CEO’s Report: Cold weather creates energy emergency

Customers asked to conserve energy to protect electric grid

Subzero temperatures may not seem that unusual in the Midwest. But, the electric grid was hit with unprecedented demand the week of February 14 as record low temperatures extended up and down the central portion of the United States.

Utilities across the region were thrust into new territory as calls came for consumers to conserve energy. Rolling blackouts were carried out in some areas to prevent damage to the electric grid.

Heartland customers stepped up to help their fellow utilities by echoing requests for residents and businesses to conserve electricity. Public power ideals shone through.

While the state of Texas made headlines during the extreme weather event, limited interruptions of service in Heartland’s service territory were seen. While Heartland customers are situated in two different regional transmission organizations (RTOs), Southwest Power Pool experienced conditions unlike ever before.

Understanding how SPP works

Southwest Power Pool (SPP) operates the electric power grid in a 14-state region on behalf of member utilities. Their service area stretches from North Dakota down into parts of Texas.

SPP does not own electric generation resources or transmission lines, but rather balances the supply and demand of electricity minute-by-minute to ensure power gets to customers.

When electricity is generated, it goes into a “pool,” and from that “pool,” SPP manages the energy market throughout the central portion of the U.S. They ensure the amount of power sent is coordinated and matched with power received.

They are like the “air-traffic controllers” of the electric grid.

When one area is affected by extreme weather or another event, power generated in other areas can be dispatched to meet demand.

However, this event created record cold temperatures throughout SPP’s service territory. Areas with typically mild weather were below freezing and northern states stayed below zero for several days. This created an unprecedented demand on the electric grid.

It also put a strain on the available resource pool. Demand for natural gas, both as a heating source and for electrical generation, increased substantially. This caused supply shortages, exacerbated by the impacts of unusually cold temperatures on generation facilities in southern SPP.

During this period, SPP also experienced unusually low wind levels, significantly impacting available wind generation. A combination of seasonally unprecedented demand with these supply constraints created a “perfect storm.”

Energy Emergency Alerts declared

SPP declared the first Energy Emergency Alert (EEA) early on the morning of February 15 as the electric grid throughout SPP’s operating area saw increased strain.

SPP fluctuated between three different levels of emergency status through February 19. At level 1, enough generation is available to meet demand, but backup resources are below necessary levels. This could be considered the warning stage.

At level 2, all generation requirements can no longer be met and outside assistance is requested to meet demand. Consumers are asked to conserve energy to prevent power shutoffs.

SPP entered a level 3 EEA twice, once on February 15 and once on February 16. At this level, there is not enough electricity being generated to meet demand and power outages may be utilized to reduce demand and protect the system.

Two Heartland customers were affected by the controlled outages included Tyler, MN and Valentine, NE.

This marked the first time in SPP’s 80-year history it declared Energy Emergency Alert Levels 2 or 3 for its entire region. It is also the first time the grid operator has had to direct member utilities to implement controlled, temporary service interruptions to prevent widespread blackouts.

When the demand on the system outweighs the amount of electricity available, potential for catastrophic damage exists; damage that would result in much longer outages.

Market benefits

Heartland joined SPP in 2015. The integration provided greater flexibility and increased options for buying and selling power. While this particular weather event did create some inconveniences, market participation still comes with many benefits.

The goal of an RTO like SPP is to provide the lowest cost wholesale energy possible through the least cost generation dispatch.

With a vertically integrated utility, where the utility owns generation, pays for transmission and sells power directly to the consumer, there is more risk. During an event like we saw in mid-February, if our generation source was unable to perform, all customers would have been affected.

Participating in a market reduces that risk by having access to the entire pool of generation resources. The same is true any time of year. If for any reason, our generation is limited, we draw from the pool to serve customers.

Owning generation in the market also comes with benefits. Market prices fluctuate and during the February polar vortex, prices escalated as demand surged. Utilities that depend largely on the market for power were subject to those increased prices, such as we heard about in Texas.

Heartland, on the other hand, also sells generation into the market, which helps balance out our position. Our diverse resource mix helps protect customers against market swings.

Public appeals

Heartland issued public appeals to consumers to conserve energy throughout the energy emergency.

We continually communicated with customers, keeping them informed of which level SPP was operating at and measures they could take to control demand. We also blasted social media with energy conservation tips, and did our best to keep everyone apprised of the situation.

