Tiers of Trust: Associated Electric Cooperative Inc.

Tiers of Trust

By Jennifer Ailor

Associated Electric Cooperative Inc.

THE 1960s

1960, fall

Though Associated was not yet incorporated, its principals were engaged in multiple negotiations that had produced draft contracts between what would become Associated and the Southwestern Power Administration, between the future Associated and investor-owned utilities, between these companies and SWPA, and between the future Associated and each of the G&Ts.

1961, February 8

Fifteen incorporators sign articles of incorporation to create Associated Electric Cooperative Inc.

1962, March 28

During a Springfield ceremony, the soon-tobe Associated and three western Missouri investorowned utilities sign draft contracts that give the IOUs access to generation excess from Bull Shoals and Table Rock lakes beyond Associated’s needs.

1962, May 28

Neil Adams is hired as Associated’s first general manager, serving until June 1971.

1962, July 25

The U.S. Department of the Interior grants final approval to form Associated.

1962, August 1

Associated officially begins operations with five employees.

1962

Associated assumes the contracts between the G&Ts and the Southwestern Power Administration, paving the way for generous credits, transmission access and control over hydropower in Missouri.

1965

Associated builds its first transmission line, a 1.5-mile tie line between M&A Electric Power Cooperative and Union Electric.

1966

Associated’s first coal-fired power plant, Thomas Hill Unit 1 at 180 MW, begins operating.

1968

Associated, the city of New Madrid and Noranda Aluminum Inc. work together to clinch a deal to bring an aluminum smelter to southeast Missouri; the plant begins operating in 1970 and continues for 33 years as Associated’s largest customer.

1969

Thomas Hill Unit 2 goes on line, adding 303 MW.

Associated Electric Cooperative Headquarters built in 1964.

THE 1970s

1970

The 1970s was an era of extra-high-voltage transmission construction, beginning with the 40-mile line connecting New Madrid with Lutesville financed by the first Rural Electrification Administration loan for a 345-kV line.

1971, December

The short-lived Federated Electric Cooperative was incorporated to finance New Madrid Unit 2 but was never needed and was merged into Associated in 1975.

1972, October

New Madrid Power Plant’s first unit of 600 MW goes on line.

1973, May

Gerry Diddle becomes Associated’s general manager, serving until February 1992.

1974

The 345-kV St. Louis-toTulsa line, also called the MO-KAN-OK line, is built, the first of Associated’s interregional extra-highvoltage ties.

1974

Associated partners with Public Service Co. of Oklahoma to build the Black Fox Nuclear Project during a time when the power industry saw nuclear in its future.

1974

1978

O.B. Clark joins the board, becoming president in 1981 and serving until June 2009, the longest tenure for a board president.

1977, June 1

The 600-MW New Madrid Power Plant Unit 2 goes on line.

1977

Two 22.5-MW oil turbine peaking units at Unionville Power Plant go on line.

Associated enters the coal business, buying Bee Veer and Prairie Hill mines near Thomas Hill Power Plant from the Peabody Coal Co. and begins operations in 1980.

1979, January

Associated negotiates with the Rural Electrification

Administration for the largest loan guarantee in the history of the rural electrification program: $1.4 billion (Associated’s own investment in its system at the time was only $311 million) to pay for Thomas Hill Unit 3, Black Fox Nuclear Project and its new mining operation and to offset double-digit interest rates in the late 1970s.

Late 1970s

Negotiations begin for a three-utility deal to build the first 500-kV line in Missouri, connecting New Madrid Power Plant with a 500-kV line owned by Arkansas Power & Light; the line is finished in 1984, the first such line financed by the Rural Electrification Administration.

From left, New Madrid Power Plant and Noranda Aluminum Inc.

Associated has continued to invest in its resources to serve member systems, including its integrated transmission system and diversified generation resources, clockwise from top on the front cover, the New Madrid Power Plant and coal train; high-voltage transmission lines at New Madrid Power Plant; the Bluegrass Ridge Wind Farm in northwest Missouri; and on the back cover, the combined-cycle natural gas Chouteau Power Plant.

Produced by Member Services and Corporate Communications

Joe Wilkinson, director

Linda Putman

Glennon Scheid

Nancy Southworth

Julia VanDeWater

This book is printed with vegetable-based inks on recycled paper with 10 percent postconsumer waste.

This book was commissioned by the Associated Electric Cooperative Inc. Board of Directors.

Associated Electric Cooperative is part of a three-tiered system united by the common purpose of serving electric cooperative members with affordable and reliable electricity.

Associated is owned and operated by six generation and transmission cooperatives (G&Ts) that formed it in 1961 to provide the G&Ts a wholesale power supply.

These six G&Ts are owned by 51 distribution cooperatives in Missouri, southeast Iowa and northeast Oklahoma. These local cooperatives are owned by about 875,000 member-consumers.

Statewide organizations – the Association of Missouri Electric Cooperatives, the Iowa Association of Electric Cooperatives and the Oklahoma Association of Electric Cooperatives – are an important part of this cooperative family.

Associated is headquartered in Springfield, Mo., and operates power plants in Missouri, Oklahoma and Arkansas.

“Tiers of Trust”

This book is a sequel to “Win-Win,” the first informal history of Associated chronicling its first 35 years from 1961 to 1996. “Tiers of Trust” is a continuation of that history from 1996 to 2011 and recognizes the cooperative’s dedication to its members for 50 years.

Copyright 2011 by Associated Electric Cooperative Inc.

All rights reserved.

No part of this book may be reproduced or used in any form or by any means – graphic or mechanical, including photocopying, recording, taping or information storage or retrieval systems, without written permission from the publishers.

Published by Associated Electric Cooperative Inc.

2814 S. Golden Ave., PO Box 754

Springfield, MO 65801-0754 (417) 881-1204 www.aeci.org

Preface

low-cost delivery of reliable power to 875,000 end-of-theline members. Instead, this cash-starved cooperative was focused on paying the bills for its ambitious plans to build generation and transmission. Bob Stagner, who served on the board from 1969 to 2001 representing M&A Electric Power Cooperative, recalled that as cash came in, the bill at the bottom of the pile was paid. In those years, Associated was a sorry candidate for future greatness.

Nevertheless, Associated not only survived, it thrived. By the mid-1990s, it had stabilized and matured. The range bulls were gone, replaced with equally smart and assertive board members but ones who favored different tactics. They were now united in trust, recognizing that what was good for Associated would be good for the G&Ts, the distribution cooperatives and, most importantly, the members at the end of the line. In fact, serving the member sometimes struggling to pay a $100-a-month utility bill has remained the defining mission of Associated.

“It feels to me like an extended family, the Associated family. There’s just a different feeling working with cooperatives.”

– Jeff Davis Missouri Public Service Commission

Associated Electric Cooperative Inc. was never meant to be. Or at least what it came to be. The uneasy alliance that led to its incorporation in 1961 is well documented in “Win-Win,” an earlier account of Associated that covered its first 35 years. The colorful and powerful range bulls of those years – Truman Green, Mike Boudreaux and Fay Martz, among others – had their share of shouting matches, profanity and deal making as they staked out their turf and strove mightily to protect their interests. The generation and transmission cooperatives of the 1960s and 1970s did not always trust one another and waged wars of power around the boardroom table. But they wanted less expensive electricity for their rural members, initially from federal hydroelectric projects, and the only way to do that with economies of scale was through an Associated.

Like the planets around the sun, these distrustful G&Ts gradually fell into orbit, held there by economic forces of gravity – and a growing trust.

At the time, there was no vision of the Associated of 2011. No clue that it would become a super G&T recognized for its financial strength, savvy leadership and

And so we arrive at 1996, the beginning of this 15-year history that completes the story of Associated’s first 50 years. Some of the characters in the story carry over from “Win-Win,” but new faces emerge. Clearly, the threads of values, mission and commitment from the first 35 years continue to bind. But fresh ideas and bold initiatives have produced a powerhouse defined by its tiers of trust. That trust has been shaped person by person up, down and between the tiers and beyond to suppliers, financiers, other utilities, Wall Street, regulators, even politicians. The result is something not seen very often in the corporate world.

Jeff Davis of the Missouri Public Service Commission, whose grandfather served for decades on the board of Pemiscot-Dunklin Electric Cooperative, put it this way: “It feels to me like an extended family, the Associated family. There’s just a different feeling working with cooperatives. … The fact that every one of your neighbors is a member, and every one is a shareholder, well, people tend to treat their neighbors better than people you don’t know.”

Trust. Tiers of trust. This is that story: Associated Electric Cooperative 1996-2011.

From left: Col. William G. Kratz, Associated board President John Buck, Associated General Manager Neil Adams and U.S. Sen. Ed Long dedicate Thomas Hill Unit 1.

Power through progress and progress through power ... a win-win

The formation of a new generation and transmission cooperative in February 1961 was not unique, but its structure was. Nowhere else was there a three-tiered system of distribution cooperatives owning G&T cooperatives owning a super G&T. Associated Electric Cooperative Inc. in Springfield, Mo., was the first.

It happened because rural Midwesterners needed lowcost electricity, and the Southwestern Power Administration had plenty of it. Associated was formed, with a nod of support from neighboring investor-owned utilities that also wanted some of that electricity, to bring that affordable hydropower to the homes of member-owners. The leaders responsible for molding Associated were focused on bringing light and modern conveniences into the homes of rural

families. But in the process they also created an organization that would stand out in the power industry, particularly among cooperatives.

The early years were tough. Initially, there were no assets. Finding millions of dollars to build plants and lines was not easy but was risky. There were territorial power struggles within the boardroom of Associated. Colorful and forceful G&T managers kept the interests of their G&T members in the forefront, especially during initial discussions of power plant construction locations and relinquishing control of existing generation facilities.

Other influential personalities included its three board presidents: John Buck, Rudie Slaughter and O.B. Clark. Neil Adams and Gerry Diddle, Associated’s general

By the time this photo was taken in 1971, Associated had constructed its first two coal units totaling 483 megawatts at the Thomas Hill Energy Center to meet members’ energy needs.

courtesy of the Association of Missouri Electric Cooperatives (AMEC).

Photo

managers in its early decades, were others. Another was Jim McNabb, Associated’s first chief engineer and the man who envisioned and created one of the most integrated high-voltage transmission systems of its time. They and many other staff members, board members and advisors slowly, sometimes painfully, built a company of trust, cooperation and collaboration. “Win-Win,” Associated’s chronicle of its first 35 years, describes those dynamics.

Associated got its start in the high-voltage 1960s. During that decade, Americans mourned the assassination of President John Kennedy, the Vietnam War raged, and the civil rights movement swept the nation. Associated got busy building generation and transmission infrastructure and forging critical strategic alliances with neighboring utilities, as well as lenders, suppliers and contractors. Among the early strategic partners were the Rural Electrification Administration (now the Rural Utilities Service), Tennessee Valley Authority, Union Electric Co. of Missouri (now Ameren Missouri), Public Service Co. of Oklahoma (now part of American Electric Power), Middle-South Utilities (now Entergy Corp.) and the Southwestern Power Administration.

In 1965, Associated constructed its first transmission line, a 1.5-mile connection between the Idalia substation and Stoddard in southeast Missouri that tied the M&A Electric Power Cooperative system to Union Electric Co.’s upgraded 161-kilovolt line. Though short, the line improved reliability and demonstrated how Associated could work with neighboring utilities to benefit both systems.

Associated became much more than a transmission cooperative during that period, however. On the generation side, the construction of Thomas Hill Power Plant in north-central Missouri in 1966, and then the addition of the power plant’s Unit 2 in 1969 and Unit 3 in 1982, became an anchor for the future growth of Associated’s generation assets.

Down in southeast Missouri, Associated and regional political interests clinched a deal in 1968 to bring Noranda Aluminum, a large Canada-based aluminum smelting

company, to southeast Missouri. The company needed electricity – a lot of it. New Madrid Power Plant was the solution, and any excess electricity could be sold to neighboring utilities. The plant went on line in 1972. Together, it and Noranda brought much-needed jobs to that region.

Baby boomers surged into the 1970s’ workforce. The Vietnam War ended, and President Richard Nixon resigned. The nation celebrated its bicentennial. The Organization of Petroleum Exporting Countries orchestrated an energy crisis. The Clean Air Act became law.

In the cooperative world, members’ energy needs soared from 1970 to 1978 – as high as a 12 percent increase in 1970, 14 percent in 1972 and nearly 13 percent in 1975. Demand rose by double digits those years too. To build more units and add more line, Associated had to borrow heavily, in the process developing a reputation of solid and strategic business decision-making. It became a business that other cooperatives, utilities and related businesses wanted to partner and work with.

In 1970, one of Associated’s biggest transmission projects began – a 345-kV, 350-mile transmission line from Tulsa to St. Louis that became the backbone of its network. That was the first of four big out-of-state transmission lines and ties that secured Associated’s place as a super G&T within the Midwest.

As related in “Win-Win,” some leaders within the industry said Associated, with its transmission network, was the envy of the Midwest. The construction of critical transmission lines, interconnections and the establishment of strategic partnerships with neighboring utilities and agencies continued into the 1970s and beyond.

High inflation and interest rates made procuring affordable financing for new projects more challenging. The Rural Electrification Administration, the federal lending agency for electric and telephone cooperatives, also had first lien on all Associated property it had financed. That was likely to hamper financing the construction of a proposed second unit at New Madrid. Associated took the creative approach, forming a sister company, Federated, to

Neil Adams, former Associated general manager.

secure financing without REA. Ultimately Federated was not needed and was dissolved. New Madrid Unit 2 came on line in June 1977.

In 1974, Associated partnered with Public Service Co. of Oklahoma to build the Black Fox Nuclear Project. After the Three Mile Island incident in 1979, the project was stopped, leaving a $120 million loss for Associated.

While nuclear was not in the mix, Associated did diversify its generation fuel mix with the addition of two 22.5-megawatt oil turbine peaking units. The Unionville Power Plant came on line in 1977 following a fire that caused extensive damage to the coal-fired Missouri City Generating Station owned by NW Electric Power Cooperative.

About the same time, Associated expanded its New Madrid plant with a second unit in 1977. It also acquired Bee Veer and Prairie Hill coal mines near Thomas Hill and began the daunting task of upgrading them, to the tune of millions of dollars. In the late 1980s, Associated purchased a third mine, NEMO, located near the same area.

The 1980s began with the eruption of Mount St. Helens. An assassination attempt on President Ronald Reagan failed. The Berlin Wall and the Soviet Union collapsed. At Associated, growth slowed in the late 1970s and early 1980s but picked up again during the second Reagan administration. Associated added a third Thomas Hill unit. The cooperative learned the mining business and continued to build critical transmission lines. Associated negotiated a beneficial new contract with SWPA in 1981, lasting for 20 years. In 1984, Clarence Cannon Dam went on line in Northeast Missouri Electric Power Cooperative territory. First conceived in the 1960s, the 58-MW peaking hydropower plant on Mark Twain Lake was built by the U.S. Army Corps of Engineers and operated by SWPA, with Associated transmitting the hydropower over its system.

The 1990s began with a war in the Persian Gulf and a new U.S. president. Congress passed amendments to the Clean Air Act, and energy companies like Enron began pushing for wholesale deregulation of transmission. At Associated, Gerry Diddle handed the leadership baton in

1991 to Jim Jura. Construction was completed on another major “backbone” transmission line, the 101-mile Missouri-Iowa-Nebraska-Transmission (MINT) Agreement. In mid-1993, a long-anticipated 161-kV line spanned the Mississippi River from New Madrid to Tiptonville, Tenn., connecting Associated to TVA. Overall growth accelerated after a slight dip during the first Bush administration.

The effects of the Clean Air Act Amendments rippled through the system. As this “decade of the environment” unfolded, new regulations meant Associated had to find a way to cut sulfur dioxide emissions. Converting to lowsulfur Wyoming coal from high-sulfur coal at Thomas Hill and from Illinois coal at New Madrid by 1995 helped cut the SO2 emissions, but the downside was closing Prairie Hill Coal Mine in 1993 and terminating 330 employees, members of United Mine Workers of America. Laid-off miners and their families owed a great deal of gratitude to local UMWA President John Bruno. Described as levelheaded and, most of all, fair-minded, Bruno grasped the mine’s disadvantageous economic realities. His pragmatism helped negotiate the severance packages the board was prepared to deliver.

Over time, about 425 employees involved in mining operations lost their jobs. Association of Missouri Electric Cooperatives offered its support during the mine closing process by helping communicate with members about the difficult mine issues through an insert in AMEC’s statewide Rural Missouri publication.

CEO Jim Jura initiated Associated’s Excel Employee Recognition Program in 1993, providing a way for employees to nominate and recognize peers who excelled in their jobs and communities.

Employee excellence: Learning to burn low-sulfur coal was no easy task. Employees rallied to the challenges, excelling year after year in solving problems and improving efficiency. Billy Young, operations superintendent at New Madrid Power Plant, helped pull together diverse work groups in 1996 to address some of the conversion problems, earning an Excel award in the process. On Sept. 12, 1996, the plant’s Unit 2 set an all-time continuous run record of 2,814 hours.

From top: Gerry Diddle, former Associated general manager;

John Bruno, former Associated mine employee and local UMWA president; and

Billy Young, former operations superintendent at New Madrid Power Plant.

Joe Hicks, a control room operator at Thomas Hill Energy Center in 1996, was another. Burning the new coal resulted in high reheat temperatures that reduced Unit 3’s efficiency. Hicks methodically researched and experimented to find a more effective way to operate water lances to satisfactorily reduce temperatures. As a result, the unit doubled the length of time it could operate without a load reduction.

By the end of 1995, Associated was indeed a super G&T. Its generation mix was coal and hydropower, as well as purchased power contracts with Entergy. The transmission lines of Associated and the six G&Ts traversed nearly 8,000 miles. Some 543,000 members in two states were accustomed to low-cost, reliable electricity. The names and faces of Associated’s leaders were known throughout the cooperative world, among investor-owned utilities and

energy companies, in the halls of Congress and on Wall Street. The uneasy alliance of the G&Ts in 1961 was now a solid union ever mindful of end-of-the-line users.

Over 35 years, Associated mastered the art of win-win, making the best of events out of its control, seeking fairness, doing the right thing, always striving for benefits to member-owners. That colorful, fast-paced, exceptional story of Associated’s first 35 years is detailed in “WinWin.” This book, “Tiers of Trust,” picks up the history in 1996.

Clockwise from top left: Joe Hicks, Power Production staff;

construction of rotary car dumper in July 1994 at Thomas Hill Energy Center is part of $200 million conversion to lowsulfur coal at both coal plants; and

construction of a tower for 161-kV transmission line across the Mississippi River in 1993 connects Associated and the Tennessee Valley Authority.

Chapter one

Taking stock

It was a very good year. By the end of 1996, Associated had just arranged to enter the natural gas business, had its first power marketer working on day-ahead transactions and had entered a whole new world of financing options beginning with the New York bond markets. Members were beginning to benefit from Associated’s 17 percent wholesale rate drop – a benefit of the painful mine closing in 1993.

Enron was flexing its muscles. It had influenced passage of the Energy Policy Act of 1992. Now, in 1996, as the Federal Energy Regulatory Commission’s Order 888 opened up the transmission lines of investor-owned utilities, Enron would try to bully utilities, including Associated, into energy deals. How would Associated’s response to

these overtures – and to the opportunities created by Order 888 if Associated chose to open its own prized transmission system – affect the three-tiered system?

A 1996 snapshot

Entering 1996, Associated boasted of being the second lowest-cost wholesale G&T provider, reporting 2.7 cents per kilowatt-hour with 10 million megawatt-hour member sales.

Power marketing was sweeping through the utility industry, whose transmission lines were now open to virtually all. Marketers made agreements to buy and sell power with a number of utilities that would become trading partners. Among them were Duke Power Corp., the

Associated donated 117 acres from its NEMO mine in 1999 for a cemetery to meet the needs of veterans and their families in north-central Missouri, where Associated operates Thomas Hill Energy Center. Located in north Randolph County, yet close to Macon County, the Missouri Veterans Cemetery at Jacksonville began offering interment services in 2003. The cemetery was built under the guidelines of Missouri House Bill 832, crafted in 1996, and state legislators credited Associated board member Don McQuitty as being instrumental in accomplishing the Jacksonville veterans cemetery.

Southern Companies and Oklahoma Gas and Electric. These interchange agreements opened up additional markets for Associated extending to the Atlantic seaboard.

New records were set: Outage rates at Thomas Hill Energy Center and New Madrid Power Plant hit an alltime low, falling below the industry average of nearly 5 percent. And the winter of 1995-1996 saw a new all-time peak of 2,844 megawatts in February. Unlike some utilities, Associated proved through the years it had both winter and summer peaks.

Associated’s economic development department introduced programs to promote energy audits at the distribution level, provide training to handle and keep key accounts and assist with funding community development foundations.

A television campaign reminded rural consumers of what they had: not just low rates but distribution cooperatives with state-of-the-art technology and professional service better than anyone else.

Associated launched its first website as a tool to improve communication with members.

A companywide efficiency improvement plan continued in its second year and involved employees in identifying areas for cutting costs and improving performance. It was a program CEO Jim Jura would use to light a fire in a corporate culture complacent with the status quo for too long. He understood that the new shockingly competitive world of wholesale and retail energy marketing would require a different paradigm among the old staid utilities.

Employee excellence: Bernie Nichols, an instrumentation technician at Thomas Hill Energy Center in 1996, was one of many Associated employees who embraced the efficiency initiative. He contributed by revitalizing the plant’s safety committee and joining the plant’s benchmarking team. Another was Angie Vire, administrative assistant to Jim Jura, who helped streamline budgeting methods through a budget process review team.

Kilowatt-hour sales kept growing among all the G&Ts. Sho-Me Power Electric Cooperative at 2.9 billion kWh, Central Electric Power Cooperative at 2.3 billion and

KAMO Power at nearly 2 billion were the fastest growing G&Ts, reflecting the demographics of the region, with rural farming counties in the north generally losing population to urban clusters, lake country and southwest Missouri. Ten years later in 2006, all the G&Ts had grown their kilowatt-hour sales, with KAMO the largest at 5.8 billion, Sho-Me at nearly 4 billion and Central at 3.3 billion. KAMO’s growth was in part due to the addition of the nine Oklahoma distribution cooperatives admitted to Associated in July 1998. In spite of the different loads and growth rates among the G&Ts, they continued to “stick together” in bearing the costs of additional infrastructure needed by the larger G&Ts.

Ralph Shaw, who represented Northeast Missouri Electric Power Cooperative on the Associated board from 1979 to 2004, expressed this “we’re all in this together” sentiment. “Our common cause of providing low-cost, reliable power for rural areas carried on through [all the discussions and differences]. You knew it was there. You knew who was paying you,” he said.

Associated and its six owner G&Ts’ vast high-voltage transmission system boasted 5,573 miles of 69-kilovolt lines, 11 miles of 138-kV lines, 1,646 miles of 161-kV lines, 65.3 miles of 345-kV lines and 46 miles of 500-kV lines.

Jim Jura began his fifth year as general manager. Division directors were largely the old guard inherited from Gerry Diddle: Jim McNabb, now special assistant to the general manager; Gary Fulks, replacing McNabb in Engineering and Operations; Wes Ohrenberg, Accounting and Finance; Dave Stump, Human Resources; Max Cates, Marketing/Communications; and Bruce Stone, Power Production. Operating revenue increased 20 percent to an all-time high of $556 million compared to $464 million in 1995 –even with an average 17 percent rate cut that took effect in calendar year 1995.

O.B. Clark continued his tenure as board president, serving at the beginning of 1996 with Don Shaw, Central Electric Power Cooperative; Gary Voigt and

From top: Bernie Nichols, Power Production staff; and Angie Vire, former Associated employee.

Arthur Carrier, KAMO Power; Bob Stagner and James Abernathy, M&A Electric Power Cooperative; Ralph Shaw and Maurice Happel, Northeast Missouri Electric Power Cooperative; Richard Arnold and James Steele, NW Electric Power Cooperative; and John Davis and Jerry Divin, Sho-Me Power Electric Cooperative.

Anchoring the generation fleet were the 1,200-MW New Madrid Power Plant, a 1,153-MW Thomas Hill Energy Center, two 22.5-MW oil-fired turbine generators in Unionville and Central Electric Power Cooperative’s 68-MW Chamois Power Plant. The 1981 contract with Southwestern Power Administration provided as much as 519 MW of hydroelectric peaking power. Purchased-power contracts were another important supply source.

Six G&Ts, 40 distribution cooperatives in Missouri and three in southeast Iowa served nearly 543,000 members.

The human drama of the miners and their communities was only part of the story, albeit the one in the headlines.

More than 600 employees worked at Headquarters, Thomas Hill Energy Center and New Madrid Power Plant.

Squeeze play: the heavy hand of government

Two pieces of federal legislation from the early 1990s shaped Associated’s course in 1996 and beyond.

First, the 1990 Clean Air Act Amendments expanded the authority of the federal government and the Environmental Protection Agency over air quality, setting controls on 189 pollutants, including sulfur dioxide. Because of CAAA’s severe limits on SO2 emissions by 1995, Associated was faced with a choice: spend hundreds of millions to add scrubbers to its coal-fired units or switch to low-sulfur coal from the Powder River Basin of Wyoming. Fortunately, Associated had a good relationship with Peabody Coal, now Peabody Energy, and a contract that said Peabody had to supply “coal suitable to burn.” For Associated that meant low-sulfur coal from the Powder River Basin.

The painful decision to close the Prairie Hill Coal Mine and terminate 330 employees belonging to the United Mine Workers

of America was still fresh in 1996. The $200 million Associated spent in plant modifications to successfully burn low-sulfur coal and the additional $342 million to close the mine still hurt. But the human drama of the miners and their communities was only part of the story, albeit the one in the headlines. By ridding itself of high-cost mining, Associated was able to save its G&T owners about $60 million a year in fuel costs. Members also reaped the benefits for years of a favorable purchase agreement with Peabody Coal and rail transportation agreements with what are now BNSF Railroad and Union Pacific Railroad. Closing the mines contributed to a 17 percent reduction in Associated’s wholesale rate to the G&Ts that took effect in 1995 and allowed Associated to avoid an increase in its wholesale power supply rate for years to come.

CAAA was the first of the decade’s legislative mandates to have far-reaching consequences for Associated. More was in store. The second heavy hand of federal legislation was the Energy Policy Act of 1992, which essentially deregulated the wholesale market. The act created a new breed of wholesale power marketers exempt from the Federal Power Act of 1935 and its regulations. Anybody with enough money – and Enron and other energy marketing companies had plenty of it – could buy generation and sell into the wholesale market. The only problem was the transmission system still functioned like a natural monopoly. Money to buy power might be in hand, but without access to transmission, there was no way to move the juice.

That would change in 1996 as the Energy Policy Act of 1992 paved the way for the Federal Energy Regulatory Commission’s Order 888, a regulation that changed how utilities did business. Order 888 mandated the unbundling of electric services and the separation of utilities’ marketing functions from their own system operations. While initially opposed by many utilities, Order 888 created

From top: Faced with the challenge of complying with 1990 Clean Air Act Amendments, Associated held public involvement meetings, inviting participation and opinions of Associated employees, union representatives, community and business leaders and member-consumers; and

Ralph Shaw, former Associated board member.

enormous opportunities that Associated quickly moved to take advantage of.

Employee excellence: Rod Rupert at Headquarters was one employee who helped Associated meet CAAA requirements. Considered an emissions monitoring expert, he applied his technical knowledge of continuous emissions monitoring and applicable regulations to complex projects such as installing monitoring equipment at the Thomas Hill, New Madrid and Chamois power plants.

Landmark initiatives define 1996

CAAA and the Energy Policy Act represented the long hand of Uncle Sam squeezing hard on the heart of Associated’s generation plants and its transmission arteries. Associated made the best of these changes, and in other arenas, the cooperative boldly took the reins of change in hand. Entering the natural gas marketplace, establishing credit with the New York bond rating agencies and

upgrading power marketing were three such landmark initiatives. Here are the highlights.

#1: A new generation addition: gas

In the gas boom days of the late 1990s, the Energy Information Administration projected that by 2010, gasfired generation by utilities would overtake nuclear power as the nation’s second largest source of electricity, with coal remaining the largest. In 1996, Associated made its first move into the new arena. Looking at the national trend toward gas, the resource planning department predicted Associated would have its own gas plant by 1999. Such a move would reduce the need for Associated’s 1,000-MW purchased-power contract with what is now Entergy Power Corp. Some of that Entergy power went to meet baseload, but about half was turned around and sold. With growing member demand, however, Associated would need all that

From top: Thomas Hill Energy Center, late 1990s; and Rod Rupert, Power Production staff.

“ These ratings are especially important when one considers that the electric utility industry is shifting … to a market-driven system. Associated’s approach to management is a prototype for a utility ready to compete in a deregulated market.

”

– Alen Spen Fitch Investors Service LP

power for its own members.

Before the year was out, Associated would indeed be in the gas business, shepherded by a dealmaker from outside Associated, Earl Gjelde. The result would be a fast-track entry into natural gas. In the summer of 1996, Associated partnered with PanEnergy Trading and Market Services LLC to build the 250-MW combined-cycle St. Francis Power Plant, designed by Siemens Energy and completed in 1999. Marketing contracts would reserve 125 MW for Associated’s future needs, with the remainder sold on the open market and the profits split between PanEnergy and Associated.

#2: New York, New York: the bond market

Equally strategic in 1996 was Associated’s entry into the high-powered world of Wall Street bond ratings. Associated CEO Gerry Diddle actually paved the way in the late 1980s when he initiated an annual trek to New York to the bond rating agencies. Although virtually all of Associated’s early financing came from the Rural Electrification Administration, now RUS, it was becoming clear that low-cost REA money might not be available in the future. So Diddle and the board began establishing credit in advance. As early as 1994, Standard & Poor’s gave Associated a “whisper rating” of “strong A.”

Under CEO Jim Jura, the effort to tell the Associated story to the bond rating agencies became more strategic. In 1996, the real deal occurred when Jura, Clark and Director of Accounting and Finance Wes Ohrenberg made presentations resulting in three high ratings: AA from Standard & Poor’s Ratings Service, AA- from Fitch Investors Service LP and A1 from Moody’s Investor Service. The result: these ratings allowed Associated to sell bonds in the open market on its own strong credit for the first time in its history.

Specifically, Associated refinanced at a 5.28 percent interest rate some $127 million of pollution control bonds issued in 1984, backed by a guarantee from the National Rural Utilities Cooperative Finance Corp., known as CFC, and carrying an 8.1 percent interest rate. That refinancing promised to save $50 million over the 17-year life of the bonds. Strong credit would be crucial for Associated to pay for enormously expensive environmental controls added to the coal-fired power plants and the costs of building a natural gas fleet.

Speaking as an analyst for Fitch in the 1996 Associated annual report, Alen Spen said, “These ratings are especially important when one considers that the electric utility industry is shifting … to a market-driven system. Associated’s approach to management is a prototype for a utility ready to compete in a deregulated market.”

Wes Ohrenberg, former Associated director of Accounting and Finance.

Part of the strategy in telling the Associated story to Wall Street was including board members in the meetings, presentations and discussions. Wall Street financial analysts could see the face of Associated’s members and hear their stories from the rural heartland – something they weren’t used to.

Board member Layne Morrill, representing White River Valley Electric Cooperative, KAMO Power and Associated, described one grueling trip to the East Coast rating agencies and lenders. It began in Washington, D.C., with a series of meetings with 12 to 15 lenders that lasted seven or eight hours. The next morning at 6 a.m., they boarded a plane for New York City for more back-to-back meetings and then a red-eye flight home. “The representatives [of the agencies and institutions] were not shy about asking questions,” he remembered. “… They were perhaps surprised about these cooperative directors who were as knowledgeable as they were about the market and the financial condition of Associated and the G&Ts and the underlying distribution cooperatives.”

#3: Putting a face on power marketing

As new energy titans like Enron forced wholesale markets to become more competitive, Associated moved to take advantage of opportunities for more aggressive off-system sales. Historically, Associated’s active dispatch marketing operation sold power not needed by members to more than 20 major utilities, most of them neighbors. If a neighboring utility had surplus power, Associated would help find a market for it, buying the power, using its transmission lines to move it and reselling it to a third party. Conversely, Associated would help that same utility when it was in short supply. The dispatchers moved this shortterm, hour-by-hour off-system trading, 24 hours a day, and did it very well.

But, as Gary Fulks, who became director of the Engineering and Operations Division in December 1996 and now on the Associated board representing Sho-Me Power Electric Cooperative, said, “Once we saw the development

of a competitive wholesale market, we needed to begin developing a separate power marketing group like the Enrons of the world.”

Order 888 made it clear that the volume of transactions would dramatically increase under deregulation and open access. Associated would need its own power marketing team to compete with the others. CEO Jim Jura recalled that his new special assistant Jim McNabb – by Jura’s own description the person with the most power and influence at Associated – was uncomfortable with the idea at first.

After all, Associated was making money from its dispatch sales and getting optimum return for members. And power marketing seemed too much like the trading floor of a stock exchange.

Jim McNabb’s eventual endorsement was crucial, and in relatively short order, Associated did move into power marketing, assigning Renee Rigsby-Busiek, the Associated engineer who had proven to have the best understanding of selling on marginal costs, to the role of power marketer.

“Renee had the talent to work with different partners to develop relationships,” Jura said. “It used to be generators dealing with generators. Then all these marketers came in as a result of Enron. We used to share and help each other out. Then it got very competitive. But we moved through all that … and Renee is the one who led us through that to new partnerships of trust.”

As discussed further in the next chapter, Dennis Wright soon joined power marketing and became its team leader.

So went 1996. Order 888, the decision to build gas generation, entering the bond markets and the rise of power marketing made it a barnstormer of a year to open the last 15 years of Associated’s 50-year history. Plenty of industry shakedowns and Associated shake-ups followed.

From top: Layne Morrill, Associated board member; and Jim McNabb, former director of Engineering and Operations.

Clockwise from top left: In the late 1980s, Associated mined the slurry pond at the Bee Veer Mine, an innovative step that earned it a national Excellence in Surface Coal Mining and Reclamation Award;

(sidebar) receiving the U.S. Department of Interior Excellence in Surface Mining and Reclamation Award in 2007 are Associated staff, from left, Jim Rolls and Mike Giovanini, Mining Division; Kim Dickerson, environmental coordinator; Tom Watkins, manager of plant operations; and Duane Highley, director of Power Production; and the 2007 national award was for Associated’s transforming the Bee Veer slurry pond and mine into wetlands, woods and rolling pasture – a testament to its commitment to return land once mined to its original or better condition.

Innovation and reclamation: spinoffs from the mine closing

The closing of the Prairie Hill Mine had its highlights. Though 330 mine workers lost their jobs, member costs dropped, and Associated was able to comply with clean air standards by reducing sulfur dioxide emissions 90 percent. The switch to low-sulfur coal enabled Associated to accumulate more SO2 allowances than it needed and sell them at a profit.

Employees put in thousands of hours to transition the plants at Thomas Hill and New Madrid to the low-sulfur coal. As a result of their innovation, Associated received the prestigious 1996 Powerplant Award for “successfully implementing the nation’s most ambitious conversion to Powder River Basin low-sulfur coal for both environmental compliance and competitive positioning,” according to the editorial director of Power magazine.

By 1996, nearly 100 former miners were busy reclaiming former mined land around the Prairie Hill, Bee Veer and NEMO mines. In that year, crews in the Thomas Hill Energy Center Mining Division were beginning to pull up the haul roads used by coal-hauling trucks and draglines and restoring them to county roads or country fields.

Mike Giovanini in the Thomas Hill Mining Division described where Associated was in 2011 and what the Mining Division’s seven employees continued to work on. Originally, Associated held nearly 25,000 acres of land for mining. Not all this land was ever mined, but the acres that were mined were largely reclaimed by 2011, including 4,000 acres leased for hay production. Another 7,000 acres of never mined land is leased to farmers for pasture and row crops.

Reclamation involved recapturing unburned coal, cleaning up a slurry lake, removing a coal-washing preparation plant, planting about 2 million trees along waterways and ponds, reseeding, maintaining more than 100 ponds and their spillway pipes and monitoring water quality from 27 waste wells near the old mining pits used to dispose of fly ash and bottom ash. The crew still has about 800 acres around the old Prairie Hill Mine designated as a solid waste area. Its mining pits remain open to collect bottom ash and fly ash from the power plant and will be reclaimed once full.

“One of the things we’ve been tasked with in reclamation is to leave the land better than we found it, to improve the value of what we have,” said Giovanini. An example was planting trees in areas with slopes to prevent erosion. “Now, we’ve basically switched from reclaiming so many acres a year as required by the law to taking care of what we have.”

