.
(16) Fair Value Measurements
Associated adopted the authoritative accounting guidance for fair value measurement and disclosures of
financial instruments in 2008 and the provisions applicable to nonfinancial assets and liabilities as of
January 1, 2009.
54
2014 ANNUAL REPORT
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
The guidance establishes a three-tiered fair value hierarchy for the inputs used to measure fair value. Level 1
inputs include observable inputs such as unadjusted quoted prices in an active market for identical assets or
liabilities. Level 2 inputs are unadjusted quoted prices in an active market for similar assets and liabilities
that are either directly or indirectly observable. Level 3 inputs are unobservable inputs for the assets and
liabilities for which little or no market data exist, therefore, requiring Associated to develop its own estimates
of fair value.
Associated measures certain assets and liabilities at fair value on a recurring basis. The following table
presents information regarding the method of valuation for assets and liabilities as of December 31, 2014:
Fair value
measurements
at
December 31,
2014
Assets:
Long-term investments
Derivative assets
Liabilities:
Derivative liabilities
Quoted prices
in active
markets for
identical
assets
or liabilities
(Level 1)
Significant
other
observable
inputs
(Level 2)
Unobservable
inputs
(Level 3)
$
5,833
572
5,833
—
—
572
—
—
$
43,696
—
43,696
—
The following table presents information regarding the method of valuation for the assets and liabilities as
of December 31, 2013:
Fair value
measurements
at
December 31,
2013
Assets:
Long-term investments
Derivative assets
Liabilities:
Derivative liabilities
Quoted prices
in active
markets for
identical
assets
or liabilities
(Level 1)
Significant
other
observable
inputs
(Level 2)
Unobservable
inputs
(Level 3)
$
5,316
1,728
5,316
—
—
1,728
—
—
$
11,409
—
11,409
—
2014 ANNUAL REPORT
55
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
Available-for-sale securities reflected in Level 1 of the valuation hierarchy are measured at fair value each
reporting period using quoted market prices on listed exchanges. The derivative instruments reflected in
Level 2 of the valuation hierarchy include fixed-to-floating commodity swaps and a floating-to-fixed interest
rate swap, which are valued based on published indexes for the respective contracts. Also included are FTRs
and TCRs, which are valued based on monthly published auction prices for specific transmission paths.
There were no transfers between Level 1 and 2 in 2014 or 2013.
The estimated fair values of Associated’s financial instruments are as follows at December 31, 2014 and
2013:
2014
Restricted short-term investments
Long-term investments
Long-term debt
Derivative assets
Derivative liability
$
Carrying
amount
109,152
213,364
1,896,724
572
43,696
2013
Fair value
Carrying
amount
Fair value
109,152
213,371
2,049,014
572
43,696
113,174
206,962
1,935,768
1,728
11,409
113,174
206,960
1,900,852
1,728
11,409
The method used to estimate the fair value of Associated’s long-term debt and investments is based on quoted
market prices for the same or similar issues or on the current rates offered to the Cooperative for the debt of
the same maturity. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts
payable approximate fair value at December 31, 2014.
(17) Derivative Instruments and Hedging Activities
Associated uses derivative instruments to manage the risks associated with changes in interest rates, the price
of diesel fuel used in the operation of its generating resource and congestion charges related to transmission
activities. Contracts are evaluated under the guidelines of the accounting guidance for derivatives and
hedging activities. All contracts that meet the definition of derivative instruments are recorded at fair value
as an asset or liability. Fair value is determined based on indexes outlined in the derivative contracts.
In November 2007, Associated entered into a floating-to-fixed interest rate swap. Changes in fair value were
deferred by action of the Board of Directors as a regulatory item to be recovered through future rates. Only
current period settlements of this instrument are included in earnings, which resulted in charges to interest
expense of $2,482 and $2,457 in 2014 and 2013, respectively. At December 31, 2014 and 2013, derivative
liabilities of $21,314 and $11,409 were recorded, respectively, within other current and accrued liabilities
and other deferred liabilities. An asset, which represents the amount to be recovered through future rates, is
included in deferred regulatory debits (note 10).
56
2014 ANNUAL REPORT
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
Associated has entered into a series of swap agreements for diesel fuel that are designed to manage the fuel
price risk related to Associated’s coal delivery costs through 2016. In 2009, Associated’s Board of Directors
established a policy to defer changes in fair value as a regulatory item to be recovered through future rates
under the provisions of the Codification guidance for regulated operations. In 2014 and 2013, current period
settlements resulted in a net addition and reduction in the cost of delivered coal of $1,951 and $1,169,
respectively. At December 31, 2014 and 2013, a derivative asset of $0 and $1,728 was recorded within other
current assets and other deferred assets as well as a derivative liability of $22,382 and $0, respectively, within
other current and accrued liabilities and other deferred liabilities.
Associated has obtained FTRs and TCRs that are designed to manage transmission congestion charges within
a Regional Transmission Organization (RTO) through 2015. As described above, changes in fair value are
recorded as deferred regulatory debits or credits, and current period settlements are included in earnings. In
2014, current period settlements resulted in a net reduction of transmission expense of $1,625. At
December 31, 2014, a derivative asset of $572 was recorded within other current assets.
Associated has determined that all other electricity-related and commodity purchase contracts qualifying as
a derivative also qualify as normal purchases and sales, as defined in the FASB used authoritative guidance
and, therefore, are exempt from the reporting requirements applicable to derivatives and hedging activities.
