As each year passes, we tend to reflect on all that has changed. The energy industry is continually evolving, becoming increasingly complex, and presenting new challenges for cooperatives. For example, new technologies and market dynamics are reshaping how we conduct our business. Fortunately, in the midst of an ever-changing industry, one constant has remained: the quality of ACES’ services.

Old Dominion Electric Cooperative (ODEC) became a Member of ACES in 2001, and has always received high-quality services. ACES provides two primary benefits to ODEC. They are a core part of our day-to-day functions, and also provide critical services related to informing ODEC of regulatory and other changes that occur in the industry. ACES also helps us understand and adapt to these changes.

The New Year will most certainly bring challenges and opportunities for ACES and its Members. ACES will continue to seek to add or expand services to help its Members face these challenges and opportunities, and to help them manage their risk.

Additionally, ACES will welcome its 22nd Member, Central Electric Power Cooperative, Inc., in 2017. My hope is that ACES will continue to grow its Membership to build on what we have accomplished. Through expanding Membership, ACES gains new insights, enhanced market intelligence, and develops a better understanding of industry trends and changes that benefit all Members. Additionally, the collaborative relationships that exist between ACES’ Members strengthen our individual organizations.

ACES has done an outstanding job developing its staff and contributing to the development of the future generation of cooperative employees. ACES’ staff are intelligent and talented, and it is clear that the employees care about their work and about helping ACES and its Members be successful.

I would like to recognize Joe Slater, who served as ACES’ Chairman the previous two years and continues to be an asset to ACES and the Board of Directors. It was an honor to serve beside him as Vice Chairman and to learn from his leadership. I am grateful for the honor and privilege of succeeding him as Chairman and look forward to continuing to help shape the future of ACES.

Jack Reasor
Chairman of the Board

In 2016, ACES continued to focus on creating value for its Members. Beyond supporting day-to-day operations and creating economies of scale, ACES strives to help our Members prepare for success in an uncertain future.

Change has become the new norm in the energy industry. The mix of resources cooperatives have in their portfolios, the way cooperatives communicate with their members (e.g., social media and other digital communications), and policies and regulations all continue to change. As many of our friends and colleagues have retired or are nearing retirement, the typical cooperative employee is also changing.

How cooperatives respond and adapt to this new environment is critical. ACES serves a wide, diverse base of Members and Customers, and provides expertise from both a macro and micro perspective. Keeping our Members informed of not only what is currently happening in the markets, but what to expect in the years to come, is crucial. Close collaboration with our Members strengthens our understanding of upcoming changes, and what we can do to shape the future of our industry.

One area in which ACES has been particularly successful is bringing cooperatives closer. ACES has created a collaborative environment and encourages Members to share experiences, insights, best practices, and strategies in Board meetings, conferences, and forums.

ACES will continue to enhance services, provide new services that support and enhance our Members’ operations, and serve as a guide in this new energy landscape. We are fortunate to be a part of the cooperative program and are grateful for our Members’ continued support. Throughout this annual report are comments from our Members regarding what they value about ACES. We look forward to continuing to enhance our value proposition to our Members in the upcoming year.

Throughout 2016, ACES made an effort to enhance the services provided to Members and create additional value. For example, ACES expanded and enhanced services related to transmission and capacity markets, as well as natural gas. ACES also increased our participation in industry meetings, provided Members with more information relevant to their operations, and offered new services as part of this initiative.

Impending regulations, such as the Clean Power Plan (CPP), continued to be an area of concern for many ACES Members in 2016. ACES monitored state, regional, and national developments related to the CPP throughout the year, and developed and distributed several reports concerning the potential impacts. Additional focus was placed on data security and compliance with the North American Electric Reliability Corporation (NERC) Critical Infrastructure Protection (CIP) Standards. ACES completed various mock audits, gap analyses, and other assessments for its Members; facilitated peer reviews; and completed an internal risk assessment to determine if our tools and systems were compliant with the upcoming NERC standards.

In addition to enhancements that directly impact ACES' Members, we also made enhancements to staff education. This included development of a uniform training program for hourly traders, as well as several company-wide training sessions on topics such as natural gas/power coordination, the history of electric cooperatives, and workplace security. Several Members also shared their experiences and expertise with ACES staff on a variety of topics, such as PJM’s Capacity Performance market, asset retirements, and coal procurement strategies. We believe that enhanced training and education will ultimately lead to improved services for ACES' Members.

ACES completed several initiatives in 2016 that were focused on providing value to our Members. The following sections include details on a few of those initiatives, as well as other achievements.

Transitioning to New Market Timelines

One of the areas in which ACES provides value is keeping Members informed of regulatory changes that may affect them, as well as helping them prepare for those changes. A major change that occurred in 2016 was the implementation of FERC Order 809, which is intended to provide better coordination between the scheduling practices of the wholesale natural gas and electric industries. This Order went into effect April 1, 2016. Timetables utilized by the both the power and natural gas industries to schedule their next day operations are now better aligned.

This was a major change for our industry and, as such, ACES provided extensive training on the changes in the first quarter of 2016 for staff and Members to ensure all parties were well prepared. ACES produced a detailed training video, held training sessions and workshops for all departments, and conducted webinars for ACES’ Members and Customers impacted by the changes.

The training helped ACES and its Members and Customers transition into the new timelines seamlessly. Outside of the shift in operational deadlines, the impacts to ACES' natural gas and power operations have been minimal.