Giovanini and the Mining Division’s legacy included the U.S. Department of Interior Office of Surface Mining’s highest award in 2007 for its innovative reclamation of nearly 1,000 acres at the Bee Veer Mine into a mix of wildlife habitat, rolling pasture and wetlands. Also in 2007, Associated received the Kenes C. Bowling National Mine Reclamation Award from the Interstate Mining Commission for its exemplary reclamation of former mine land that exceeded state requirements. The Missouri Department of Natural Resources nominated Associated for this award.

Discussing replacement of the capacitor bank in the switchyard next to Associated’s New Madrid Power Plant are, from left, John Farris, Associated board member and general manager of M&A Electric Power Cooperative, which maintains the switchyard; M&A transmission superintendent Elbert Osgood; and Jake Fisher, Associated and M&A board member.

Shakedowns, shake-ups

Dynamic. Change focused. Cutting edge. Hardly terms to describe the power industry, right? But, in fact, the industry has always churned with change, and once-small utilities have morphed into powerhouses. Like Associated. 1996 to 2011 were like frontier days in the Old West. Issues, opportunities and events put tremendous pressure on Associated’s management and directors to keep in the game as a relevant player, ahead of the game in terms of forecasting and follow-through and ahead of the curve in managing risk. The stories of these industry shakedowns and Associated shake-ups follow.

Enron stirs the pot

Deregulation was the most significant industry shake-

down of the period with the widest repercussions for Associated. Because of transmission deregulation, Associated would develop its power marketing team; build a fleet of gas plants and the expertise to manage them; and enter a whole new world of financing.

The single biggest player in opening up the industry to competition was Enron. In effect, during the late 1980s and throughout the 1990s, Enron looked at the national transmission grid and said, let’s turn this into a commodities market and make some money. Let’s profit from moving energy around this grid. So Enron’s very smart, very persuasive people talked Congress and the Federal Energy Regulatory Commission into deregulating first the wholesale natural gas and electricity markets and then the retail

New Madrid Power Plant, 2009.

Chapter two

O.B. Clark, former Associated board president.

markets, starting with the Energy Policy Act of 1992.

A February 1996 edition of Associated’s employee magazine, Panorama, described Enron as the top natural gas and electricity wholesale marketer in North America. Then, with FERC’s Order 888 – fomented by Enron, as CEO Jim Jura put it – Enron began pushing for deregulation of the retail electricity and natural gas markets. Enron’s marketing spiel predicted a $300 billion a year market with deregulation of these two areas.

O.B. Clark, longtime Associated board president who retired in June 2009, remembered an invitation to a meeting in Florida hosted by Enron, which was aggressively courting all utilities. “A guy by the name of Skilling [later sent to prison for his financial misdeeds] spoke, and he said, ‘We’re going to sign up your customers. You might as well join us,’” Clark recalled.

to restructuring and deregulation. Eventually, Missouri, as well as Oklahoma and Iowa legislatures, would reject retail energy deregulation.

Gary Fulks, then director of the Engineering and Operations Division, remembered, “We did a lot of business with Enron and made a ton of money off of them – tens of millions of dollars. Thus, they were aware of our success in marketing short-term off-systems sales and continuously tried to encroach on our business. We tried to put several long-term deals together, but none of them were successful because they wanted all the crumbs on the table –a greedy group of arrogant folks.”

“ We did a lot of business with Enron ... they wanted all the crumbs on the table – a greedy group of arrogant folks.

”

– Gary Fulks Associated board member

Clark and Associated weren’t terribly interested at the time in Enron’s retail wheeling but recognized “the guy was serious.” It was a wake-up call that retail electricity deregulation could be coming. It, of course, did in California, leading to the virtual collapse of the power industry there in 2000 and 2001.

The California crisis emphasized the importance of a cautious approach to deregulation. In 2001, the Missouri General Assembly was studying deregulation and industry restructuring. Frank Stork, general manager of the Association of Missouri Electric Cooperatives at the time, expected investor-owned utilities to push a bill deregulating their generation component. Pitted against them were the rural electric cooperatives that opposed a piecemeal approach

To counter the industry’s growing enthusiasm for retail wheeling, the National Rural Electric Cooperative Association came up with the idea of branding cooperatives under the Touchstone Energy Cooperatives label: keep customers’ eyes focused on the good things cooperatives were doing for them so they wouldn’t be tempted to look around for a new supplier. Associated signed on early as a regional partner in the endeavor, thus making it more affordable for the G&Ts and distribution cooperatives to join Touchstone if they chose.

Looking back on the power days of Enron, Jura remarked, “Enron came into the industry and had a political strategy that was very sophisticated. They went to state PUCs [public utility commissions] and local and state governments and started getting things changed by promoting the idea that large systems that had both generation and transmission would control the cost, and opening up the transmission would drive prices down and be much better for customers. … It became political very fast. It all sounded so good. But now that bell has rung, and the industry will never be the same.”

Though Enron disappeared, the arm of FERC got longer. The power industry landscape would change in the first decade of the 21st century, populated by power marketing groups and regional transmission organizations. Utilities got bigger. And the layers of regulatory bureaucracy and control over generation and transmission assets increased as utilities flocked to the new RTOs. The Southwest Power Pool, for example, had about 15 member organizations in 1997. By 2011, it had 62 in nine states.

Meanwhile, Associated studied the options in the new competitive markets and deliberated. Its planners and strategists perhaps did a little crystal-ball gazing. The result was something different, an approach that so far has kept Associated in the game and as independent as possible for the benefit of its members.

As Jura recalled, “Political and economic forces were used to try to starve us into joining an RTO.” But Associated resisted. As a member of SPP, Associated watched that entity move in the RTO direction – and chose not to participate. On Oct. 31, 1997, Associated gave notice to SPP that it was withdrawing, along with Entergy Power Corp., the utility tightly interconnected with Associated and its source for backup reserves. At the same time, it announced its plan to join the Southeastern Electric Reliability Council, later renamed SERC Reliability Corp.

“Leaving the Southwest Power Pool was difficult for me when we did it,” Jura reflected. “I was chairman of the board. It occurred in the days when Enron was very active. Enron had placed very competent people on these boards, but the whole emphasis was to change the policy of Southwest Power Pool to become more commercial. We wanted the emphasis to remain on reliability. I remember the meeting. All the other transmission-dependent people voted for it. We didn’t.

“Some thought utilities needed to be big and have big balance sheets. Some G&Ts and many investor-owned utilities focused on getting bigger. In our case, we took a different approach,” said Jura. “We decided we didn’t need that. We could play in the markets, too, if we had good

transmission and generation, a strong and flexible financial position and an ability to move quickly.

“… So we have been careful about how we have grown our system. We’re not in an organized RTO, and it has served us well. … We proved we don’t have to be big to reach markets if we have low costs, a strong and flexible financial position and strategic relationships with our counterparties.”

Associated jumps in the market hot pot

One of the results of deregulation was the growth of power marketing. In the “old days,” dispatchers did all the off-system buying and selling for Associated, making millions of dollars that helped Associated avoid rate increases for its members.

As Jim McNabb, director of the Engineering and Operations Division at the time, put it, “We sold an awful lot of power. … We’d buy from a neighboring investor-owned utility to the north and sell to a neighbor to the south. This was big business for us and had been all along.”

FERC’s Order 888 of April 1996 changed all that. Marketers augmented traditional trading partners, the volume of transactions grew, and a vast new market opened up. Order 888 required public utilities to make excess capacity on their transmission systems available to one and all for the same fee on a first-come, first-served basis. Though Associated was not under FERC’s jurisdiction, a year later it decided to act as if it were and entered the new marketing game by opening up its transmission system.

The unbundling process began by reorganizing Engineering and Operations to separate transmission from power marketing. “We needed someone to deal with the market. Renee Rigsby-Busiek was a transmission engineer but was persuaded – and it took some persuasion – to put her into this area. She developed a market relationship with the so-called energy traders,” recalled McNabb.

In the reorganized division, the transmission group began scheduling all power movement over Associated’s lines, in effect renting the excess capacity in its

Gary Fulks, Associated board member and former director of Engineering and Operations at Associated.

“... We proved we don’t have to be big to reach markets if we have low costs, a strong and flexible financial position and strategic relationships with our counterparties.”

– Jim Jura Associated’s CEO

transmission lines. This included renting to Associated’s power marketers, who were buying and selling excess power. The power marketers could reserve transmission space for their transactions, paying the same market-based transmission fee every other marketer was paying.

The new rules forbade any insider-sharing between Associated’s transmission folks and the power marketers. To ensure everyone got the same information at the same time, dispatchers, now system operators, put available transmission capacity on the Internet through FERC’s Open Access Same-Time Information System. OASIS allowed energy to be scheduled across multiple power

systems. Now, power transactions could literally travel across the continent from point to point.

Power marketing was one of the responsibilities of David McNabb, Jim McNabb’s son, who joined Associated in 1997 as manager of resource planning and operations. He remembered that the goal was to maximize the value of all Associated’s assets, both generation and transmission, to lower member costs. The power marketers didn’t have much time to get up to speed.

“The market got more predatory. … Marketers would come in and would try to nail you to the wall. … We had to learn how to handle these risks and exactly how to deal

Clockwise from top: The simple-cycle Essex Power Plant; combined-cycle Chouteau Power Plant; and simple-cycle Nodaway Power Plant all came on line between 1999 and 2000, adding 811 megawatts of gas generation.

with these types of people,” David McNabb recalled.

“The credit risk became a much bigger factor. Can these people pay the bill?” He explained that some of the new marketing companies didn’t own a single asset, yet could buy transmission service and control the markets. “You couldn’t call someone at Enron and say you were in trouble. They were glad to hear you were in trouble. It was cutthroat.”

Prices soared in 1999. In late July the power marketers saw spot market energy prices climb to $4,000 per MWh ($4 per kilowatt-hour). The addition of more than 500 MW of gas generation at Nodaway, Essex and St. Francis allowed Associated to bypass the market hot spots, saving about $10 million in reduced summer energy costs.

Prices went through the roof again in 2000, soaring to more than $2,000 a MWh on one hot spring day. Normal prices per MWh ranged from $20 to $50, with $100 the “bogey” for emergencies, according to Rigsby-Busiek. This time, though, backup reserves from other utilities weren’t there. “We were trading 20 times the bogey, and numbers 40 and 50 times were being thrown around,” she added. She remembered an emergency conference call with the board. “We needed guidance because we were committing the company to a lot of money. There wasn’t time to get them all there. The guidance we got was to pay what it took to be a reliable power supplier. It affirmed support for our mission. But it was extremely stressful.”

In spite of Order 888’s initial rocky road, deregulation turned out to be a good thing for Associated. The result: millions and millions of dollars from power marketers selling Associated’s excess low-cost coal power and system operators moving it through the Associated grid to buyers primarily in the South.

The electric power industry’s new deregulated open market offered opportunities hard to ignore. That was the case for KAMO Power, one of Associated’s G&T owners, when it went looking for a new power supplier for its Oklahoma cooperatives.

The rise of power marketing: through the eyes of Renee Rigsby-Busiek

For decades, Associated’s dispatchers sold surplus generation to neighboring utilities sealed with friendly, almost handshake-type contracts. They would routinely do split-savings type deals in which Associated might sell its less expensive generation to a utility whose generation was more expensive. Associated would make some money, which helped keep members’ costs lower. The other utility would save some money. A win-win for all.

With the Energy Policy Act of 1992 and later Order 888, deregulation of transmission opened up the wholesale energy markets, creating opportunities for vast new deals. A new breed, the power marketer, appeared as the Enrons of the world began greedily gobbling up all the crumbs on the table. And so, in due course, it was apparent Associated needed its own power marketers.

“We could play in the markets, too, if we had good transmission and generation, a strong and flexible financial position and an ability to move quickly.”

– Jim Jura Associated’s CEO

The early face of power marketing at Associated became Renee Rigsby-Busiek, an electrical engineer who joined Associated in 1991 by way of the University of Missouri-Rolla, now Missouri University of Science and Technology.

Part of her job in resource planning, she remembered, was to market that surplus generation that dispatchers had been doing at Associated for years.

“There wasn’t a line where one day I was an engineer and the next I was in marketing. As an engineer, my first assignment for every day was to report to the dispatch center and to review operations. At some point in there [the early and mid-1990s] we had done some monthly deals, and some of us were doing some daily deals. I was told to see what I could do. And so I set up an Excel spreadsheet and began tracking purchases and sales that I made for our system. It was not envisioned to become a full-time job. I just was to spend a couple of hours a day doing it,” she said.

Rigsby-Busiek had an office on the engineering third floor, and she floated between it and dispatch in the basement. But by “seeing what she could do,” Associated discovered she could do a lot. In 1996, she became a full-time marketer in charge of short-term transactions. Later, Dennis Wright handled monthly and other long-term transactions and ran the power marketing team. Eventually, power marketing formally split from dispatch, now known as system operations, and the staffing gradually grew to 11 people working 12-hour shifts 24/7.

“So I started as an engineer and was told to see what I could do with marketing energy. I discovered I enjoyed it, was successful and helped our member-owners benefit from that significantly,” Rigsby-Busiek said.

“Significantly” was an understatement. Over the next 15 years, Associated’s members would benefit from billions of dollars of sales of surplus energy, enjoying some of the lowest electricity rates in the country. Sales would range from $230 million to $500 million a year.

The rise of power marketing, continued

Rigsby-Busiek helped set the pace. Little wonder that Fulks described her as “the premier power marketer of the Midwest,” based on comments by her peers in the industry.

Initially, all the trading was done on the phone. “I knew Associated’s position, what units were available and approximately what our load was and so knew whether we were long or short. I would pick up the phone and call different counterparties and find out what their positions were and begin to put the pieces of the puzzle together. ... That Excel sheet I developed was a pretty crude tool to track who I had called and what I had done, and it became the documentation for the transactions,” she said.

By the late 1990s, Rigsby-Busiek’s job was made easier with electronic tagging, an electronic version of her simple spreadsheet that showed who generated megawatts and documented the transfer of ownership to different parties to the end user. In 1998, power marketing’s technology advanced further with SPARX, an in-house tool developed to track deals, allow multiple people to use it simultaneously and show how much Associated owed from purchases and earned from sales.

Another change defining the job was the separation between power marketing and system operations. Though Associated was not under FERC’s jurisdiction, which forbade any kind of insider trading of information between the old dispatchers and the new power marketers, “We did play it honest,” Rigsby-Busiek said firmly. “We were always honest about not exchanging information.” But it was not unusual for the two teams to eat lunch together. That later changed when new internal controls physically separated the two groups.

Associated’s power marketers were honor bound to remember the members at the end of the line, who always received the lowest-cost power first. Sales were structured to avoid any negative impact on members. Because power marketers at Associated were not commissioned but salaried, they had no incentive to make short-term decisions that had long-term negative consequences. “Our whole philosophy is to support the vision and mission of providing reliable, low-cost service to our members,” Rigsby-Busiek said. “It’s a different philosophy than power marketers for investor-owned utilities. We really do work for our member-owners, and that is at the forefront of what we do down here.”

KAMO joins the family

You might say the stars were perfectly aligned in 1997. Looking back on the process of admitting KAMO Power’s nine Oklahoma cooperatives into the Associated system (its eight Missouri cooperatives were already served by Associated), some serendipity was certainly at work. Not that it felt that way at the time to key players like KAMO’s executive vice president and CEO Chris Cariker toiling in the trenches of the process. In 1996, Cariker had just joined the Associated board but already had a dream of uniting all of KAMO under the Associated umbrella. And certainly Associated’s management was ready to explore the possibility: having made the decision to develop gas generation, it would eventually have more capacity. But how to pull it off?

“Being young and new to the board, my dream was to try to become part of the entire Associated family,” Cariker said, admitting that the Oklahoma cooperatives really didn’t know much about Associated, himself included. But they knew power from Associated was about 20 percent cheaper than the rates they were paying to the Grand River Dam Authority. In fact, as GRDA’s highest-cost customer, KAMO simply couldn’t continue ignoring the gap in costs between its Oklahoma and Missouri distribution cooperative members. The KAMO board directed Cariker to find alternative sources of power and to phase out purchases from GRDA over several years. So Cariker began to act. Though Associated had been the longtime power supplier for KAMO’s Missouri cooperatives, KAMO wasn’t prepared to automatically go with Associated. Instead it was going to search for the absolute lowest-cost supplier. That decision would later come close to turning Cariker’s dream into a nightmare.

Not that all the Associated board members were very excited about admitting KAMO’s Oklahoma co-ops. Some said it would never happen, in fact. And, indeed, as Jura pointed out, the board had rejected the overtures of many

Renee Rigsby-Busiek explains power marketing operations to Missouri Gov. Jay Nixon during a tour of Associated’s Headquarters in 2009.

other G&Ts and even one investor-owned utility wanting to join Associated. “During the years, we spent a fair amount of money on due diligence in making decisions on how fast we wanted to grow our system,” he recalled.

Cariker began making the rounds of the utilities. Not knowing that much about Associated, he started by introducing himself to Jura. Cariker found him open, honest and engaging. Then he met Jim McNabb and Gary Fulks of Engineering and Operations and liked what he saw. McNabb and Fulks agreed to run some studies to see how the economics looked. Associated would be obliged to take on the Oklahoma load of 500 MW but would benefit from KAMO’s 198-MW share of GRDA’s low-cost coal generation.

Jura advised Cariker to meet with each Associated board member personally, starting with John Davis, the often intimidating general manager of Sho-Me Power Electric Cooperative. “In those days, the board was all about politics, day in day out. … On my third day on the job, I faced John Davis. He started by saying, ‘What is it you’re here for?’ I replied, ‘I understand that if anything happens in Missouri, it has to come through your door,’” Cariker said.

As it turned out, Davis was receptive to KAMO’s joining Associated. Cariker continued with his rounds, and Fulks and crew began to run the numbers. McNabb jumped in to help facilitate board discussions and lend a hand to Cariker. KAMO’s contract with GRDA was the central problem. To get out of it required 12 months’ notice and payment for KAMO’s share of GRDA’s generation. McNabb – with his formidable negotiating skills and experience – became KAMO’s chief negotiator.

So KAMO backed out of its GRDA contract – without any replacement. Where would the power come from?

Having talked with many utilities eager to add KAMO as a customer, Cariker was ready to issue a request for proposal (RFP) to the companies he had been courting and take the best offer. Associated would be one of the utilities approached – but just that, one of a pack.

“We were prepared to go to an RFP to 10 different

entities, and we were going to visit each of them. Then, Mr. McNabb, treating me almost like a son, asked me what I was doing. Now, I had been told that if Jim ever asked, ‘Help me to understand how this is going to work,’ then I knew I was about to do something really stupid!” Cariker recalled with a laugh.

“So McNabb said, ‘How’s this going to play out. You’re getting ready to insult the Associated board. You don’t want to do that.’”

Cariker got it. KAMO dropped the RFP idea but still had no tangible plan for moving into Associated. Then a solution surfaced during a road trip from Springfield to KAMO territory. Fulks, Jim McNabb, David McNabb and staff engineer Ted Hilmes were discussing how to get KAMO into the system. Jim McNabb remembered the idea evolving during that car talk.

Fulks explained the final concept, “We used our

From top: GRDA power plant, Pryor, Okla.; and Chris Cariker, Associated board member.

would save KAMO’s Oklahoma customers more than $200 million over 10 years and would not increase KAMO’s Missouri customers’ rates. Associated also would gain 198 MW of coal generation by acquiring KAMO’s share of GRDA – a very valuable asset, according to Jura.

Looking back, Cariker remembered what a difficult time it was personally. New to the KAMO board and the Associated board, he was handshaking with Associated board members, talking to Enron and other utilities and politicking with KAMO board members. Day to day, there were “some pretty gut-wrenching changes,” he said, including watching KAMO’s employment drop from 141 to 91 in eight months. But in the end, “It’s been a wonderful relationship. Everything promised has happened exactly as planned.”

Late in 2009, when KAMO paid the full debt load, making it a full-fledged member of the family, Cariker had a “quiet little celebration.”

“It was a great feeling for the KAMO trustees and managers’ group to know they had fulfilled an obligation that commenced in 1998. It is more gratifying to know that the original agreement was negotiated in a method that was a ‘win-win’ for both AECI and KAMO,” Cariker said.

Cariker grabbed the lifeline and somehow commandeered the votes on his board to accept the Associated offer.

production cost modeling program, made our best-guess assumptions for fuel cost and assumptions for load growth on projected cost of the Associated/KAMO Oklahoma costs. We came up with the net present value of the difference, which was the premium needed to keep the existing members whole. This was about $8.5 million of cash payments and $32.6 million of equity buy-in to be paid for by forgiveness of patronage capital allocations.”

Cariker grabbed the lifeline and somehow commandeered the votes on his board to accept the Associated offer. Integration (official in July 1998) would bring 500 MW of new residential, commercial and industrial load to Associated. KAMO’s 17 distribution cooperatives, including the nine in Oklahoma, serving 264,000 consumers in 43 counties in southwest Missouri and northeast Oklahoma, were finally under one roof. The new contract

Water rights: the 2001 contract with Southwestern Power Administration

During 1996-2010, some old, not-so-satisfactory alliances improved. That was the case with Southwestern Power Administration, whose relationship with Associated was spruced up and revitalized with new contacts and a new contract.

Getting valuable hydroelectric power to rural Missouri was the catalyst that pushed the G&Ts to form Associated in 1961. The original contract between SWPA and the G&Ts predated Associated and was actually directed by the U.S. Congress, which was trying to expand federal hydroelectric projects to serve rural electric cooperatives. From SWPA’s perspective, Associated was created to expand the federal system to get electric power delivery into Missouri.

Recognized by KAMO Power in 2007 are, from left, Associated staff David McNabb, Gary Fulks, Ted Hilmes and Jim McNabb.

But then, funding ran short to pay for transmission lines and thermal plants vital to the future of delivering affordable, reliable power to rural America. To keep these badly needed projects moving in Missouri, SWPA arranged to give credits on its invoices to the new Associated in return for Associated’s building transmission and power plants.

Congress, though, wasn’t happy with the arrangement and ended the credits. The 1981 contract between Associated and SWPA addressed the issue by replacing the credits with operational benefits: Associated would get significant control of five, later four federal hydroelectric projects and get more power, which resulted in more electrical power benefits to Associated. It was an advantageous deal for Associated for the next 20 years but one that created mounting conflicts and criticism.

“It was a long-standing bur under Southwestern’s saddle,” Donald Shaw, CEO and general manager of Central Electric Power Cooperative, said frankly. Shaw for years represented Associated on the Southwestern Power Resources Association Board, an organization of SWPA’s customers.

Under the 1981 contract, Associated had significant operational control over federal hydroelectric plants at Table Rock Dam, Bull Shoals Dam, Stockton Dam, Truman Dam and Clarence Cannon Dam – even though those projects were owned and operated by the U.S. Army Corps of Engineers. Later, in 1994, Associated terminated the portion of the contract related to Truman Dam output when the pumpback feature did not develop as envisioned by both parties.

Flood control and recreation were other uses the Corps was required to provide water for. “So the recreational interests were in conflict with the power interests,” said Jim McDonald, assistant administrator for corporate operations and chief operating officer for SWPA. The primary issue became the introduction of trout below the two dams at Table Rock and Bull Shoals. Trout need cold water with a certain percentage of dissolved oxygen to thrive. The explosion of commercial agricultural operations and suburban development in the area made things worse by

compromising water quality and oxygen levels.

As Associated and SWPA approached the negotiating table in 1996, a lot was at stake. The new contract would have to be lived with from March 1, 2001 to 2016. McDonald, who would be SWPA’s chief negotiator, said, “A lot of forces were out there that wanted to take away operational benefits.”

Facing him on the Associated side of the table were Gary Fulks and Earl Gjelde, the rainmaker who also facilitated Associated’s entry into natural gas generation.

As negotiations got under way, the Corps indicated that if the contract were renewed with Associated’s retaining control over the four projects, the Corps would impose significant operation restrictions, restrictions completely unacceptable to Associated. A line in the sand had been drawn.

“So we knew the contract could not be renewed as is,” related McDonald. “The basis for going into the negotiations was to place Associated on a system-type sale contract as all SWPA’s other customers were on. That way we could balance out the competing needs throughout the entire federal system [of hydroprojects] …”

And that’s what SWPA and Associated proceeded to do. In the old contract, Associated had 15-minute scheduling capability, meaning it was required to give only 15 minutes’ notice to the projects for a draw on power. In the 2001 contract, that changed to notice on the previous day. “What that did was allow us to take all the schedules and plan the operation throughout the system,” said McDonald.

Under the new contract, Associated received 478 MW of capacity and was guaranteed 1,200 full-load hours of peaking energy. Keith Hartner, who joined Associated in 1998 and represented Associated on the SPRA board during this period, explained, “If SWPA didn’t have the water, they would have to make up the deficit with market-purchased capacity and energy. It could get shaky in dry years, but in wet years, that hydropower was tremendous.”

That 478 MW of low-cost, emissions-free hydropower with its operating flexibility was 478 MW of more

From top: Jim McDonald, Southwestern Power Administration.; and Don Shaw, Associated board member.

expensive gas that Associated didn’t have to burn, he pointed out, to meet growing member load.

Beyond the 2001 contract, other water issues continued to create friction and discord. Hartner, director of Member Services and Corporate Communications, had joined Associated by invitation from Jura. Hartner had worked with Jura at Bonneville Power Administration, the large federal power marketing agency in the northwestern United States and a sister organization to SWPA. Don Shaw on the SPRA board saw the potential advantage of moving Hartner into a power position with SPRA.

“One day at a meeting in Little Rock with the Corps of Engineers, Don said to me, ‘You ought to be taking my place on the board because of your Bonneville background,’” Hartner recalled. And so, in due course, Hartner joined the SPRA board, eventually serving as president. Remembering his early interactions with the Corps,

Hartner noted the corporate culture of the Corps simply didn’t understand the impact on power generation of taking a main turbine down for maintenance during a highdemand period. As energy powerhouses like Enron pushed up prices, the Corps wasn’t changing its practices to account for changes in the marketplace and the dollar value of the water it controlled.

“I knew we had to get a mind change,” Hartner said. He would become instrumental in improving relations, primarily by encouraging common-sense communication. “We pointed out that the engineers at Table Rock Dam might benefit from knowing that Bull Shoals had the tools or spare parts they were looking for. Because it was organized like the Army, the communication was always straight up and down and didn’t move sideways,” he said.

But over time, the conversation Hartner started worked. “The Corps began to understand us, and we to understand them,” said Hartner. “It worked out for the best.”

Another of Hartner’s contributions was an arrangement known as the Jonesboro Agreement. For 50 years, the Corps had always been short of money appropriated by Congress for not only building hydroprojects but for critical maintenance. Planning for maintenance funding for the Corps became an annual lobbying priority for SPRA.

While SWPA could not transfer money directly to the Corps to help with maintenance expenses, an SWPA customer, such as a municipality like Jonesboro, Ark., could. Hartner explained how the new agreement worked, so named for the Arkansas city that first facilitated a flow of funds to the Corps. Basically, Associated and SWPA worked out billing and crediting agreements that made it possible for Associated to send funds to Jonesboro for the purpose of funding a Corps maintenance project.

Hartner also was helpful in negotiating the White River Minimum Flow arrangement. In short, in 2004, the Corps was in the final stages of an agreement with the state of Arkansas about how much water to divert from Beaver, Table Rock, Norfork, Greers Ferry and Bull Shoals lakes for maintaining trout fisheries in the lower White River.

Table Rock Dam in southwest Missouri.

“Of course, the Corps wanted the water to come out of the power pool [portion reserved for power generation], and the power pool people were not willing to give,” said Hartner. “They wanted the water for free.”

He described the meeting that finally found a workable solution to the dilemma. “One Monday morning there was a meeting about the Corps report at Little Rock with Ted Coombes [SPRA’s executive director], two people from Arkansas Electric, me and the Arkansas Fish and Game Commission people. We walked in, sat down and were looking at each other, with no one really saying much.

“The director of the game commission said, ‘If there’s nothing to talk about, then let’s go home.’ I didn’t drive four hours to be sent home without talking! They had no idea what the people on my side had in mind, so I started talking. I pointed out that their big issue about more water in the White River didn’t have to come from all the lakes, just from Bull Shoals and Norfork. The people from the commission sat up in their chairs. I knew I had their interest. And so we worked out a plan for diverting water from those two reservoirs and basically minimized the impact on power.”

Hartner coordinated with Coombes who worked with Congressman John Boozman and staff to legislate the solution, providing enough water for power and enough water for fish out of the White River. It became law in the 2006 Energy and Water Development Appropriations Act.

Speaking in 2010, McDonald said, “The Associated and Southwestern relationship is better than it ever has been.” He credited Jim Jura with making that happen. “He has staff in place we deal with on a regular basis who have that same philosophy. When you have that, it really improves the working relationship of the staff who then finds those opportunities daily to benefit both systems.”

Under the 1981 contract, he explained, any favors to Associated would have been perceived as a detriment by the other competing interests. “We just couldn’t do that,” McDonald said.

But now that Associated is part of the total SWPA system,

when help is needed by either party, arrangements can be made. “That is what Jim Jura has brought to Associated that was missing in the past. To me that’s what has changed since 1996. We believe now we have more of a partner in working with Associated than we did in previous years,” McDonald said.

Windy proposition results in a “we’ve never done this before” partnership

Water came first as a renewable energy source. Wind was second. The story of Associated’s entry into wind power is described by Fulks as “a perfect storm” that began in 2005. The big money financier was John Deere Credit. The buyer and wholesale supplier was Associated. The transmitter was NW Electric Power Cooperative. The legislative liaison was AMEC. And the rainmaker was Tom Carnahan.

At the time, John Deere was hankering to invest in wind generation and looking for a place to install a bunch of Suzlon Energy wind turbines it had purchased. Carnahan, son of former Missouri Gov. Mel Carnahan, had quit his law firm after becoming interested in wind and the possibility of harvesting wind power in his home state.

Wind maps of the state made it clear: If there were money to be made from wind, it would be in northwest Missouri where the wind blew hardest. In the Associated family, that territory fell within NW’s border. It just so happened that its CEO and general manager, Don McQuitty, was a former Missouri state legislator and a friend of the Carnahan family. McQuitty introduced Carnahan to Fulks, whose resource planning studies were used to develop an avoided cost (the marginal or incremental cost to the utility purchasing or generating the power itself) for the expected production from a 50-MW wind farm.

“I was aware Don was running NW, and I gave him a call. I told him we might do a wind project up there, and I think this might work,” Carnahan related. “Initially, he was skeptical, as NW had a small wind turbine with Northwest Missouri State University and had tested the proposition of

in

Associated board President O.B. Clark announcing plans for two more 50-MW wind farms in northwest Missouri.

From top: Keith Hartner, former director of Member Services and Corporate Communications; and

October 2006, from left, are David A. Drescher, vice president of John Deere Credit, Tom Carnahan, Wind Capital Group, and

wind and was very skeptical about the numbers. What NW didn’t know was that the new wind turbine technology was able to effectively capture wind in an area like northwest Missouri and make it affordable.”

From the beginning, Carnahan realized the tremendous advantage NW and Associated had over other utilities he was talking to: transmission. Existing transmission lines were right where the proposed farms would go in. Without those lines and substations, Carnahan’s dream would remain just that, an unaffordable pipe dream.

Carnahan remembered the skepticism he initially met everywhere he turned. For example, he said, “I went out in 2005 to a conference of wind energy experts. At dinner, one of the largest wind developers in the world looked at me and said, ‘Son, you’ve got a lot of gumption. There’s no way you’ll build a project in Missouri.’ It was a lot of fun when I saw him at the same conference later and said, ‘You must not have heard about rural electric cooperatives.’ It was a fun moment for me,” he said, to tell the story of how the Missouri cooperatives took a bet on wind.

On the Associated side, there was much to consider as it deliberated buying into Carnahan’s windy proposition. Among the factors to think about were surplus capacity of the gas units, Associated’s many transmission interconnections, its desire to add more renewables to the generation mix, costs and finally transmission’s open access.

Fulks challenged Carnahan to work with John Deere Credit to develop a project that Associated could buy at less than its anticipated avoided cost of production from its gas fleet. Carnahan remembered meeting with the Associated board in fall 2005. In December, the board committed to a 20-year agreement to buy all the power from the first of three wind farms being planned, starting with the 57-MW Bluegrass Ridge Wind Farm near King City. Fifteen months later, Missouri’s first utility-scale wind farm, Bluegrass Ridge, was producing power. In rapid order, two additional 50-MW farms, Cow Branch Wind Farm and Conception Wind Farm, were announced and on line by early 2008. And in 2010, a fourth, the 150-MW Lost Creek

Wind Farm, became the state’s largest wind farm to date.

The initial announcement in 2006 brought huge accolades from Democrats and Republicans alike and recognition for Associated in spring 2007 as Wind Cooperative of the Year. The Missouri Department of Natural Resources nominated Associated for the award from the U.S. Department of Energy.

“My strategy with Associated was, and continues to be, to be open and honest and transparent and to approach everything in the spirit of partners. … So we looked at the opportunities, at the challenges, what do you think about this, and together we can do something that’s never been done before! Associated agreed with that proposition and liked the John Deere involvement. The numbers were good, and so the project came together. But it would not have happened without leadership and looking forward,” Carnahan said.

Carnahan was a lifelong customer of rural electric cooperatives. Having grown up on a farm outside Rolla, Mo., he had attended cooperative events as a kid. “I didn’t understand the way the three-tiered system worked but definitely understood it was a strong system. … When I began talking about the wind deal, my first impression was these are people you can do business with, people you can do a deal with and a handshake with,” he said. In those discussions and negotiations, “Associated showed me how to conduct business and transactions in an ethical way, how to form a partnership and how to get a deal. Those lessons will last forever.”

Looking back, Carnahan admitted the Wind Capital/ Associated relationship has matured a lot. The economics are different now, and the playing field has changed. Now, for example, Wind Capital has plenty of competitors for wind projects.

“We can’t take our past relationship for granted. Associated remains a trusted partner, and those first wind farms were a highlight of my professional career. Associated opened its arms and made me part of the family.

“When the history of Associated is written,” said

Bluegrass Ridge Wind Farm in northwest Missouri.

“ ... My first impression was these are people you can do business with, people you can do a deal with and a handshake with.

– Tom Carnahan Wind Capital Group ”

Carnahan, “it will be that the wind decision was one of the most important decisions the board will have made. … The decision to test a hypothesis that wind power could work in Missouri, could benefit the communities and result in a cost-effective generation source and a clean energy source for Associated. I think it was a monumentally important decision.”

Jura, pausing to reflect on Associated’s wind story, said, “Don McQuitty’s working with Tom was a natural. … I have the highest regard for Tom and his accomplishments. It’s a remarkable story of what he put together.” Beyond the obvious renewable energy addition to Associated’s generation mix, “The wind farms were very good projects for us. We acquired a generation resource at a reasonable cost and gained PR and political value as the major wind purchaser in the state. And we made an investment in rural Missouri.”

Mixing in gas

Coal has been king of generation for all of Associated’s 50 years. Granted, from the beginning hydroelectric

generation was part of the picture and was the catalyst that led to Associated’s formation. Hydropower contributed 519 MW of peaking power through the SWPA. And, yes, Associated partnered with Public Service Co. of Oklahoma and Western Farmers to plan the Black Fox Nuclear Power Project. Then in 1979, after the Three Mile Island accident quelled nuclear development in the U.S., Associated walked away from nuclear, costing members $120 million. That left Associated back in square one with coal as king, producing virtually all the electricity it generated.

But in the mid-1990s, the new wholesale generators led by Enron began building lower-cost gas-fired generation. The combination of more efficient combustion turbine technology and falling gas prices made gas more economical. The capital costs of building gas plants also were significantly less than for new coal plants and certainly for new nuclear plants. And so the industry began switching to high-efficiency, natural gas-fired combined-cycle units to

At the dedication of the Bluegrass Ridge Wind Farm in fall 2007, from left, are Tom Carnahan of Wind Capital Group; Chris Bolick, Associated Engineering and Operations staff; and CEO Jim Jura of Associated.

meet growing demand.

Associated made a deliberate, strategic decision to jump on the gas bandwagon – but the Associated way, minimizing risk and finding the right partners. For one, it didn’t know a thing about generating electricity with gas. And it had no long-standing relationships with gas suppliers.

But Jura knew someone who did: Earl Gjelde, the senior executive at Bonneville Power Administration who hired Jura to work in its Washington, D.C., office. Gjelde later was instrumental in seeing Jura promoted to administrator of BPA and his moving to Associated. He remained a mentor. Gjelde worked in other capacities for the federal government, but now he was co-founder of The Summit Energy Group Limited, later known as The Summit Power Group Inc. Summit’s other co-founder was Don Hodel, yet another former Bonneville administrator and later U.S. Secretary of Energy and Secretary of Interior. In their

positions with Energy and Interior, Hodel and Gjelde had developed relationships with CEOs of all the major power equipment suppliers. Together, the two would open a lot of doors for Associated.

