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Associated Electric Cooperative, Inc.

Notes to Consolidated Financial Statements
December 31, 2022 and 2021
(In Thousands of Dollars)

Designated Short-Term Investments

All investments with an original maturity of twelve months or less are considered short-term.
Designated short-term investments are funds segregated and designated by the Board to be used for
Generation, Environmental and Insurance Reserve Fund and member revenue subject to refund. At
December 31, 2022 and 2021, Associated's designated short-term investments balance was $60,000
and $0, respectively.

Member Construction

Associated has advanced funds for the construction of various member primary transmission
projects. These advances are subsequently amortized over the life of the asset as transmission
expense. The balance of these advances, net of amortization, totaled $15,735 and $16,919 at
December 31, 2022 and 2021, respectively, with related amortization of $1,183 in both 2022 and
2021.

Materials and Supplies Inventory

Materials and supplies are valued using the average cost method. Materials and supplies that are
obsolete are written down to an estimated disposal value which approximates net realizable value.

Fuel Inventory

Fuel inventory is valued using the average-cost method. Associated purchases NOx allowances
that are recorded in fuel inventory and expensed when used or when they no longer have value.
Proceeds from sales of allowances in excess of cost and fees are recorded as a reduction to
generation operation expense within the accompanying consolidated financial statements.

Leases

Associated was required to adopt Accounting Standards Codification (ASC) 842, Leases in 2022.
The most significant impact of this new accounting standard was to record a right of use (ROU)
asset and a lease liability for leases that had been treated as operating leases under ASC 840.
Associated determines if an arrangement is a lease or contains a lease at inception by determining
if there is an identifiable asset, whether the customer (lessee) has the right to obtain substantially all
of the economic benefits from the use of the asset, and whether the customer has the right to direct
the use of the identified asset. Leases result in the recognition of ROU assets and lease liabilities
on the consolidated balance sheets. ROU assets represent the right to use an underlying asset for
the lease term, and lease liabilities represent the obligation to make lease payments arising from the
lease, measured on a discounted basis. Associated determines lease classification as operating or
finance at the lease commencement date. Finance and operating leases are included in other
property and investments, current liabilities, and other long-term liabilities in the consolidated
balance sheets

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