CEO’s Report: Stability, competitiveness impact credit rating

May 1, 2024

We once again have exciting news regarding our recent credit analysis from Moody’s Investors Service. This analysis underscores our journey towards sustainability and financial resilience.

Moody’s recently released their latest credit opinion of Heartland Energy with a rating of A2 and a “Stable” outlook.

The Moody’s report highlights several key strengths that reflect our unwavering commitment to excellence. Our credit profile is bolstered by the collective credit quality of our customers. Plus, our long-term contracts provide a stable foundation for our financial position.


Strong financial metrics, competitive rates

Moody’s utilizes a scorecard as a reference tool in determining ratings. While it does not include every rating consideration, it provides a summary of key financial metrics used to determine credit quality.

Heartland Energy scored high marks in several key areas. Our liquidity, which includes our line of credit, has remained robust, averaging over 320 days over the past three years. This is a testament to our prudent financial management and strong cash flow, which enable us to navigate challenges effectively.

Our fixed obligation coverage charge remains strong and is expected to remain stable.

The report also noted our rates remain competitive with regional peers and are expected to remain so over the next several years, supported by a rate stabilization fund.

The average weighted credit quality of our customer base has remained stable, which also plays a role in Heartland’s rating.

The stable rating outlook reflects the expectation that Heartland Energy’s financial position will remain in line with expectations as we reduce leverage over the coming years and maintain ample levels of liquidity which helps serve as a buffer in the event of any outages or other operational challenges.


Customer strengths, diverse resource mix

Moody’s noted the customers of Heartland have benefited from unemployment levels lower than the U.S. average and stable local economies largely focused on agriculture, manufacturing, financial and medical services.

Our customer base is expected to support stable revenue over the next several years.

Moody’s also remarked on Heartland Energy’s fairly diverse capacity generation mix available, with about 29% of the capacity fuel mix derived from hydropower contracted by our customers from Western Area Power Administration, 27% coal from Whelan Energy Center Unit 2 (WEC2), 18% wind from the Wessington Springs Wind Energy Center (WSWEC) and 9% oil and gas from customer-owned generating units. The remaining 17% was derived from market purchases.

We have worked hard to bolster our credit rating over the past several years and will continue to aim to keep our metrics in line with an A rating.  


Importance of credit rating

A credit rating holds immense importance for a wholesale power company for several reasons.

A strong credit rating enhances the company’s ability to access capital, should it be needed, at favorable terms, including lower interest rates on loans and bonds.

Heartland Energy’s credit rating directly impacts the rating of PPGA – the interlocal agency that owns and operates WEC 2. This is extremely important in efficiently managing the plant and the interest rate on PPGA’s outstanding debt for WEC2. The credit rating has a direct effect on the upcoming PPGA refinancing opportunities that could result in lower debt service.

A higher credit rating typically translates to lower borrowing costs, as lenders perceive lower risk in extending credit to the company. This can significantly reduce the company’s overall cost of financing. This is similar to how a personal credit rating impacts borrowing costs.

A strong credit rating also indicates the financial strength of a company, boosting customer confidence in operations and future stability.

I am grateful for the hard work of Heartland’s staff, along with their dedication and commitment to excellence that has propelled us to this point.

I am also grateful to our customers for their operational diligence and fiscal responsibility.

While we acknowledge the challenges we’ve faced, we’ve demonstrated resilience and stability. I have no doubt that together, we’ll continue to lead the way in shaping a bright future for our company and the communities we serve.