Utilities served by Heartland orchestrated their own appeals to consumers and took available measures to conserve electricity in their communities.

Every simple action taken helped protect the entire system. As public power communities, our customers gave new meaning to the term “community powered.”

Barbara Sugg, SPP president and chief executive officer, thanked SPP members, neighboring systems and the millions of people in the region for their response to the historic event.

“This has been a case study in everyone doing their part on behalf of the greater good. We take our responsibility to keep the lights on very seriously and appreciate the trust placed in us to do so. Thanks to voluntary conservation by people across our 14-state region, the quick actions taken by local utilities, and the dedication and expertise of our operators, we’re thankful we could keep the region-wide impact of this storm to a minimum.”

Fortunately, the energy emergency ended by February 19  and SPP returned to normal operations as warmer weather moved across the region.

What is SPP and how do their actions affect you?

A message from Heartland CEO Russell Olson

Over the last few days, we’ve experienced an unprecedented bout of cold weather. Record low temperatures were recorded across the 14-state region covered by the Southwest Power Pool (SPP), which stretches from North Dakota down into parts of Texas.

As a result, you were asked to conserve energy and, in some cases, controlled power outages were implemented to prevent longer, sustained outages.

You may be wondering what was so unusual about this cold snap. Why did we have to curb usage during what many of us consider a normal weather event?

First, you have to understand how SPP works.

Chances are you never heard of SPP before now. SPP is a regional transmission organization that operates the electric power grid on behalf of member utilities.

Essentially, the power grid is shared across the 14 states SPP serves. SPP does not own generation (electricity production) or the transmission lines (movement of electricity).

Rather, it balances the supply and demand of electricity minute-by-minute to ensure power gets to customers. Think of SPP as the grid’s “air traffic controller.”

When electricity is generated, it goes into a “pool,” and from that “pool,” SPP manages the energy market throughout the central portion of the U.S.

SPP ensures that the amount of power sent is coordinated and matched with power received. This allows the grid to be operated more efficiently and reduces costs.

So why does cold weather in Oklahoma affect how you use electricity?

Typically, extreme weather is limited to a smaller portion of the region. Power generated in one area can be dispatched to another area that needs it. It’s akin to neighbors helping neighbors.

However, the extreme cold of the last few days stretched across the region. Areas with typically mild weather saw unusual negative temperatures. This created an unprecedented demand on the electric grid.

It also put a strain on the available resource pool. Demand for natural gas, both as a heating source and for electrical generation, increased substantially because of the extreme cold. This caused supply shortages, exacerbated by the impacts of unusually cold temperatures on generation facilities in southern SPP.

During this period, SPP also experienced unusually low wind levels, significantly impacting available wind generation. A combination of seasonally unprecedented demand with these supply constraints created a “perfect storm.”

To protect the system, SPP has had to implement controlled outages throughout the region. This is a first in the company’s 80-year history. These decisions are not made lightly and are done as an absolute last resort. Though inconvenient at best, the shutoffs prevent damage to the transmission system, which would result in much longer outages.

Fortunately, warmer weather is on the way, easing system strain. SPP ended the energy emergency alert the morning of February 18. At this time, we don’t expect to see further scheduled outages.

We appreciate your cooperation in helping conserve and limit energy during this historic, trying time. Your small efforts helped create a greater impact that protects all electric customers.

Your efforts are what living in public power communities are all about. The last few days have given new meaning to term “community powered,” and we are grateful for your actions.

Energy Emergency Alert update for February 16

The Southwest Power Pool (SPP) declared an Energy Emergency Alert (EEA) Level 3 starting this morning at 6:15 a.m. The emergency alert means electric generation in the region is not sufficient to meet the extreme and widespread demand for electricity. SPP began temporarily shutting down power, otherwise known as rolling blackouts, in order to reduce demand on the system. Several utilities throughout the region were affected.

SPP currently has enough generating capacity available to meet system-wide demand. As of 12:31 p.m. Central time SPP has downgraded the EEA to Level 1. This is declared when all available resources have been committed to meet obligations, and SPP is at risk of not meeting required operating reserves.

SPP previously declared a move from EEA Level 3 to EEA Level 2 at 11:30 a.m. Central time. 

SPP’s forecasts anticipate that due to high load and persistent cold weather, it is likely its system will fluctuate between EEA levels over the next 48 hours.