At the time, Hodel recalled, “There was a lot of pressure to use gas as a clean fuel. Gas turbines had dropped significantly in price and improved performance. So gas became a viable alternative to building coal and nuclear, which was almost impossible to build at that time. Gas also had the advantages of price and speed for which a project could be built. A gas plant could be built in three years, a huge difference just in terms of the interest paid during construction.

“Mr. Jura has always been innovative and a cutting-edge kind of leader. He could see what was happening, and he quite wisely decided this was the direction to go,” Hodel continued.

St. Francis Power Plant in southeast Missouri.

In 1996, Summit was in discussions with Jim McNabb, Gary Fulks and Jura on a pump storage project. Aware of the superior gas equipment coming on the market, they discussed the new technology with Associated and how Summit might hook the cooperative up with some of its industry contacts. For example, Summit was helping German-based Siemens Power Systems get a toehold in the U.S. with its new state-of-the-art, highly efficient combined-cycle combustion turbine design.

Gjelde and Hodel also were helping PanEnergy, a major gas transportation company, develop a business plan for transitioning into the electric wholesale generator market. PanEnergy, as it turned out, had gas pipelines running through southeast Missouri, including through Glennonville, Mo., site of the future 250-MW combined-cycle gas turbine St. Francis Power Plant, which eventually expanded to 500 MW. By the time St. Francis went on line in 1999, PanEnergy, which handled more than 15 percent of the natural gas consumed in the United States, had merged with Duke Energy Corp., one of the country’s largest investor-owned electric utilities. This strategic alliance would serve Associated well.

“Gjelde brokered the first combined-cycle unit for us. At that point on the board, there were still a lot who didn’t trust natural gas. Earl was very, very pivotal to us making the investment in gas,” Jura said. “When he brought us the PanEnergy connection, it fit with both our strategies. They really needed us; they wanted to get into the electricity trading business. What we needed was someone who understood gas transportation. That was PanEnergy. And we needed someone who understood gas operations. That became Siemens.”

And so, Gjelde brought together PanEnergy/Duke with its gas and goal of getting into electricity, Associated with its electricity and desire to get into gas and Siemens with its brand-new technology and experience in operating gas plants. The original idea was that Associated would own, construct and operate the St. Francis Power Plant. As it turned out, the plant would be the first of several

Associated plants to be built and operated by Siemens. PanEnergy would provide the natural gas for fuel. All the capacity would be dedicated to serve member load requirements. Any surplus energy could be sold by Associated and PanEnergy. As for Siemens, Gjelde was instrumental in getting 12-year warranties from Siemens so that Associated did not take undue technology risks.

This arrangement, Gjelde recalled, was highly unusual for a cooperative; the warranties would be arranged for other Associated gas plants as well. “It’s been a good deal for everybody. It was a typical Associated deal where everybody wins,” said Gjelde.

Not that such arrangements were easy to make. Jim McNabb, Associated’s chief negotiator with PanEnergy, recalled how difficult it was to work out a contract with PanEnergy in that first gas deal. “It was an extremely complex contract arrangement with them. We spent hours and hours and hours preparing the board for how the contract would work. … The negotiations were tough because we didn’t understand the nature of their business, and they didn’t understand the nature of ours. We developed this arrangement with them that blended the expertise we had to run the power system with the expertise they had in marketing and supply of gas to facilities like this.”

Gjelde, Jim McNabb, Fulks and others made many a trip to Milwaukee, at the time Siemens’ North American headquarters, to negotiate a turnkey engineering, design, construction and operations contract for St. Francis with Siemens. Siemens, of course, was eager to build a first plant in the U.S. using its new German-engineered combustion turbine combined with a heat-recovery steam generator. The plant was designed with a 58 percent thermal efficiency, compared with a 38 percent thermal efficiency for a coal-fired plant.

When construction fell two weeks behind and with summer peaks approaching, Jura and Fulks remembered a “come-to-Jesus meeting” with Siemens, now located in Orlando. Gjelde, Hodel, CFO Mike Miller, Jura and Fulks made their case. As a result, Siemens added more workers

Gary Fulks, Associated board member and former director of Engineering and Operations at Associated.

to complete the project on time.

“Out of that meeting we got the project back on track,” Jura said.

The gas deal, initiated in 1996, bore fruit in 1999 with the dedication of St. Francis Power Plant. It had been 17 years since Associated’s last new generation plant, Thomas Hill Energy Center’s Unit 3, was dedicated. In October 1998, construction began on the 107-MW Essex Power Plant, in November 1998 the 182-MW Nodaway Power Plant and in January 1999 the 522-MW Chouteau Power Plant, all using Siemens’ turbines. In September 1999, Associated negotiated a second unit at St. Francis with Siemens and expanded the contract with Duke. All these new gas plants were operational between 1999 and 2001. In 2002, the 321-MW Holden Power Plant came on line to meet peak demands.

The next addition to the gas fleet came in 2007 with the dedication of the 580-MW, combined-cycle Dell Power Plant in northeast Arkansas. Dell’s early history began when independent power producers like GenPower LLC were riding high. GenPower’s plan was to build a merchant plant and make a killing. It hired a construction partner that was a unit of Enron and began to build in 2001. Then Enron went bust, and construction ended in 2002. Along came TECO Energy, which, like GenPower, saw the unfinished plant as an opportunity to make money. This time, the independent power market couldn’t supply enough contracts and customers to make the plant viable. So once again Dell sat unfinished. TECO first offered Dell to Associated for several hundred million dollars. Too much, said Associated, and waited. But when TECO dropped the price, Associated snapped it up in 2005 for $75 million.

“It was an incredible bargain,” said Duane Highley,

director of the Power Production Division, who said the plant was estimated to be perhaps 70 percent complete at the time. In fact, it turned out to be more like 50 percent complete, and the final tab was a little over $200 million to complete the plant. Still, it was a steal for members, and today, said Highley, it would cost $600 million to $700 million to build a new Dell plant.

Another good deal for members was the $150 million RUS loan to finance construction at an average rate of 4.98 percent. Further modifications to Dell in 2010 would allow the plant to burn fuel oil, as well as natural gas, thereby increasing operating flexibility and reliability due to an on-site fuel source.

And so, within 10 years, Associated added 2,200 MW of gas capacity to its fleet, all through a relationship that began with rainmaker Earl Gjelde and his relationships forged with Siemens and PanEnergy/Duke.

Looking back, it’s clear that the addition of combinedcycle gas generation gave Associated the ability to better compete in the new deregulated wholesale energy market and in 2010 gave it a hedge against expected climate change legislation. In the process, Associated added valuable institutional knowledge of the gas marketplace and the operation of gas plants. PanEnergy, then Duke, became important in building Associated’s in-house knowledge of gas.

One of the key players in that effort was Kevin Smith, whom Jura described as “a wonderful guy, who died way too young, who I really believe was sent by God. He was just what we needed.”

Smith, who had worked for Texaco for many years in oil and gas processing operations, was living in the Springfield area when he read a newspaper ad for a gas coordinator position at Associated. He became invaluable, helping Associated understand gas vernacular and participating with David McNabb and others in pipeline negotiations. A man with great capacity and knowledge, Smith died in 2002, shortly after he decided to retire at an early age. He was succeeded by Brian Ackermann, who continued to

From top: Charles Baile, former Associated board member, at the simple-cycle, dual-fuel Holden Power Plant, located in the service territory of Baile’s generation and transmission cooperative, NW Electric Power Cooperative Inc.; and Duane Highley, director of Power Production for Associated.

develop Associated’s in-house gas team.

David McNabb remembered how difficult those pipeline negotiations could be. “You would find yourself in a room, and they would have eight or 10 people, these guys who ran the numbers and folks who did the deal, and would want you to sign a piece of paper. We were really learning about these new worlds. … I think it went pretty well. We learned to buy commodity gas on a day-to-day basis,” he said.

Duane Highley noted two results from Associated’s gas buildup. One was a big change in jobs. Gas plants required far fewer employees for each MWh of generation. New Madrid Power Plant with about 200 employees had about the same capacity as Chouteau 1 and 2 with about 36 employees. Holden had two employees, Nodaway one and Essex only a part-time employee.

Highley pointed out that Headquarters’ engineers stood ready and willing to staff these plants when necessary, driving to Holden near Kansas City, to cover on a weekend.

The second result was Associated reaped the benefit of using contractors to operate and maintain the gas plants, beginning with Siemens at St. Francis Power Plant. Primesouth LLC at Dell was another example. “We got economies of scale that we would never have realized ourselves,” Highley said. “… By partnering with Siemens, which runs about 20 of these plants, we got the equivalent knowledge and much better efficiencies than we could have achieved by ourselves.”

Goodbye, Noranda

Noranda Aluminum, the aluminum smelter literally over the fence from New Madrid Power Plant, was the customer that brought Associated to southeast Missouri.

As documented in “Win-Win,” back in 1969, Missouri Gov. Warren Hearnes visited Associated to persuade the board to build a power plant in New Madrid to service the aluminum smelter that would soon be built there. The two plants would bring desperately needed jobs to southeast

Chouteau 2 locks in generation for a decade

Associated’s gas expansion continued in 2011 with Chouteau 2 Power Plant coming on line, bringing enough capacity to meet members’ energy requirements beyond 2020.

Chouteau 2 was déjà vu in two respects. First, like Dell Power Plant, an independent power producer, Caithness Energy LLC, bought equipment to build a merchant plant, the Big Sandy project in Kingman, Ariz. Its fatal flaw was failure to get a water permit. So the unassembled, new-in-the-box parts were stockpiled, later becoming a distressed asset attractive for Associated.

And, second, Associated’s friend, Earl Gjelde, was once again a helping hand. In fact, Gjelde had helped develop the Big Sandy project. When Caithness Energy gave him about three weeks to find a buyer, he first called Associated about the parts. Late in 2006, only weeks before the annual board retreat, Gary Fulks recalled Gjelde’s call in which he described a plant almost identical to Chouteau 1. “Would you be interested in it?” Gjelde asked. “It depends on the price,” answered Fulks.

A 718,000-pound generator is lifted from rail sidings for placement on a trailer with 16 rows of 16 wheels, 256 in total, for transport to Associated’s Chouteau 2 Power Plant under construction in Pryor, Okla.

It turned out the price was right: $43 million for a plant easily worth up to $200 million. Though Associated wasn’t quite ready for more generation, it was too good a deal to pass up, and other hungry buyers were out there. Without time for an inspection, Associated took Siemens and Gjelde at their words that the equipment was in good shape.

The Associated board moved nimbly to approve the purchase, in fact, the very day it received the papers to sign, recalled Fulks, who would soon move to Sho-Me Power Electric Cooperative as its general manager. Not every utility could be so expeditious. Management did its job in keeping the 12 Associated directors well informed so they could judiciously weigh risk against opportunity. When opportunities such as that presented by Gjelde came along, the board could make a quick decision. That dexterity was a board hallmark, one contrasting with other G&Ts and the co-op reputation for moving initiatives slowly through the system. A bargain price and Associated’s strong balance sheet also didn’t hurt.

Associated leaned on its longtime friend, Siemens, for help with the project. It was the most complex undertaking between Siemens and Associated, according to Mike Bollenbach, district sales manager for Siemens, with nearly 40 years of involvement in Associated projects.

Craig Weeks, another spokesperson with Siemens Energy, told the story. “Using this equivalent equipment [same turbine equipment in Chouteau 1] allowed for faster licensing and allowed us to optimize on costs. … Our side got very excited about the project.

Chouteau 2 locks in generation for a decade, continued

We could have sold Associated the newest and best, but the other was really good and basically leading-edge technology, and we’ve worked hard to make it economical. Together we found an end solution.”

The project involved bringing 350 truckloads of mothballed, never-used equipment from Kingman to Pryor, Okla. On paper it looked like a viable project, but the details were daunting, requiring decisions to be made item by item – and there were thousands of items to be inspected, assembled and upgraded.

Chouteau 2 illustrated the importance of strategic relationships. Even though Siemens did not get the job of constructing the plant, it did sell the equipment to Associated. During construction, Duane Highley related how some difficulties, delays and extra expenses arose regarding engineering support for the equipment purchased from Siemens. A phone call and a trip to Siemens’ office in Orlando produced results. “We were able to immediately get the project back on track,” said Highley.

Another aspect of Chouteau 2 included construction of a 33-mile natural gas pipeline to serve the plant. The pipeline was completed by Enogex LLC, owner and operator of the pipeline, in summer 2010 and cost Associated $72 million – nearly $9 million under budget.

Financing for Chouteau 2 was as history-making as its origins: a $490 million RUS loan in 2010, perhaps the last of its kind in the country for a gas plant.

Due to growing pressure from environmental groups, the proposed federal fiscal year 2011 budget appeared to end RUS loans for fossil-fueled generation plants, including intermediate and peaking natural gas plants, as well as environmental upgrades to existing fossil-fueled power plants. The RUS loan was predicted to save members as much as $200 million in interest during the life of the 30-year loan.

Summing up Chouteau 2 in late 2010, Highley said the plant’s projected final cost of $420 million was well under budget and at least $100 million to $200 million below the market cost of such a plant, a big savings for members.

“We got a new car for a used-car price,” he said.

Missouri. In 1970, Noranda Aluminum contracted with Associated for a 125-MW load (growing to 465 MW by 2003).

In 2003, that long relationship ended. Now, one might think Associated would have fought hard to keep its largest customer of more than 30 years. But, in fact, energizing Noranda no longer was cost effective. Losing the smelter would free up 465 MW of low-cost generation capacity that the rest of the Associated system could put to good use.

But to cut loose Noranda required state legislation. Jeff Davis, now with the Missouri Public Service Commission but at the time a young lawyer working for Peter Kinder, the president pro-tem of the Missouri Senate, picked up the story.

Davis remembered Noranda representatives meeting with Kinder about plans to seek power elsewhere. The dialogue continued with Associated and the Association of Missouri Electric Cooperatives, and all parties were amicable to Noranda’s switching to Ameren Missouri (at the time AmerenUE). Ameren had the power to supply the plant – the largest energy user in Missouri, requiring more electricity than a city the size of Springfield, Mo.

“This was right after Enron, and so the idea of deregulating a purchaser of electricity at the time to me didn’t seem like a daunting task,” Davis said. “After the meeting with Noranda, though, I looked at Kinder and said, “Boss, I’m not so sure about this … Kinder responded, ‘Get it done,’ and we did, and through working on that bill and with Associated and the IBEW and all the major utilities, that’s how I got appointed to the commission.”

Tom Voss, chair, CEO and president of Ameren Missouri, reflected on this first-of-its-kind agreement for a company to choose a different electricity supplier in Missouri. “That project was a win-win for Ameren Missouri, Associated, Noranda and the state of Missouri. … Associated did not want to tie up so much generation by serving Noranda – Ameren Missouri had the generation to serve the facility. This cooperation led to the smelter’s choice to stay

When moving the Chouteau 2 components from Arizona, including this generator, each rail car was monitored electronically and by personnel traveling with the train to ensure safe delivery.

in Missouri, saving more than 1,000 jobs and an annual payroll of $57 million. The facility continues to provide major economic support and stability to a 10-county region of southeast Missouri,” he said.

Associated board member Don McQuitty, representing NW Electric Power Cooperative, put Noranda in perspective: “Cooperative members got more baseload generation at a price that was 25 years old. What a deal! What a wonderful thing for our members!”

Norborne: the plant that never was

Moving into the 21st century, member demand for Associated power was growing, and forecasts predicted a steady 2 percent or higher growth a year for the foreseeable future. Associated had built St. Francis, purchased Dell and constructed Chouteau 1. The board was beginning to talk about a second Chouteau power plant. The gas fleet was growing. Sure, Associated was interested in nuclear, but that wasn’t feasible for a while. Clearly, Associated needed more baseload.

“The next baseload generation simply had to be coal,” Chris Cariker of KAMO stated. In April 2005, Associated announced its plans to build a new coal plant.

The site was Norborne, Mo., a small farming community on the Missouri River about 60 miles east of Kansas City. The 660-MW plant was expected to be the cleanest, most efficient coal plant in the country at an initial estimated cost of $1 billion. It was seen as an economic boon to NW Electric Power Cooperative’s Carroll County service area, bringing 139 full-time jobs when completed in 2013, with an annual payroll of more than $10 million, and a construction payroll of $400 million.

The process began to move forward. Associated applied for an affordable Rural Utilities Service loan – a traditional source of financing through the U.S. Department of Agriculture – to build the plant. The loan required an environmental impact statement, and in February 2007 RUS began gathering comments on its draft.

Associated invested in building good neighbor

relationships with the Norborne community. As December 2007 unfolded, final plans for a major public relations campaign were in place, and the first ads were ready to roll. Associated anticipated an air permit from the Missouri Department of Natural Resources that would move the project forward.

The Norborne project was ready to move from the drawing boards to boots on the ground. “As we had worked on Norborne, the staff, led by Duane [Highley], had been going out and getting the best deals, getting permits. … We thought it was ready to go,” said Jura.

But behind the scenes, things were turning sour. Cost estimates had skyrocketed and were still climbing. In 2006, the estimate for the plant and transmission leaped to $1.7 billion. RUS was facing pressure about lending for fossil-fueled plants. During a board meeting following the annual meeting of 2007 in Kansas City, two board members expressed their “serious concerns.”

The big jump in cost was related to a glut of new coal plants across the world being built, escalating costs for materials and labor. But the real elephant in the room was the carbon question. Talk of a carbon tax or some type of carbon emissions regulation was gaining traction in Congress.

In February 2008, the board voted to delay indefinitely plans to build the plant, citing costs and carbon – just as DNR’s air permit was granted. In April, Associated quietly requested DNR to rescind the Norborne air permit so that DNR would not have to defend the permit in court against a challenge from the Sierra Club. There was simply no point to incur the expense and effort.

The vote surprised Jura and others. “We swept up a lot of broken glass at the board table,” said Jura.

Board member Don Shaw, who had been a cheerleader for the project, noted that the board waited until the last possible moment to commit to build the Norborne plant. Instead of saying, “We’re going to build this plant and address carbon issues as they arise,” some board members became more nervous about some of the downsides as the process dragged on, Shaw said.

From top: Jeff Davis, Missouri Public Service Commission; and Scott Cochran, Associated Power Production staff, left, explains aspects of the Norborne project during one of many public meetings on the proposed coal plant.

Rural electric cooperative members, managers and staff, as well as local community supporters, comprise the majority of the crowd of about 280 attending the public hearing for the draft air permit in November 2007 for construction of the proposed Norborne coal plant in Carroll County, Missouri.

“There was a lack of fortitude among some of the members,” he said. He pointed out that when the board in the late 1970s was deciding whether to build Thomas Hill Unit 3, Associated was capitalized at only about $500 million and yet applied for and got a $1 billion loan from REA – the largest in its history. “At Norborne, we were about $2 billion capitalized and I think we were going to spend about $2 billion, so one for one. That was only half as much as our predecessors took on. And yet this group couldn’t get there. ‘Oh, this is too much, too risky,’” Shaw said.

Retired board member Charles Baile who lived in the NW Electric service area, on the board at the time of the vote, was another who found the Norborne decision “most disappointing.” But, he pointed out, “We still have the land at Norborne on the Missouri River.” That land and other parcels around Thomas Hill Energy Center and in the northwest corner of the state, he said, could yet become sites for future generation plants.

Board member Fulks had a different view of Norborne, “We could have spent $2 billion on a plant that couldn’t run. The risk was just so huge.”

“We had worked for 36 months to get to that goal,” added Cariker. “It was a gut-wrenching experience and the most divisive issue ever faced by that board.” The vote by the board (to approve the Norborne project) was really a non-vote. Under Associated’s bylaws, action of any kind required an 8-4 vote. The Norborne vote came in at 7-5, meaning at least one G&T split its vote.

“When the vote split, it became even more divisive,” remembered Cariker. “To the point of almost being personal, borderline personal.”

Layne Morrill, representing White River Valley Electric Cooperative and KAMO Power, was unable to attend that historic board meeting. He cast his vote in a conference call after having digested the latest cost escalations and the moving target of cost per kWh.

O.B. Clark, board president at the time, remembered going around the table for the vote. “That was a vote by

12 people who spent 12 months analyzing the project. … We won’t know for a decade if it was the right decision,” he said.

The Norborne decision precipitated the biggest rift in recent history between distribution cooperatives, G&Ts and Associated. Coal had always been king, and it was difficult for members to accept that it might be unseated. After the vote, the raw tension within the board was so visible that Jura approached the G&T managers, asking them to reconcile and get away from the personal attacks.

A self-described “thumper” for Norborne, Don McQuitty of NW Electric Power Cooperative met with Chris Cariker of KAMO Power, who had early on questioned the project. The two called for a meeting of the six G&T managers at the Lake of the Ozarks. From 2 to 7, they had a “soul cleansing” during which the managers spoke freely and passionately. One legitimate concern was whether Jura would stay. At the end of the day, they knew what they needed to do.

Later, Cariker remembered, “We marched into Jura’s office and sat down. I think Jim was concerned. … but we basically expressed our personal assurance and confidence in him and said we were done with Norborne. We have healed, but it was a test to the six G&Ts and to Jim Jura.”

Energy efficiency: the fifth fuel

In a speech he made at Bonneville Power Administration, Jim Jura called energy efficiency the fuel that tempered the region’s thirst for power.

That was easy to say at Bonneville, which as a federal project had a clearly defined legal responsibility to make energy efficiency the highest priority. Keith Hartner, who followed Jura from Bonneville to Associated, described how, following the Three Mile Island shutdown of the nuclear industry, Congress viewed the Northwest with its hydropower as a strategic energy resource for the country. The problem was there wasn’t enough capacity to meet demand, so energy efficiency was seen as a fix.

Jura was at Bonneville when the push for energy

“... It was a gut-wrenching experience and the most divisive issue ever faced by that board.”

– Chris Cariker Associated board member

Don Shaw, Associated board member.

efficiency began, and Ralph Cavanagh, energy program co-director for the Natural Resources Defense Council, was a big player in the movement. He remembered that people were skeptical at first about energy efficiency, but “Jim was one of the early leaders who … had a personal enthusiasm for it. He took an unfamiliar idea and helped people assume ownership and made it appealing and helped a whole host of folks.”

By the time Jura left Bonneville, energy efficiency was thriving there. Fast forward to Associated, and “He had the challenge of coming into a culture that didn’t see energy efficiency as a resource. He helped people get comfortable with that. That was visible in 2007,” said Cavanagh, remembering when he spoke that year at Associated’s annual meeting.

“The thing he had to confront at Associated, and didn’t have at Bonneville, was he was working there with a

system with no coal in it. … He had to figure out what to do going forward in a world of coal and a world of carbon emissions and a world of climate change. He had to operate in a world of embedded skepticism. He went into a system that was wholly dominated by coal and in doing that has showed the rest of the cooperative world a different and better way forward,” Cavanagh continued.

So Jura had to ease into energy efficiency at Associated. Not that the concept was foreign to the distribution cooperatives, some of which had been offering energy audits and rebates for appliances and ground-source heat pumps for years. But the idea of a uniform program producing results for the entire three-tiered system was brand new.

In 2006, as Associated looked ahead to a future of higher fuel costs and exploding costs for new plants, the time was right. Alternatives for holding the line on baseload demand needed to be explored. The days of surplus capacity and pushing sales were gone. New generation was just too costly to take on without first exploring alternatives. Hartner remembered, “Jim came to me, and he had talked to Ralph [Cavanagh], who had recommended a consulting firm. … Jim’s point to them was, ‘I would like to know the cost benefit analysis of what energy efficiency would be at 3 cents a kWh or anything under that.’”

Maybe, just maybe, a business case for energy efficiency might be made.

With Hartner, at the time a special assistant to Jura, as the project manager, Associated commissioned EnerVision Inc. of Atlanta to do an appliance saturation study in 2007. Basically, it was a home inventory that surveyed the demographics of the 51 distribution cooperatives to determine how many people were living where, what heat they used, what appliances they had. Once that information was in hand, consultants Clearspring Energy Advisors of Madison, Wis., ran it through various models to determine the most cost-effective offers to make for rebates.

In March 2008, Hartner presented the new Take Control & Save energy efficiency program to the G&Ts and distribution cooperatives, and a month later the program began.

Keith Hartner, former director of Member Services and Corporate Communications.

The board approved $31 million in funding through 2013, with the energy savings expected to add up to nearly 2 million MWh by 2032. Through Take Control & Save, nearly 2 million compact fluorescent light bulbs would be distributed in the first two years. Members could sign up for energy audits and pilot projects, earn rebates for Energy Star appliances and get money back on heat pump installations.

“It happened so fast, and we were doing things by the seat of our pants,” Hartner laughed.

Soon, every cooperative in the system was participating. By early 2011, Associated had spent just under $19 million for rebates, energy audits, CFLs and marketing studies. In addition, through Take Control & Save, in 2010, Associated partnered with three community action corporations to take advantage of federal stimulus grants to boost energy savings and cut utility costs in low-income homes served by cooperatives.

“ One way to look at it was energy efficiency was like a hedge. We’re now down, but at some point that will change. We’re still saving fuel costs, but energy efficiency is like a silent partner waiting to help. Costs are low now, but down the road when fuel prices go up, we’ll be in place.

a hedge. We’re now down, but at some point that will change. We’re still saving fuel costs, but energy efficiency is like a silent partner waiting to help. Costs are low now, but down the road when fuel prices go up, we’ll be in place,” Hartner said.

Doug Aeilts, CEO and general manager of Northeast Missouri Electric Power Cooperative and an Associated board member, noted, “We’ve had the mindset of selling electricity for so long and our rates have been so low … that it, energy efficiency, seems counterintuitive. But no one wants to be inefficient.”

– Keith Hartner former Associated director of Member Services and Corporate Communications ”

How did the shift in mindset from energy efficiency skepticism to acceptance occur within Associated? “Some board members were very progressive and saw the benefit and that it was the thing to do,” said Hartner. Others more reluctantly participated in Take Control & Save. The shifting economics of fuel costs at the time helped change minds as well. In 2006, gas was projected to go up, and energy efficiency was trying to shave off the upper end of costs. In 2008, gas started going down.

“One way to look at it was energy efficiency was like

Dan Singletary, an Associated board member and CEO and manager of Howell-Oregon Electric Cooperative, said the excellent information provided by Associated staff to members about the benefits of energy efficiency has made the sales job easy. “They [customers] know the goal of Associated is to put off building generation and that … as end users they benefit from more efficiency,” he said.

Rates a risin’

The 17 percent reduction in Associated’s wholesale rate to the G&Ts that took effect in 1995 created huge stability for the three-tiered system at the same time Enron was creating chaos. Stable rates allowed Associated to take its time, to think through issues and see how they played out. True to its conservative gut, Associated’s board did

From top: Douglas Aeilts, Associated board member; and

Dan Singletary, Associated board member.

not rush to judgment and in the end remained true to the core mission of providing reliable, low-cost electricity to members.

As a result, people got comfortable with some of the lowest electricity rates in the country.

“The fact that Associated went almost 20 years without raising rates is a phenomenal accomplishment,” said Jeff Davis of the Missouri Public Service Commission. “Most of that groundwork was laid before, but the fact is that 15 years or so were under Jura’s leadership.”

As early as 2003, the Associated board recognized rate increases would be necessary and began preparing members for the eventuality. In 2006, 2007, 2008 and 2009, Associated’s wholesale rate increased a total of about 40 percent. That was the bad news, and it was tough to deliver to the distribution cooperatives and their members.

Administration’s 17 reservoirs. SWPA announced a 7.3 percent rate increase effective February 2006 and prepared its customers for 20 percent to 25 percent increases beyond that.

Second, load growth. Members continued using more electricity, and more people joined cooperatives. Demand in the early years of the 21st century was growing at more than 2 percent a year, requiring about 100 more megawatts of capacity a year.

“The fact that Associated went almost 20 years without raising rates is a phenomenal accomplishment.”

– Jeff Davis Missouri Public Service Commission

“Associated had enjoyed stable rates for so many years. But we saw prices increasing and needed to raise rates. The first few years were really tough,” said John Farris, general manager of M&A Electric Power Cooperative and an Associated board member. He added that eventually members accepted the need for balance between reliability and competitive rates.

The series of back-to-back annual rate increases “was a challenge,” said Aeilts, adding, “We came from a system where members were used to 20 years of stability and no changes.”

What led to the rate increases?

First, fuel prices. The long and ever-present coal trains transported the most affordable fuel available to meet growing demand, but that didn’t mean coal was cheap. From 1996 to 2006, Associated’s cost for fuel per unit of generation increased 94 percent because of demand for low-sulfur coal, higher rail delivery costs and rising diesel prices. The price of natural gas also continued to be volatile, and Associated was using more of it to meet member demand. Even hydropower was more expensive, as a drought continued into 2006, draining Southwestern Power

Third, environmental compliance costs were exploding. New emissions controls, including selective catalytic reduction equipment to control nitrogen oxides emissions on all three Thomas Hill Energy Center units, increased Associated’s fixed costs by more than $30 million in 2009. To install the equipment to meet Clean Air Interstate Rule requirements would cost $426 million. Potential regulations for curbing carbon dioxide and mercury emissions also loomed in the future, creating uncertainties about even more costly environmental compliance. In one scenario, planners estimated the carbon tax for Associated could reach more than $100 million a year in 2015 and more than $200 million in 2020.

Finally, Associated’s commitment to financial flexibility meant lenders and rating agencies expected the Associated board to have the stomach to raise rates. Rate increases would help ensure strong credit and access to vitally needed money for capital projects.

“Associated exhibited to the financial world its willingness to raise rates,” said Mike Miller, retired CFO, who experienced the rate increases. “Because of events beyond our control, we had to raise rates, and we had the governing structure that said, ‘Yes, we’re willing to do that to remain financially strong.’”

A lender echoed that sentiment. “We look to see how willing the board is to raise rates to cover costs and to build up a cushion of patronage capital,” said Nancy Doyle, a director in MetLife’s Private Placements, Power & Energy, Strategic Investments division. The insurance company began lending long-term money to Associated in 2005.

John Farris, Associated board member.

In 2009, demand for electricity dropped throughout the U.S., including Associated’s service territory, primarily because of the weak economy and higher rates. Associated members changed their behaviors and took advantage of Take Control & Save incentives to conserve electricity. As a result, Associated reduced its growth forecast to 1.5 percent annually through 2019.

After four straight years of rate increases, it also held the line on a fifth increase. It was a welcome break for members but one generally recognized as short-lived. Looming on the horizon was the possibility of more than $1 billion in costs for more environmental controls, more money for reliability compliance and potentially unknown millions for carbon emissions controls. Not a pretty picture and a forecast making for more painful board decisions ahead.

The environment: a costly commitment and investment

It’s a Catch 22. Americans love electricity. And what’s not to love. It’s the juice that runs our phones and computers. It keeps us cool. It keeps us warm. It keeps us secure. Yet emissions from producing electricity – and driving cars – can harm the environment. And too much damage to the environment can compromise the very life we love.

Utilities thus have found themselves responding to the demand for more electricity from their customers while charged with complying with more and more environmental regulations, all of them costly. Associated was no different, committed to providing affordable electricity, playing by the rules and protecting the environment.

Through the years, O.B. Clark, former board president and cattleman, witnessed a slew of clean air and water

Construction begins in summer 2006 to install selective catalytic reduction equipment on all three Thomas Hill units, a $426 million project, after the Environmental Protection Agency issues its Clean Air Interstate Rule in March 2005 with a one-year-earlier-thanexpected compliance date. At the peak of the nearly three-year construction project was a workforce of 1,300 on 10-hour shifts, seven days a week. Associated was ready to comply Jan. 1, 2009, reducing systemwide nitrogen oxides emissions 90 percent.

regulations affecting utilities – and Associated’s compliance with them to the tune of $1 billion. He and the board never argued that regulation was unnecessary but were sometimes galled by the attitude of some regulators and legislators that landowners cared little about their land.

“The mentality of much environmental legislation assumes we in rural America are ravaging our land, air and water resources. In reality, wouldn’t it be more reasonable to assume that since we live, work, worship and raise our children in this environment, we must depend on its care and continued productivity?” he asked.

“Not to care for that upon which we depend for our living, for the resources entrusted to us, is simply ridiculous. The best environmentalists are the people out there depending on that land.”

A little history is in order. Beginning in the 1970s with the Clean Air Act passed during the Nixon years, regulations aimed at reducing harmful emissions such as sulfur dioxide and nitrogen oxides from coal-fired power plants took effect. Associated’s compliance with these regulations and its commitment to environmental stewardship never wavered. But taking care of the environment came at a cost to members: $1 billion down by 2009 and the possibility of another $1 billion plus to go.

Since 1994, Associated had invested more than $1 billion to improve air quality, achieving 90 percent reductions in its systemwide SO2 and NOx emissions rates yearround. Associated actually made money on the sale of SO2 allowances, selling more than 400,000 of them and generating revenue of $132 million, according to Brent Ross, manager of environmental, health and safety at Headquarters. EPA granted allowances to utilities and other facilities based on their emissions. Many utilities came up short, emitting far more than their allowances covered.

Associated, on the other hand, had allowances to spare, thanks to its early switch to low-sulfur coal and 90 percent reduction in SO2 emissions.

According to Fulks, in the nation’s first cap-and-trade market, allowances typically sold for an average of $120 to

“ The mentality of much environmental legislation assumes we in rural America are ravaging our land, air and water resources. In reality, wouldn’t it be more reasonable to assume that since we live, work, worship and raise our children in this environment, we must depend on its care and continued productivity?

– O.B. Clark former Associated board president ”

$150 per ton in 1996/1997, but on occasion Associated sold at the top of the market: $1,611 a ton was its high point. Gradually, though, court rulings and new EPA regulations with even tighter limits pushed prices down to about $5 a ton in mid-2010, signaling an end to the acid rain SO2 cap and trade as Associated knew it.

While it lasted, though, said Fulks, “It was almost like stealing from the government. ... The whole allowance system was crazy, but we were able to manage it and capitalize on it and play by the rules – and make a lot of money.”

Board member Don Shaw remembered describing the allowances in their heyday as “confederate money” to Mike Miller, CFO at the time. “I told Mike that it wasn’t

Brent Ross, Associated Power Production staff.

real money and … to be very careful,” he said. As it turned out, Shaw was right. Millions of dollars of paper assets disappeared with the resolution of another utility’s legal challenge, bringing changes to regulations that reduced the value of the allowances.

Though the market had already collapsed for SO2 allowances, in 2010 the sobering realization had sunk in among board members that another $1.4 billion might soon be needed to install scrubbers at the coal plants to further reduce SO2 and mercury emissions. The reason: pending air quality EPA regulations on SO2, mercury, particulates and other air emissions.

However, when EPA issued its draft rule in March 2011, the impacts on Associated were not as onerous as anticipated. Management was pleasantly surprised at what a difference a congressional election could make in perpetuating the uncertainty in the utility business. Many seats had changed in the U.S. House of Representatives the previous November, and the EPA’s long-awaited rule appeared far more practical than expected. A final rule was due by the end of 2011. Associated’s board and management would live with the uneasy feeling that another election in less than two years could change it all again.

Still unanswered as well at the end of 2010 was the issue of carbon regulation and taxation. The issue that contributed to the death of the Norborne project threatened the very existence of coal plants everywhere. By some estimates, a carbon tax could end up adding $100 a year in the early years, growing to $380 a year, to members’ bills. The cheap miracle fuel of 50 years would no longer be affordable. The hit to Associated members could total between $400 million and $1 billion a year. Kuh-ching.

By 2011, the board would ask itself, “Given the pressures on coal, looking forward, what should we count on for an optimum mix of generating resources, and are we in a position to do that?”

A proud environmental record

Regardless of what future regulations it would face,

no doubt about it, Associated had an impressive record of environmental compliance to celebrate. In 1998, the largest selective catalytic reduction equipment installation in the country began at New Madrid Power Plant. Housed in a 17-story building, the SCR would help Associated meet clean air standards in 2000. In 2002, a second SCR at the plant was commissioned, moving the plant from one of the highest NOx-emitting plants in the country to one of the cleanest coal-based plants with cyclone burners. The $100 million investment in the New Madrid SCRs was designed to reduce NOx emissions more than 90 percent.