(18) Commitments and Contingencies
Associated has pledged investments, classified as held-to-maturity, for mine reclamation and self-insured
workers’ compensation purposes. These securities are included in long-term investments. At December 31,
2014 and 2013, these securities amounted to $8,337 and $8,334, respectively.
As of December 31, 2014, Associated has a commitment to purchase all of its coal requirements through
2025 from one coal supplier using an agreed-upon rate calculation mechanism that adjusts with market
prices. Associated also has contracts with certain rail companies, whose contracts expire in 2020 to deliver
this coal at agreed-upon rates.
Associated has a commitment to pay a base transportation fee to the transporters of gas for the Dell, Essex,
and Chouteau power plants through 2014, 2021, and 2041, respectively. Associated paid transportation fees
of $3,738 and $4,141 in 2014 and 2013, respectively. Associated’s commitment to the transporters of gas at
the Dell, Essex, and Chouteau power plants will be $3,612 for 2015 through 2019, and an average of $5,112
annually through 2041.
Associated has commitments to provide power to its member cooperatives through 2050. Likewise, the
member cooperatives are committed to purchase all of their power requirements from Associated through
the same period. The agreements also provide that certain primary and secondary transmission facilities will
be made available to Associated at Associated’s cost. Associated reimburses it members for these
transmission related expense including depreciation, interest, and operating and maintenance costs. Expenses
for these contracts in 2014 and 2013 totaled $66,474 and $64,548, respectively.
2014 ANNUAL REPORT
57
ASSOCIATED ELECTRIC COOPERATIVE INC.
Notes to Financial Statements
December 31, 2014 and 2013
Associated has a commitment to purchase the outputs from five wind farms. Associated does not have fixed
cost obligations and pays only for the energy produced. These purchases are set at a contracted price for 20
and 25 years from inception of the contract. Associated purchased wind power at a cost of $94,201 and
$89,400 in 2014 and 2013, respectively.
Associated is a party to a number of electricity contracts that expire between 2031 and 2050. Expenditures
for these contracts in 2014 and 2013 are as follows: capacity payments totaled $40,697 and $51,169,
respectively; and energy payments totaled $50,123 and $50,748, respectively. Contract capacity payments
for the 676 megawatts of contracted generation for the next five years are projected to be as follows: $40,481
in 2015; $39,720 in 2016, $41,011 in 2017; $42,250 in 2018; and $43,481 in 2019.
Associated, as is common with other electric utilities, is subject to stringent environmental laws, rules, and
regulations by federal, state, and local authorities with regard to air and water quality control, solid and
hazardous waste disposal, hazardous material management, and toxic substance control. Pursuant to
Sections 113 and 114 of the Clean Air Act, the U.S. Environmental Protection Agency (EPA) made requests
for information to Associated in 2002, 2009, and 2012 regarding the maintenance of its coal fired electricity
generation plants for the purpose of review by the EPA to determine whether Associated has complied with
the new emitting source review requirements. Associated has provided responses to those requests. On
June 15, 2011, Associated received a Notice of Violation (NOV) under Section 113(a)(1) of the Clean Air
Act. Associated has provided all requested information to the EPA and the Department of Justice. Parties
have discussed early resolution of the claims set forth in the NOV; but, to date, none has been reached. These
new source review issues are the subject of significant political and litigation activity. At this point in time,
it is not possible to estimate what effect, if any, this activity may have on Associated’s financial condition.
Management believes that it is, and has been, in substantial compliance with all existing laws, rules, and
regulations.
(19) Subsequent Events
Associated evaluates events that occur after the balance sheet date but before the issuance of financial
statements to determine if recognition or disclosure of the financial impact of such events is required. There
were no events occurring after December 31, 2014, and before February 10, 2015, which is the date the
financial statements are available to be issued, that required recognition or disclosure.
58
2014 ANNUAL REPORT
Associated
relies on diverse power sources
2014 resources
Associated’s coal-based power plants:
MW capacity
New Madrid Power Plant* ...................................................................1,200
Thomas Hill Energy Center .................................................................. 1,153
Associated dispatches this coal-based unit:
KAMO Power’s portion of Grand River Dam Authority’s Unit 2 ............. 198
Associated’s combined-cycle, gas-based power plants:
Chouteau Power Plant ........................................................................ 1,062
Dell Power Plant (dual fuel) ................................................................... 580
St. Francis Power Plant .......................................................................... 501
Associated’s peaking oil- and gas-based power plants:
Essex Power Plant ................................................................................. 107
Holden Power Plant (dual fuel) ............................................................... 321
Nodaway Power Plant ........................................................................... 182
Unionville Power Plant (oil)** ................................................................... 45
Additional contracted power sources:
Hydroelectric peaking power, Southwestern Power Administration ..... 478
Total .................................................................................................... 5,827
*The city of New Madrid owns the 600-MW Unit 1, which is operated by
Associated under terms of an agreement with the city.
**In 2014 Unionville oil-based plant was put in layup status.
Associated has long-term purchase agreements to buy 750 MW of wind energy
from four operating wind farms in Missouri, one in Kansas and one under
construction in Oklahoma that are not included in its capacity above.
2814 S. Golden Ave., P.O. Box 754, Springfield, MO 65801-0754
417-881-1204, www.aeci.org
EEO/AA Employer and Provider/Minorities/Females/Disabled/Veterans
© 2015 Associated Electric Cooperative Inc.
All rights reserved.