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A Message from the Chief Executive Officer

Duane D. Highley
President and Chief Executive Officer

The 2015 calendar year was one of changing paradigms for the electric utility industry, and the experiences of Arkansas Electric Cooperative Corporation (AECC) mirrored the changing dynamics. As a member-owned, not-for-profit generation and transmission cooperative, we embraced those changes that saved money for our members and advocated against shifts that would have reduced reliability and increased the cost of electricity. Many of these developments were market-driven, such as the lower price of natural gas for electric generation, but some events were artificial and policy-driven, such as the issuance of the EPA’s (Environmental Protection Agency) Clean Power Plan.

For the first time in recent history, natural gas generation was dispatched more often than coal-based generation on an aggregate basis over the year. Historically, coal prices have been lower than natural gas prices, leading to the predominant use of coal over natural gas. However, due to an over-supply of shale gas throughout multiple shale regions in the U.S., the market price of natural gas fell to price levels below the cost of dispatching coal-based energy. Long-term price forecasts for natural gas remain below historic levels, indicating that this trend may continue for some time. Fortunately, AECC has a diverse generation portfolio, including the output of seven natural gas or gas/oil power plants, allowing AECC to dispatch these units into the Southwest Power Pool and the Midcontinent Independent System Operator energy markets to keep fuel costs low for members.

In addition to the predominant use of low-cost natural gas during 2015, we also added 172 megawatts of new wind contracts at very favorable prices. AECC now has 373 megawatts of wind energy under long-term purchase power agreements, which serve as fuel price hedges for other types of generation. Technology advances in solar power continue to lower the cost of this energy source, bringing it down to grid parity and, in some cases, down to the cost of wholesale power. With coal and natural gas generation as the backbone of AECC’s baseload generation supply, our wind and solar contracts provide non-emitting energy that blends with traditional baseload supplies to ensure continued low-cost electricity for distribution members. In fact, with the wind and solar investments which occurred this past year, AECC’s hydro, wind, solar and biomass energy supply represents almost 18 percent of AECC’s electricity portfolio. We have accomplished this based on pure economics, not artificial renewable portfolio standards. 

Finally, AECC and its distribution members provided thoughtful input to the EPA on its draft Clean Power Plan, advocating changes and additions to the rule that would be necessary to ensure the delivery of reliable, affordable power. The final rule that EPA released in early August encompassed many of the suggestions made by electric cooperatives and resulted in a more favorable carbon dioxide emission reduction target for the State of Arkansas. Although the Clean Power Plan was recently stayed by the United States Supreme Court, its future is still unknown. Should there be some version of a Clean Power Plan in the future, AECC is well-positioned to comply with reasonable carbon dioxide emission reductions while remaining a reliable, low-cost wholesale electricity supplier to its 17 distribution cooperative members. 

In spite of changing market conditions and unpredictable environmental regulations, AECC’s focus on maintaining a diverse generation portfolio and access to two energy markets ensures that we meet our corporate mission to provide reliable, affordable and responsible electricity to our electric cooperative members.