In April 2003, Associated offered a green energy option to members. Triggered by an Iowa law mandating cooperatives offer an alternative energy purchase program beginning in 2004, Associated offered the option to its members in Missouri and Oklahoma as well. At the time, Associated’s green energy came from biomass generated at Central Electric Power Cooperative’s Chamois Power Plant and from hydropower through the Southwestern Power Administration and its 17 federal reservoirs. By spring 2007, Associated’s green power also would include that generated by the first of four Wind Capital-developed wind farms in northwest Missouri.

Associated’s collaboration with Wind Capital Group to buy all the wind power generated at the four wind farms for 20 years was another example of a bold environmental cue. No other utility in the state could claim that level of commitment to renewable energy. The U.S. Department of Energy recognized Associated as a wind pioneer, naming it the “2006 Wind Co-op of the Year” as a result of a nomination by DNR.

At New Madrid Power Plant, combustion air systems were modified to reduce NOx formation and lower operating cost of the SCRs constructed in 2000 and 2002. The air flow modifications would cost about $8 million, reduce NOx formation about 40 percent and be completed in spring 2007. Thomas Hill units were modified as well, so the total cost was more than $15 million.

As mentioned earlier, Associated received federal

Cow Branch Wind Farm in northwest Missouri.

recognition in 2007 for its cleanup of the Bee Veer Mine.

Mid-2008, as Associated moved to finish new controls costing nearly a half billion dollars at Thomas Hill to comply with a 2005 EPA rule to further reduce nitrogen oxides (NOx) emissions, the U.S. Court of Appeals for the District of Columbia Circuit struck down the rule, as well as the nation’s first rule on mercury reductions. EPA was expected to issue another mercury rule in late 2011 to mandate mercury reductions by 2015.

The court sent the NOx rule, the Clean Air Interstate Rule (CAIR), back to EPA to redo, although utilities still had to comply with CAIR until it was fixed. Its replacement, the Clean Air Transport Rule, was expected to have lower emissions limits and be in place for 2012.

So Associated forged ahead on the nearly three-year environmental controls project that added SCRs to all three units at Thomas Hill Energy Center. The achievement enabled Associated to meet the Clean Air Interstate Rule’s January 2009 deadline and reduce its NOx emissions rate 90 percent systemwide.

The $426 million project was a capital investment equivalent to $500 from each and every household served by Associated’s member systems. During the height of the construction, 1,300 people worked two 10-hour shifts, seven days a week at times, including Kansas City and St. Louis labor union members contracted through Graycor and Enerfab, construction services providers.

In 2009 and 2010, Associated became the first electric utility in the country to experiment with refined coal produced using technology developed by Clean Coal Solutions LLC as a possible low-cost environmental solution to reduce mercury emissions by up to 90 percent. In late 2009, Associated and CCS completed a demonstration project at both coal plants using refined coal, followed by an agreement in summer 2010 with Goldman Sachs to supply refined coal to Associated for 10 years.

But there was more to Associated’s environmental record than regulatory compliance, four wind farms and mining reclamation. Managing its carbon footprint began

to shape Associated’s future. In 2006, Associated became Missouri’s first and only utility to join the Chicago Climate Exchange, a voluntary organization that traded credits for greenhouse gas emissions.

In late 2010 after it became apparent Congress was not going to take action in the short term on cap and trade, the Exchange announced it would no longer trade carbon credits, though it would continue to be a registry for trading activity. In other words, if a farmer wanted to capture methane, he could still register with the Exchange but trade in another market.

In the four years Associated participated in the Exchange, it sold credits for about 150,000 tons of carbon, according to Brent Ross. “We joined the Exchange to learn about the carbon markets, to learn about our carbon exposure and to make an investment in the process,” he summed up. “We succeeded in reducing our baseload emissions during this time and in meeting all the requirements, and we basically broke even on the deal. But the real story is we have a much better understanding of the market, how to create offsets and the different organizations promoting them.”

Associated, he said, would be in a good position if a carbon market came back. But with the change in the Exchange’s purpose, Ross added, Associated’s four-year experiment with the carbon market would end.

Plastic swimming pools and a credit card alert brought some levity to the carbon footprint effort. In the course of managing its carbon footprint, Don Shaw, Central Electric Power Cooperative’s CEO and general manager and an Associated board member, related how he used Central’s credit card to purchase some children’s plastic swimming pools for a project in which the cooperative, Associated, Lincoln University of Missouri and Missouri University of Science and Technology collaborated to study whether algae could capture CO2 from flue gas.

“I got a call from the credit card company alerting me to the fact that five kid pools had been charged to the Central account, and that it didn’t look like a typical utility

From top: Kirk Clark, Engineering and Operations staff; and

Terry Richardson, former Power Production staff.

purchase!” he said. The study, begun in 2008 as a six-tonine-month study, was still ongoing in 2011.

In 2009, Associated signed on to a three-year research project on the feasibility of storing CO2 underground in the shallow saline aquifer, the Reagan-Lamotte Sandstone Formation under much of Missouri. The pilot project looked at how much CO2 could be injected into a shallow formation only 2,000 feet below the ground surface and how well it could be contained there. The project was funded through the U.S. Department of Energy and five utilities, including Associated. The Environmental Protection Agency and Missouri Department of Natural Resources provided regulatory oversight.

Thus, through proactive environmental endeavors like these, Associated continued to balance its responsibility to provide affordable, reliable electricity with environmental stewardship.

Spurring innovation

Associated’s people as a rule have always excelled at their jobs. But Jura actively encouraged Associated’s employees to innovatively solve problems, save time and improve safety. A suggestion program, benchmarking teams, process review committees, cross-functional teams and a peer-nominated Excel award program all stimulated responses from Associated’s 600-plus workforce.

Their contributions were enormous. They did the research, planned the projects, put out bids, made the buys, got permits, negotiated contracts, made the handshakes and talked to legislators. They oversaw construction, kept up with compliance, wrote the software, maintained the network, kept the books, communicated with members. They swept the floors, drove the dozers, ran the plants and kept the coal coming. They sold power, sold transmission space, tested the air, monitored hazardous materials and planned outages. They kept aging plants humming, responded to emergencies and watched out for the safety of their buddies. They put in the long hours it often took to keep power flowing to members.

As Jura put it, “It may be hard for a person pushing paper in Accounting and Finance to understand they’re doing something important, that their work matters.” But matter it did.

One example of innovation came from Thomas Hill’s Kirk Clark, who found a solution to prevent water from freezing in the tripper room during washes. He suggested cutting a hole in the floor of a belt tightener room to allow heat to rise from the bunker room floor below into the tripper room. Clark later went on to supervise the power marketing team at Headquarters.

Terry Richardson, journeyman instrumentation technician specialist, suggested installing additional probes on a coal conveyor to save hours of manual cleanup time. Huge coal spills often resulted when chutes became plugged. Additional probes automatically tripped the belt.

Danny Smith, journeyman welder/mechanic, suggested

Carbon dioxide capture research using pools of algae is under way at Central Electric Power Cooperative’s Chamois Power Plant in central Missouri.

purchasing a small MIG welder for making repairs in tunnels in the coal yard. The suggestion replaced moving a fullsize welder down into the tunnels and dragging 400 feet of extension cord behind it.

At New Madrid, a maintenance crew found a way to resurface worn hammers and extend their useful lives at least twice as long, saving the cooperative about $1.7 million over 18 months. Eighty-seven hammers inside each coal crusher ground raw coal against a cage to crush it to the proper size for burning in the cyclone boiler units. Typically, they had to be discarded after about 700 hours of use and replaced at $93 a pop, plus downtime on the equipment.

Also at New Madrid, machinist/mechanics Richie Ivie and Harold Barks invented and made a tool to straighten water-lance tubes. These tubes, used to extend into the boiler to blow slag off furnace walls, cost up to $5,000 to replace once bent. The innovation saved the plant $200,000 a year.

Early in the new century, Headquarters’ Howard Gugel in system operations spent about a year meticulously working through mind-numbing details to reconcile scheduled and actual energy deliveries between Associated and AmerenUE (now Ameren Missouri). In tracking down records to document transactions, he discovered a lack of checks and balances. Eventually, Gugel’s persistence led to a refund of almost $6 million and a better tracking system.

In 2000, shift supervisor Jimmy King kept coal flowing to New Madrid Power Plant units after the only operational coal conveying system broke down. With the coal supply expected to run out hours before maintenance could fix the conveyor, King and his operations crew began feeding coal from the less full bunkers, reserving the full bunkers for later use, and simultaneously reduced load. The tactic worked: within 15 minutes of shutdown, the conveyor was back in business.

A persistent problem at Thomas Hill was solved in 2001 after years of experimenting with various methods of improving the precipitator’s performance on Unit 3 after

conversion to low-sulfur coal. Designed to handle highsulfur coal, the precipitator had difficulty removing the necessary amount of ash from flue gas. Efficiency dropped, and at least weekly the precipitator had to be fixed. Plant chemist Tim Price led the effort to solve the problem, settling on injecting sulfur dioxide gas into the flue-gas stream. The solution helped eliminate the bulk of precipitator repairs for the short term.

The Business and Technical Services Division under Pat Mills counted down to Y2K, the anticipated Year 2000 software glitch that many believed would cause computers to malfunction. System operators and programmers worked for years to upgrade the energy management software that controlled dispatch, power marketing and energy accounting, as well as other software and equipment. Ultimately, Y2K was a nonevent, but the coding, testing and training were a testament to Associated’s commitment to keep electricity flowing.

Shooting sponge balls through condensers to clean the tubes may sound like a crazy idea. But five years of testing under the supervision of Mike Statler at New Madrid Power Plant resulted in full implementation on both units in 2010 for an estimated annual savings of $4 million.

Statler researched the cleaning system to remove Mississippi River silt from the condenser tubes that reduced their ability to cool steam to water before it is sent back to the boiler. His efforts garnered an Excel Award for Employee of the Year in a Technical Field.

From top: Power Production staff members Richie Ivie; Harold Barks (retired); Jimmy King; and Tim Price.

Chapter three

Grid gold

Transmission continued to be a critical asset from 1996 to 2011. The 9,600 miles of the Associated system’s transmission grid were impressive for their very length. They spanned the cornfields of Iowa and northern Missouri, the bottomlands of the great rivers, the forests of the Ozarks, cotton land in the Missouri Bootheel, cattle country of the southwest, Indian reservations of Oklahoma and growing suburbs spilling into the countryside everywhere.

Don McQuitty, NW Electric Power Cooperative’s CEO, general manager and an Associated board member, described the Associated transmission grid in this way:

“It’s like squares of a quilt, a patchwork tied together with contracts. But we own more squares than the rest of them put together. What it does for us is serve our load. We’re

able to access generation economically. Some other parties don’t have that.”

Couple the mileage with more than 180 transmission interconnections; 21 transmission interconnection agreements; and transactions with investor-owned and municipal utilities, electric cooperatives, power marketing firms and regional transmission organizations. Then factor in the system’s very location in the nation’s heartland. The result was some very valuable real estate indeed. A treasure not to be bargained, sold, acquired or compromised in any way.

That was Associated’s position from day one. Fifty years later, control of its own transmission remained vital to Associated’s strength and future. And it remained the single most important element in guaranteeing reliable

Constructing, operating and maintaining high-voltage transmission lines, like this 345-kV line near the Thomas Hill Energy Center, as well as the related substations, are key roles of the six generation and transmission cooperatives that own Associated.

Part of its continuing investment in transmission is construction of the 57-mile, 345-kV Thayer-to-Gobbler Knob transmission line in fall 2006. Construction is coordinated by Sho-Me Power Electric Cooperative, and the line gives Associated the ability to move generation out of southeast Missouri into southern Missouri and provide support to Sho-Me’s transmission system in the Thayer, West Plains and Willow Springs area.

service to members, a hallmark of Associated’s mission. Redundancies built into those 9,600 miles added security and flexibility to the network.

“Transmission is one of our most important assets. What makes us different from other G&Ts is that we own and operate and control our transmission and have strong objections to government interference and takeover,” said Gary Fulks, Associated board member, former director of the Engineering and Operations Division and general manager of Sho-Me Power Electric Cooperative.

“One thing the board has consistently done is build needed transmission projects. It has always approved that investment. When we look around the country, the blackouts in Cleveland and the western states, in its 50-year history, Associated has never had a major blackout. … We’ve devoted the resources to build the transmission to ensure redundancy,” he said.

From the outside, Associated’s transmission system looked strong too. “I’ve always believed a key strength of Associated is its transmission, the ability to interface with other utilities. That’s the infrastructure, and it’s been there since the beginning,” observed Mike Bollenbach of Siemens Energy.

From 1996 through 2011, Associated’s commitment to transmission did not slacken in any way. The investment continued, totaling nearly $475 million through 2009 in repairs, improvements and new line. Major achievements included:

• Associated and Ameren Missouri jointly constructed a $25 million, 345-kilovolt line 54 miles from near Chamois to an Associated substation at Franks. Significant coordination with Ameren occurred in the St. Charles, Mo., area in the interconnection of the 345-kV system at Enon to Central Electric Power Cooperative’s 161-kV system. Additional 161-kV ties with Ameren Missouri were completed at Troy and Kisker and provided critical support to loads growing steadily around the outskirts of St. Louis.

“It was important to relieving overloaded conditions and greatly improved reliability for both Ameren Missouri and Associated customers. One testament to our mutually beneficial relationship is the fact that Ameren Missouri has more tie lines with Associated than it has with any other utility company,” Ameren CEO Tom Voss said.

• The G&Ts significantly expanded their 138-kV and 161-kV systems. Near Thomas Hill, Central Electric Power Cooperative completed the Thomas Hill-to-Higbee 161-kV line construction at a cost of more than $14 million. Northeast Missouri Electric Power Cooperative also increased transmission capacity near Thomas Hill by building a new line to Axtell, which was built for 161-kV operation.

• In southwest Missouri, KAMO Power and Sho-Me Power Electric Cooperative constructed significant interconnections with the city of Springfield for the benefit of

member-owners. Sho-Me constructed the McCartney-toHolman 161-kV line that provided reliable interconnections for the Marshfield area; and KAMO constructed the 161-kV line from City Utilities’ Southwest Power Plant substation to Jamesville, which supplied reliable service to cooperative members south of Springfield.

• Following the switch of Noranda Aluminum, the state’s largest electricity user, from Associated to Ameren Missouri, Associated needed to demonstrate it had the capacity to move that 465 MW of “new” power to other parts of its system. The construction of a 57-mile line from the Gobbler Knob substation south of Poplar Bluff to Cox Creek near Thayer did that and, significantly, provided a path for Dell Power Plant’s generation to flow to central Missouri. Built for 345 kV but operated at 161 kV, the line would be the first step in building a 345-kV line across southern Missouri. Significantly, too, it was built for $400,000 a mile – about half what comparable lines would cost.

• Associated worked with the Tennessee Valley Authority to upgrade the 161-kV tie line from 410 MW to 600 MW between New Madrid Power Plant across the Mississippi River to Tiptonville, Tenn. The increased capacity in the line was gained by installing a high-temperature conductor in both the line section from New Madrid to the river and in the span crossing the river. The investment in changing out the conductor more than paid for itself in increased energy sales to the South and in additional transmission revenue for Associated. The upgrade was another example of Associated’s working with neighboring utilities for the benefit of memberowners.

• Associated worked with the coordinating committee of the Integrated Transmission System jointly owned by Grand River Dam Authority and KAMO Power to upgrade the MAID-to-Tahlequah 161-kV line and add a spare transformer at the Catoosa substation. This work ensured reliable delivery of power from Associated’s Chouteau Power Plant and demonstrated how well

Associated worked with other entities in transmission.

• From 2006 to 2008, Associated persistently worked to gain approval from the Kansas Corporation Commission for KAMO Power and Associated to build a 92-mile transmission line through southeast Kansas to maintain reliable service for Oklahoma and Missouri members.

The project saved $20 million over the cost of alternative routing and presented an opportunity for Associated to work closely with Ted Hilmes, now COO of KAMO Power but formerly the Associated engineer who helped

find a solution to KAMO’s entry into Associated. The project team, headed by Chris Bolick, manager of transmission planning and operations at Associated, encountered many hurdles. Among them was a KCC condition for approval that Associated rejoin the Southwest Power Pool. Associated successfully rebutted that condition. When completed, this line from the Blackberry substation to the Sportsman Acres substation would enable Associated to move power from Chouteau 2, when completed, into Missouri without having to purchase transmission service from SPP. It also would help KAMO serve its Oklahoma load.

Employee excellence: Chris Bolick, Jeff Johns, Tony Gott and Pat Baumhoer of Headquarters earned a 2008 Excel Award for their efforts in gaining approval for the important Blackberry transmission line through southeast Kansas.

Projects like these clearly showed the emerging threat to Associated’s transmission did not come from a slack in investment. Rather it came from the long arm of FERC.

The search for Tom Blackburn

Deregulation of the wholesale electricity and gas markets knocked Associated for a loop, as it did all utilities. It became increasingly clear about mid-1994 that the Federal Energy Regulatory Commission was going to open up the transmission system to require utilities to allow others to move electricity on their wires. Even though Associated was not a FERC-regulated utility at the time, it needed someone who understood what FERC was doing, knew

From top: Associated Engineering and Operations staff: Tony Gott; and Jeff Johns.

Towers are constructed to support the 161-kV transmission line stretching 3,600 feet across the Mississippi River. The line is completed mid1993, connecting Associated and the Tennessee Valley Authority. Similar to the MINT line, this interconnection with TVA gives Associated a number of options for buying and selling power with other utilities.

what Associated’s rights would be and knew how the landscape could change. It needed a legal mind who could sort through the confusing muddle of deregulation to help Associated define a strategy and stick with it.

Jura could read the writing on the wall. “When all this was happening I thought to myself, ‘Well, I can’t avoid it now. We’ve got to get a good FERC attorney.’” Jura called an old friend at Florida Power & Light Co. and asked for the names of three top FERC attorneys he could interview. That call eventually led Jura to George Bruder and Tom Blackburn, who specialized in energy law, especially matters pertaining to FERC.

“Tom and George were new to cooperatives … and in their early meetings with Jim McNabb, they were fascinated with our transmission capability and our system. … It took several meetings for them to understand the cooperative world, but we’ve never regretted that decision. It was

a key one,” said Jura.

Blackburn was indeed what Associated needed. From the mid-1990s through 2010, he helped Associated develop a unique open access tariff to allow it to participate in the new markets, advised Associated on legal requirements related to power marketing and represented Associated on filings with FERC and energy disputes with other companies.

With Blackburn’s help, Associated deftly resisted FERC’s strong-arm tactics to force it into a regional transmission organization that would effectively have taken control of the Associated transmission system. When push came to shove, Associated left SPP in 1997.

FERC Order 888 and Associated’s open access tariff

With Order 888, issued in 1996, every investor-owned utility and some other electric utilities that provided transmission across state lines had to offer customers access to transmission systems that was comparable to the service that the utilities provided to themselves. FERC established a tariff – basically a set of terms and conditions for transmission service that it required each public utility to adopt and required each utility to establish rates for that service that met FERC’s standards.

RUS-financed electric cooperatives such as Associated and certain other electric utilities, including the Tennessee Valley Authority and municipal utilities, were not directly subject to Order 888. However, if they wanted to take transmission service from other utilities pursuant to the Order 888 standards, they were required to provide transmission service to each utility from which they were taking transmission service. That service had to be comparable to the service they were receiving.

Chris Bolick, Associated’s manager of transmission planning and operations, stated at the time, “We see the potential to use the transmission system more than we are now … and to increase revenues for the members. The best way to do that is to unbundle like other utilities.”

Associated expected about 100 customers initially for the transmission system, mainly power marketers who wanted transmission agreements in place for fast-paced buying and selling of power. Associated, in its central location, would become a link between low-cost generation in the North and markets for more expensive generation in the South.

Associated opened up its transmission system. It was classic Associated: if you’re in the game, play fair.

Associated took a different approach than most G&Ts. As explained by Blackburn, Associated adopted a more limited scope, point-to-point transmission tariff that didn’t provide all the bells and whistles of the tariff that FERC adopted in Order 888. But, it met FERC’s requirement that Associated provide service that was comparable to the service it was receiving from public utility transmission providers.

“The point was that FERC didn’t want a cooperative getting open access transmission service and at the same time denying access to its competitors,” Blackburn explained.

That didn’t mean all entities had to adopt the FERC tariff, but they did have to provide transmission service that was comparable to what they were receiving. FERC’s open access requirement meant Associated needed an open access tariff. That happened in 1997, when Associated opened up its transmission system. It was classic Associated: if you’re in the game, play fair.

“That’s been a very successful approach for the last 14 years,” Blackburn said. “Some of the G&Ts adopted the FERC tariff. A fair number didn’t do anything at all but waited to see if anyone denied them service. Those were the two biggest groups. … Associated was in the minority in adopting a limited-scope tariff. From my perspective, it was a good approach because Associated didn’t adopt tariff provisions it didn’t think would be needed to meet FERC’s comparability requirement, but it had the flexibility to broaden the scope of the service it was offering if there was a complaint. So their approach was both responsive to FERC and innovative.”

From top: Chris Bolick, Associated Engineering and Operations staff; and

Patrick Baumhoer, Associated general counsel and chief compliance officer.

Reliability was integral to Associated’s mission ... But reliability compliance was a new beast, with layers on layers of regulations.

Instrumental in crafting this tariff with Blackburn and fine-tuning it through the years were Jim McNabb; Gary Fulks, when he was Associated staff; and later Bolick, Jeff Johns, David McNabb and Pat Baumhoer.

It’s all about reliability

After 9/11 and the widespread power blackout that cascaded across eight eastern states in August 2003, the federal government became increasingly concerned about the reliability and security of the national electricity grid. Through the Energy Policy Act of 2005, the hammer of FERC came down once more on utilities, this time creating a national electric reliability organization, later to become the North American Electric Reliability Corp., overseen by FERC. This time, Associated was indirectly regulated by FERC through NERC and one of its regional reliability entities, the SERC Reliability Corp.

To meet the growing demands of NERC, Associated began adding staff dedicated to, along with the G&Ts, reliability compliance. In 2010, Associated restructured its reliability compliance team, beefed up with new staff. The new department within the Executive Division brought together staff from Engineering and Operations and Information Services (formerly known as Business and Technical Services) who reported directly to Pat Baumhoer, general counsel and Associated’s chief compliance officer.

Regulatory compliance was, of course, not new to Associated, which had an excellent track record from its earliest years. And reliability was integral to Associated’s mission: to provide affordable, reliable power. But reliability compliance was a new beast, with layers on layers of regulations. Every utility struggled to meet the new requirements. The early round of compliance audits by SERC was a learning experience for everyone, including Associated, but helped utilities ratchet up their policies and procedures to meet the new expectations. By September 2010, Associated was ready for SERC scrutiny, successfully passing the audit.

Here come the RTOs

As the power industry deregulated, FERC conceived of regional transmission organizations as a way to handle the surge of transactions taking place in the new competitive power sales markets. Its Order 2000 of December 1999 required all public utilities that owned, operated or controlled interstate transmission facilities to report how they would create or join an RTO or what prevented them from joining such a group. The RTO would bring all public utility transmission systems within a region under common control. Utilities would give up control of their transmission facilities and be required to share the revenues for use of the combined transmission systems of all utilities in the RTO.

As Fulks described it, “The RTOs basically socialized the costs and revenues. Customers could move power over long distances with one-stop shopping and pay less.”

Events such as the California electricity crisis of 2000 and 2001 reinforced FERC’s call for control of transmission. 9/11 heightened concerns about national grid security and reliability. Then, in August 2003, the world’s second largest electrical failure occurred when 265 power plants went down, affecting an estimated 10 million people in Ontario and 45 million in eight northeastern states. An investigation ultimately pointed to major transmission lines coming into contact with trees, as well as computer and equipment failures.

Although utilities were pressured to join an RTO, Associated held firm. According to Gary Fulks, director of the Engineering and Operations Division at the time, analysis indicated Associated would lose about $10 million per year in an RTO.

Blackburn stated, “It was Associated’s strategic choice not to join the RTO and instead to preserve its transmission assets, to stick with operating its own transmission system.”

The alphabet soup of regulation: FERC, NERC and SERC

According to Blackburn, FERC finally backed off using the big stick to force independents into RTOs. But then in 2005, Congress passed the Energy Policy Act, and FERC gained jurisdiction over Associated in several significant ways. First, the Act gave FERC the right to apply its nondiscrimination requirements to unregulated utilities, such as Associated.

“It meant Associated has had to walk a fine line,” explained Blackburn. “It’s had to be extremely careful to avoid any customer complaints, which could lead to FERC scrutiny and possible action.”

Second, the Energy Policy Act also created mandatory reliability standards and authorized FERC to issue fines of up to $1 million a day for violation of the standards. It set up the North American Electric Reliability Corp. to establish the standards and set up regional corporations to audit compliance and assess potential penalties for noncompliance. The former Southeastern Reliability Council, which Associated joined after leaving SPP in 1997, was reorganized as SERC Reliability Corp. Associated rejoined SERC in 2008.

“Now, Associated has got to pay attention to SERC, NERC and FERC reliability standards. It takes a lot of time and effort, and utilities are spending a huge amount of money to comply,” said Blackburn.

There was more. The third significant new form of jurisdiction for FERC was authority over manipulation of energy markets. This was Enron stuff. Before, FERC only had jurisdiction over public utilities, but now if Associated or other utilities engaged in Enron-style manipulation of the market, FERC could issue fines of up to $1 million a day.

“So FERC is creeping ever closer,” Blackburn said. And there is always the possibility of customer complaints about Associated’s transmission service that would get the attention of FERC. In his opinion, Associated

has nothing to fear from individual residential customers who get all the power they want from Associated. Public utilities also have never challenged a cooperative on the grounds of inadequate service. If a challenge should come, it will most likely come from a municipality within one of the six G&Ts.

The next challenge: regional planning organizations

FERC has continued to issue regulatory orders. Looking ahead to the next round of regulatory challenges, Blackburn said that a proposed new FERC regulation would require entities like Associated to participate in regional planning organizations. For example, Associated’s system would be used to move wind power from western Kansas to customers in St. Louis. Instead of Associated’s customers paying for the transmission, the end customers in St. Louis would pay.

“That’s important for Associated,” Blackburn said. “Expect to see increased pressure for Associated to participate in a regional planning organization of transmission lines. Where Associated goes on this, we don’t know yet.” What was known was that Associated would approach the regional planning question strategically, and in 2011 it was already spending more time coordinating with RTOs on transmission planning and construction. Operating strategically became a guiding principle in this period.

Employee excellence: Mike King learned a lot about transmission as he managed the internal audit process at Associated. G&T general managers praised him for his timely, professional and accurate conduct of the compliance audits that looked at transmission costs and the primary credits Associated paid to the G&Ts for use of their facilities. His travel throughout the Associated system gave him a unique perspective, forged strong relationships and earned him an Excel award.

From top: Charles Baile, former Associated board member, and Mike King, manager of internal audit at Associated; and

Kenny Switzer, Associated Engineering and Operations staff. Switzer is Associated’s longest-serving employee in 2011, celebrating 43 years with the cooperative. He started in the Thomas Hill coal yard in 1968, moving to Headquarters in 1973 to work as a dispatcher in system operations. He said technology has brought the most change. When he started, he used two computer screens. Today, he monitors the Associated system on 18 screens.

The storm of the century

John Farris, general manager of M&A Electric Power Cooperative and an Associated board member, described the ice storm of Jan. 26-28, 2009, as “the storm of our century.” It was all that and more.

“It looked like we’d been bombed,” said Larry Swilley, coal yard operations superintendent at New Madrid Power Plant. Ice, strong winds and heavy rain hit in two punches. As employees Larry and Alice Swilley drove in ditches to get to New Madrid Power Plant on the second day, they found nary a pole standing. The ice-shrouded power plant, as well as St. Francis Power Plant and Essex Power Plant, shut down for 32 hours, unable to operate because the transmission lines needed to send the power were down.

The storm damaged some 20 high-voltage transmission lines in the service areas of M&A and Sho-Me Power Electric Cooperative. Among the most damaged, were two sections of 345-kV transmission line stretching over 50 miles, affecting M&A’s territory and lines owned by Associated, M&A and distribution cooperatives.

But the strength of the storm was overshadowed by the strength of the cooperatives’ response. The six G&Ts went to work rebuilding the damaged high-voltage transmission system. Due to the redundancy that Associated and the six G&Ts had built into the transmission system, Associated was able to send power to members who could receive it.

However, many could not. Distribution cooperatives worked around the clock in their communities to restore electric service, first to priority customers such as nursing homes, gas stations and grocery stores.

The Association of Missouri Electric Cooperatives pitched in, as well, communicating the damage, outages and needs of the cooperatives and coordinating line crews coming from other areas and neighboring utilities to help restore service. Among them was Ameren Missouri.

AMEC’s Rob Land took the lead in working on Associated’s behalf with Missouri Gov. Jay Nixon, Missouri National Guard Adjutant Gen. Steve Danner, U.S. Rep. Jo Ann Emerson,

As the sun rises in late January 2009, Associated employees head to work through precarious conditions to New Madrid Power Plant. Often driving in ditches to avoid downed power lines, they see little steam is coming from the plant stack. Electricity production at the 1,200-MW plant has been scaled back because the lines to send out the power have been brought down by inches and inches of ice. Photo by Scott Harvey.

Larry Swilley, Power Production staff at New Madrid Power Plant.

The

storm of the century, continued

the State Emergency Management Agency, and Missouri Farmers Association to bring fuel to St. Francis Power Plant to start it up. Nixon and Emerson also helped speed up transmission repairs and facilitate Federal Emergency Management Agency arrangements. FEMA aid would eventually absorb 75 percent of Associated’s cost of repairs.

As thousands of members sat in their dark, cold houses, Associated’s response was swift: for the first time in its history, it got into the transmission construction business. The ice storm had toppled high-voltage lines at a scale beyond the ability of one G&T to rebuild. The board abandoned the normal practice of having the G&Ts handle transmission construction and repairs and directed Associated staff to work with the G&Ts to begin recovery of both Associated and M&A’s 345-kV lines. In an extraordinarily short 17 weeks, nearly 100 contractors worked seven days a week, 12 hours a day to rebuild nearly 50 miles of the two high-voltage lines.

Thanks to early involvement of FEMA in the disaster and careful record keeping on the part of Associated, Associated and M&A recovered 75 percent of the allowable expenses, or about $12 million. Total expenses for the storm were more than $17 million for Associated.

AMEC estimated the damage done to Missouri electric cooperatives overall as more than 17,000 poles replaced, 64,000 co-op members without power, 3,300 workers restoring power and $180 million in damages. As Jake Fisher, an Associated board member from Pemiscot-Dunklin Electric Cooperative, said about the damage within his own cooperative, “It took 60 years to build the lines, three days to tear them down and three weeks to rebuild them. … I’ve never seen a group come together as a family more than with the ice storm. They came from all over the state. … Associated and everybody chipped in. It was a family thing.”

Employee excellence: Larry Swilley, as well as Brad Austin, Rhonda Day, Kevin Hopper and Steve Murray of Headquarters earned an Excel award for coordinating rebuilding efforts with the G&Ts, AMEC and other utilities.

From top: Associated board member John Farris shows ice from a downed transmission line to U.S. Rep. Jo Ann Emerson. He estimates the weight of ice on each span of line between crossarms at 10,000 pounds; and

Associated employee Excel award recipients Kevin Hopper, Brad Austin, Rhonda Day and Steve Murray.

A historical perspective on regulation from Glenn English

Glenn English of the National Rural Electric Cooperative Association, a lobbying organization for cooperatives throughout the country, aptly observed that in any industry, including electricity, the philosophy pendulum swings back and forth between regulation and deregulation. In the power industry, regulation ruled for about 50 years. Then, deregulation slowly took hold.

In the late 1980s and through the 1990s and into the 2000s, the push for deregulation, open access and retail competition moved through the industry, pushed and pulled by Enron and other energy marketing companies. Retail competition, many believed, would provide more choice, lower electric bills and improve service. But history proved otherwise. Whether rail or banking or electricity, sometimes the opposite occurred.

English, with his keen sense of history, blamed government for allowing too much manipulation of the industry by companies in it for the money and no interest in meeting the needs of consumers. Eventually, he said, “The retail competition got a cold shower. California served as the canary in the coal mine. Enron played a huge role, and that was where the regulators were not overseeing the system. Enron got the freedom to abuse the system, and a bunch of folks who were traders found opportunities in California.”

“Now we’re moving back in the other direction again,” he said. Throughout these swings, Associated and other utilities must continue to operate – no easy task. “One of the responsibilities of NRECA and Associated, with its great expertise, is helping deal with things that are not the way we wish they were and how we might improve our situations. It’s the art of the possible.”

Clockwise from left: Glenn English, CEO of NRECA (sidebar);

meeting in Washington, D.C., on issues that concern electric cooperatives are, from left, U.S. Rep. Jo Ann Emerson; Barry Hart, AMEC CEO; Gary Harris, board of directors, Co-Mo Electric Cooperative Inc.; Don McQuitty, Associated board member; and Jim Jura, Associated CEO (Photo courtesy of NRECA); and

Barry Hart, U.S. Rep. Ike Skelton and Associated board member Don Shaw talk in June 2010 at the AMEC legislative conference, where Skelton announced legislation to stop the Environmental Protection Agency from regulating greenhouse gases under the Clean Air Act, which was not intended for that purpose (Photo courtesy of AMEC).

Chapter four

Getting strategic

In war, politics and chess, “strategy” is a plan of action to win. In business, strategy is the roadmap that gets the company to its goal. From 1996 through 2010, Associated, under Jim Jura, focused on the art of strategy.

The mission, of course, was already in place: to provide an economical and reliable power supply and support services to its members. What Jura did early in his tenure was create a vision of what Associated aspired to be: the lowest-cost wholesale power supplier. Not “one of” but “the” lowest-cost supplier. He began honing and refining the strategies he saw embedded in the Associated culture to achieve the mission and turn vision into reality.

The process got started as Associated prepared for its first formal bond rating in 1996. The agencies expected a

company to have formal business strategies and objectives. Jura’s deep thinking – “I had them in my head” – and use of senior executives as a sounding board, led to five strategies:

• Focus on core business

• Commitment to financial strength and flexibility

• Proactive and conservative management of risk

• Development and management of strategic alliances

• An informed and involved membership

Along with these business strategies, Associated began to develop yearly objectives. One was to “electrify our culture with excitement and teamwork.” Stirring the senior management pot was one way Jura sought to electrify the Associated culture.

“I wanted them to think like they sat in my chair,” he said.

Posing for a photograph for CoBank’s 2010 annual report at the Chouteau Power Plant are, from left, Duane Highley and David McNabb of Associated and Todd Telesz, sector vice president with CoBank.

In November 2007, contractors work on final demolition of the Thomas Hill Unit 3 precipitator, which was removed to allow installation of a new design that improved capture of fine particles in the flue gas before it is released from the power plant. Precipitator improvements were part of the $426 million environmental controls project completed in 2008.

Personnel shuffling began. For example, Supervisor of Resource Planning Duane Highley was sent to New Madrid Power Plant in 1996 to run the plant, later returning to Headquarters as director of Power Production. Later, David McNabb moved from Engineering and Operations to Accounting and Finance as CFO. Business and Technical Services was refocused into Information Services, with Ron Murphy becoming the director. Joe Wilkinson transferred from Information Services to become director of Member Services and Corporate Communications. To further mix things up, at presentations to rating agencies, Jura might ask David Stump, director of the Human Resources Division, to make a presentation on power production. All of this, Jura said, was aimed at broadening perspectives, forcing his senior team to think like CEOs and moving them out of self-imposed silos.

Jura also recruited from outside. In 1998, he brought in Mike Miller from Silver Dollar City as CFO. He recruited Keith Hartner from Bonneville Power Administration to take up the mantle of Marketing and Communications, later known as Member Services and Corporate Communications. He hired Roger Clark, son of former Associated president O.B. Clark, from Boone Electric Cooperative to head up Member Services and Corporate Communications in 2007, then moved him to director of the Engineering and Operations Division in 2008. Jura created the special assistant to the CEO and general manager position. In time, Jim McNabb, Hartner and Miller each moved to that slot, creating opportunities for Gary Fulks, Roger Clark and David McNabb to fill their shoes.

“When I came here, the organization was doing very, very well. I looked at where I could add value,” Jura said. What he saw were a lot of divisional silos where individuals functioned very well within their narrow space but had no idea what was going on in the rest of the company. Jura sought to break down those walls and to make it comfortable for everyone to take pleasure in others’ successes – not just their own.

“Are they sincerely trying to make each other successful?” Jura asked. “That’s what I look for.”

He also sought to develop candor. “I wanted everybody to be candid. … Because I don’t know the business as well as they [senior staff] do, I know I’m capable of asking them to do something stupid. But if I asked them to do something that doesn’t make sense, they need to tell me that,” he said.