Additional blackouts may take place this evening into tomorrow to reduce stress on the system.

While unfortunate, these steps are taken to protect the grid and prevent outages due to system damage, which could take days or weeks to repair.

Heartland continues to ask customers to take necessary steps to conserve energy. Delay or discontinue use of appliances such as dishwashers and washing machines. Turn your thermostat down. Shut off unnecessary lights and discontinue use of space heaters.

SPP is a regional transmission organization that oversees the bulk electric grid and wholesale power market in the central United States on behalf of a diverse group of utilities and transmission companies in 17 states.

SPP outlines 2019 projects and goals

Long-term transmission plan approved at recent board meeting

At the January 29th Southwest Power Pool (SPP) Board of Directors and Members Committee meeting, stakeholders got a preview of the organization’s primary goals and projects for the upcoming year. The board also endorsed a new transmission expansion report that details SPP’s transmission projects for the next 20 years.

Transmission upgrades offer far-reaching benefits

The 2019 SPP Transmission Expansion Plan Report (STEP) is a comprehensive listing of all current and future planned transmission projects in the SPP region, including those completed in 2018. It consists of 568 upgrades with a total cost of $5.2 billion.

“The upgrades defined in STEP will benefit the entire region, including our customers,” said Heartland Chief Operations Officer Nate Jones. “Adding transmission reduces congestion and losses on the system. This helps narrow the gap between generation price and load expense, which reduces our market risk and related costs.”

According to the report, projects estimated to cost nearly $1.8 billion will be constructed over the next five years in 13 states.

STEP also summarizes work completed in 2018 that helped advance the organization’s overall goals.

Last year, SPP’s member companies completed 98 transmission system upgrades in seven states estimated to cost $779 million. These upgrades will benefit the region by:

  • facilitating connection of new generators, including large amounts of wind energy
  • ensuring low-cost electricity is delivered to consumers
  • facilitating connection of new sources of electricity demand to the transmission system, such as data centers and gas and oil infrastructure
  • solving power grid issues that, if not addressed, could impact the reliable delivery of electricity or cause power outages

“Our members’ investments in the regional transmission system are one reason SPP’s energy market offers among the lowest prices for wholesale energy in the country,” said Lanny Nickell, SPP vice president of engineering. “We are continually analyzing and upgrading our power grid to ensure customers can receive reliable, affordable energy now and in the future.”

All board-approved projects are included in the 2019 STEP Project List, which also includes SPP Tariff study projects, economic projects and zonal projects.

SPP is requesting feedback on proposed solutions to transmission needs to aid in the development of STEP. Stakeholders and interested parties may submit written comments on the projects included in STEP.

2019 goals: implement and improve services

SPP President and CEO Nick Brown said the organization will also focus on the following projects in 2019:

  • Implementing RC services in the west, scheduled to go live in December
  • Replacing its settlements system, which processes more than $20 billion per year in revenues that flow through the SPP markets
  • Revamp of fee collection by the Schedule 1A Task Force to support SPP’s administrative services
  • Holistic Integrated Tariff Team review of SPP’s transmission planning, markets and cost-allocation processes to look for improvements
  • Value and Affordability Task Force analysis of cost recovery for transmission investments and the ongoing benefits members receive from SPP and transmission infrastructure
  • Continuing to improve SPP’s study process that facilitates connecting new generation to the grid

“Their 2019 initiatives are valuable continuing improvements that will ease doing business with SPP,” Jones said.

Other actions taken during the meeting:

  • Election of three representatives to the Members Committee for three-year terms. American Electric Power’s Peggy Simmons will represent the investor-owned utility sector, and Basin Electric Power Cooperative’s Tom Christensen and Tri-County Electric Cooperative’s Zac Perkins will represent the cooperative sector.
  • Approval of a rate structure recommended by the Schedule 1A Task Force and previously approved by SPP’s Finance and Markets and Operations Policy Committees. The task force developed new cost-recovery schedules that are simple in design and appropriately charge and compensate users of SPP’s markets and transmission systems.

CEO’s Report: Advocating for our customers

Later this month we will travel to Washington. D.C. to participate in the annual American Public Power Association Legislative Rally.

Each year, electric utilities, and public power utilities in particular, face new issues and regulations that impact our ability to provide affordable, reliable power.