Dedicated Capacity Function

In recent years, capacity markets and resource adequacy constructs have become more complex, resulting in an increased financial impact on ACES’ Members’ portfolios. To address the growing need for capacity services, ACES created a dedicated capacity function in 2016 to help Members participate in capacity auctions and meet resource adequacy requirements in areas where capacity markets already exist. Assistance has also been provided to Members in areas that are contemplating the implementation of a capacity market or resource adequacy construct. John Rohrbach, the Managing Director of Capacity Markets, leads this function and coordinates internally with other departments to provide Members with the information and services they need to successfully participate in capacity auctions and meet resource adequacy requirements.

Member Regional Meetings

One of ACES’ long-term strategic goals is to improve communications: internally, with Members, and between Members. To support this long-term goal, ACES’ 2016 Business Plan included an objective to evaluate the benefits of holding Member regional meetings to enhance communications. As such, ACES held three regional meetings in 2016 with Members’ senior staff to discuss topics and issues relevant to Members in each region. The meetings were very successful, and discussions resulted in additional objectives for ACES' 2017 Business Plan. Based on the success of these meetings, and feedback received, ACES will again hold regional meetings in 2017.

12th Annual Members Conference

ACES held its 12th Annual Members Conference on June 2 and 3 at the JW Marriott in downtown Indianapolis. At the request of ACES’ Board of Directors, ACES revised the format for the 2016 conference, and brought in more outside expert speakers. The conference featured industry experts that covered subjects such as macroeconomics, weather trends, energy markets, natural gas, and environmental regulations. The keynote speaker for the conference, Nicholas Eberstadt (Henry Wendt Chair in Political Economy, American Enterprise Institute), provided insights into trends related to world populations and demographics and discussed the potential impact of these factors on the global economy. The conference also included a panel featuring top executives from several independent system operators (ISO), which was moderated by ACES CEO Mike Steffes. The conference was well received by more than 470 attendees. ACES plans to continue this format for future conferences.

What’s New at ACES?

The energy industry is highly complex, and ACES' role within the industry is unique. With all the moving parts, it can be difficult for some to understand the services ACES provides and how ACES fits within the industry. To better explain our services, ACES has begun developing a series of videos. In 2016, ACES developed a video that provides an overview of ACES and our role within the energy industry, and videos that explain our Hourly Trading and Settlements services. ACES hopes that these videos will provide potential Clients and prospective employees with a better understanding of ACES, the services we provide, and what sets us apart.

Click the links below to view ACES’ videos.

Since early in ACES’ history, the Company’s financial strategy has focused on supporting a goal of developing a creditworthy and financially sound organization. Attainment of this goal enables the Company to meet annual financial operating requirements and growth objectives without additional financial support from its Members. ACES has been successful in meeting this financial goal, as evidenced by an equity level as a percentage of total assets of approximately 77%, a liquidity position adequate to meet its current and projected requirements and the absence of debt.

ACES' 2016 financial results were consistent with the goal of maintaining a creditworthy and financially sound organization as the Company generated net income of $100,460, which exceeded budget by more than $50,000 and marked the 14th consecutive year of positive net income.

View a copy of ACES’ 2016 audited financial statements.

In 2017, ACES will welcome its 22nd Member, Central Electric Power Cooperative, Inc. (Central). Central’s Membership is effective January 1, 2017. Central has been an ACES Customer since 2014, and ACES has developed a strong relationship with their staff since that time. We look forward to continuing to support Central in the future. Central has a strong commitment to serve its members and build on its successes. We share that commitment and know we will be stronger with Central as a Member of ACES. ACES and its Board of Directors are happy to welcome Central as our newest Member.

Cyber security and the NERC Critical Infrastructure Protection (CIP) requirements continue to be a top priority for ACES and our Members. ACES is required to adhere to the NERC CIP Version 6 requirements for low impact entities as a result of providing certain Generator Operator (GOP) services. ACES will continue to enhance applications, processes, and procedures to support our operational systems environment and improve our defenses and responsiveness against cyber threats and attacks. In addition to our internal enhancements, ACES will continue to support our Members, offering compliance evaluations (including recommendations to remediate gaps), as well as cyber security awareness training.

With the abundant supply and growing reliance on natural gas, there is a greater focus on natural gas pipeline infrastructure to transport natural gas from the supply regions to the power generators. In 2017, ACES will follow and report on high-level trends and specific pipeline developments, while working with individual Members on pipeline projects. ACES will also work with pipeline companies to develop firm services to meet our Members’ flexible supply needs.

ACES will expand the depth of transmission services offered to Members to include physical transmission services. The new physical transmission services will include planning engineering studies, business intelligence, regulatory representation in regional transmission organizations (RTO), economic analysis for partnerships and projects, and analyses around strengths, weaknesses, opportunities, and threats (SWOT). This service will help our Members manage their physical transmission investments and mitigate unfavorable transmission service cost increases.

In 2017, ACES will also make several internal enhancements to ultimately improve the quality of services we provide our Members. These enhancements include implementing new software and tools (e.g., PowerOptix ERCOT, Portfolio Performance Reporting Phase 2, a new price forecasting tool, and a capacity performance alert tool), expanding analytical support related to Member resource planning, improving employee training and development tools, and expanding diversity initiatives.

We look forward to what 2017 holds for ACES and our Members.

ACES’ Board of Directors is comprised of two representatives from each of our 22 Members. The map below shows the locations of each of ACES’ Members. Hover your mouse over the green dots on the map to view the Directors that represent each Member on our Board.