The Executive Development Program and a mentoring program, administered by Stump, helped accomplish these objectives. EDP, aimed at the “critical gene pool of upand-comers,” according to Jura, identified an individual’s strengths and weaknesses, then sought to improve on the weaknesses and put the strengths to work, often in new environments with new teammates. EDP, along with pairing up staff with senior mentors, was an investment in personnel that Jura considered critical to implementing Associated’s strategies.

“When I came to Associated, I was impressed with what a lean organization it was. It wasn’t bloated. People worked hard and welcomed responsibility and accountability. That was already there, but the EDP was a way to identify who those high achievers were and to get them to work together. The expectation was they would take over the business some day,” Jura said.

As he worked on his management team, he taught them the art of writing issue papers, tested them in front of the board and required them to think like CEOs. Most importantly, he drilled them on strategy and message. As the years rolled along, the strategies, the mission and the vision were pushed down through the rank and file and out through the three-tiered system. The result was an amazingly consistent cohesion at all levels and a message genuinely believed and practiced. Over the past 15 years, the strategies became more than mere words on paper. In fact, Associated walked its strategic talk.

Jim Jura, Associated CEO.

“Part of Jim’s initiative was to try to remove and take down the silos within the divisions. He wanted us to think like CEOs.”

– Mike Miller retired Associated CFO

Focusing on the business

Associated never strayed from its core business of generating power and delivering it over high-voltage lines. But during the years when Enron was riding high, other utilities did, spinning off subsidiaries and dabbling in other lines of business as a way to hold on to existing customers and attract more. Associated stuck to coal generation, supplemented by hydro, gas and wind. By 2010, it was looking at nuclear again, but nuclear was simply another fuel resource, not a new line of business. Associated also was not padding its payroll with extra staff whose responsibilities could more efficiently and cost effectively be handled by strategic partners and vendors.

Strategic partners seemed to appreciate the fact that Associated did not cop an attitude or pretend to be something more than it was.

Looking ahead, though, Jura and his team could see the necessity for ratcheting up to a whole new level of financial strength and flexibility. Flexibility was wanting, but in 1996 Associated took the first step to becoming more nimble when it formally went to the bond markets. The ratings and an indenture freed Associated from the limitations of loans from the Rural Utilities Service and the National Rural Utilities Cooperative Finance Corp. (CFC). Guided by Miller and David McNabb, Associated pushed open new lending doors and acquired new strategic financial partners. By 2010, Associated was well established as something of a financial icon in the cooperative world.

“Associated seems to know where its competencies are and where to seek out partners. … That’s unusual.”

– Craig Weeks Siemens

Craig Weeks of Siemens noted, “The Associated footprint is pretty small and focused, but Associated didn’t do things it wasn’t good at and instead reached out to make global partnerships to get the best application of technology to serve clients. Small companies need to understand they have their limitations. Jim understands that. Associated hasn’t tried to build an enormous engineering arm. It has stayed focused on its customers and knows its value proposition. Associated seems to know where its competencies are and where to seek out partners. … That’s unusual.”

Committing to financial strength and flexibility

In the 1960s and 1970s, Associated was like a family struggling to pay its monthly bills. The money sometimes didn’t stretch far enough for timely payments. But fiscal discipline taught the Associated board and management the hard lessons of frugality, creditworthiness and cash reserves. And its strong member base gave lenders, primarily federal lenders, the confidence and trust to make critical loans.

By 1996, Associated’s financial house was in order.

Speaking for CFC, which loaned Associated many millions of low-cost dollars through the years, Tom Hall said about its very substantial borrower, “Even with a sizeable capital expenditure program, Associated continues to maintain very solid financial ratios and overall financial strength.”

Proactively and conservatively managing risk

Reining in risk became a trendy topic in the 1990s, peaking about the time Miller joined Associated in 1998. Associated had long made risk management a business priority, but downside risks in the late 1990s got a whole lot more serious. The zeros got longer behind the dollar signs to pay for SCRs and gas plants. The Wild West of deregulation opened the markets to energy traders who owned no transmission or generation assets. Associated began to worry about risk. “It got pretty scary,” said CFO David McNabb.

9/11 didn’t help either. The Sept. 11, 2001, attack was the largest insured event in history at the time with claims estimated up to $70 billion and an immediate and lasting impact on the insurance industry. Utilities like Associated were rocked with exploding property insurance premiums as high as 400 percent increases. Insurers began to limit their coverage, many dropping terrorism coverage, for example. Associated’s property insurance carrier pulled out of that market in 2002. Associated’s plants in southeast

From top: Summer 2007 construction of environmental controls at Thomas Hill Energy Center; and Jim Campbell, Peabody Energy.

Missouri and northeast Arkansas in an earthquake zone made finding insurers more difficult and expensive. That forced Miller and Risk Manager Richard Burlison to go shopping, ending up sealing deals with Lloyd’s of London and other European insurers. By 2010, Associated had insured values of more than $5 billion, including earthquake, fire and property coverage.

But risk management was far more than property insurance, general liability and workers’ compensation. Miller remembered that soon after he arrived, Jura called his senior staff to each bring 10 areas of risk to the table for discussion. Each director brought his unique perspective to the task, yet, according to Duane Highley, there was “remarkable alignment” among the team in the first list of top 10 risks.

“Part of Jim’s initiative was to try to remove and take down the silos within the divisions. He wanted us to think like CEOs,” said Miller. And so, annually senior staff would repeat the exercise, and over time, the risk list became even more homogenous. “David Stump’s were very similar to Gary Fulks,’ and his were very similar to Duane’s. Jim had accomplished his goal of us thinking like CEOs and becoming more skilled at identifying risks that would have an impact on Associated.”

Miller explained that the 10 risks would be boiled down to five, and those would be listed on a single PowerPoint slide. Then, when staff and the board made their presentations to the rating agencies in New York, “We would spend half our time on that one slide. Each risk would have a champion, and we would talk about what we were doing to mitigate that risk.” For example, to mitigate loss of a unit, Associated would stockpile critical parts, build cash reserves, strengthen its contracts and relationships with other utilities and maintain 670 MW of reserves.

In 2005, that plan was tested in Thomas Hill/New Madrid shutdowns. The cooperative lost more than 900 MW as Thomas Hill Energy Center and New Madrid Power Plant lost units back to back. Associated’s proactive risk management strategy helped offset the lost power sales of

$12 million at Thomas Hill and $36 million at New Madrid, and insurance covered about $30 million of the $34 million property loss and extra fuel expense resulting from the outages.

Developing and managing strategic alliances

Strong alliances with neighboring utilities, vendors and other entities have been an Associated hallmark from its founding. The ability of Jura or a senior executive to pick up the phone and call a counterpart to expeditiously fix a problem or facilitate a decision is one of the most valuable cards management has to play.

The Thomas Hill/New Madrid shutdowns of 2005 taught Associated just how critical strategic relationships could be. In May, as operating crews were bringing down the 303-MW Unit 2 at Thomas Hill Energy Center for a spring maintenance outage, voltage dropped to zero in one

arrives June 1, 2006, at New Madrid Power Plant. Associated was one of the first utilities to convert its large coal units to low-sulfur coal in 1994 to meet clean air standards and receives all its coal, about 9 million tons annually, from Peabody’s North Antelope Rochelle Mine. Photo by Jessica Krienert, Obata Design.

The one billionth ton of low-sulfur coal shipped from Peabody’s Wyoming mines

June 28, 2005, Associated Plant Performance Manager Kevin Murphy (center) watches as the damaged 250ton Unit 2 generator stator is lifted out at Thomas Hill Energy Center. Associated staff worked with the railroads, heavy hauler and Siemens to bring in a replacement generator and set it in place June 29, enabling Associated to return the unit to service in seven weeks – versus months of downtime originally projected. Photo by Jim McCarty, AMEC.

minute, the hydrogen panel went into alarm and the unit tripped. The result: a severely damaged generator estimated to take 26 weeks to repair. A month later, New Madrid Power Plant Unit 1’s rotating and stationary turbine blades were damaged when water was drawn into the lowpressure turbine. Worldwide demand for forged blades put the lead time at an estimated 18 months for new turbine blades on the 600-MW unit.

At New Madrid Power Plant, Associated again relied on long-standing business relationships with the original equipment manufacturer, Alstom Power Inc., as well as other utilities. Nebraska Public Power District and American Electric Power sent spare blades they had in stock, enabling employees to get Unit 1 on line in seven weeks.

“One of the things I have learned is the strength of strategic relationships. When you can pick up the phone and call a CEO … that’s very valuable,” Jura said. And that’s

what he did on the Thomas Hill damage. He first called Siemens, which sprang into action and found a sister generator mothballed in Texas. He then called Matt Rose, CEO of BNSF Railway, and Jim Young, now CEO at Union Pacific Railroad, explaining the situation and the urgent need to get the generator to Thomas Hill. The railroads responded. Using special trains and cars and opening up rail lines that were particularly congested at the time, Union Pacific expeditiously got the 250-ton generator to Kansas City, and BNSF from there to Thomas Hill. The generator arrived June 26 while an engineered lift was being built to remove the Unit 2 generator and bring in the replacement. After seven weeks, the unit was back on line July 9 for a second round of hot summer days and system peaks.

Jura admitted that many utilities don’t have this kind of relationship with the railroads. “It’s just better to have trust,” he said simply.

The utilities

Other vital relationships evolved with Ameren Missouri and the Tennessee Valley Authority. The lines that connect Associated to its neighboring utilities have proven to be literally the ties that bind through the decades. Though deregulation changed the “we’ll look out for each other” mentality, long-term relationships with Ameren and Kansas City Power & Light held firm. In the case of Ameren, ice storms in St. Louis brought help to Ameren from cooperatives in the Associated system. The favor was returned in 2009 in the great ice storm of southeast Missouri.

Transmission and substation projects, such as the 54-mile line from Chamois to Franks mentioned in “Grid gold,” called for collaboration. But for Ameren Corp. Chairman, President and CEO Tom Voss, the solid relationship between the two utilities reached “a new level” in 2004 when the two worked together to change Noranda’s supplier from Associated to Ameren Missouri.

In 2010, the two utilities were part of a consortium of energy providers urging the legislature to preserve the option of a second nuclear power plant in Callaway County, Mo., by Ameren. The proposed legislation would let Ameren Missouri recover its costs of obtaining an early site permit for the plant.

In the new regulatory landscape, both TVA and Associated belonged to SERC, and TVA was Associated’s reliability coordinator. “We watch for reliability issues that might cascade, and if problems arise, we stop them at the front door and don’t let them in the house,” said TVA CEO Tom Kilgore.

TVA also bought generation from Associated virtually every day, primarily because the power was low cost and plentiful. Kilgore anticipated at least two more areas where TVA and Associated could interconnect. One was wind: if TVA buys wind power in the Midwest, it likely will be transmitted to TVA via Associated’s transmission system. Second was nuclear. Associated joined a group of G&Ts studying the proposition of building a nuclear power plant

as a joint venture. TVA, with its long experience with nuclear power, was a resource for that group.

Other utility alliances proved vital, too. Associated discovered that a strong balance sheet, financial flexibility, nimbleness in the marketplace and low-cost generation made it attractive to other organizations wanting to do business with it. Utilities on every side of Associated’s territory struck deals to buy, sell and transmit power, including Entergy Power Corp., Nebraska Public Power District, Arkansas Electric Cooperative, TVA, Kansas City Power & Light Co., SWPA and GRDA.

Associated’s entry into gas forged new partnerships, first with PanEnergy and then with Duke Energy Corp. after it acquired the former. The new relationship added strength and stability to Associated’s competitive position.

Some utility alliances got weaker. In 1998, an alliance with Entergy allowed Associated to share and use energy in a different way, such as sharing operating reserves. Both utilities became huge customers of one another. A capacity contract with Entergy gave Associated Entergy’s cost plus 10 percent, a far better deal than retail rates, and access to large quantities of Entergy’s power. Eventually, though, as Associated diversified its own generation mix, the capacity contract was not renewed, though Entergy and Associated remained important trading partners.

Some strategic customers went away. Noranda Aluminum, Associated’s largest customer for about 30 years, announced in 1997 it would spend about $60 million to expand aluminum production. But by 2003, as told in “Shakedowns, shake-ups” Noranda and Associated mutually agreed to part ways, each benefiting in the process.

Labor

Relationships with organized labor were important, too. An alliance between Associated and the International Brotherhood of Electrical Workers, which represented its skilled employees at the power plants, resulted in several extensions of the labor contract from 1995 to mid-2013. In 1998, agreements with Boilermakers helped cut the

Associated CEO Jim Jura testifies in March 2011 before a Missouri Senate committee in support of proposed legislation to preserve the nuclear energy option for future electric supply.

Photo courtesy of AMEC.

length of outages, saving upward of $100,000 a day in lost generation. Relationships with labor contractors like Graycor and Enerfab also were critical. As explained by Highley, solid relationships with such contractors gave Associated as reliable a source of labor as its own employees. When outages needed to start early, the workers were there.

The regulators

Some strategic relationships were particularly vital to Associated’s interests. In each, open, honest, frequent communication built stronger ties of trust. One was with a regulator that didn’t even have authority over Associated: the Missouri Public Service Commission. As documented in “Win-Win,” the two entities had a long relationship. More recently, Jeff Davis has been the face of the PSC to Associated, and he related his long personal history with cooperatives, beginning with his grandfather, who served on the boards of Pemiscot-Dunklin Electric Cooperative, M&A Electric Power Cooperative and AMEC.

On issues of statewide importance and the nuts and bolts of making sure people got affordable, reliable electricity, Davis was always a ready ear, most frequently communicating with Jura, Highley and Roger Clark, and at AMEC with Barry Hart, David Klindt and Brent Stewart.

The strengths of Associated – its transmission system, diversified baseload, extraordinary leadership and strong customer relationships – set Associated apart from the state’s utilities, in Davis’ view, and prepared it for the challenges ahead.

“We are operating in a rising costs environment, and it’s a double-edged sword. Not only are costs rising, but there’s the need to invest in infrastructure for the next generation to make sure customers or members have reliable service they can afford for the next 50 years. It’s extremely difficult to plan when the rules keep changing,” Davis said.

Although not regulated by the PSC, Associated interacted with it on a number of fronts. Rate increases were one. After deregulation, power marketing, environmental

and transmission regulations and fuel cost volatility kicked in, all utilities began to feel the squeeze of higher costs. For the first time in years, boards were talking increases.

“Even with our two biggest utilities, AmerenUE [formerly Union Electric and now Ameren Missouri] and Kansas City Power & Light, no one had raised rates from the mid-1980s through 2005. You had directors on the boards for 10 years who had never voted for rate increases,” recalled Davis. The PSC invited utilities, including Associated, to a meeting in 2005 at the Lake of the Ozarks to discuss rate increases and how to handle them. At the time, Associated had already informed members of its 10-year rate plan calling for increases beginning in 2006.

Natural disasters also seemed to bring out the best in utilities even without encouragement from the PSC. Remembering summer storms in 2006 and 2007 in St. Louis that took down everything, with temperatures hovering at 100 degrees, Davis said, “People in the city were not as equipped as people out in the country. It was literally life or death for the elderly and homebound. … Without those cooperatives’ sending their linemen [to assist Ameren] and having these assistance agreements, it could have been a lot worse situation. They helped save people’s lives.”

When the 2009 ice storm in southeast Missouri devastated Davis’ grandfather’s cooperative and the entire region, the utilities rallied again, investor-owned, municipal and cooperative alike. Ameren Missouri’s Tom Voss agreed at a meeting with U.S. Rep. Jo Ann Emerson to release contractors to the electric cooperatives, keeping them in the area instead of going to other states.

“That sort of thing doesn’t happen every day, when a U.S. Congresswoman asks you to sit down with the CEO of Ameren,” AMEC’s Barry Hart said.

The Missouri Department of Natural Resources proved to be another important ally. Anita Randolph, former director of the Energy Department in the Division of Energy, began reaching out to Associated as soon as she joined the division in 1998.

“We were extremely interested in reaching out and

From top: Associated Power Production staff members are Kim Reno; Ron Hollies; and Tom Harris.

“ The thing that has always struck me about Jim Jura is he would set aside the contracts and the structure and talk about what’s right for Associated and for Siemens. That’s a very unusual perspective.

– Craig Weeks Siemens ”

forming partnerships with various Missouri utilities to advance some utility programs that helped customers. We began what turned out to be a very productive and fruitful conversation with Associated about energy efficiency,” she recalled. “It was very obvious Mr. Jura was a real advocate for energy efficiency and the role it can play.”

Randolph watched as Take Control & Save took hold and produced results. In 2009 and 2010, the division worked with Associated to share information with the distribution cooperatives about funding through the American Recovery and Reinvestment Act of 2009 for weatherization of homes for low-income families. As a result, several cooperatives received funding to participate in the state’s weatherization assistance program.

“We started a conversation with Associated more than a decade ago, and it’s been really gratifying to see that conversation increase and see the host of energy efficiency programs Associated now offers to its members,” she said.

The excellent relationship between Associated and DNR garnered some national recognition for Associated’s

environmental record. DNR nominated Associated for “2006 Wind Cooperative of the Year,” awarded by the U.S. Department of Energy, and for the Kenes C. Bowling National Mine Reclamation Award from the Interstate Mining Commission.

The contractors

Relationships with contractors also were vital. The complexity of baseload electricity generation from coal and gas requires strong, long-term relationships between utilities and the companies that provide the fuel, do the engineering, build and maintain the plants, implement the electronic controls, etc. Ever-changing technology may streamline processes, but the nuts and bolts of building, operating and maintaining power plants just aren’t simple.

Associated discovered decades ago the importance of building lasting ties to its contractors and suppliers, among them Siemens Energy, Burns and Roe, Peabody Energy Corp., Burns & McDonnell and Sega Inc. Their stories and relationships with Associated continued to evolve from 1996 through 2011. The commitment to long-term relationships at the highest levels within the companies helped all parties work through difficult details of complex power plant construction, environmental controls and modification projects. A sense of “we’re in this together, no matter what, because we trust each other to do the right thing” expanded the tiers of trust to include these critical partners.

Duane Highley, who was involved at a high level in many strategic alliances as head of Power Production, pointed out that establishing and maintaining strategic partnerships were ingrained in the Associated culture. It started with the board, which was somewhat unique in the industry for truly taking the long view. As successful businessmen in their own right, board members knew firsthand the importance of fairness and integrity if business relationships were to be long lasting.

“They have confidence in staff to do the right thing. At Associated, we have a ‘virtuous cycle’ in which the board trusts the staff, and so the staff goes out and makes

Mike Bollenbach, Siemens.

“What comes around goes around. You have to be fair and honest because sooner or later you’ll need a favor from Associated.”

– Jim Campbell Peabody Energy

the deals,” Highley said. “If we just worried about this quarter’s finances, we couldn’t make those deals. If you’re driven by some financial metric that will earn you a bonus, you’re not going to make the same decisions.”

Siemens – Gas and Siemens are inextricably linked at Associated. The German-based company was the critical third partner in Associated’s first venture into gas with the St. Francis Power Plant. The turnkey arrangement with Siemens for it to design, construct, operate and maintain the plant became the model for Associated’s other gas plants.

Craig Weeks, CEO of Siemens’ Fossil Services Business entity, noted that though Siemens has a footprint around the world, “We spend time creating relationships with people we respect. Jim doesn’t have a Kremlin red phone, but he can call me anytime.” That personal relationship was important in the Thomas Hill generator swap in June 2005 and at other times in the numerous points of

interaction between Siemens and Associated.

And in the last 15 years, there have been many. “The thing that has always struck me about Jim [Jura] is he would set aside the contracts and the structure and talk about what’s right for Associated and for Siemens. That’s a very unusual perspective,” said Weeks. “We’re two businessmen, with over $1 billion in transactions, and Associated is one of our best customers. Jim from the beginning was always clear and at some point in our discussions would say that if for whatever reason we have a deal and don’t pay enough money, we’ll do right by you. He didn’t see that as a weakness. … He has a doctrine of fairness. It’s not that you win or he wins, you both win.

“It’s a strange industry. In 2000, it was a time you could let your ego get so fanned up and flamed up and blown up … To Jim and his team, that was kind of like watching a soap opera. I don’t think he was ever tempted to do that.”

Siemens’ Mike Bollenbach, a district sales manager, made his first trip to Springfield around 1972 when he worked for Westinghouse Electric Co. (acquired by Siemens in 1997), and so he has observed the contractual relationship flourish. “On a day-to-day basis, the relationship builds over time, over the years. That’s true of any customer. I think that our relationship with Associated is such that we find a way to solve problems, to bring things to resolution. We know Siemens is critically important to Associated. Siemens knows Associated relies on us and depends on us, and we can’t fail them,” he said. “When it comes to problem solving, we find a way. They’re complementing what we do in problem solving. We collectively find a way.”

Burns and Roe – In the early decades of rural electrification, Burns and Roe, an engineering, procurement, construction, operations and maintenance company, was one of the go-to contractors rural electric cooperatives went to for coal plants – including Associated. As gas came on line, Burns and Roe became the go-to for those plants as well, including in 1998 the original Dell Power Plant owned by TECO Energy.

Dell Power Plant in northeast Arkansas.

According to Bob Milhiser, senior vice president of the company’s power services division, that project abruptly ended before completion after 9/11 and the Enron collapse.

“The infrastructure was about 70 percent complete, Milhiser recalled, “but it sat dormant until Associated acquired it in 2005. So that fall, Associated asked us to look at the project and do an assessment of what was needed to revive it. There had been no real maintenance of the project for a while, but it generally was in good shape.”

As it turned out, many instruments and valve packing had to be replaced. Originally, Dell was designed to be a baseload plant but Associated asked Burns and Roe to redesign it as a cycling plant that could better chase members’ peak demand and market opportunities. Burns and Roe ran the project beginning in spring 2006; the plant went on line in fall 2007.

“I think we had a good association,” Milhiser added. “If there was a problem, Jim Jura would call me or Duane [Highley] would do the same thing, and we’d have the problem resolved immediately. … Keith Roe [president] and I would meet quarterly with Associated’s executives to make sure we had good communication at all levels, and I think that’s why the project went so well.”

Milhiser recalled some unexpected “quick turnarounds” as parts that were expected to be OK had to be replaced. “Because of that, we had to forecast a tight schedule and costs and that ensured more frequent communication, really keeping the finger on that.”

Milhiser, who regularly attended Associated’s annual meetings, recalled getting to know the members. “One of the reasons I found them so interesting and important was that they were mainly agricultural people. That’s their business, and they were all equity owners of the business who really felt like they owned the company. Typically, when you talk to people who own power plants, they’re not the persons running a farm. They’re usually business people.”

Peabody – From the inception of Thomas Hill Unit 1, Associated and Peabody Energy have had a close supplier/ customer relationship. The close proximity of a Peabody

mine to the proposed new plant helped seal the deal for that first unit.

Associated, through the decades, was Peabody’s largest Missouri customer. In turn, Peabody coal was Associated’s largest expense in generating low-cost electricity, totaling nearly $120 million in 2010 alone, according to Jim Campbell, Peabody’s senior vice president of sales and marketing for Colorado and the Southwest.

In 1978, Associated bought and operated Peabody’s Bee Veer and Prairie Hill mines. When Associated closed those mines in the 1990s, Peabody bought some of the draglines and other mining equipment from Associated. Later, those same draglines would be rebuilt at the very mine in Wyoming where Associated’s low-sulfur coal was mined. And Peabody once again in 1994 became Associated’s sole coal supplier to both Thomas Hill and New Madrid plants, now low-sulfur coal from the Powder River Basin in Wyoming.

More than 30 years earlier, Campbell remembered watching the first negotiating sessions between Peabody and Associated about delivering coal to the New Madrid plant. He saw how Jim McNabb conducted himself with the Peabody negotiators. Afterward, Campbell asked his boss, “Why didn’t you press them … The answer I got was, ‘What comes around goes around. You have to be fair and honest because sooner or later you’ll need a favor from Associated.’”

For Jura, the relationship was so important that he even testified before the U.S. Congress, saying Associated was very pleased with its coal service at a time when the antagonism between some co-ops and the railroads compelled congressional hearings. He admitted when he joined Associated that he actually thought the coal supply should be diversified; after all, under most business models, a company would not want to be locked into a single supplier. “But Jim McNabb really put his foot down on that. ‘You’ve got to understand the relationship we have with Peabody,’ he told me. He made a believer out of me!” Jura recalled.

And so this contract between Peabody and Associated

From top: Associated buys mines from Peabody and operates them in the 1980s to serve its Thomas Hill power plant; and the longstanding business relationship continues after Associated converts its coal units to burn low-sulfur coal supplied by Peabody from its Powder River Basin mines.

has continued, providing great value for both Peabody and Associated. Using a market-basket approach to pricing, “They make a buck, and we make a buck,” Jura said.

Burns & McDonnell – Virtually every big construction project for Associated in the past 15 years has “Burns & Mac’s” stamp on it. And for CEO Greg Graves, there has been no more important client for the Kansas City-headquartered firm than Associated. The relationship between the two easily goes back 50 years. Graves “cut his teeth” on Thomas Hill Unit 3 in his first year with Burns & Mac climbing smokestacks and doing performance reviews.

Burns & Mac was particularly involved in helping bring Associated up to new clean air standards at its coal plants. “Typical of Associated, it has gone in early and often and kept ahead of the game. Typical of O.B. Clark and Jim Jura and Duane Highley, they knew when to go in to get the best deal for Associated and members. I’ve really got to give it to Jim and Duane, in particular, that they knew

“... we get in situations where customers aren’t very concerned about our well-being as a partner. But Associated has always treated us as part of the team ...

– John Brown CEO and president of Sega ”

when to make the jump to natural gas, knew when to buy the turbines and knew when to step back and wait … to see how the market went. When making $100 million decisions, that CEO gut has to be very strong and confident, and that’s very true of Jim,” said Graves.

What Graves has valued most about Associated is its commitment to partnership and project success. “Making electricity cheap is clearly no easy task, especially if dominated with fossil fuel mix. … Those are very complicated projects to design and build as well. You don’t start them in January and hope to be finished in the summer. When taking on projects like New Madrid or Thomas Hill, they are five, six, seven years or even longer projects,” he said.

Graves went on to say, “It’s most important that those firms have permanent relationships they can’t walk away from, and they have to know what project success means. They have to resolve differences and have everyone pointed in the same direction in terms of project success, and have the same definition of what project success means: … There’s only one definition of project success and that’s where everyone wins.”

As Burns & Mac moved into more design-and-build

From top: Building the environmental controls at Thomas Hill Energy Center was like building a ship in a bottle due to limited space, especially on units 1 and 2 that were built in the 1960s. About 1,300 tons of structural steel and 1,600 tons of plate steel went into equipment like the Unit 1 SCR tower; and

Scott Harvey, Power Production staff.

projects in recent years, it created a new risk review process that covers client solvency, loyalty, fairness, trust, among the criteria. Graves summed up the Associated relationship by saying, “When we do the Associated risk review, we just pass those pages by. It makes for a shorter meeting.”

Sega – Since 1986, the engineering and technical services firm of Sega Inc. in Kansas City, Mo., has worked with Power Production and Engineering and Operations staffs on many Associated projects, including the computer programming that ultimately runs the plants. As technology has changed from dials and switches to computers and keyboards, Sega Inc. has applied that at Associated and trained its people to use the new systems. Projects have included putting new distributed control systems on all three units at Thomas Hill Energy Center and water treatment upgrades. More recently, Sega was the project engineering firm at Chouteau 2, managing the construction contract to ensure a quality installation.

CEO and President John Brown described the SegaAssociated relationship: “It’s a team effort. They [Associated’s engineers] come to our facility while we’re programming because no one knows their plants better than they do,” Brown said. During projects, Associated personnel meet monthly with their Sega counterparts, asking “What’s your opinion? Are there other approaches? What are the issues? How can we resolve them? How can we get a win-win to move forward?

“Some people in the business world are about placing blame and pointing fingers. Being a hired gun, outsourced service, we get in situations where customers aren’t very concerned about our well-being as a partner. But Associated has always treated us as part of the team, which makes for more successful communication.”

Brown praised Associated for getting the right people in the right positions, all working as a team. “The people we work with never talk about other people in the organization. They’re always positive about their people and us. If someone has a problem and a challenge, others jump in

and support them. I see that over and over, the way they treat people. It really works,” he said.

Employee excellence: Not only vendors, but also small towns near Associated’s power plants and neighbors proved to be key relationships through the years. Good relationships and doing the right thing also extended to electricity customers and property owners around construction sites. Associated’s Jerry Bindel, who helped with property matters, went out of his way to be a good neighbor to farmers who might someday find a power plant in their backyards. One farmer even helped move snow at a construction site, then lost a favorite hunting dog when it was hit by a truck on the site. Bindel didn’t hesitate. “He bought the farmer a new hunting dog. It wasn’t a common thing to do, but he knew that it wasn’t anything that would be questioned. He did the right thing,” related Duane Highley, director of Power Production.

Informed and involved member-owners

A fifth strategic priority for Associated was informed member involvement. There were a lot of members to

From top: Control room operator Victor Scott monitors Unit 2 operation and performance through a distributed control system that provides information from thousands of points throughout the New Madrid Power Plant; and

Power Production staff Jerry Bindel at public meeting on Norborne project.

inform. Associated’s six G&T owners had 51 memberowners, the distribution cooperatives in Missouri, Iowa and Oklahoma. Those cooperatives were owned by the customers they provide electricity to. The better the communication between all these member-owners, the better the governance by informed and involved members. It might seem unnecessary to make “informed and involved member-owners” an expressed business strategy. But Associated’s six owners did not always see eye to eye or coexist harmoniously. Only in the last two decades were those differences and sharp edges largely dissipated, replaced by the realization that what was good for Associated was going to be good for the G&Ts, the distribution cooperatives and the members at the end of the line.

So communicating with members at all levels was important enough to formalize it as a core strategy. By doing so, Associated moved members from the back seat to the front seat. Members, in Associated’s case, the G&Ts, had to be informed and involved to help navigate and drive the cooperative forward. Without information, the G&Ts could not adequately and accurately explain to their members the why and how of what Associated was doing and planning. Without information, members could not fully engage with

Associated in critical two-way communication. The driver in the front seat didn’t need a back-seat driver. The driver needed a co-driver up front, looking at the roadmap, making suggestions, asking questions. Without information, there could be no tiers of trust. As described later in “Family ties,” annual “update” meetings helped fill the information void, funneling data, talking points and strategy to the cooperatives.

Communication became more frequent, diversified, transparent and two-way. Associated’s annual meetings morphed from one-day business meetings to three-day information events at which members learned about relevant issues and trends, often with fresh, different and diverse points of view. Headquarters staff went calling among the distribution cooperatives. Communications went electronic with a members-only section to the Associated website. Printed communications changed titles and formats. In 2011, employee newsletters and some cooperative communications went electronic versus being printed. Update meetings with the G&Ts relayed valuable information from Associated to the G&Ts and distribution cooperatives. Equally important, though, was the input that flowed back to Associated from members. Retired board member Harold Jordan, who served during much of the current history, observed that the more information members received, the better they seemed to accept rate hikes, the termination of the Norborne project and other difficult issues. “We tried to inform more than ever. If we informed well enough, the members supported us,” he said. “I didn’t get near as many calls as I once did,” crediting the difference to that flow of information. As a grocery store (Independent Grocers Alliance) businessman, Jordan was on the front lines of contact with members.

The Member Services and Corporate Communications Division offered fact sheets, talking points and briefing books that not only flooded members with facts and figures but also the rationale for actions taken or planned. Rick Holmes and other staff from Member Services and Corporate Communications took to the road with a Take Control

From top: Directors and staff from distribution cooperatives tour Chouteau Power Plant; and

Harold Jordan, former Associated board member.

& Save exhibit, setting up at cooperative annual meetings, fairs and festivals. Member services staff took the temperature of member satisfaction in surveys, coordinated advertising campaigns and hooked cooperatives up with Touchstone Energy resources.

Nothing is forever, including strategies

Periodically strategies may change to reflect the times. What was on point in 1996 may not be completely relevant in 2011. Yearly, at its annual retreat in December, the board and senior management continued to look at the five strategies that had stood the test of 15 years. As Jura put it, “I like to invite the staff members and board to challenge the strategies. If we follow them, I think no matter what comes along, we’ll be just fine, but they do need to be reviewed and challenged and tested from time to time.”

Thinking strategically is one thing. Governing is another. Relationships between management and the board and dynamics within the board can make or break a company. In Associated’s case, getting governance right never missed a beat.

Employee excellence: Fostering strong relationships with contractors is critical in a construction project. No one did it better than Scott Harvey, who in 2002 applied his knowledge of combustion turbines during construction of the Holden peaking plant. His mutually trusting relationships led to operational training at Siemens and gave him access to important need-to-know, though sensitive, information. His relentless pursuit of resolution of construction and commissioning issues earned him an Excel award.

Making strategy

Associated struck it lucky in its general managers. Neil Adams, Gerry Diddle, Jim Jura: each proved to be the right man for the job.

Adams, the promoter, put the deals together that set Associated in motion and anchored its feet in baseload generation plants at Thomas Hill and New Madrid.

Diddle methodically worked his way through the serious financial woes of Associated’s middle years, turned that around and continued to build power plants fueled by coal to provide cheap and abundant power.

ral Jim for and on , ht out of

Associated business strategy - A focus on core business - Commitment to financial strength and flexibility - Proactive and conservative management of risk

- Development and management of strategic alliances

- Informed and involved member- owners

Jura took the assets and relationships developed by Adams, Diddle and their right-hand man, Jim McNabb, and made them even more robust. Right out of the gate, Jura didn’t flinch from executing the decision to close the mining operation and make the switch to low-sulfur coal.

Jura, with 20 years of service at Bonneville Power Administration, the federal Office of Management and Budget and the U.S. Department of Labor’s Occupational Safety and Health Administration, was a quick study in adapting to the cooperative world. He wasn’t afraid to shake things up and set about to prod, push, pull and poke Associated into a new level. Certainly, he quickly “got it” as far as who his bosses were.

As Jerry Divin, who retired from the board in 2008, observed, “Jim wanted to hear from the little old lady at the end of the line.”

That concern for the human face of his member-owners was sometimes overshadowed by Jura’s cool analytical approach to the issue at hand. In an organization of engineers, two of his hallmarks quickly gained traction. One was the white board, learned at Bonneville Power Administration, and the second was the issue paper, used to present issues to the president during Jura’s years working in the Nixon, Ford and Carter administrations. Midway through a discussion, Jura would jump to his feet, move to the board and, pen in hand, quickly diagram a point of discussion.

“He always approached a problem very analytically. He’d look at the issue, its problems, solutions, situational analysis. Here’s the issue. Here’s the situational analysis. Here’s the opportunity. Here’s the best solution, and here’s the reason why. It was classic organizational style, and I saw him bring that discipline to the chamber board,” said Jim Anderson, president of the Springfield Area Chamber of Commerce. “He always did his homework. I never saw him unprepared.”

Getting involved in the Springfield business community became an Associated priority.

Jura set the example by serving as the chamber’s chairman in 1997.

The Associated board and management also were realists. Craig Weeks of Siemens, a vital contact in the years when Associated was stepping into gas, observed that Associated’s management team was “continually engaged and connected to reality. … They live in a real world and that cascades up to the board table. Someone’s got to manage all that and give analysis and propose solutions.”

Horace Harrod of Farm Credit Bank of Texas believed Jura’s no-nonsense approach made him “the E.F. Hutton of cooperatives and the electrical world. When he speaks, they listen.”

Jeff Davis of the Missouri PSC watched and interacted with Associated and Jura for years. “He’s one of the most experienced people out there in the power industry. … He really cares about the customers Associated serves, knows who the members are and puts their interests first. That’s what members expect. They expect he’s going to be thrifty and frugal. … Jim is a voice of reason. Because Associated is a not-for-profit and operates in rural Missouri, they just have a special relationship with their customers that I don’t think the municipals or investor-owned utilities have. Because of that, Jim has credibility that other people don’t have.”

Don Hodel, retired U.S. Secretary of Energy and also Interior, described Jura as the cooperative world’s statesman. “He has a broad vision. He’s very analytical. He has the ability to not only deal with the current situation but to anticipate what’s coming. Obviously, he has the gift of tact and diplomacy to operate a G&T with numerous bosses. … I’m sure Jim has to be able to understand where people are coming from and be able to work with them. There are stories in the NRECA co-op country of managers who didn’t have that gift and didn’t last all that long.”