This year is no different. We plan to spend our time in D.C. wisely, educating our Congressional leaders on the value public power provides and the impact decisions they’re making in D.C. has on our customers.

Some of the topics we plan to broach this year include protecting federal ownership of the power marketing administrations, market concerns, solar distributed generation, as well as grid security.

#1: Preservation of the PMAs

It seems every few years the notion of privatizing the federal power program gets brought up. While the idea has never gained any real traction, the Trump administration recently proposed selling the transmission assets of the federal Power Marketing Administrations (PMAs).

Many Heartland customers receive cost-based hydroelectric power produced at federal dams and marketed by the PMAs. Therefore, Heartland will continue to advocate on their behalf and oppose these measures which could result in substantial, unjustified electric rate increases.

#2: Congressional oversight of FERC market policies

While participating in the RTO-operated wholesale energy markets, such as the Southwest Power Pool, can produce benefits for public power utilities in terms of cost savings and additional opportunities to sell power, there are still potential problems with the markets that require oversight. One of Heartland’s main concerns is the ability of some generators to strongly influence market prices, most of which is downward pressure.

For example, generators located away from load centers can provide a burdensome downward pressure on the market due to transmission constraints. Pricing influence can also be upward during emergency conditions. FERC has traditionally taken a hands-off approach as to whether resulting rates are just and reasonable within the RTOs. Heartland and APPA support congressional oversight of FERC market policies to ensure fairness.

#3: Fair governance of solar distributed generation

Utility customers across the country are installing distributed generation (DG) facilities that employ small-scale technologies to produce electricity. The price of solar panels continues to decline, and incentives are made available to offset the price of installation, leading to growth.

While solar installations can play an important role in energy production, solar DG customers must still pay their fair share of costs of keeping the grid operating safely and reliably.

Heartland and APPA oppose any attempts by Congress or federal agencies to federalize standards for DG implementation or rate designs. These are matters of state and local regulation and should be designed to reflect costs and assure that those who benefit from the grid are sharing the costs of building and maintaining it.

#4: Grid protection against cyber threats

Cyberattacks are becoming more predominant and the strength of the electric grid remains a top concern. While the industry has made great strides in addressing cybersecurity threats, there is still much work to be done.

Heartland continues working with industry partners to protect our customers, but will also be addressing necessary regulations and legislation to ensure the grid is protected.

Heartland board members and staff met with U.S. Representative Kristi Noem (R-SD) during the 2017 APPA Legislative Rally.

These are only some of the issues we will bring before our members of Congress later this month. In past years we have met with legislators from every state in which Heartland has a customer or resource including Minnesota, South Dakota, Kansas, Wyoming, Iowa and Nebraska.

During some meetings, we provide education on public power, Heartland, our resources, and our customers. Others already have a great knowledge of public power and the issues facing our industry.

If there are specific concerns your utility or your customers have that you’d like addressed at the Rally, please let us know. We are there to advocate for our customers and look forward to productive meetings with our representatives.

To learn more about APPA’s position on key issues, visit their website at www.publicpower.org/policy-positions.

SPP rates lower than originally projected

Entities that own transmission within the Southwest Power Pool (SPP) must submit an annual transmission revenue requirement, which indicates the amount of revenue needed that year to recoup costs associated with its transmission system.

When Heartland and the other owners of the Integrated System moved into SPP, the Upper Missouri Zone (UMZ) was established. All entities that owned transmission rolled their transmission investments into SPP to achieve a rate of return from SPP. That return is essentially paid by transmission users in the UMZ through an established network transmission rate.

An additional opportunity also arose with the move into SPP for lower voltage transmission investments to be rolled into SPP because voltage criteria changed. Entities owning 60 kV transmission and above could now seek rate recovery for their investments, as opposed to the previous voltage criteria of 100 kV.

The UMZ rate increased substantially in 2015 over the previous Integrated System rate because more assets were now seeking rate recovery while load levels remained the same.

Now, some of the eligible transmission facilities have been disqualified for rate recovery and many challenged formula rate templates have reached final settlement. However, these entities collected revenue throughout 2016 while their formula rate templates were being challenged.

With settlement negotiations and discussions complete, virtually all entities that applied for rate recovery must pay back the over-collected revenue in 2018.

