Coping With Big Freeze, Electric Co-Op Counts on CoBank To Persevere Through Liquidity Crunch

Kyle Stuart, a senior vice president with People’s Electric Cooperative (PEC) of Ada, Oklahoma, doesn’t exactly have romantic memories of Valentine’s Day this past year. In fact, he refers to that Sunday and the dismal week that followed as one of the most stressful times of his professional career.

Those were the dark days of the winter and ice storm known as “Uri.” It swept across the U.S. in a weather phenomenon called the Polar Vortex. In mid-February, Uri wreaked havoc on Oklahoma, Texas, and a slew of Southern states, bringing record snowfall, unusually frigid temperatures, and interrupting heat, electricity, and water services in its path. 

We’ve never seen anything quite like the magnitude of this storm

As the storm approached, PEC’s leadership closely watched TV forecasts that said it wouldn’t be leaving their state anytime soon. What kind of hardships, they wondered, would this weather event cause for the 16,000 members in the co-op’s 11-county service area?

“We’ve never seen anything quite like the magnitude of this storm,” Kyle said. “By Monday morning, the reality of what was happening really started to sink in. Of course, the storm’s impact on energy prices was another immediate concern.”

In Oklahoma, most for-profit investor-owned natural gas, electric and water utilities are rate-regulated by the state, while wholesale power and the electric grid are managed by the Southwest Power Pool (SPP). As an independent electric co-op that is not a member of a Generation and Transmission cooperative, PEC settles with the SPP for much of its energy requirements. Weekly payments are made about two weeks after services are provided to the co-op. 

Although PEC’s cash reserves were ample for normal times, this historic cold snap was anything but normal. In a matter of only days, it became clear to PEC’s leadership that a major problem was brewing. The co-op faced a big bill to pay for the energy consumed by its members during the cold snap. They would need more cash, plus an increased line of credit, and both things would have to happen quickly.

“PEC has a diverse portfolio and has always remained in a very strong financial position,” Kyle said. “We also have strategic plans in place in the event of a crisis, but at least from a financial standpoint, no one could be fully prepared for this event.”

A Phone Call Like None Other

As it turned out, choosing which bank to contact was one of the easiest decisions Kyle had to make. For more than 15 years, CoBank has served as PEC’s primary financing partner. In 2015, when PEC decided to build a generation plant to provide electricity for its members – an unusual move for an electric distribution co-op – to keep its members’ rates as low as possible, CoBank financed the project. More recently, PEC switched to CoBank’s cash management system to coordinate its day-to-day banking needs. And just last summer, CoBank had facilitated a strategic planning retreat for PEC’s leadership team.

Kyle vividly remembers picking up the phone and calling Dean Church, CoBank vice president – electric distribution, and then what happened next.

“I must have talked with Dean about 15 times and every single time, he removed any of our doubts and concerns about the situation,” Kyle says. “He never panicked. On the contrary, he told us that regardless of how bad this was in terms of the bills that were coming due, CoBank would be there for us. Sure enough, CoBank coordinated the funding and liquidity we needed in just a matter of days.”

For more than 15 years, CoBank has served as PEC’s primary financing partner.

While the cash crisis was unusual for PEC, CoBank is used to working quickly with clients who face large fluctuations in market conditions, especially within the agricultural industry, Dean says. Over the years, CoBank has managed liquidity problems for co-ops in the aftermath of natural disasters such as hurricanes or ice storms where electric grids may crash. In those instances, co-ops can have huge funding needs until government agencies such as FEMA can step in and help, he says.

“Because of our balance sheet being so strong and the capital structure we have in place, we are willing and able to meet the liquidity needs of our clients,” Dean says. “We can turn things around fast, too, because it’s an in-house team effort with three or four of us getting the loan documents approved and getting the money wired out. We’re actually one of the few banks to provide this kind of financial relief.”

According to Kyle, CoBank originally earned PEC’s business with excellent rates and over the years, has matched those with exceptional service.

“At the end of the day, being competitive on price is huge,” Kyle says. “We have a responsibility to be as prudent as we can with our co-op members. But what CoBank did this last February – being reassuring and coming through for us once again in the most critical of times, won’t soon be forgotten. This solidified our working relationship even more.”

For more information about cash management solutions with CoBank, including its best-in-class liquidity services, contact your CoBank relationship manager.