Jura let off steam and took a break from the relentless pressure of his job by following two of his early passions: basketball and running. Jura, the athlete, wasn’t that different from Jura in the corner office. As the old saying went, “Give me one game one-on-one, and I’ll tell you all about the player’s character.” Watching him on the basketball court, you saw a relentless drive, a feeling of go-go-go, make the move, take the shot. He seemed to be two steps, two seconds ahead of real time, anticipating moves, knowing where the ball would be. In running, Jura favored distance, calling for stamina, strength and slow, steady progress in the long haul to the finish line. Talking about the marathons he’s run, he said, “You have an objective, then you commit to it and work toward the goal. Anyone can run a marathon. It’s about conditioning your body. What you need to do is make the commitment and have a plan.”

A favorite Jura saying, “You don’t have to be sick to get better” ultimately expressed his ambition for Associated. The cooperative’s 50th celebration in 2011 marked Jura’s 20th year as CEO. Under his leadership, Associated had strengthened its position as a super G&T, a smaller but equally strong likeness to the Duke Energys and Amerens of the industry. Associated had shown that size was less important than a company strategically on course to meet its mission and realize its vision.

As Jura might put it, the robust health of Associated in 2011 didn’t mean it couldn’t be even more healthy, wealthy and wise. It just needed to keep getting better.

The member at the end of the line, whether a resident, farmer or a business like Burgers’ Smokehouse in California, Mo., where Terry McGill works, has always driven the mission of Associated to provide an economical, reliable wholesale power supply. Burgers’ is a member of Co-Mo Electric Cooperative Inc., which provides electricity and other services to help the familyowned business use energy efficiently. Burgers’ employs about 250 people in rural Missouri; McGill has worked there since 1988, advancing to senior supervisor at the plant.

Chapter five

Board talk

“It all comes together at the Associated board table,” said CEO Jim Jura, speaking of the fine art of governance from an engaged board of 12 professional, strong-willed, opinionated men. Talk to Associated’s strategic partners, and there’s the sense that its governance was something extraordinary, something noticed, paid attention to and commented on.

Horace Harrod, formerly with CoBank and now vice president of Farm Credit Bank of Texas’ Capital Markets Group, watched Associated closely for more than 15 years. For him, Associated’s strengths were as vital as ever. He said, “The critical thing is the role of the board. Associated’s always had an excellent board, and the governance has been outstanding. The thing that impressed me is this

was not a board that sat back and let the management team run the company. They were actively involved in decisions and made good ones.

“This was evident when Associated did the annual rating visitations. Normally, just the management team would make those visits. But Associated had board members do most of the presentations. I was very impressed. The board knew enough about the operations of the organization to do it. Management and the board were comfortable enough with each other to do that. That’s a very unique thing,” he said.

Unless you actually sit at the board table, no one sees firsthand the dynamics of interaction at that table. But you see the results, and there’s a sense that this group of 12 alpha

Associated’s board of directors listens to a staff presentation during a monthly meeting in fall 2010. Clockwise from left: Emery Geisendorfer, Douglas Aeilts, CEO Jim Jura, Donald Shaw, Thomas Howard, John Killgore, Don McQuitty, Gary Fulks, Dan Singletary (not visible), Layne Morrill, Chris Cariker, John Farris and Jake Fisher.

males does have a pecking order and a methodology for deliberating issues and arriving at thoughtful decisions.

Richard W. Foster; Ralph E. Shaw; Rudie W. Slaughter; B. Dean Sanger; O.B. Clark, president; Charles C. Martin, secretary-treasurer; Maurice L. Happel; and Robert E. Stagner.

“There’s a big difference between authority, influence and power. All 12 of the board members have the same authority, but some have much more influence than others. The board is set up so director-directors are the officers, and the chairs of committees are the G&T managers. Over time this influence moves around the table,” observed CEO Jim Jura.

He recalled the board member who had a profound influence on him and the rest of his life, Bob Stagner. Thinking back over the critical decisions he’s made in life, Jura said, “My decision to go to Associated was clearly one of the best, and I owe a debt of gratitude to Bob Stagner.” It was Stagner’s comments and decorum when Associated offered Jura the manager’s job that influenced his decision to take it.

In the early days of Associated, as told in “Win-Win,” the boardroom was sometimes filled with profanity, high jinks and sharp edges. By 1996, death and retirement had largely removed that kind of conduct. “We learned to have more decorum,” Bob Stagner said dryly. He served on the board from 1969 to 2001.

O.B. Clark also spent decades on the board. As president, Clark was the helmsman, and his influence would be hard to overestimate. Clark joined the board in 1974, serving as president from 1981 through his retirement in June 2009; he was Associated’s third board president, succeeding Rudie Slaughter and before him John Buck. As president, Clark gave the two Associated general managers he worked with space to do their jobs but became their equal partner in leadership.

His induction into the Missouri Institute of Cooperatives’ Hall of Fame in 2010 was a sign of his influence

From left: Robert Stagner, early 1990s, general manager of M&A Electric Power Cooperative and former Associated board member; and

Associated board members in 1984 annual report are, from left, John K. Davis; Roy E. Matthews, vice president; Carl M. Herren; Luther A. Riddle;

“ O.B. Clark was an extremely effective president of the Associated board. He did a good job in the boardroom, kept focused and moving in the right direction. But his biggest contribution was out of the building ... representing Associated to cooperative members and the whole cooperative community.

– Jim McNabb Former director of Engineering and Operations ”

representing Associated to cooperative members and the whole cooperative community,” said Jim McNabb, former director of the Engineering and Operations Division, who interacted with the board over decades.

Seeing Clark “at work” was an amazing thing. No one did a better job than he did in selling the concept of the cooperative to counterparties who had no clue how a grassroots organization could govern so effectively. Clark was as comfortable in a Wall Street meeting as he was sharing a cup of coffee with another cattleman back in Missouri. He originally planned to be a lawyer, then switched to banking and ended up following his heart and becoming a rancher. His keen mind for business and affinity for connecting with people served him well as president of the Associated board.

One of his goals in the boardroom was to create a forum where all ideas and opinions could be fairly presented, listened to respectfully and discussed in an effort to build consensus or resolve. He almost always voted, though he didn’t have to. “O.B. cast a vote even when he didn’t have to – to make clear where he stood. That took a lot of courage and ethics,” Stagner observed.

Another long-tenured board member, John Davis, was a larger-than-life personality whose 30 years on the Associated board was one of the longest tenures. He was a man with an “agenda” – granted, always in the best interests of members and employees – but his methods for reaching it could be intimidating.

and legacy. Exemplary leader. Gifted statesman. Effective spokesman. Unwavering commitment to member-owners. These descriptions of Clark hinted at the character of the man who served on Associated’s board 35 years, 28 of them as president, as well as decades on the boards of Central Electric Power Cooperative and Co-Mo Electric Cooperative, where he also was board president.

“O.B. Clark was an extremely effective president of the Associated board. He did a good job in the boardroom, kept focused and moving in the right direction. But his biggest contribution was out of the building, because he was

Harold Jordan of M&A Electric Power Cooperative, who served on the board for about 12 years, considered Davis his mentor. As a green newcomer in 1998, Jordan appreciated the freedom Davis, Clark and Stagner cultivated for members to speak their own minds.

As Jura remarked, “Davis was a tremendous influence. Some directors were downright scared of him. When he was on the board, his degree of influence was very high.”

As the cancer that took Davis’ life advanced, Jura remembered when the discussion turned to who would be a good successor to Davis at Sho-Me. Late in the evening at a

From top: O.B. Clark, former Associated board president, at his ranch; and from left, John Davis and Maurice Happel, former Associated board members.

Associated’s board of directors and officers in 1999, from left, are: (seated)

Jerry W. Divin; John K. Davis; Ralph E. Shaw; W. Arthur Carrier, secretary; Maurice L. Happel, vice president; (standing) O.B. Clark, president; Harold E. Jordan; Don R. McQuitty; J. Chris Cariker; Robert E. Stagner; Donald W. Shaw; and Charles C. Baile, treasurer.

meeting in Haden, Colo., over a bottle of Dewar’s, Jura, Don McQuitty and Jerry Divin talked about Gary Fulks as that man. It was only talk, of course, with Sho-Me’s board making the final selection of a new general manager.

“There was some parity or poetry in that decision. One day Gary was working for me, and the next day I was working for him,” Jura commented.

Balancing the flamboyant Davis was quiet, diplomatic Bob Stagner from Poplar Bluff. Often, after Davis would forcefully present his views about an issue, Stagner would say, “Well, John, this is how I see it,” and that would lead to the board’s talking through the issue and hammering out a position it could support. Stagner’s phenomenal memory could be used very effectively to “call” a board or staff member who had forgotten a position years before. “‘You don’t remember when you said before …?’ That always scared me pretty badly,” Jim McNabb laughed. “He just

remembered everything that happened.”

The board members also had their share of fun. Don Shaw described when he and O.B. Clark gave John Davis a good dig. Sho-Me Power Electric Cooperative had gone through a name change, converting from a corporation to a cooperative, and an old sign with the corporation name was just too easy for the pair to confiscate following a photo shoot at Sho-Me’s office in Marshfield. They wrapped the sign in a blanket and handed it to Winnie Shaw, who held it in her lap in the back seat of Shaw’s car as they drove to Springfield.

During the course of the day, Shaw and Clark witnessed Davis receiving phone calls about the missing sign and getting more and more “agitated.” Unbeknownst to the culprits, Davis had Associated staff check Shaw’s car for the sign and report what they found: something shaped like a sign and wrapped in a blanket. He also had Associated general counsel talk to the Greene County sheriff about pursuing legal action. After a testy and frosty confrontation, Shaw and Clark kept face but promised to get a “replacement” sign back to Sho-Me. For a short while, Shaw laughed, “Davis got one-upped.”

Hats off to Associated

Much has been said about the turf wars and distrust among the G&Ts that characterized the early years of Associated. Those differences were distant memories by 1996. Though the geography and demographics of the G&Ts and distribution cooperatives ran the gamut, the cooperatives have never wavered from the commitment that binds them, the tiers of trust that hold them together.

Board members continued to wear three hats, loyalty to their local distribution cooperatives, to the particular G&T they manage or own and to Associated that generated the power. But when the board sat down in committee or in the boardroom, there was never any doubt which hat they wore.

“I have to remember each hat, but I have to look at what’s best for Associated,” summed up Dan Singletary,

CEO and manager of Howell-Oregon Electric Cooperative and a Sho-Me and Associated board member.

“When I got to Springfield, I represented Associated,” Charles Baile, retired board member serving from 1997 to 2009, said emphatically.

John Farris noted that though there were considerable demographic and geographic differences among the G&Ts, there was much common ground as well. “In general, our issues are very much the same,” he said.

Pillars of strength

From 1996 through 2010, only one board member served the entire period: Don Shaw. 1996 originals who left the board were Richard Arnold, James Steele, James Abernathy, Arthur Carrier, O.B. Clark, Charles Baile, John Davis, Jerry Divin, Maurice Happel, Ralph Shaw and Bob Stagner.

Other board members, Harold Jordan and Carl Thompson, rotated through during the period. As 2010 ended, 11 new members (from 1996) faced each other across the board table: Doug Aeilts, Chris Cariker, John Farris, Jake Fisher, Gary Fulks, Emery “Buster” Geisendorfer, Tom Howard, John Killgore, Don McQuitty, Layne Morrill and Dan Singletary.

The changes meant new dynamics and power relationships. But the personality changes were less important than the pillars of strength, such as those below, that held the board together and kept it focused on its fiduciary responsibilities and its mission.

Committees for vetting - One of the board’s defining architectures through the years was its committees. Clark remembered the years before the committees (technical advisory, comprised of the six G&T managers; finance and audit; planning and operations review; and human resources, public policy and marketing) were formed, when the board tried to engineer the day-to-day operation of Associated. Eventually, Clark and Diddle sat down to form the committees, described by Clark as “one of the hardest things I’ve ever done. I did the entire thing to

balance those committees. The cooperatives didn’t trust each other, and so we tried to balance so that we had at least one manager on a committee who trusted the other.”

As trust grew, the committees began to function true to their purpose, to vet issues and streamline the deliberations. Staff made presentations to the committees, which then recommended actions to the full board. More often than not, the board approved the committee recommendation. These committees, said Stagner, helped accelerate the board’s “maturing process.”

Board member Doug Aeilts of Northeast Missouri Electric Power Cooperative said the board committees were the most effective he’d seen in any organization. “Because of the high degree of confidence in the staff … we don’t have to rehash issues at the boardroom. Probably 75 percent to 80 percent of the decisions are made in committees. The other 20 percent to 25 percent will have more discussion,” he said.

Don Shaw experienced the increasing importance of the committees over his 19-year-and-counting tenure on the board. “When I first came on the board, it was a very different process whereby some major decisions were made. … Sometimes four or five members would meet the night before the board meeting. We’d reach an informal consensus and acted on it the next day. That’s no longer the case. Back then the committees existed but not an actual TAC [technical advisory committee]. TAC often didn’t meet, but now it has a meeting almost every month,” he said, adding that whereas earlier boards may have tried to settle issues outside the boardroom, robust discussions now took place in committees without any commitment to vote a certain way the next day at the board table.

TAC meetings, chaired by Shaw as the most senior director, often found the entire board sitting in for the discussions that typically resulted in a recommendation for the board to act on the next day. Shaw was careful not to bias the discussion with too early an opinion: “I have tried to allow for everyone to have input,” he said.

Voting structure allows good ideas to win - The voting

Donald Shaw, Associated board member, at Central Electric Power Cooperative’s Update Meeting.

From top: Missouri Gov. Jay Nixon, left, meets Associated board members Layne Morrill and Douglas Aeilts before the governor holds a news conference at Associated’s Headquarters on legislation to preserve the nuclear energy option for Missouri; and

structure of the board was another pillar, requiring eight as a majority and allowing G&Ts to split their votes. Again, Stagner observed, “The voting structure showed a lot more wisdom than the founders realized. It took eight positive to pass. It’s a lot more difficult to get eight people to agree than seven people.”

The split-vote provision sometimes led to painful outcomes, such as the 7-5 vote that ended the Norborne plant. “That vote tested the cohesion of the three-tiered system, the strength we had,” Jura said. Yet good things resulted from that same flexibility and the bylaws requirement that eight votes were required for approval of a measure. As Fulks pointed out, that provision allowed “good ideas to succeed.”

Staff as issue drivers -

Another factor in the effectiveness of the board was the role Associated staff played in moving the board to make decisions. Stagner remembered a time, though, when certain board members hated any communication with staff. But as Associated grew and the issues became more complex, a trusting business relationship developed between staff, senior management and the board. Staff presentations became vital to the board’s understanding of issues. Fulks was a frequent presenter before he became a board member. “Staff would bring recommendations to the board, sometimes in an executive session. It all started with the staff. They drove an issue,” he said.

in an issue paper, a concept Jura introduced from his years in the federal government. The paper covered the major points of an issue. That process helped the board focus and arrive at thoughtful decisions.

Carl Thompson of Northeast Missouri Electric Power Cooperative, who served on the board from 2001 to 2004, remembered the long timeline of discussion and planning about complex issues. Staff helped move those discussions along. “Some of the issues you don’t wait until six months out to begin talking about them. … You can’t wait until it’s time to turn on the tap to dig the water line,” he said.

“ How often does staff come up with recommendations that go to the board table where the recommendations were either not adopted or modified? Frankly, it’s frequent. Both add value. Often the boots on the ground think differently.

– Jim Jura Associated’s CEO ”

John Farris of M&A Electric Power Cooperative described the Associated board as “the best informed of any board I have served on.” He credited the staff, noting the quality of its verbal and written reports. “Nothing was left out. They presented the options, the pros and cons, the costs. The makeup of the board somewhat encourages the staff to bring that type of report to us. We have CEOs who tend to want to micromanage, but the education from the staff and consultants is as good as it gets,” he said.

Staff presented issues, arguments and recommendations

John Killgore, representing United Electric Cooperative and NW Electric Power Cooperative, said he was a “little amazed” when he first came on the Associated board in 2009 to see how well staff related to the members. “It’s encouraging to see these people work together for the same goal of serving members at the end of the line. Everybody

From top: Roger Clark, director of Engineering and Operations; and Ron Murphy, chief information officer.

is working for the same thing. … It’s not that way in all cooperatives.”

Once the board reached a decision, they knew they had the full support of senior management and staff. This unquestioning respect for the board and its decisions was an important strength, said Jura. “As long as the board makes a decision, if that decision is not illegal or unethical or immoral, I’m OK, because they are the governing body. There’s a respect for the board and a respect for the membership. In contrast some G&Ts are in trouble in other parts of the country because they are out of touch with their boards and members. That’s not the case at Associated,” he said.

The trust Associated placed in its board was reciprocated. As Chris Cariker of KAMO Power put it, “I can’t tell you the trust … the board has with the management team. Jim did some wild things … made some of the wildest moves ever seen, but they worked,” referring to some of the division director musical chairs he witnessed.

From a staff perspective, Duane Highley of Power Production said the board’s high degree of trust in Associated staff was reciprocated with “the red-face test.” When discussing an option, for example, staff would ask themselves if they would be embarrassed and red-faced when they presented it to the board.

Were they prepared for the board’s tough questions?

While those questions could come from any board member, the most relentless questioning often came from John Davis and Don Shaw, both G&T managers with years of experience in the business.

Jura noted that G&T managers like Shaw asked questions of staff that director-directors didn’t ask, and those questions added to the technical understanding of issues for all board members. Those questions appropriately challenged staff.

“How often does staff come up with recommendations that go to the board table where the recommendations were either not adopted or modified? Frankly, it’s frequent. Both add value. Often the boots on the ground think differently,”

Jura said.

A mutual pledge to do business together - One more pillar of strength — and a critical tie that tightly bound the three-tiered system — was the all-requirements contract. Under its terms, cooperatives pledged to buy all their power supply needs from Associated. In turn, Associated pledged to provide all the wholesale power supply for its member-owners’ needs. This contract clearly allowed Associated to reliably predict power needs and plan for future generation.

In 2004, member systems unanimously extended the all-requirements contracts from May 2040 to May 2050. That commitment illustrated the strength of the three-tiered system, the tiers’ trust in one another and in Associated’s ability to continue meeting its mission of providing an economical and reliable power supply and support services to member systems.

End of Burr’s

No history of Associated can bypass a mention of Burr’s. For decades, the local restaurant and lounge of Burr’s in Springfield was synonymous with board member John Davis and his forceful style of leadership. Typically, the night before a board meeting, Davis would gather with the board members who enjoyed a beer or cocktail at Burr’s. There, he would try to build a coalition of votes on a particular side of an issue to be voted on the next day. Not that he was always successful, but certainly he tried.

“I didn’t approve of Burr’s,” said Clark. “… I’m a believer in the board meeting together to deliberate. We have 12 directors, but it takes eight positive votes to carry on. If you can manage the votes, you can make some monumental decisions.”

Stagner was another board member who didn’t participate in Burr’s. “Davis used the Burr’s meetings to develop a coalition for the next day’s vote. John knew I didn’t agree with this. Every board member was obligated to study the information about an issue. That’s different from a group of eight directors who decided before they came to the

Duane Highley, director of Power Production, shares information at

“I can’t tell you the trust … the board has with the management team. Jim did some wild things … made some of the wildest moves ever seen, but they worked.”

– Chris Cariker Associated board member

Central Electric Power Cooperative’s Update Meeting.

table how they would vote. … On occasion I had to say some words…,” he said.

The Catch 22 of that scenario, for Stagner, was that if you came to the table prepared to cast your vote in a certain way, and then learned something new in that final discussion, you were in a dilemma. “I think you have to always come to that table trying to cast the very best vote for Associated and doing what’s right for the people you serve,” he said.

Board member Don McQuitty didn’t remember any votes being taken at Burr’s. It was useful, he said, to talk over the issues on which big money was riding outside the boardroom.

“The meetings I recall at Burr’s were about how do we make life easier for staff tomorrow and how do we get to where we’re going without leaving blood on the table,” McQuitty said. “The meetings at Burr’s ended the cold war between the range bulls,” referring to ugly fights at the board table.

Instead, he said, Burr’s became the place to hash out some of the differences. Sometimes those discussions went as late as 1 a.m.

Stagner didn’t attend many Burr’s meetings, and McQuitty remembered Davis waiting on the front steps of Associated’s Headquarters the next morning to meet up with Stagner after a Burr’s session to brief him on the discussion. Though Stagner and Davis didn’t always agree, they highly respected each other and were open and honest with one another. That was true of the entire board.

“We were very careful not to keep secrets,” McQuitty stated.

After Davis’ death in 2006, the board keenly missed his leadership and larger-than-life personality. The vacuum left behind after 30 years begged to be filled. Gradually, the dynamics of the board changed. Burr’s closed, members changed and the times were simply different. New leaders emerged, and the Burr’s coalitions faded away.

Passing the gavel

O.B. Clark’s retirement in 2009 marked the end of a career spanning nearly four decades. It seemed impossible to imagine the Associated board without him, and yet 18 months later it had moved on.

Under the Associated bylaws, the six G&T managers and the distribution cooperative managers who sit on the Associated board are ineligible to hold the board offices of president, vice president, secretary and treasurer. Only director-directors can be officers. And so, in due course, Emery “Buster” Geisendorfer was elected as the fourth president of the Associated board, representing Lewis County Rural Electric Cooperative and its G&T, Northeast Missouri Electric Power Cooperative.

Geisendorfer, like Clark, was a cattleman, having managed a large beef operation that often saw up to 5,000 head a year go through it. He also owned and operated a 700acre family farm with his brother adjacent to the farm that has been in his family four generations.

In his second year as board president, Geisendorfer spoke of how “very humbling” it was to follow Clark and the precedents he set. He said, the board’s “great cohesion,” the “tremendous respect” members held for one another and the freedom to speak one’s mind at the table: these were the Clark legacies Geisendorfer vowed to maintain.

Former board member Julian Brix observed that the six G&Ts had been blessed with “really strong people.” They percolated to the top of their organizations, with the cream of the crop sitting on the Associated board. The dynamics changed as board members came and went, but invariably they set aside their differences, perspectives and priorities to support Associated’s best interests.

Board member Tom Howard, CEO and general manager of Callaway Electric Cooperative, praised that professionalism and diversity. Describing the G&T managers, he said, “The electricity business is their life. They’re self-driven and take their jobs so seriously. … We hope with integrity to do the right thing.”

From top: Emery Geisendorfer, Associated board president, at his northeast Missouri family farm; and

Thomas Howard and John Killgore, Associated board members.

Tried and tested, the board of 2011 remained a board of the people but one more sophisticated in the ways of governance, finance and communication than earlier bodies. In particular, when it came to billions of dollars and cents, the board and management proved they were masters of the purse.

John Davis: a man for the members

By some measures, John Davis was a second-generation range bull in the tradition of Truman Green, Mike Boudreaux and Fay Martz. With his burly build, chunky gold bracelet, a pack of cigarettes always at hand, and direct, forceful style, he was hard to ignore. Certainly, he evoked strong emotions from the people around him. But from 1975 to his death in 2006, as general manager of Sho-Me Power Electric Cooperative, he never forgot the interests of the member as the end customer. His top priority was always the interests of those members and the employees who served them.

Though his goals were exemplary, his methods could be bruising. Ralph Shaw, who represented Northeast Missouri Electric Power Cooperative on the board for much of the time Davis served, observed that he was “full of intrigue and control.” His modus operandi in reaching board decisions was to build a coalition at Burr’s. As Don McQuitty remembered, “John would look out for you at Burr’s the night before a meeting.” But watch out the next day. “At the board table … he would try to take you out. He wasn’t afraid to embarrass any employee.” Or board member for that matter. Everyone was fair game if it advanced the Davis agenda.

Jim McNabb, who probably had the least to fear of any Associated employee in front of the board, was always conscious of the Davis threat. “When I prepared for a board presentation, I prepared for questions from John Davis,” he said. “John Davis … always asked the toughest questions, and when John started asking questions, the adrenalin pumped a little faster because he would get to the inside of the issue.”

Yet Jim McNabb often became the channel through whom others approached Davis.

Ralph Shaw described Davis as “ornery in the sense he would bait you and sometimes get discussions going. It was not unheard of for him to propose something that was the exact opposite of what he had in mind. He made you look at things in a different way. That was his normal mode of operation.”

John Farris, general manager of M&A Electric Power Cooperative and a fellow board member with Davis, remembered his commanding presence, “I knew John Davis from the time he started at Sho-Me. … He had a booming voice and spoke with a lot of authority. He was usually right.”

O.B. Clark, board president during most of the Davis years, agreed Davis could be intimidating, but “he knew where he wanted to go and how to get there.” Clark experienced those board dynamics firsthand, remembering the balance and counterweight the quiet Bob Stagner brought to the turbulence. “Both John and Bob were good engineers, extremely intelligent and dedicated. … One was really vocal and one wasn’t, but they were smart at what they did,” he said.

From left: O.B. Clark delivers the board president’s report at Associated’s 2004 annual meeting; and

John Davis, former Associated board member (in sidebar).

John Davis: a man for the members, continued

One example of the power Davis wielded occurred during the time the Associated board was considering KAMO’s desire to bring its Oklahoma cooperatives into Associated. It’s safe to say that in 1997, the board would not have agreed to admit KAMO the next year if Davis had opposed it. In the mid-1990s, the board had strong feelings that the KAMO Oklahoma contingent should not be admitted for fear of rate increases for all members. In fact, Jim Jura said, “Some board members said ‘not over my dead body.’”

Jura remembered how KAMO’s Chris Cariker, new to the Associated board, “worked very hard to establish a good relationship with John Davis early on. They were so different, John a hard drinker and Chris a teetotaler … But Chris looked at the board and knew he had to go through Davis for anything to be approved.”

A member of the Cherokee Nation, Davis was as proud of his heritage as he was of Sho-Me and Associated. He came to Sho-Me through a recommendation by Doug Wright, administrator of Southwestern Power Administration where Davis had worked years before as an engineer. Davis became the new Sho-Me manager in 1975, replacing Charles Boulson. His term through 2006 would become known as the “John K. Davis era.” It was a time when the rapid growth of the six G&Ts forced them to work together to overcome economic, political and legal obstacles.

Under the guidance of its “can-do manager,” Sho-Me hired skilled professionals who could work on those obstacles. Davis and Sho-Me won a long battle for release from Missouri Public Service Commission regulation. They created Sho-Me Technologies to bring fiber optics to county courthouses, schools, hospitals and clinics throughout its territory. They forcefully advanced AMEC’s plan for a workers’ compensation insurance pool for cooperatives, known as the Missouri Electric Cooperatives Insurance Plan. And Davis successfully advocated for equal employee benefits, whether union or not. It was all about looking out for his people.

During his three-year battle with cancer, Davis never stopped working at the job he loved dearly. He considered the Sho-Me employees part of his family, and those were the people he wanted to be with until the end. His lifetime dedication to cooperatives – he was one of the longest-serving G&T managers in the nation – earned him AMEC’s Franklin R. Stork Democracy Award.

Summing up the Davis contribution to Associated, Ralph Shaw said, “While you might not agree with something John said, you knew he’d given it thought, and he made you think about the other side. That’s so important. He was a very valuable asset to the idea process.”

Associated’s Headquarters, expanded in 2010 to meet workforce needs. The expansion was built to meet LEED gold energy efficiency standards.

From left: Chris Cariker, Associated board member (sidebar photo); and

Jim McNabb: a masterful board liaison

Jim McNabb’s nearly 40 years with Associated began in 1962 when he was hired as the fifth Associated employee and continued until his retirement in January 2002. For the last six years of his tenure, McNabb served as special assistant to the CEO and general manager, but for the balance he directed Engineering and Operations. Every generation and transmission project of those decades bore his mark.

Blessed with a brilliant mind, superb engineering skills and formidable negotiating instincts, McNabb was as well known among cooperatives around the country as any of Associated’s general managers. Though he denied being a “powerhouse” within Associated, certainly Engineering and Operations was the division that studied generation and transmission, that did the engineering, did the analysis, did the planning and made the contracts. McNabb’s division was where the ideas came from.

McNabb never socialized with the board. That was a personal decision of his but one he stuck to. Yet, in Jim Jura’s estimation, McNabb was the staff member with the most influence with the board.

McNabb himself denied any such power, but he admitted, “I had a very close relationship with the board. Most of the senior staff members did. It was the policy that [at] every board meeting we had an opportunity to make a presentation about new generation or a new contract or something important and that put me in contact with the board. Sometimes I successfully answered their questions. Sometimes I went down in flames.”

McNabb recalled one time when he presented a proposed change to a coal contract to the board. “The board just didn’t like it. But this has never been a rubber-stamp board. I never went before the board with new ideas or a new piece of business without a great deal of apprehension because they would get inside your head. And if your way wasn’t sound, they would send you back to change it or whatever. Our board always understood the business … understood what Associated was trying to do, and they weren’t going to be brought into some new arrangement without a full understanding. Sometimes you just couldn’t get that full understanding,” he said, continuing, “You had to influence 12 people, at least eight to get any kind of program adopted. Some of the board members would delve deeper into subjects than others.”

When it came to negotiations, “We understood what the board expected of us. So when negotiating, we had a fair idea of what the board expected,” he said.

Jim McNabb, former director of Engineering and Operations.

From left: Dan Singletary, Joe Wilkinson, Emery Geisendorfer, Doug

Aeilts, David McNabb and Jim Jura trek to New York City to tell

Associated’s story to rating agencies.

In 2011, Associated Electric Cooperative’s board of directors are, from left, in front, Gary L. Fulks, Sho-Me Power Electric Cooperative; Donald W. Shaw and Thomas W. Howard, Central Electric Power Cooperative; Emery O. Geisendorfer, president, Northeast Missouri Electric Power Cooperative; in back, from left, Douglas H. Aeilts, Northeast Missouri Electric Power Cooperative; John C. Farris, M&A Electric Power Cooperative; R. Layne Morrill, secretary, and J. Chris Cariker, KAMO Power; T. Jake Fisher, treasurer, M&A Electric Power Cooperative; John B. Killgore, vice president, and Don R. McQuitty, NW Electric Power Cooperative Inc.; and Dan A. Singletary, Sho-Me Power Electric Cooperative.

Associated’s member-owners

Central Electric Power Cooperative

Donald W. Shaw

Thomas W. Howard

KAMO Power

J. Chris Cariker

R. Layne Morrill

M&A Electric Power Cooperative

John C. Farris

T. Jake Fisher

Northeast Missouri Electric Power Cooperative

Douglas H. Aeilts

Emery O. Geisendorfer

NW Electric Power Cooperative Inc.

Don R. McQuitty

John B. Killgore

Sho-Me Power Electric Cooperative

Gary L. Fulks

Dan A. Singletary

Janie Corn: adding the

personal touch to governance

“Without a doubt, Janie made my life easier. … She has a finger on the pulse of the entire organization.”

– Jim Jura

Associated’s CEO

One person near the corner office at Headquarters helped make Associated’s unique governance structure a living, breathing, personal dynamic. Made up of complex relationships and personalities, governance at Associated could get complicated, but Janie Corn, executive assistant in the Executive Division, made it seem easy. Her 30-plus years at Headquarters gave her an intimate, working knowledge of the organization and its players, including senior staff, the board, strategic partners and Jim Jura. Without a doubt, said Jura, “Janie made my life easier. … She has a finger on the pulse of the entire organization.” Professional, discreet and detail-oriented, Corn earned the complete trust of those players. Early on, board members and staff learned they could talk through Corn to Jura – if they didn’t want to have a direct conversation.

As Jura’s “right-hand person to the boss,” Corn could anticipate staff and board responses, gently remind him of sensitive issues and use good judgment when swift action was called for.

When it came to trust, no one had more of it than Janie Corn, who made sure governance kept its human face. She was a critical building block in Associated’s tiers of trust, earning Excel awards in 1999 and 2010 for her professionalism.

Associated received “Project of the Year Award” for construction of selective catalytic reduction environmental controls equipment in 1998 on New Madrid Unit 2 from Power Engineering magazine. The award was significant at the time because Unit 2 was the first coal-based application in the world operating at 93 percent NOx removal. Another 17-story SCR is added on Unit 1 by 2001, making the plant one of the cleanest coal plants in the country with cyclone units.

Chapter six

Big money

The money just kept getting bigger.

Bob Stagner, who served 32 years on the board, remembered when a million dollars was a lot of money for Associated. Then the million became $10 million, then $100 million. Then the millions became billions.

“But you always kept in mind that all those millions and billions were generated by people who pay $100 or $125 a month. How many light bills will it take to pay for that project?” he said.

The Associated of the 1970s was cash poor and asset poor. As documented in “Win-Win,” when the money was available, the bill at the bottom of the stack got paid. By 1996, Associated was no longer cash or asset poor. Quite the contrary.

Through the mid-1990s, Associated generated a lot of cash. It had built up its Generation and Environmental Reserve Fund, a kind of war chest of cash set aside to pay for multimillion-dollar issues and projects, often environmental in nature. Costs of closing the mines cut into reserves, but of greater concern were the exploding costs of fuel, environmental compliance and new generation that were coming. Where would the money come from to pay for these necessities?

Historically, the money came from RUS, the U.S. Department of Agriculture Rural Utilities Service (formerly REA), or from the National Rural Utilities Cooperative Finance Corp. (CFC). Low-cost capital for low-cost power. But RUS money came with strings attached. An RUS loan

Construction continues on the 540-MW addition, at right, to the existing 522-MW Chouteau Power Plant, left, in Pryor, Okla.

“Associated is one of our better G&T borrowers, if not the best we have. They work with us and treat RUS as a partner, and we really, really appreciate that.”

– Victor Vu RUS

had a lien on Associated assets, which meant RUS had to approve of any additional loans against those assets. It also took about two years for a loan application to be processed, and there was always the question of whether Congress would appropriate adequate funding for RUS.

David McNabb, Associated’s CFO beginning in late 2006, described the need for more diversified financing that Associated faced from 1996 through 2010: “We started with bigger capital projects like St. Francis and Chouteau 1. Then the peakers came in, and in 2002 Holden. Then we had the $420 million project at Thomas Hill that ended in 2008. Now, we’re right in the middle of Chouteau 2. That’s $560 million. These are the largest capital projects in the history of the company.”

The strategy that developed over the past 15 years was to use cash reserves and short-term street money from bonds, banks, syndicates and private placements to pay the immediate bills of capital projects, then use low-cost, long-term loans for paying down the debt. That meant establishing relationships with lenders and getting lines of credit. Early on, said David McNabb, Associated’s line of credit might have been only $10 million. In 2010, it was more like $600 million with about $95 million drawn on that $600 million at year-end.

This strategy played out early on in paying for the new gas plants. Cash on hand enabled Associated to move quickly to construct St. Francis Unit 1 and the Essex and Nodaway peaking plants to meet load demands, Mike Miller, former CFO, explained. Associated had about $200 million in the bank. The most economical use of that cash was to build the units, then finance them when they were ready to come into service. “That gave us flexibility and time to arrange the best financing,” Miller said.

The old standbys: RUS and CFC

Not that Associated walked away from Rural Utilities Service and National Rural Utilities Cooperative Finance Corp. loans. Victor Vu of RUS said it provided loans at one-eighth of 1 percent above the Treasury rate, which

is probably 1 percent to 2 percent below what the market offers. “When you’re looking at hundreds of millions of dollars, that’s quite a big difference,” he said.

Vu noted that in 2002 RUS approved $130 million to build the Holden plant and $262 million in 2005 to put in environmental equipment to control nitrogen oxides emissions at Thomas Hill. Later, there was a $150 million construction loan for Dell Power Plant. The year 2009, he said, was a particularly active year for Associated and RUS with three additional loans, one alone totaling almost $200 million. RUS approved $490 million in 2010 for Chouteau 2.

“The total since 2000 is $1.4 billion that RUS has provided in financing for Associated,” Vu said. “Associated is one of our better G&T borrowers, if not the best we have. They work with us and treat RUS as a partner, and we really, really appreciate that. We’re not just a banker but a partner. It helps us do our planning and helps get loans out faster.”

As for CFC, in the 1980s, CFC was Associated’s lender in the Black Fox Nuclear Project. When that project shut down, Associated repaid the loan and then turned to CFC again to finance a very large tax benefit transfer upward of $200 million. In those days, longtime CFC executive Krishna Murthy described Associated as “a developing cooperative with significant potential” that has since become a highly rated cooperative with substantial equity and many more assets.

CFC continued to service loans to Associated from the 1970s with a balance of about $70 million in 2010. CFC also has a $150 million line of credit with Associated, with about $30 million drawn. “Associated is one of the largest exposures we have,” Murthy said. He also acknowledged a strong human connection between the two entities. As a cooperative bank, CFC is owned by the G&Ts and distribution cooperatives that borrow from it. “KAMO, Sho-Me, NW, they are the owners of CFC and the owners of Associated. Associated also owns CFC,” he said.