Therefore, SPP’s transmission rate is expected to be approximately 14% lower in 2018 than budgeted, providing savings to Heartland’s customers.

SPP sets wind record

Wind power continues to proliferate the market

Southwest Power Pool set three wind- and renewable-related records on the morning of December 4, 2017.

The regional transmission organization (RTO) set new records for both wind and renewable penetration: the amount of load served by wind generation and by all renewable fuel sources, respectively.

Southwest Power Pool metrics and milestones. Courtesy SPP

Wind generation at the time was at 13,271 MW and served 56.25 percent of SPP’s load (23,591 MW), beating SPP’s previous wind penetration record of 54.47 percent set on April 24, 2017.

An additional 467 MW of hydropower pushed total renewable penetration up to a record of 58.23 percent, breaking the RTO’s previous record of 57.71 percent set on March 19, 2017.

SPP also set a record for peak wind generation, beating the previous record of 13,342 MW set on February 9, 2017. A new wind peak of 15,690 MW was reached just eleven days later on December 15.

Earlier this year on February 12, SPP became the first RTO in North America to serve more than 50 percent of its load at a given time with wind energy, setting a then record of 52.1 percent wind penetration.

The proliferation of wind power in the SPP region has grown significantly over the last decade. As recently as the early 2000s, SPP’s generating fleet included less than 400 MW of wind, and for years, wind was reported in the “Other” category in SPP’s fuel mix data.

Wind is now the third most-prevalent fuel source in the SPP region. It made up approximately 15 percent of the organization’s generating capacity in 2016, behind only natural gas and coal.

Installed wind-generation capacity increased in 2016 alone by more than 30 percent — up 4,000 MW from 12 GW to more than 16 GW. SPP’s maximum simultaneous wind generation peak rose from 9,948 MW in 2015 to 12,336 MW in early 2016.

Many were recently unsure of wind’s future with the Tax Cuts and Jobs Act, which in its original form would have eliminated the Production Tax Credit (PTC) for new projects. However, the final bill which was passed and signed in late December preserves the phase-out of the PTC through 2019.

The value of transmission

Since Heartland transitioned into the Southwest Power Pool (SPP) in October of 2015, we have seen many changes in our operations. While the transition to SPP has been a learning process for everyone involved, the benefits of being part of an RTO far outweigh any negatives. Remaining outside an RTO was no longer an option and after extensive studies, SPP was found to be the best choice for Heartland and our customers.

SPP recently released a study showing the value of transmission in their footprint. SPP is a Regional Transmission Organization (RTO) mandated by the Federal Energy Regulatory Commission to ensure reliable supplies of power, adequate transmission infrastructure, and a competitive wholesale electricity marketplace.

RTOs do not own the electric grid but rather independently operate it minute-by-minute to both ensure power gets to customers and eliminate power shortages. SPP monitors power flow throughout their footprint and coordinates regional response in emergency situations or blackouts.

SPP independently administers an open access transmission tariff with consistent rates and terms. Their planning process seeks to identify system limitations, develop transmission upgrade plans and track project progress to ensure timely completion of system reinforcements.

Construction of electric transmission upgrades in SPP from 2012 to 2014 resulted in more than $240 million in fuel cost savings for utilities during the first year of operation of the company’s wholesale energy market. The study analyzed the value provided by 348 transmission upgrades that involved almost $3.4 billion of capital investment.

The study quantified many benefits associated with the transmission expansion upgrades, including reliability and resource adequacy benefits, generation capacity cost savings, reduced transmission losses, increased wheeling revenues and public policy benefits associated with more optimal wind development facilitated by the transmission upgrades. The net present value of all quantified benefits is expected to exceed $16.6 billion over a 40-year period, resulting in a benefit-cost ratio of at least 3.5. This means the investments are expected to produce more than $3.50 in overall benefits for every $1 in transmission-related costs.

Since 1941, Southwest Power Pool has been committed to ensuring the reliability of the North American bulk power grid. SPP’s success depends on a robust transmission infrastructure that is capable of transporting electricity from where it’s generated to where it’s most needed. Transmission is infrastructure that paves the way for many benefits to SPP’s stakeholders and their end-use customers.

Investments in transmission may seem costly in the short-term, but pay big dividends to the region over time. Between 2004 and 2016, SPP committed to more than $9.7 billion in upgrades to the transmission network in its region. It’s estimated these new and upgraded facilities will more than pay for themselves over their lifespans, and have already begun to benefit SPP’s stakeholders and their customers.

Southwest Power Pool, Inc. manages the electric grid and wholesale energy market for the central United States. Southwest Power Pool and its diverse group of member companies coordinate the flow of electricity across 56,000 miles of high-voltage transmission lines spanning 14 states.

Heartland recently sent an email to customers explaining how transmission charges are billed. We understand this is new and takes some getting used to. If you have any questions about your transmission charges, please contact Heartland COO Nate Jones at 605-256-6536.

SPP’s Value of Transmission video:

 

Summer interns help with operations, economic development projects

Heartland is excited to welcome two interns to our office this summer. With a variety of projects to tackle, they look forward to a busy few months learning about the industry.


Heather Ahlgrim of Brookings, SD joined Heartland May 9 as Operations Engineering Intern. An electrical engineering major at South Dakota State University, Heather has experience as a student technician and teaching assistant for her school’s Electrical Engineering and Computer Science departments. During her internship, she will take on a number of operations projects, ranging from creating electric diagrams and visiting customers to analyzing market data.

Interns-Heather“Heather’s experience makes her a terrific candidate for the projects we have planned,” said Heartland Director of Power Supply Adam Graff. “In addition to the work she’ll complete, we hope she gains a better understanding of the power industry and will be encouraged to remain in the field after completing her studies.”

Heather’s first project is updating and creating one-line diagrams of Heartland’s customers’ delivery points, substations and metering equipment. This includes reading and analyzing all customer contracts to determine what information is missing or out-of-date as well as making visits to customer communities.

“This project benefits us as well as our customers,” said Graff. “We reference these diagrams when we work on contracts and wheeling agreements, so the information must be accurate and complete. However, these diagrams can also help those customers unfamiliar with electric systems better understand how their power is delivered.”

Heather has also found the experience beneficial and can relate some of it directly to her schooling.

“It’s really interesting reading the contracts and figuring out how the cities are connected,” she said. “At school, you learn how SDSU gets its power, for example, but now I can apply it to real life situations so it’s easier to understand.”

A portion of Heather’s work stems from Heartland’s recent integration into the Southwest Power Pool. Because the switch to SPP changed some billing procedures and other daily operations, she will build a database for customer transmission billing as well as analyze data and create summaries to increase Heartland’s market optimizations.

Heather chose to study electrical engineering because of her interest in math and science, and was influenced by her mom, who is an electrical engineering technician. Although she doesn’t have any careers in mind at this time, she enjoys the design aspect of electrical engineering and has experience building circuits and designing robots.

Heather will be a junior at SDSU in the fall and expects to graduate in May of 2018. She is a member of SDSU’s Society of Women Engineers, the Student Advisory Council, the Industry Advisory Board, Institute of Electrical and Electronics Engineers and BEST Robotics–Boosting Engineering, Science and Technology. In her free time, she enjoys baking, exercising, rock climbing, reading, playing video games and spending time outdoors.


Coley Stoller of Madison, SD will join Heartland June 6 as Customer Research Intern. An Accounting and Business Administration double-major at Augustana University in Sioux Falls, SD, Coley has experience tutoring students in accounting and assisting with document management. During her internship, she will be responsible for researching economic factors in Heartland’s customer communities as well as surrounding communities.

“I am looking forward to learning more about Heartland, including who and what they provide for,” said Coley. “I am excited to be challenged and help Heartland grow and improve communication with their customers.”

Interns-ColeyThe ultimate goal of Coley’s internship is to provide meaningful comparisons between Heartland’s customers and other communities to determine each customer’s strengths and weaknesses when it comes to growth and expansion. Based on research collected, an individualized economic development strategy will be created for each customer community.

“Coley’s accounting background make her a good fit for this project,” said Heartland Communications Manager Ann Hyland. “This research requires someone who is detail oriented and can look at a set of figures and make sense of them including drawing comparisons and noting correlations. This should provide some valuable information for our customers.”

Coley will be a junior at Augustana this fall with plans to eventually apply to the Masters program and graduate in May of 2019. After graduation, she hopes to work for one of the major public accounting firms in the area.

“I love the organizational aspect of accounting,” said Coley. “I love the business atmosphere and interacting with so many different types of people.”