Tom Hall, another CFC officer, noted that federal lender, cooperative lender and corporate lender appetites

“ Every time when we go back to the rating agencies, a director-director goes and sits in front and tells the story from where they sit. That is something no one else has done. … The financiers are a little surprised that we have input, the actual people using the product.

– John Killgore Associated board member ”

for various loan tenures changed dramatically over time.

“Historically, G&T cooperatives relied on CFC for shortterm liquidity and RUS for long-term financing. Given ongoing regulatory and political pressures, G&Ts have had to reconsider the appropriate mix of federal, cooperative and corporate lender relationships. CFC has been a strong supporter of Associated in bringing to bear financing when and how Associated most needed it,” he said.

Hall added, “Electric cooperatives have relied, and continue to rely, on CFC to help build multi-lender or ‘syndicated’ liquidity facilities to fund their capital expenditure programs. Given the size of generation asset expansion within the cooperative niche, the breadth and depth of CFC’s relationships have been critical to bringing needed

lending capacity. Associated, given its long-term thinking and financial strength, has been a leader in developing relationships with lenders, institutional investors and investment bankers. Associated hasn’t relied on others to build relationships for them. They have done that themselves.”

Even with their excellent terms, RUS and CFC couldn’t meet all of Associated’s needs. And so the cooperative ventured down new paths seeking big bucks to be paid for by $100 monthly light bills.

The ratings game

In the 1980s, Associated’s “whisper ratings” from New York City’s rating agencies unofficially answered the question, “If Associated were to issue bonds, what would they be rated?” After Jim Jura arrived, the trips to New York continued. Typically, board president O.B. Clark and two board members from its finance committee accompanied Jura and the CFO to make the presentations. Mike Miller, CFO, credited Alan Spen of Fitch with posing the pertinent questions: Do you recognize the problems coming at you and do you have the capability of addressing them?

Jura remembered that not every board member was convinced official Wall Street ratings mattered very much. “In the early 1990s, some board members questioned why I put all this emphasis on the ratings,” he said. To help the board better understand the stakes, Jura invited a new strategic partner, Spen, to make a presentation to the board at a critical meeting in Columbia, Mo. “It was much easier after Spen!” he said.

In the mid-1990s as Associated studied the economics of gas generation, the realization hit the board and management that traditional financing through RUS wasn’t going to be enough or be expeditious enough to meet the needs. Some financially strong cooperatives had begun to look outside RUS. Associated began to ask itself, “What if RUS is not here? What are the alternatives to finance capital growth?” It was time for the real deal in ratings.

In 1996, Associated entered the bond markets for real, securing ratings of AA from Standard & Poor’s Ratings

From top: David McNabb, Associated chief financial officer; and

Christopher Jeffries, vice president of business development, National Rural Utilities Cooperative Finance Corp. (CFC), meets with Mike Miller, former Associated CFO, at Associated’s 1999 annual meeting.

Service, AA- from Fitch Investors Service LP and A1 from Moody’s Investors Service. The ratings were critical because they allowed Associated to sell bonds on the open market on its own strong credit, saving millions of dollars in interest charges. The bonds refinanced $127 million worth of 1984 pollution control debt at a lower interest rate. This type of bond was secured by an entity using pollution control equipment and was a cost-effective way of paying for such equipment.

Ratings continued to be critical to Associated’s ability to secure street money to pay the bills. The trek to New York by senior management and the board was repeated every year. John Killgore, a director of NW Electric Power Cooperative and an Associated board member, commented on the reception Associated typically received: “Every time when we go back to the rating agencies, a director-director goes and sits in front and tells the story from where they sit. That is something no one else has done. … The

financiers are a little surprised that we have input, the actual people using the product,” Killgore said, explaining that director-directors are cooperative members elected by their peers to serve on the Associated board. They are a direct line to members versus manager-directors who are general managers and CEOs of their respective G&Ts.

For Jura, board participation in the ratings game has been critical. “I’m very grateful for the board members’ participating with the rating presentations. It’s very helpful to demonstrate to a rating agency that our people understand these issues, and it’s very helpful to us in maintaining strong credit,” he said, adding that the board members help establish personal friendships, always a factor in finance.

Indentures: the key to financial flexibility

In 1997, Associated announced it was seeking an indenture that would free it from approval from RUS for thirdparty financing. The indenture, a flexible financial tool used

From left: Meeting during a 2009 information-gathering visit to Associated’s Headquarters are, from left, Theodore Chapman and David Bodek of Standard & Poor’s rating agency, Roger Clark and David Dockery, Engineering and Operations staff members at Associated; and

Chouteau 2 Power Plant construction under way in Pryor, Okla.

by many corporations but few cooperatives, was in process a year later as Associated was building its first gas generation. Associated would become the eighth cooperative in the country to use this gold star standard of financing, and it would completely change the dynamics of how the cooperative borrowed money.

Bill Ekey, a senior vice president at Commerce Bank, N.A. in Kansas City, the indenture trustee, described it as “an accordion of debt that can grow or shrink according to the need. Instead of individually securing one piece of property for one loan, an indenture can accommodate lending over an extended period of time for huge amounts of money.”

When Mike Miller joined Associated in 1998 as CFO, controller Howard Gomer had already begun to build an indenture that would allow other lenders besides RUS to have a shot at loaning money to Associated. Under a traditional RUS mortgage, Associated’s assets had a lien against them, which affected its ability to go to the open market and borrow money. The indenture laid out marketbased financial covenants and established a trust that treated all lenders equally and looked out for the interests of individual investors. The indenture thereby created the opportunity for competition among lenders for Associated’s business. More than 12 lenders eventually competed for the privilege of lending Associated money in that first offering, including Nations Bank, Solomon, Smith Barney, Goldman Sachs Group Inc., Prudential Capital, Citibank and PricewaterhouseCoopers.

Competition for Associated’s debt brought speed. The rapid-fire construction of the Associated gas fleet could not have happened so quickly without the indenture. For example, the money was there for the Essex plant to generate kilowatts within 12 months of the purchase of its combustion turbine, the land and construction of the facility. More lenders provided a greater variety of financing terms, from leasing to fixed-rate loans. Now, said Miller, the board had a variety of alternatives to review rather than just the price of an RUS loan.

CFO David McNabb observed that the indenture allowed Associated to go to any lender and offer it equivalent security with RUS. “That was a major, major, major piece of why we can go to other lenders,” he said.

Commerce Bank’s Ekey added, “Associated had to be more nimble in the marketplace. Associated had to have the ability to take advantage of the opportunity to leverage the assets they own while keeping borrowing costs under control. The indenture really covered those objectives.”

CoBank steps in

“We certainly, definitely were trying to get their business. Associated came up on our radar screen of well-run G&T organizations that had a strong membership base. It came up on our screen as very desirable,” recalled Jake Udris, a senior vice president with CoBank, the $58 billion cooperative bank that loans money to agribusinesses and rural power, water and communications providers.

Udris continued, “I remember meeting with Jim Jura at a NRECA annual meeting and asked him if he would speak at an executive forum of 25-35 senior-level CFOs and CEOs of G&Ts or customers about what were the criteria for a good CFO. He was in the process of hiring Mike Miller. … Jim agreed to speak at that forum and has spoken a number of times since. I had another motive for getting him to speak that I never told him. I wanted to profile him and Associated in front of the executive team, and I thought he sold pretty well. … He was willing to think outside the box. … The first concrete and significant touch point for CoBank and Associated was when Jim agreed to speak.”

Horace Harrod, then a senior vice president and division manager within CoBank, also was courting Associated and finally sealed a deal.

He explained, “Associated had been a virtually exclusive borrower from RUS and CFC up until the time CoBank made its initial loan. CFO Wes Ohrenberg was a long-tenured individual with Associated and was very comfortable with RUS and CFC. CoBank had called on

Howard Gomer, former controller.

“Associated had to be more nimble in the marketplace. ... The indenture really covered those objectives.”

– Bill Ekey Commerce Bank

Associated for a number of years but had never worked a deal.” After Jura arrived, Harrod remembered him as “a catalyst for a number of changes that started happening. … He saw that Associated was about to go through a growth period and knew there would be a need for more capital. The whole character of the organization began to change along with that.”

Jump to 1998. Mike Miller was now the CFO. Knowing that Miller had little knowledge of RUS and its programs, Harrod saw an opportunity to talk about CoBank’s financial alternatives. He knew Associated had an indenture and needed capital to pay for its first gas plant and that Miller was interested in CoBank as one of several alternatives to RUS and CFC.

“I remember when I first called on him,” Harrod continued. “I said, ‘Here’s our strengths and weaknesses and in my view those of other banks. You’ll have to weigh the strengths and weaknesses of each group.’ … later, Mike called and said, ‘You were right. It worked out just exactly like you said. We’re going with CoBank.’”

During the days when Harrod in Louisville in the eastern time zone and Miller in Springfield were working through the details of the first loan, “Mike was spending a lot of long hours in the office, and he had a question about one of the documents he was working on for the St. Francis deal. He didn’t realize the time and called my office. As we went back and forth on the documentation, Mike heard a buzzing in the background and asked what it was. It was the cleaning staff running the sweeper in my office because it was 7:30 p.m. in Louisville! ‘Oh, I didn’t realize it was so late,’ he said. He kiddingly called me the sweeper guy after that,” he said.

Because CoBank’s rates were so good, Associated came back in 18 months for another $100 million for Chouteau 1. But that was too much exposure for CoBank, so it offered an innovative solution: a syndicated loan in which it would carry $50 million and Farm Credit system banks the second $50 million. Initially, that loan was sold to AgFirst, the Farm Credit Bank in Columbia, S.C. Subsequent loans

were sold to the Farm Credit Bank of Texas in Austin and US AgBank in Wichita, Kan., as the Farm Credit system stepped in to form the syndicate. The concept of syndication grew so that by 2010, CoBank had close to $400 million in total credit extended to Associated.

Summing up CoBank’s lending prospects with Associated, Udris, a senior vice president, said, “The best customers should be customers that someone else wants too. … CoBank’s challenge today is that all the big dogs know about Associated now and would like to do business with it.”

Going private

Once Associated got square with indentures, bank loans and syndicates, it ventured into yet another type of financing: private placements. Together, Miller and David McNabb pursued this new option, beginning with Metropolitan Life Insurance Co. in 2005.

It was another example of timely forward thinking on the part of Associated. Other G&Ts were not so fortunate and were scrambling for financing when RUS loans for baseload, fossil-fuel power plants dried up.

Nancy Doyle, a MetLife director for private securities for the power industry, noted that Associated was very advanced in tapping into MetLife as a lender. While Associated was looking to banks for short-term money to pay the bills, it started looking at insurance companies as a lending source for long-term loans. MetLife did its due diligence in evaluating Associated as a potential borrower.

“We looked at the financial statements, looked to see how willing the board was to raise rates to cover costs and to build up a cushion of patronage capital. We looked at Associated’s plans to spend money in the future. Obviously, we don’t like to go hog wild on some crazy project! Associated had a very considered plan, and we got very comfortable with general manager Jim Jura and Dave McNabb. … We also met the board members, who represent the ultimate owners. They’re the ones paying the bills, and so it was very important that they were financially healthy. We looked at their financial metrics and at

Dell Power Plant construction.

the credit ratings, though we do our own due diligence as well,” she said.

In the 2005 deal, MetLife was the largest lender in a syndicate orchestrated by SPP Capital for the 30-year loan. Ultimately, Doyle said, “We asked, ‘Do we want to lend to these people?’ We looked at Associated and said, ‘Yes.’”

In 2009, Associated came back to MetLife directly, not through an investment banker. This time, it asked for a five-year $50 million loan and a 30-year $50 million loan, neither tied to any specific project. “They knew the government wasn’t going to lend any more for coal, gas and nuclear. … It was a fairly good-size amount for a company like MetLife, and we only do some loans to people we feel very comfortable with,” said Doyle.

In 2010, MetLife held loans maturing from 2014 to 2039. “When we do these investments, we buy and hold, and we want to make sure upfront that we’re dealing with a very creditworthy entity like Associated,” Doyle said.

Mike Miller: the right man for the right time

“Mike Miller got off to a rocky start, but at the end of the day what history should say is that Mike Miller took us to a new level. Mike Miller took us to Wall Street,” said Don McQuitty, general manager of NW Electric Power Cooperative and an Associated board member.

Miller was a shock to Associated. Joining in 1998 as CFO, he had no utility experience other than auditing Texas utilities as a junior accountant with Deloitte & Touche after college. For the 14 years before joining Associated, he was vice president of finance at familyowned Silver Dollar City in Branson, Mo. There, he was used to an environment where banks competed for the company’s business.

Jura was convinced, though, that Associated needed shaking up, and he was farsighted enough to know that RUS and CFC financing would not be enough once gas got rolling. As Jura courted and interviewed Miller, Miller was impressed with Jura’s singularity of focus. In explaining Associated’s business strategy and financing, he stressed to

Miller there was only one test: cost, low cost. Associated will be the lowest-cost provider. “He had a very strategic approach to business. … We’re going to stick to generation, form strategic relations and be financially strong.”

Miller got it and in fact was already accustomed to a strategic approach to financing. “Working for Silver Dollar City really gave me a certain view of how to manage assets and how to look at corporate resources. That was a change that Jim Jura was trying to make at Associated. When I joined, there was a lot of noise about deregulation. Jim really wanted a CFO with for-profit experience to counter deregulation pressures on the cooperative,” he said.

Jura liked what he saw in Miller. “Mike Miller was a strategic choice I made. He offered us an outside view of industry and how to manage financial assets differently. What I underestimated was how much glass he was going to break!” he laughed.

“... what history should say is that

Mike

Miller

took us to a new level. Mike Miller took us to Wall Street.”

– Don McQuitty Associated board member

Mike Miller, former Associated CFO.

“They have a lot of ambitious projects. They have to meet a growing load on their system and a growing need to upgrade facilities, upgrade environmental controls and meet more user demand. There’s a constant need for sources of financing.”

– Bill Ekey Commerce Bank

“Mike was totally alien to this culture. He was an alpha male, and Jim McNabb was the other.” That led to some competition between the two to win board influence.

Miller himself admitted that the move from the for-profit entertainment world to the highly regulated utility business was a challenge. “I stubbed my toe a number of times in learning the cooperative culture and learning to be effective with the senior management and the board,” he said. His mastery of the transition he attributed to his very competent staff: Richard Burlison as controller, Randy Murdaugh in charge of risk, Jeannie Robbins as accounting manager and all their supporting employees.

But Miller soon proved to be the right man for the times. During his 12-year tenure, he borrowed, refinanced or initiated short-term borrowings of about $1 billion, some of it from new financing sources. He pushed Associated in the direction of private placements and introduced competition into financial strategy. As a result, he could offer the board a menu of options that pitted lenders against one another. Competition, the board learned, could save Associated big money.

Rock solid for the 21st century

As the first decade of the new century advanced, expenses and the loans to pay for them kept increasing. But Associated’s conservative financial discipline kept it rock solid. In 2004, it paid off the remaining $31.7 million in mine closing costs. In total, Associated amortized $342 million in 11 years, achieving the write-off 11 years ahead of schedule. That removed nonperforming assets from the balance sheet and improved Associated’s competitive position.

2009 was a busy year for bankers and Associated. It received two low-interest loans from RUS: $160 million at an interest rate of 3.81 percent to help with the cost of the Thomas Hill Energy Center environmental controls and $40 million at 3.78 percent for construction costs of the combined-cycle Dell Power Plant that began operating in 2007.

Associated also secured a $199 million RUS loan for

141 projects in Associated’s 2007-2012 construction work plan, including transmission facilities; heavy equipment for the coal yards at the power plants; turbine controls and other power plant equipment; and added capability at Dell Power Plant to burn diesel to increase the plant’s operating flexibility and improve reliability.

In spite of the lingering recession, Associated also borrowed $100 million from Metropolitan Life Insurance Co. and added lines of credit with CFC, CoBank, Bank of America and Regions Bank. At the end of 2009, Associated had $170 million drawn and total credit capacity of $500 million, with an average interest rate of 1.10 percent. The low interest rates reflected Associated’s hard work in building high credit ratings with Moody’s, Fitch and Standard & Poor’s.

At the end of 2010, Associated had 28 loans in place, with a total of $1.84 billion outstanding. That compared to $690 million, the bulk with RUS and CFC, in 1998 when the indenture was first issued.

In its long-range financial forecast, Associated had estimated spending more than $4 billion through 2018 alone for new generating resources, environmental controls and general capital items. But with regulations not yet finalized, the uncertainty about what environmental equipment to add and when continued.

So will Associated get the millions and potentially billions needed in the coming decades?

“Just from knowing the company since 1998, I think so. They have a lot of ambitious projects. They have to meet a growing load on their system and a growing need to upgrade facilities, upgrade environmental controls and meet more user demand. There’s a constant need for sources of financing,” Commerce Bank’s Bill Ekey said. “They appear to be well-positioned based on financial condition, the flexibility of the indenture they’ve got, coupled with the fact they’re pretty good at adapting to the market and moving ahead with projects that make sense.”

He continued, “What I’ve observed is that as a group the whole management team is very down-to-earth. They’re

Richard Burlison, former controller.

the kind of people who are approachable and easy to deal with and are genuinely concerned with their customers. They talk a lot about the ‘customer at the end of the line.’ I think that’s real interesting, because it’s not like other corporations I deal with. Associated is focused on what they are doing for the customer. It’s very refreshing.”

Summing up Associated’s financial picture in 2011, Tom Hall with CFC said, “Associated being a large utility, their short-term and long-term needs are bigger than any single lending institution can cover. What they decided to do was to build relationships with a variety of different lenders. Through a lot of hard work with Dave [McNabb] and Mike [Miller] and Jim [Jura] and the executive team, they have put in place a series of credit lines with many different banks, and now they can leverage the breadth of the financial alternatives. Truly, Associated has positioned itself very, very nicely.”

Employee excellence: Ronda Earnhart in the Accounting and Finance Division was charged with keeping the books straight, documenting complex financial transactions and filing legal documents in 36 counties. In 2004, she streamlined the process for getting signatures on legal documents related to a renegotiation of Associated’s lines of credit. Her innovation saved Associated thousands of dollars in legal fees and earned her an Excel award.

“ It’s not like other corporations I deal with. Associated is focused on what they are doing for the customer. It’s very refreshing.

– Bill Ekey Commerce Bank ”

From top: Holden Power Plant construction; and

Ronda Earnhart, Accounting and Finance staff.

Directors, managers and staff from cooperatives throughout the three-tiered system tour the Dell Power Plant in May 2008 during Associated’s dedication event.

Family ties Chapter

In its early decades, Associated sometimes resembled a dysfunctional family. Private alliances, personal agendas and distrust among the G&Ts were all too common. Talk between Associated and the G&Ts was generally limited to the boardroom. The G&Ts tightly controlled talk between Associated and the distribution cooperatives.

But beginning with Gerry Diddle in the latter years of his position as general manager, Associated reached out to the G&Ts. Initially, it was largely a one-man show. But these small overtures paved the way for the communication channels Jim Jura made a priority.

One of the key players in the new dialogue was Keith Hartner, whom Jura had known at Bonneville Power Administration. Though Hartner was ready to retire from

there, in 1998 he accepted Jura’s invitation to join Associated as director of the Marketing/Communications Division. A native of Clinton, Mo., Hartner saw it as an opportunity to return to his home state but more importantly to work once again with Jura.

“My impression was that Gerry Diddle might have been the only person who had any contact with the cooperatives outside of board meetings; otherwise, staff was pretty much focused on Headquarters,” Hartner related. “There may have been one ‘update’ meeting when I came.

“There was a real sense at the time among the board that they didn’t want Associated out there talking to the cooperatives. They (the board) controlled the message.”

And so Hartner began. He started by essentially inviting

Cooperative members and staff visit at Associated’s 2007 annual meeting.

himself to G&T annual meetings. The first meeting he attended, “I walked in, and someone said, ‘What are you doing here?’” But Hartner persevered. He began recruiting Headquarters staff to join him on these road trips to interact one-on-one with members.

It wasn’t easy. “Some of the members had sharp edges to them,” he laughed. But as the G&Ts and distribution cooperatives got more comfortable with Associated staff, who really did seem to listen to member concerns, “They found out we didn’t have anything to hide at Associated.”

Gradually, the one-way meetings became a dialogue as Hartner offered to do more formal update meetings with the G&Ts. In the first year, only four accepted his invitation. Over time, the other two softened as they learned the benefits of the update meetings. Gradually, the mistrust was replaced with trust.

Over time, Jura, Hartner, Duane Highley and Gary Fulks when he was part of Associated staff became regulars at cooperative annual meetings. The door opened for Associated to join cooperative retreats. Formal update meetings became eagerly anticipated by all the G&Ts. Headquarters’ marketing and communications staff met more frequently with members, traveling to cooperative offices around the state.

Looking back, Hartner reflected, “It was always interesting to me, and true at Bonneville, that a bunch of people at Headquarters had no idea what happened out in the field. There was a kind of Headquarters mentality, and we had that at Associated. It wasn’t intentional, but those sitting in Headquarters were focused on running Associated. The 51 cooperatives and six G&Ts weren’t really cognizant of how Associated’s decisions affected them.”

Hartner continued, “This whole body of work with the update meetings, getting to annual meetings, hearing them talk to their customers, this was very, very important. When a situation develops, Associated staff needs to understand the impact to nearly 1 million customers out there. That just wasn’t there years ago.”

Joe Wilkinson, director of the Member Services and

Corporate Communications Division beginning in January 2008, picked up the update torch. When the Environmental Protection Agency issued its Mercury and Toxics Rule in March 2011 shortly before the first of the annual update meetings, Wilkinson scratched his presentation and started over, adding timely industry changes at the last minute.

“It’s an example of what we have to do to provide members with the best, most accurate information,” he said, adding that the goal of the update meetings is to create an open dialogue between members and Associated management.

Face-to-face meetings weren’t the only communication improvements. Mark Woodson, who joined Associated’s member services team in 1989, saw the role of member relations and communications expand under Jura. The website, publications, summaries of board actions, economic development initiatives, online briefing books, surveys of member satisfaction, membership in Touchstone Energy, all improved the dialogue. These vehicles helped broadcast Associated’s vision and mission, its strategic priorities and plans for growth. Suddenly, said Woodson, “There were no surprises.”

Fulks was among those Headquarters staffers making the early rounds of the cooperatives. When he became CEO of Sho-Me Power Electric Cooperative and an Associated board member, he was on the receiving end of the Associated presentations. “The meetings were very, very effective in getting the members to understand what’s driving the costs up. They’ve been a wonderful forum,” he said, adding, “There’s a lot more credibility.”

Another board member, John Farris, general manager of M&A Electric Power Cooperative, said, “The update meetings are probably the best tool for really communicating with the distribution directors. There aren’t many corporations where the CEO speaks one-on-one with the users of their products. Jura and staff are well prepared, and that gets our attention and encourages questions.”

Many of those questions were tough: Why are costs going up? Why are we building gas plants? “But Associated

From top: Joe Wilkinson, director of Member Services and Corporate Communications, at Association of Missouri Electric Cooperatives’ 2011 legislative conference;

Take Control & Save Program Manager Rick Holmes (left); and members at Central Electric Power Cooperative’s G&T Update Meeting.

never backed away,” said Farris. “All the communication has helped keep the family together.”

Talking to the family emerged as one of the most important functions Associated performed. It also extended to the three “statewide” associations representing electric cooperatives in their respective states: Association of Missouri Electric Cooperatives, Iowa Association of Electric Cooperatives and Oklahoma Association of Electric Cooperatives. These associations tackled politics in their respective state legislatures, seeking legislation that would be fair to their constituencies. When Associated initiated a series of wholesale rate increases beginning in 2006, it turned to these associations to help explain the issues. In AMEC’s Rural Missouri, for example, a “Future Watts” series explained why rates were on the rise.

As Associated entered its second 50 years, family talk within the three tiers was robust: up and down, down and up, and sideways. Communication would be critical as Associated tackled its short-term challenges of fuel, regulations and risk.

The helping hand of extended family: AMEC

Across the country, super G&Ts and their respective states’ cooperative associations have had their moments. “It’s a rare deal for them to get along,” said Don McQuitty, Associated board member and a former employee of the Association of Missouri Electric Cooperatives, describing those typical relationships.

Not so in Missouri. What was unique about Associated and AMEC, McQuitty said, was how well the two managed their relationship for 50 years. “Now is the best it’s ever been,” he observed. He should know, having worked for both Associated and AMEC before becoming CEOgeneral manager of NW Electric Power Cooperative.

The good relationship between Associated and AMEC began with Gerry Diddle and Frank Stork, AMEC general manager. Barry Hart, Stork’s successor, remembered Diddle earmarking funds to work on Associated’s legislative issues, including a large number of generation and

transmission issues in Congress. As AMEC’s director of government relations at the time, Hart worked 80 percent of the time on Associated issues. That continued when McQuitty joined AMEC.

Of course there were bumps along the way. Turf wars, management styles and personalities sometimes created speed bumps that rattled the relationship.

“It’s like any marriage,” said McQuitty. “You have things blow up.”

For example, after Associated beefed up its member services and marketing department in the late 1980s and early 1990s, AMEC, led by Stork, became concerned about blurred lines of responsibility. When Associated began offering energy efficiency classes to distribution cooperative members, AMEC felt a line was crossed.

McQuitty, working for AMEC at the time, remembered being sent to a cooperative-sponsored fish fry at Montauk State Park in 1991 to meet the new guy, Jim Jura. His orders from Stork were to make sure Jura understood where the lines were drawn. McQuitty and two others cornered Jura and “ranted and raved” while Jura listened, wondering what line he had crossed to provoke such a barrage.

What McQuitty, Stork, Hart and others discovered at AMEC was that Jura truly wanted the two organizations to get along. Over the years, the lines would clear, then blur again over sponsorships, memberships in national lobbying associations, constructing a new cooperative building on the state fairgrounds, even Associated’s annual meeting.

But the differences were always resolved amicably. Jura would sometimes meet with distribution cooperative members and AMEC staff in the ECCO Lounge in Jefferson City to talk through friction points.

“Little brush fires would have broken out, but over some beers we’d put them out,” McQuitty remembered.

Hart added, “We still have a few beers together. But when we talk business, it’s a professional thing that takes place in my office or Jim’s office, or if it’s at a meeting, we talk in the back of the room.”

By 1996, when Jim Jura was well settled into his role as

Barry Hart, executive vice president and CEO, Association of Missouri Electric Cooperatives.

“There aren’t many corporations where the CEO speaks one-onone with the users of their products. Jura and staff are well prepared, and that gets our attention and encourages questions.”

– John Farris Associated board member

CEO, he had made Associated’s relationship with AMEC a priority.

“That priority passed down to senior staff and their employees. Whenever AMEC calls, it’s a priority,” Hart said.

The key component of the AMEC/Associated relationship became the friendship between Hart and Jura. It helped, too, that Hart was on the National Rural Electric Cooperative Association’s Legislative Committee and Jura on its Power and Generation Committee. In their leadership roles, the two men helped resolve regional conflicts within NRECA and even develop new legislative resolutions.

“This close relationship is something we have never had before in the history of both organizations. This relationship is what makes us different than any other state,” Hart said.

Ultimately, the two organizations got back to their core strengths. As McQuitty characterized it, AMEC “lived and breathed politics.” Associated left politicking at the state and federal level to AMEC’s seasoned governmental relations staff. A good example occurred in 2010 when Missouri utilities and Missouri Gov. Jay Nixon announced plans to seek legislative support for an early site permit for a second nuclear unit at Ameren’s Callaway facility.

Behind the scenes, the players, including Associated’s board, agreed to give AMEC’s staff, led by former state Sen. David Klindt, the leading role in developing legislative strategy.

“This came through a meeting between Jim Jura and Warner Baxter [CEO of Ameren Missouri] where Ameren agreed this would be done. This was a first for the state, where we worked with an investor-owned utility on strategy for a state legislative issue,” Hart said.

AMEC, in turn, stepped back from plans to combine annual meetings. Associated continued to book top-notch speakers who brought valuable information and insights to distribution cooperative members.

One of the issues AMEC took on in the last 15 years was cap and trade. The Our Energy Our Future campaign,

developed by NRECA and launched in Missouri in 2008, took the voice of members at the end of the line clear to Washington, D.C. It reminded politicians that electricity needed to remain affordable and reliable. Under AMEC’s direction, Missouri cooperative members led the way nationally with some 800,000 contacts made by members with their elected representatives and senators.

Eminent domain and how cooperatives pay sales tax were other issues during this period for which AMEC went to bat. Ultimately, the right of utilities to acquire land for transmission rights of way was protected. “It was a difficult issue because we have to have the ability to build, but some landowners [opposed to providing right of way] are members,” Hart said.

The sales tax issue was resolved favorably in 2010, saving cooperatives between $20 million and $40 million. “That was a very big success story,” he added.

Norborne was probably the best example of how Associated and AMEC could work together for a common goal. AMEC moved into high gear, employing all its contacts and relationships with DNR, legislators, the governor’s office and other state employees to help secure the required air permit from DNR. “They pulled every rabbit out of the hat to get it,” McQuitty remembered.

Hart believed AMEC was successful because it didn’t play partisan politics: “We don’t care what you, the politician, are. If you support the cooperatives, then we will support you. … Our goal is to be sitting at the table when discussing issues affecting cooperatives, not on the menu.”

Uniting behind this common goal strengthened the Associated family in Missouri and gave it a shot at being heard over its more populous urban neighbors. Jura’s position on the AMEC Legislative Committee also gave him a voice in those discussions.

For certain, as Associated celebrated its 50th year, AMEC’s ability to run effective political offense and defense in Jefferson City had proven itself time and again. Honed through the friendship of Hart and Jura, AMEC and Associated at last had tiers of trust.

From top: Associated board member Don McQuitty, left, and Missouri Gov. Jay Nixon at news conference held at Associated in late 2010, when the governor endorses nuclear legislation to allow Missouri utilities to consider nuclear as a future electric generation option to meet energy demands of Missouri residents; and

Associated board members, from left, Don Shaw and Douglas Aeilts, along with Dan Strode, CEO and manager of Ralls County Electric Cooperative, visit with U.S. Rep. Kenny Hulshof during his tour of Thomas Hill Energy Center in early 2006.

Beyond 2011 Chapter

As Associated entered 2011, its remarkable first 50 years was like a story with a surprise ending. No one in 1961 would have dreamed Associated would be the super G&T it became. At that time, the vision was short and shaped by its powerful G&T owners. Get baseload generation built, accumulate some cash, build transmission lines and keep affordable power flowing to members.

“I think I can speak [for early leaders] when I say I don’t think any of them could have visualized what Associated turned into. I certainly didn’t. No one could have anticipated the kind of growth Associated and the cooperative system would enjoy through these years,” said retired board member Bob Stagner from a perspective reaching back to the 1960s.

“Certainly the organizational period came at the right time in history. … Had there not been an Associated, you would have had to invent one. It has grown and prospered because it filled a vitally important role in Missouri and Oklahoma and Iowa. And everyone on the national stage views it as a model of how to do it from a cooperative standpoint.”

A green light for nuclear

The dominating story of 2010 was fuel for the future. While Associated temporarily dodged a bullet as the U.S. Congress punted on energy legislation to cap carbon emissions and create a trading scheme, there seemed little doubt that coal’s lock on generation was changing. Not that it

In north-central Missouri, a 345-kV transmission line brings power from Thomas Hill Energy Center to member systems.

Rail coal cars enter New Madrid Power Plant for unloading. With mounting environmental standards and compliance requirements, the future of fossil fuels for generation, including coal, is uncertain.

would go away, but if or when carbon regulation through Congress or the Environmental Protection Agency became a reality, then coal’s dominant role would decline.

Jeff Davis of the Missouri Public Service Commission put coal’s role in perspective. “There’s one big challenge out there, and everything pales in comparison in dealing with carbon over the next 10 years. That’s the big challenge any G&T is going to have to come to grips with. Right now there’s no certainty, and so making the right decision without information is obviously difficult. That’s going to tax the leadership ability of Associated the same as for other utilities,” he said, adding that tough decisions are what leadership is all about.

The $64,000 question for Associated was actually a $1.4 billion one: whether to spend the money on scrubbers at the coal plants to further reduce emissions to comply with projected 2015 federal clean air requirements. That

commitment would keep the coal plants open and more than half of Associated’s labor force employed. But if Associated spent the money and the federal government proceeded to regulate carbon emissions, then it could be a huge wasted cost.

Associated had two cards it might play. One was an experiment at the plants testing the feasibility of using sodium bicarbonate (baking soda) and other minerals to reduce acidic gases and metals from emissions. The test at Thomas Hill Energy Center, concluded in 2010 for about $1 million, showed reduction of metals and SO2. Similar tests were under way in 2011 at New Madrid Power Plant and Chamois Power Plant. Environmental health and safety employees Todd Tolbert, Kim Dickerson and Rusty Rice took the lead in monitoring the tests, which if successful could represent a far less expensive option than $1.4 billion scrubbers.

Another card was the mothballed scrubber Associated had used on Thomas Hill Unit 3 back in the years when it was burning high-sulfur coal. The feasibility of rehabbing the scrubber was being investigated.

Even if coal remained the primary generation fuel, Associated was preparing members for higher coal costs. Other countries competing for American coal were already driving prices up. Even more significant were rising transportation costs for coal. The legacy contracts between Associated and BNSF Railway and Union Pacific Railroad, negotiated by Jim McNabb and Gary Fulks, would end in 2011 and 2013, respectively. They were almost guaranteed to be replaced with tariffs expected to significantly increase the shipping costs of coal. While Jura firmly expected Associated’s relationship with Peabody Energy and the railroads to endure and contracts to continue, Chris Cariker of KAMO Power predicted the new delivered costs of coal “will have a tremendous impact on costs to members.”

In the meantime, two promising alternatives to coal –natural gas and nuclear – were discussed at the 2010 annual meeting. With the Chouteau 2 plant scheduled to come on line in 2011, Associated’s combined-cycle gas fleet would

expand to 2,143 MW. Add the simple-cycle peaking gas plants, and it would total more than 2,750 MW. That would be enough, with coal, wind from four Missouri wind farms and hydropower from the Southwestern Power Administration to hold the line on additional generation until about 2023.

Would more gas be the answer to limited coal generation or was there a feasible nuclear option? It would be relatively easy to ramp up gas. Nuclear was attractive because it had no carbon trail, and, in fact, the board had been eager for years to pursue the nuclear option when the time was right. The Black Fox nuclear experiment of the 1980s was a distant memory – no current board member remained who had lived through that venture, which had cost Associated members $120 million. Strategic partners like TVA and Ameren Missouri were using nuclear and might offer Associated an affordable nuclear option.

The nuclear option took center stage in mid-November when Gov. Jay Nixon of Missouri held a news conference at Associated’s Headquarters to announce his support for more nuclear power generation in Missouri. Specifically, Associated, AMEC and a consortium of electric utilities in the state sought legislation that would allow the rate base to include costs incurred in obtaining an early site permit from the Nuclear Regulatory Commission for a potential new unit at Ameren Missouri’s Callaway Plant in central Missouri.

The board had approved a long-range financial forecast and integrated resource plan that included the possibility of electricity from a partnership in a nuclear energy generator by about 2023. The governor’s announcement did not bind Associated to building or partnering in a nuclear unit, but it signaled a green light that Associated was prepared to proceed with the legislative push and a site permit.

More issues and decisions on the horizon

While generation, fuel and environmental costs dominated boardroom talk in 2010, senior management and the board were preparing for other important decisions.

Associated’s critical relationship with the International Brotherhood of Electrical Workers, a stable, respectful partnership for decades, was due to be tested in negotiations for a new contract in 2013. The current contract of nearly 18 years was a success story of cooperation and good will. About half of Associated’s 665 employees were represented by the IBEW. Time and again, these employees demonstrated their loyalty to their plants and Associated, responding to emergencies and producing innovative solutions to save dollars, practice safety and improve processes. Their contributions were valuable, and they proved every day that an Associated employee was an Associated employee, union or not.

Jobs in an uncertain future for coal were certainly worrisome. Other utilities against which Associated compared itself were using more contract labor at coal-fired power plants, as much as 60 percent versus Associated’s 40 percent, and that promised to be a point of future discussion.

Also expected to surface was the question of more rate increases. Wholesale rates, which held steady in 2010, would inevitably rise as fuel, environmental and transportation costs increased. Even with the recession and energy efficiency dampening member energy requirements for the short term, loads would slowly grow back to pre-2008 levels, planners predicted. How to tell that story to members and retain their trust promised to be a priority.

Tied to rising costs and changing generation would be the need for more capital, particularly if Associated participated in new nuclear construction. The loans likely would be the biggest ever if the yellow light for nuclear changed to green. How much could members bear?