Heartland applied for and was awarded funding through the American Public Power Association’s DEED (Demonstration of Energy & Efficiency Developments) Program for the internship. DEED awards scholarships to provide work experience to students at utilities and to support research projects that can be emulated by other utilities.

Coley is a member of the Augustana track team and participates in triple jump. She is also a member of FCA Huddle and is active in the volunteer group SALT–Serving and Learning Together. Through SALT she has been able to volunteer on campus and participate in numerous projects, such as helping out at a local homeless shelter, shopping for and providing holiday gifts for parents for their children through the Salvation Army, and creating scrapbooks for foster children. In her free time, she enjoys reading and spending time with friends, family and track teammates.

Heartland credit rating increased, savings realized from bond refunding

Persistence is said to pay off and in Heartland’s case, that’s true as we received two pieces of good news the last week of April – good news that came after a significant amount of planning and sometimes tough decision-making.

The first was Moody’s Investors Service upgrading Heartland’s credit rating from Baa1 to A3 with a stable outlook. The rating reflects the A3 weighted average quality of Heartland’s all requirements members, low leverage, improving financial metrics and relatively diverse energy mix.

“This is great news for Heartland and our customers,” said CEO Russell Olson. “The increased rating is not only based on our financial strength, but the strength of our customers. This is a collective rating we can all be proud of.”

Moody’s rating reflects Heartland’s responsiveness to contracting load to new customers through short-term power purchase agreements and timely and adequate rate increases in the last few years.

“It is satisfying to see that our plan to increase our rating has worked,” added Olson. “A strong rating is crucial and we will continue to make decisions to ensure a strong credit future as well as a strong future for our customers.”

The stable outlook is based on Moody’s expectation that going forward Heartland will maintain sufficient credit metrics.

The principal methodology used in the rating was US Municipal Joint Action Agencies published in October 2012. Heartland, as an “all requirements” joint action agency, is graded based on participant credit quality and cost recovery mechanism, resource risk management, competitiveness, financial strength and liquidity, and willingness to recover costs with sound financial metrics.

“Moody’s specifically looks at things like liquidity, debt ratio, fixed charge coverage ratio, and days cash,” said Heartland CFO Mike Malone. “Heartland has slowly been improving these metrics over time and that is reflected in our rating upgrade.”

Heartland’s credit rating is important for many reasons. A lower rating means increased borrowing costs, which are then passed down to customers. Additionally, certain vendors Heartland contracts with require a minimum rating to transact business. Regional Transmission Organizations such as SPP also require additional collateral dependent upon ratings. Potential customers and their consultants also review a company’s rating.

“A higher rating is beneficial to Heartland and our customers,” Malone said. “Positive change doesn’t happen overnight. It has taken a lot of work by all of us to get here and we look forward to continuing to strengthen our company.”

The higher rating helped lead to Heartland’s second piece of good news – approximately $26.6 million in net present value savings for Public Power Generation Agency from the advanced refunding of $150 million in outstanding bonds. PPGA, the collective group formed to build Whelan Energy Center Unit 2, issued bonds to finance the construction of WEC 2 and will now realize lower interest costs.

Malone noted that PPGA’s credit rating mirrors Heartland’s rating due to Heartland’s 36% ownership interest in the plant. The interest rate obtained in the refunding process is a direct reflection of that rating, similar to a personal credit rating – the better credit rating you have, the lower your interest rate when you take out a loan to purchase a house or a vehicle.

The advanced refunding resulted in gross savings of $41.8 million dollars. That translates to annual gross cash flow savings of approximately $1.5 million from 2018-2031 and bumps up to about $2 million in 2032.

“The refunding is interest rate sensitive and the market was in our favor,” added Malone.  “The net present value savings was much higher than we originally anticipated, coming in at approximately 17.37%. That is real savings for the project and for Heartland.”

Moody’s Investors Service is a leading provider of credit ratings, research, and risk analysis. Moody’s commitment and expertise contributes to transparent and integrated financial markets. The firm’s ratings and analysis track debt covering more than 120 sovereign nations, approximately 11,000 corporate issuers, 21,000 public finance issuers, and 72,000 structured finance obligations. Moody’s Investors Service is a subsidiary of Moody’s Corporation (NYSE: MCO), which reported revenue of $3.5 billion in 2015, employs approximately 10,400 people worldwide and maintains a presence in 36 countries.