Lenders already were evaluating Associated’s options themselves. One of them, Jake Udris of CoBank, said, “On the supply side, Associated’s generation fleet is evolving, and evolving generation is the next capital initiative. Associated recognizes that and changes the fleet over time, and that represents an opportunity for us. … Our lending decisions will be made for the same reasons as in the past: a strong management team, sound financials, a sound

“... Associated’s generation fleet is evolving, and evolving generation is the next capital initiative.”

– Jake Udris CoBank

Barton County Electric Cooperative directors and staff tour the Chouteau Power Plant to view construction progress of Chouteau 2.

From top: NW Electric Power Cooperative coordinated construction of the Atchison substation to connect the Cow Branch Wind Farm to the Rock Port-to-Tarkio 69-kV line; and the Conception Wind Farm was connected with additional transmission facilities constructed by NW Electric. Transmission and long-term purchase agreements enable all four wind farms to be developed in northwest Missouri, providing power for about 55,000 member households.

business plan.”

Vigilance in maintaining reliability compliance also would continue to consume more Associated resources. As board member Layne Morrill noted, the cooperative had already spent $600,000 on compliance, not counting the retention of a Washington, D.C., law firm to help with legal issues.

Jura admitted that the ever-deepening layers of regulations “have been quite an adjustment for us,” but, he added, “We’re so far ahead of our peers, and that makes me feel so good. We’re way out in front of the others.”

Board member Fulks added that Congress was “deeply concerned” about transmission reliability, especially exposure to hackers, cyber-attacks, even physical attacks. “There’s more interest in federal government regulations to make systems secure,” he said. The big unanswered question for Associated was would the government find a way to control Associated’s most treasured asset, transmission?

Transmission regulation already required Associated to walk a tightrope of compliance and conformity without being directly regulated by FERC. Another aspect of transmission also raised questions. Associated was perfectly located to be a conduit for carrying wind power from the Great Plains to cities in the East. But the giant transmission corridors necessary to carry that power – perhaps as wide as a football field – raised the prospects of litigious, notin-my-backyard battles over eminent domain and rights of way. Would Associated be caught in the cross hairs?

And, somewhere out there was perhaps the most critical issue of all: the succession of Jim Jura. Who could fill the big shoes of Associated’s CEO whenever he should choose to retire?

In addition to these future decisions, the board and management continued to study where Associated was most vulnerable and develop plans to mitigate these risks. Among the risks: major, extended outages. Inadequate supplies of coal, water or gas. Problems related to large capital projects. The possibility of stricter ash disposal regulations. Major transmission system outages. Increasing

transmission regulatory impacts. Any one of these could constitute a major crisis.

Collectively, these issues and risks were daunting. But master engineer Jim McNabb, reaching back through four decades of memories, had this to say: “I’m on the outside looking in now … but the challenges Associated faces today just seem overwhelming. The challenge of coal, of coal generation, it seems like facing an impossible situation. But then when I look back, we thought the same thing in 1978. … We faced challenges that just seemed overwhelming at the time and managed to work through them. This has always been a tough business, and Associated has always had to work hard to maintain its position … but we always had the resources, the financial resources and the personnel resources, to work our way through them.”

The strengths to make the right decisions

What were those resources Jim McNabb alluded to, those institutional strengths that would see Associated through the same kind of challenges he had experienced? At least six come to mind.

#1 – The message

Julian Brix, who served on the Associated board at the time Jura was recruited in 1991, has continued to closely watch Associated in his subsequent career moves in the power industry. “Jim has always had the same message for 20 years.” The message and the fact it hasn’t changed are great strengths that Associated brings to the table in Brix’s view and that of many of its strategic partners.

And what is that fundamental message? In a nutshell, the member’s purse matters. It takes a lot of $100-a-month “light bills” to keep a $1 billion cooperative operating. In return, that cooperative was expected to keep delivering affordable power – the mission of Associated. Every board decision, every management move began with a methodical evaluation of the impact to the member’s purse.

Jura’s simple, consistent message of loyalty to members is the same message new employees quickly repeat. Talk

to a power plant employee, and words about serving the customer at the end of the line are part of the conversation. Certainly, Associated’s management team has come to live and breathe that mantra. Speaking of that team, Bill Ekey of Commerce Bank, the indenture trustee, commented on its “concern for the bottom up as opposed to the other way. They know who they work for, and that’s how they work every day.”

For Jura, nothing was more important than keeping the member relationship vital. “If you look at the other 50 or so G&Ts in the country, all are about 50 years old like Associated. They all had the same mission, all had the same advantages, RUS financing, all were nonprofits. But some of them aren’t there anymore. … What did the successful ones have? What’s clear to me is that in the ones who failed, members lost confidence in the G&Ts, and the G&Ts forgot who they worked for. The really good ones didn’t lose touch,” he said, “and I’m pleased to say that Associated is one of them,” Jura said.

#2 – Leadership

Knowing who pays the bills kept Associated humble. Strong leadership kept it on course. Jura led his team into unexplored territory, albeit cautiously. His natural inclination to methodically analyze a situation was married to a drive to “get better” and an ability to forecast the next big wave of changes and ride it advantageously. That leadership also has stood the test of time.

“Associated has had strong leadership and been able to look ahead and deal with the challenges coming forward as opposed to reacting. That’s how to make wise decisions and avoid big problems,” said Glenn English, CEO of the National Rural Electric Cooperative Association.

Leadership also extended to the Associated board, which had not shied away from the tough issues management laid at its feet.

“I think Associated is going to maintain the strength they have had,” said Horace Harrod of Farm Credit Bank of Texas.

Consultant Earl Gjelde of Summit Power Group noted the special nature of Associated’s leadership. “Associated has been gifted with some tremendously talented individuals, who have created it the way it is and continues to be. … Talents such as Jim McNabb, Gary Fulks, Duane Highley and Jim Jura, and the list goes on, are very special people in the industry. Associated has been able to attract them because … of how it deals with people, both inside and outside, its willingness to step out in front, take some risks ahead of time, and do so in a prudent fashion. That attracts talent in a way that money never can.”

#3 – Financial flexibility

A third strength Associated had in its arsenal of resources was financial flexibility. In 2011, its balance sheet never looked better. Though long-term debt totaled nearly $1.7 billion at the end of 2010, lender confidence in Associated’s ability to repay them was unwavering. Indentures, high credit ratings, syndicated loans, commercial loans, private placements all combined to place Associated in a position most G&Ts could only aspire to.

Looking at the more than $140 million in long-term loans her company holds for Associated, Nancy Doyle of MetLife said, “We only make these size loans with people we feel very comfortable with. … We’re here for the long haul … and look forward to a long and mutually profitable relationship going out to 2039.”

#4 – Generation and transmission

Associated’s diverse mix of generation assets and control of one of the largest transmission systems in the country have allowed it to control its own destiny. Developing a gas fleet provided Associated with its own reserves rather than depending on other utilities. With hydropower to tamp down cost, wind to green up the mix, gas for flexibility and coal for baseload, Associated was well positioned to move in any number of directions for generation in its 50th year. Likewise, in transmission, its physical location, continued financial investment in transmission – more than half

“... This has always been a tough business, and Associated has always had to work hard to maintain its position … but we always had the resources ... to work our way through them.”

– Jim McNabb retired Associated director of Engineering and Operations

a billion dollars over the last 15 years – many interconnect contracts and power marketing expertise kept Associated’s transmission assets as robust as ever.

“The question is can coal compete with gas in the future?” said Jura. “I like our current position and the fact that we can go either way. … It’s very nice that we have these gas assets built and can fall back on them.” If CO2 were taxed or regulated, “I could see a fast build-out of gas plants.”

For Fulks, who helped negotiate many a transmission contract, that system was one measure of Associated’s success. “From its founding to today, there’s never been a widespread power outage – in contrast to the coasts and Canada, but not Missouri. That’s remarkable – 50 years of perfect bulk power service,” he said.

#5 – Strategic alliances

Associated’s firm ties to its strategic partners, many first formed by Gerry Diddle and Jim McNabb decades earlier, also promised a strength for the future. The relationship forged with TVA, for example, was typical.

competed for.

Longtime Associated observer Mike Bollenbach of Siemens noted, “Associated is in a unique position as a cooperative with its three-tiered system that allows them to be much more efficient in decision making versus investorowned utilities, whose world is more difficult. Because of the efficiency of the Associated system, it can take advantage of opportunities when they come along. Decisions can be made in a few weeks or months.”

For Jura, the system “has stood the test of time, and I think we have a very good current position that results from the way we are set up.”

This three-tiered system in 2010 was rock-hard strong. The tiers were bound together by decades of decisions aimed at doing the right thing for Associated, for in doing that, the right thing also was the best thing for the six member-owners and their member-owners.

“From its founding to today, there’s never been a widespread power outage ... That’s remarkable – 50 years of perfect bulk power service.”

– Gary Fulks Associated board member

“I have a phrase I use to describe what I want out of my employees: I want the substance and the style. Substance means you’ve got to deliver the results but done in such a way you feel good about it and think, ‘I’d go back and do that again.’ Another way to say it is results and reputation. If you have good results, then your reputation is good, and people do enjoy their association with you. That’s how I think of Associated. … They’ve been a good neighbor for a long time. They’ve given us results and done it with style,” said Tom Kilgore, CEO of TVA.

#6 – The three-tiered system

Rounding out the strengths Associated needed for the future was the unique organizational structure that had served it so well. The three-tiered system’s grassroots in the dairy farms, woodlots, ranchlands, corn fields, river towns and cotton country of its three states caught Wall Street by surprise. But it became the prize lenders

So at 50, was Associated ready to start the push for a century mark? Ameren’s Tom Voss said Associated’s “progressive and collaborative” leadership boded well. “They are aware of all the issues our industry faces and are very involved in shaping policies on the regional and national level. Their influence stretches well beyond [their] borders. … Associated has a supportive board, runs low-cost, efficient power plants and is always thinking ahead and preparing for the future,” he reflected.

Once again, Davis of the Missouri PSC offered a final perspective on Associated’s future. “The thing that separates Associated from some other large cooperatives in the country is they had the vision to build a transmission infrastructure that has been paying dividends to members for the last 30 years. They’ve had the vision to build baseload coal plants and generation that once again has provided low-cost power to member cooperatives, and not only lowcost but reliable. The fact that the plants are here and not trying to wheel across three states is critical. It’s vision like that that is going to help serve and protect members … for the next century,” he said.

At the close of “Win-Win,” Jim Jura turned to

From left: Associated board members Chris Cariker, Emery “Buster” Geisendorfer and John Farris.

O.B. Clark and said, “Y’know, O.B., we’ve got a pretty good organization here – if we don’t screw it up.”

At the close of 2010, Jura said, “We’re going to do really well; I really believe that. The challenges are not going to change much from what they’ve been in the past.”

Pausing to reflect, he added, “We’re the highest-rated G&T in the country by some measures. It’s because of the way we’ve positioned ourselves. That outstanding report card is saying, ‘These guys are some of the best in the country.’ Whether we have that in five or 10 years will depend on the board and management. But it’s part of our DNA here, and so I don’t worry about the future viability of Associated.”

Vision. Leadership. Strategy. All were in hand in 2011. But one more factor clinched Associated’s successful future: trust. Layers and layers of trust, built by handshakes and coffee talk, promises kept, deals struck. Projects completed, problems resolved, challenges embraced. Trust between plants and Headquarters, within the management circle, up and down the pecking order, extending to neighbors and partners, reaching out and back to six G&Ts and 51 cooperatives and 875,000 members at the end of the line. It added up to 50 years of tiers of trust.

2010 highlights

2010, like each of Associated’s previous 48 years, was chock-full of monumental events and decisions. Here was a sampling: Wind Capital Group completed its fourth and largest Missouri wind farm, Lost Creek Wind Farm, adding 150 MW to the wind component of Associated’s diversified generation mix. In total, Associated bought enough wind energy from the four farms to power about 55,000 member households.

Construction of the combined-cycle Chouteau 2 plant continued on schedule, to be completed mid-2011. A 33-mile gas pipeline to serve the plant was completed ahead of schedule and under budget. Rural Utilities Service approved a $490 million loan for the plant, providing funding that could save as much as $200 million in interest during the life of the 30year loan. The loan was expected to be the last RUS approved for a fossil-fuel based power plant in the country.

The combined coal and gas fleet generated a one-month record in July of 1,977,776 MWh, with 83 percent of the energy used to serve members.

However, member load growth remained stagnant in 2010, and planners forecast an average of 1.3 percent annual growth for the next 10 years. High unemployment and stagnant housing and construction growth contributed to the decline.

Associated strengthened its reliability compliance force, bringing some employees from Engineering and Operations and Information Services into a new reliability compliance department in the Executive Division. Pat Baumhoer, general counsel and Associated’s chief compliance officer, was appointed director of the department, which was responsible for compliance with all reliability requirements set by North American Electric Reliability Corp.

Associated and the G&Ts earned high marks and full compliance ratings in a critical NERC reliability compliance audit. The audit covered regulations and standards regarding reliability of the bulk electric system, specifically transmission planning, generation and system operations. Twelve technicians from the six G&Ts; another 13 Associated employees, including John Bussman and Todd Bennett in reliability compliance; Chris Bolick’s system operations team; and Kevin Hopper’s transmission planning team prepared documentation on seven substations and one plant that were actually audited. Likewise, Associated prepared 970 protective system elements for audit; 29 were actually selected for the audit.

Construction began on a project to add the capability to burn diesel fuel at the natural gas Dell Power Plant.

Take Control & Save added initiatives to promote energy efficiency to farmers, agribusinesses and small businesses in the cooperative system.

Lost Creek Wind Farm in northwest Missouri. Photo is property of Wind Capital Group and should not be reproduced, sold or redistributed without written approval.

2010 highlights, continued

Neil Adams, Associated’s first general manager, died in early 2011.

Long-time Human Resources Director Dave Stump died in 2010. Rarely did a human resources director fit into this memberowned cooperative system so well, developing relationships down through the tiers. Their high regard stemmed not only from Stump’s personal qualities, but also they relied on him as a professional resource.

Associated hired its first female and African-American division director, Shawn Calhoun, as director of Human Resources. The member services department conducted a triennial survey of member satisfaction in 2010. Distribution cooperative members remained highly satisfied, scoring 82 on the American Customer Satisfaction Index compared with the electric utility average of 75. The survey showed nearly 53 percent of members’ monthly electric bills were between $100 and $250. Most member homes were constructed before 1990 – providing greater opportunities for energy efficiency improvements. Twenty percent of members earned $25,000 or less.

In 2010, Fitch Ratings and Moody’s Investors Service affirmed Associated’s top ratings. Moody’s A1 Stable rating listed drivers as predictable revenue streams based on all-requirements contracts and strong relationships with member systems; sound financial profile; and its cooperative governance structure and rate-setting autonomy that ensure timely recovery of costs. Challenges included the threat of environmental mandates to its coal plants.

Fitch’s AA rating had the same drivers, plus diverse generating capacity and operational flexibility; geographic location and transmission assets; a 10-year capital plan smaller in scope than previous years’ plans; and low-cost federal financing.

Standard & Poor’s also issued a AA rating, with a stable outlook; challenges included forecasted additional debt of $1.1 billion, diminished nonmember sales revenue, projected rate increases and uncertainty of carbon regulation and cost.

A project to significantly reduce mercury emissions from cyclone units at New Madrid Power Plant and Thomas Hill Energy Center continued in 2011. The idea of Todd Tolbert in the environmental, health and safety department at Headquarters, the project at first was questioned as simply too good to be true. But Tolbert’s persistence paid off. Associated partnered with Goldman Sachs for the supply of refined coal and, in the process, expected to receive $7 million to $9 million annually through at least 2018.

Employee excellence: Todd Tolbert, along with Kimberly Dickerson of Thomas Hill Energy Center, Rusty Rice of New Madrid Power Plant and Lacie Shook of Headquarters spearheaded the complex initiative and earned an Excel team award for their efforts.

staff Lacie Shook, general and compliance counsel, and Todd Tolbert, environmental

Clockwise from left: Former Human Resources Director Dave Stump (sidebar);

Associated

analyst;

Kimberly Dickerson, environmental coordinator at Thomas Hill Energy Center; and Rusty Rice, environmental coordinator at New Madrid Power Plant.

9,621 miles of

Associated’s three-tiered system

Associated Electric Cooperative is part of a three-tiered system united by the common purpose of serving electric cooperative members with affordable and reliable electricity. Associated is owned by six generation and transmission cooperatives (G&Ts) that formed it in 1961 to provide the G&Ts a wholesale power supply.

These six G&Ts are owned by 51 distribution cooperatives in Missouri, southeast Iowa and northeast Oklahoma. These local electric cooperatives are owned by about 875,000 member-consumers.

Our statewide organizations – the Association of Missouri Electric Cooperatives, the Iowa Association of Electric Cooperatives and the Oklahoma Association of Electric Cooperatives — are an important part of this cooperative family.

Associated serves six G&Ts operating in three states

Central Electric Power Cooperative

Jefferson City, Missouri

Boone Electric Cooperative

Columbia, Missouri

Callaway Electric Cooperative

Fulton, Missouri

Central Missouri Electric Cooperative Inc.

Sedalia, Missouri

Co-Mo Electric Cooperative Inc.

Tipton, Missouri

Consolidated Electric Cooperative Inc.

Mexico, Missouri

Cuivre River Electric Cooperative Inc.

Troy, Missouri

Howard Electric Cooperative Fayette, Missouri

Three Rivers Electric Cooperative Linn, Missouri

KAMO Power

Vinita, Oklahoma

Barry Electric Cooperative

Cassville, Missouri

Barton County Electric Cooperative Inc.

Lamar, Missouri

Central Rural Electric Cooperative

Stillwater, Oklahoma

Cookson Hills Electric Cooperative Inc.

Stigler, Oklahoma

East Central Oklahoma Electric Cooperative Inc.

Okmulgee, Oklahoma

Indian Electric Cooperative Inc.

Cleveland, Oklahoma

Kiamichi Electric Cooperative Inc. Wilburton, Oklahoma

Lake Region Electric Cooperative Inc.

Hulbert, Oklahoma

New-Mac Electric Cooperative Inc. Neosho, Missouri

Northeast Oklahoma Electric Cooperative Inc. Vinita, Oklahoma

Osage Valley Electric Cooperative Association Butler, Missouri

Ozark Electric Cooperative

Mt. Vernon, Missouri

Ozarks Electric Cooperative Corp.

Fayetteville, Arkansas

Sac Osage Electric Cooperative Inc.

El Dorado Springs, Missouri

Southwest Electric Cooperative

Bolivar, Missouri

Verdigris Valley Electric Cooperative Inc.

Collinsville, Oklahoma

White River Valley Electric Cooperative Inc. Branson, Missouri

M&A Electric Power Cooperative

Poplar Bluff, Missouri

Black River Electric Cooperative Fredericktown, Missouri

Ozark Border Electric Cooperative Poplar Bluff, Missouri

Pemiscot-Dunklin Electric Cooperative Hayti, Missouri

SEMO Electric Cooperative Sikeston, Missouri

NW Electric Power Cooperative Inc. Cameron, Missouri

Atchison-Holt Electric Cooperative Rock Port, Missouri

Farmers’ Electric Cooperative Inc. Chillicothe, Missouri

Grundy Electric Cooperative Inc. Trenton, Missouri

North Central Missouri

Electric Cooperative Inc.

Milan, Missouri

Platte-Clay Electric Cooperative Inc. Kearney, Missouri

United Electric Cooperative Inc.

Maryville and Savannah, Missouri

West Central Electric Cooperative Inc. Higginsville, Missouri

Northeast Missouri Electric Power Cooperative Palmyra, Missouri

Access Energy Cooperative

Mt. Pleasant, Iowa

Chariton Valley Electric Cooperative Inc. Albia, Iowa

Lewis County Rural Electric Cooperative Lewistown, Missouri

Macon Electric Cooperative Macon, Missouri

Missouri Rural Electric Cooperative Palmyra, Missouri

Ralls County Electric Cooperative New London, Missouri

Southern Iowa Electric Cooperative Inc. Bloomfield, Iowa

Tri-County Electric Cooperative Association Lancaster, Missouri

Sho-Me Power Electric Cooperative

Marshfield, Missouri

Crawford Electric Cooperative Inc.

Bourbon, Missouri

Gascosage Electric Cooperative Dixon, Missouri

Howell-Oregon Electric Cooperative Inc. West Plains, Missouri

Intercounty Electric Cooperative Association Licking, Missouri

Laclede Electric Cooperative Lebanon, Missouri

Se-Ma-No Electric Cooperative Mansfield, Missouri

Southwest Electric Cooperative Bolivar, Missouri

Webster Electric Cooperative Marshfield, Missouri

White River Valley Electric Cooperative Inc. Branson, Missouri

The senior management team of Associated Electric Cooperative includes, from left, Joseph E. Wilkinson, director of Member Services and Corporate Communications; Duane D. Highley, director of Power Production; Michael E. King, manager of internal audit; Shawn P. Calhoun, director of Human Resources; David W. McNabb, chief financial officer; Roger S. Clark, director of Engineering and Operations; Janie Corn, executive assistant; Patrick A. Baumhoer, general counsel and chief compliance officer; James J. Jura, CEO and general manager; and Ronald H. Murphy, chief information officer.

Associated general managers

Neil L. Adams

May 1962 – June 1971

E.G. Pereboom

March 1972 - August 1972

Gerald F. Diddle

May 1973 – August 1991

James J. Jura

August 1991 –

Board members – 1961-2011

Name G&T Tenure

M.W. (Mike) Boudreaux

Northeast 1961 – 1979 deceased

C.E. (Charlie) Boulson Sho-Me 1961 – 1974 deceased

John E. Buck NW 1961 – 1977 deceased

Truman Green Central 1961 – 1977 deceased

F.A. (Fay) Martz NW 1961 – 1971 deceased

James W. Owens Jr. M&A 1961 – 1966 deceased

R.D. Pennewell

Northeast 1961 – 1982 deceased

Elon (Judge) Proffer M&A 1961 – 1966 deceased

Luther A. Riddle Sho-Me 1961 – 1987 deceased

Albert W. Schindler Central 1961 – 1966 deceased

Eugene Smith KAMO 1962 – 1971 deceased

Rex Dewey KAMO 1962 – 1977 deceased

E.A. Priggel M&A 1966 – 1973 deceased

Ray D. Buresh

Central 1966 – 1969

Bruce Ellis M&A 1966 – 1968 deceased

R.W. (Rudie) Slaughter M&A 1968 – 1969; 1973 – 1990 deceased

George W. Ray

Central 1969 – 1974

Robert E. Stagner M&A 1969 – 2001

J.H. (Tom) Humbert KAMO 1971 – 1975 deceased

Curt Funston NW 1971 – 1981; 1988 – 1989 deceased

O.B. Clark Central 1974 – 2009

John K. Davis Sho-Me 1975 – 2006 deceased

Roy Matthews KAMO 1975 – 1990 deceased

Harold F. Gray NW 1977 – 1978

B. Dean Sanger KAMO 1977 – 1994

Carl M. Herren Central 1977 – 1990

Richard Foster NW 1978 – 1988

Ralph E. Shaw Northeast 1979 – 2004

Continued next page

Neil Adams

Charles C. Martin NW 1981 – 1990 deceased

Maurice L Happel Northeast 1982 – 2001 deceased

Larry D. Frazier Sho-Me 1987 – 1994

Richard L. Arnold NW 1989 – 1996

James K. Steele NW 1990 – 1996 deceased

W. Arthur Carrier KAMO 1990 – 2002 deceased

Bill Haake Central 1990 (May-October) deceased

James W. Abernathy M&A 1990 – 1998 deceased

Julian Brix Central 1990 – 1992

Donald W. Shaw Central 1992 –

Gary Voigt KAMO 1994 – 1996

Jerry W. Divin Sho-Me 1994 – 2008

L. Doug White KAMO 1996 (April-October)

J. Chris Cariker KAMO 1996 –

Don R. McQuitty NW 1997 –

Charles C. Baile NW 1997 – 2009

Harold E. Jordan M&A 1998 – 2010

John C. Farris M&A 2001 –

Carl M. Thompson Northeast 2001 – 2004

R. Layne Morrill KAMO 2002 –

Douglas H. Aeilts Northeast 2004 –

Emery O. Geisendorfer Jr. Northeast 2004 –

Dan A. Singletary Sho-Me 2006 – 2007; 2008 –

Gary L. Fulks Sho-Me 2007 –

John B. Killgore NW 2009 –

Thomas W. Howard Central 2009 –

Thomas “Jake” Fisher M&A 2010 –

NOTE: 2011 board members in bold

Associated board presidential terms

John E. Buck October 1961 – February 1977

Rudie W. Slaughter March 1977 – June 1981

O.B. Clark June 1981 – June 2009

Emery O. Geisendorfer June 2009 –

John Buck

Associated relies on diverse power sources

Associated

From top: Roger G. Neumeyer, plant manager, New Madrid Power Plant; and

Kevin L. Murphy, plant manager, Thomas Hill Energy Center.

Index

9/11 44, 52, 59

AAbernathy, James 3, 69, 105

Adams, Neil inside front cover, iv, v, vi, 63, 100, 104

Aeilts, Doug 31, 32, 65, 69, 76, 77, 92, 105

Alstom Power Inc. 54

AMEC v, vii, 19, 46, 47, 48, 54, 55, 56, 74, 91, 92, 95

Ameren vi, 26, 38, 40, 41, 46, 55, 56, 64, 92, 95, 98, inside back cover

American Customer Satisfaction Index 100

American Electric Power vi, 54

American Recovery and Reinvestment Act of 2009 57

Arkansas Electric Cooperative 55

Arnold, Richard 3, 69, 105

Association of Missouri Electric Cooperatives ii, v, vii, 10, 26, 46, 90, 91, 101

Austin, Brad 47

B

Baile, Charles 24, 29, 45, 68, 69, 105

baking soda (sodium bicarbonate) 94, 109

Baumhoer, Pat 41, 43, 44, 99, 103

Baxter, Warner 92

Bee Veer coal mine i, vii, 7, 36, 59

Bennett, Todd 99

Bindel, Jerry 61

Black Fox Nuclear Project i, vii, 21, 80, 95, 111

Blackberry substation 41

Blackburn, Tom 41, 42, 43, 44, 45 blackouts 40

BNSF Railway 94

Boilermakers 55

Bolick, Chris 21, 41, 43, 44, 99

Bollenbach, Mike 25, 40, 57, 58, 98

Bonneville Power Administration 18, 22, 29, 30, 51, 63, 89, 90

Boone Electric Cooperative 51, 102

Boudreaux, Mike iv, 73, 104

Brix, Julian 72, 96, 105

Brown, John 60, 61

Bruder, George 42

Bruno, John vii

Buck, John iv, v, 66, 104, 105

Burlison, Richard 53, 86

Burns & McDonnell 57, 60

Burns and Roe 57, 58, 59

Bush administration vii

Bussman, John 99

CCalhoun, Shawn 100, 103

California electricity crisis of 2000 and 2001 44

Callaway Power Plant 55, 92, 95

Campbell, Jim 52, 57, 59

cap and trade 34, 36, 92

carbon dioxide (CO2) 32, 36, 37, 98

CAIR (Clean Air Interstate Rule) 32, 33, 36, inside back cover

Cariker, Chris 14, 15, 16, 27, 29, 65, 68, 69, 71, 74, 77, 94, 98, 105

Carnahan, Tom 19, 20, 21

Carrier, Arthur 3, 52, 68, 69, 105

Cates, Max 2

Cavanagh, Ralph 30

Central Electric Power Cooperative 2, 3, 17, 35, 36, 37, 40, 67, 69, 71, 77, 102, 106

CFC (National Rural Utilities Cooperative Finance Corp.) 5, 52, 79, 80, 81, 83, 85, 87

CFLs (compact fluorescent lights) 31

Chamois 3, 4, 35, 37, 40, 55, 94, 102, 106

Chouteau ii, 12, 24, 25, 26, 27, 41, 49, 61, 62, 79, 80, 82, 84, 94, 95, 99, 102, 106, inside back cover

CitiBank 83

Clarence Cannon Dam vii, 17, 111

Clark, O.B. i, v, 2, 5, 10, 19, 29, 33, 34, 51, 60, 66, 67, 68, 69, 71, 72, 73, 81, 99, 104, 105, 111

Clark, Roger 51, 56, 70, 82, 103

Clean Air Act Amendments of 1990 vii, 3, 4, 112

Clean Air Interstate Rule (CAIR) 32, 33, 36, inside back cover

Clean Coal Solutions 36

CO2 (carbon dioxide) 32, 36, 37, 98

CoBank 49, 65, 83, 84, 95

combined-cycle gas 23, 24, 94

Commerce Bank 83, 86, 87, 97

Co-Mo Electric Cooperative 48, 64, 67, 102

compact fluorescent lights (CFLs) 31

Corn, Janie 77, 103

D

Danner, Steve Missouri National Guard Adjutant Gen. 46

Davis, Jeff iv, 26, 32, 56, 64, 94, 98

Davis, John 3, 15, 66, 67, 68, 71, 73, 74, 104

Day, Rhonda 47

Dell Power Plant 24, 25, 27, 41, 58, 59, 84, 86, 88, 89, 99, 106, inside back cover

Department of Natural Resources 7, 20, 27, 35, 37, 56, 57, 92

Dickerson, Kim 7, 94, 100

Diddle, Gerald i, v, vii, 2, 5, 63, 69, 89, 91, 98, 104, 111

Divin, Jerry 3, 63, 68, 69, 105

DNR (Missouri Department of Natural Resources) 7, 20, 27, 35, 37, 56, 57, 92

Doyle, Nancy 32, 84, 85, 96

Duke Energy Corp. 1, 23, 24, 55, 64

Duke Power Corp. 1, 23, 24, 55, 64

E earthquake zone 53

EDP (Executive Development Program) 51

Ekey, Bill 83, 86, 87, 97

Emerson, Jo Ann, U.S. Rep. 46, 47, 48, 56

Enerfab 36, 56

energy efficiency 29, 30, 31, 57, 74, 91, 95, 99, 100, 106, inside back cover

Energy Information Administration 4

Energy Policy Act of 1992 1, 3, 10, 13, 112

Energy Policy Act of 2005 44

English, Glenn 48, 97

Enogex LLC 26

Enron vii, 1, 3, 6, 9, 10, 11, 13, 16, 18, 21, 24, 26, 31, 45, 48, 52, 59

Entergy Power Corp. vi, viii, 4, 11, 55

environmental reserve fund 79

EPA (U.S. Environmental Protection Agency) 3, 33, 34, 35, 36, 37, 48, 90, 94

Essex Power Plant 12, 13, 24, 25, 46, 80, 83, 102, 106, 112

Excel award 7, 37, 38, 41, 45, 47, 63, 77, 87, 100

Executive Development Program (EDP) 51

F

Farm Credit Bank 64, 65, 84, 97

Farris, John 8, 32, 46, 47, 65, 69, 70, 73, 77, 90, 91, 98, 105

Federal Emergency Management Agency (FEMA) 47

Federal Energy Regulatory Commission (FERC) 1, 3, 9, 10, 11, 12, 14, 41, 42, 43, 44, 45, 96, 112

FEMA (Federal Emergency Management Agency) 47

FERC (Federal Energy Regulatory Commission) 1, 3, 9, 10, 11, 12,14, 41, 42, 43, 44, 45, 96, 112

FERC Order 888 43

FERC tariff 43

financial flexibility 32, 55, 82, 97

Fisher, Jake 8, 47, 65, 69, 77, 105

Fitch Investors Service LP 5, 81, 82, 86, 100, 112

Franks 40, 55

Fulks, Gary 2, 6, 10, 11, 14, 15, 16, 17, 19, 20, 23, 25, 29, 34, 40, 44, 51, 53, 65, 68, 69, 70, 77, 90, 94, 96, 97, 98, 105

continued

G

Geisendorfer, Emery “Buster” 65, 69, 72, 76, 77, 98, 105

GenPower LLC 24

Giovanini, Mike 7

Gjelde, Earl 5, 17, 22, 23, 24, 25, 97

Gobbler Knob 40, 41 Goldman Sachs 36, 83, 100

Gomer, Howard 83 Gott, Tony 41

governance 62, 63, 65, 73, 77, 100

Grand River Dam Authority 14, 15, 16, 41, 55, 102, 106 Graves, Greg 60, 61

Graycor 36, 56

GRDA 14, 15, 16, 41, 55, 102, 106 Green, Truman iv, 73, 104

H Hall, Tom 52, 80, 81, 87

Happel, Maurice 3, 66, 67, 68, 69, 105

Harrod, Horace 64, 65, 83, 84, 97

Hart, Barry 48, 56, 91, 92

Hartner, Keith 17, 18, 19, 29, 30, 31, 51, 89, 90

Harvey, Scott 46, 60, 63

Headquarters front inside cover, 14, 45, 74, 82, 90, 102, 111 Hicks, Joe viii

Highley, Duane 7, 24, 25, 26, 27, 49, 51, 53, 56, 57, 58, 59, 60, 61, 71, 90, 97, 103 Hilmes, Ted 15, 16, 41

Hodel, Don 22, 23, 64

Holden Power Plant 24, 25, 63, 80, 87, 106, 112 Holmes, Rick 62, 90 Hopper, Kevin 47, 99

Howard, Thomas 65, 69, 72, 77, 105

Howell-Oregon Electric Cooperative 31, 69, 103 hydropower inside front cover, v, vii, viii, 17, 21, 29, 32, 35, 95, 97, 111 I

IBEW 26, 55, 95

ice storm of Jan. 26-28, 2009 46, 47, 55, 56, back inside cover indenture 52, 82, 83, 84, 86, 97

Integrated Transmission System 41

Interconnections vi, 20, 39, 40, 41, 101

International Brotherhood of Electrical Workers 55, 95, 26 Interstate Mining Commission 7, 57

Iowa Association of Electric Cooperatives ii, 91, 101

J Johns, Jeff 41, 44

Jordon, Harold 62, 67, 68, 69, 105

Jura, Jim vii, 2, 5, 6, 10, 11, 13, 14, 15, 16, 18, 19, 21, 22, 23, 24, 27, 29, 30, 32, 37, 42, 48, 49, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 63, 64, 65, 66, 67, 68, 70, 71, 74, 75, 76, 77, 81, 82, 83, 84, 85, 87, 89, 90, 91, 92, 94, 96, 97, 98, 99, 103, 104, 112 K

KAMO Power 2, 3, 6, 13, 14, 15, 16, 27, 29, 40, 41, 71, 74, 77, 80, 94, 102, 106, 112

Kansas City Power & Light 55, 56

Kansas Corporation Commission 41

Kenes C. Bowling National Mine Reclamation Award 7, 57

Kennedy, John vi

Killgore, John 65, 69, 70, 72, 77, 81, 82, 105

Kilgore, Tom 55, 98

Kinder, Peter 26

King, Mike 45

Klindt, David 56, 92

L

Land, Rob 46

LEED 74

Lloyd’s of London 53

Lost Creek Wind Farm 20, 99, back inside cover low-sulfur coal conversion vii, viii, 7, 38, 112

M

M&A Electric Power Cooperative front inside cover, iv, vi, 3, 9, 32, 46, 47, 56, 66, 67, 70, 73, 77, 90, 103

Martz, Fay iv, 73, 104

McNabb, Jim vi, 2, 6, 11, 12, 15, 16, 23, 42, 44, 51, 59, 63, 67, 68, 73, 75, 86, 94, 96, 97, 98

McNabb, David 12, 13, 15, 16, 24, 25, 44, 49, 51, 52, 76, 80, 81, 83, 84, 87, 103

McQuitty, Don 1, 2, 21, 27, 29, 39, 48, 65, 68, 69, 72, 73, 77, 85, 91, 92, 105

Member Services and Corporate Communications Division iv, 18,19, 30, 31, 51, 62, 63, 90, 91, 100, 103

MetLife 32, 84, 85, 86, 97

Metropolitan Life Ins. 32, 84, 85, 86, 97

Middle-South Utilities vi

Milhiser, Bob 59

Miller, Mike 23, 32, 34, 51, 52, 53, 80, 81, 83, 84, 85, 86, 87

Missouri City Generating Station vii

Missouri Department of Natural Resources (DNR) 7, 20, 27, 35, 37, 56, 57, 92

Missouri Farmers Association 47, 103

Missouri Institute of Cooperatives’ Hall of Fame 66

Missouri PSC iv, 26, 27, 32, 56, 64, 74, 94, 98

Missouri Public Service Commission iv, 26, 27, 32, 56, 64, 74, 94,98

Moody’s Investors Service 5, 82, 86, 100, 112

Morrill, Layne 6, 29, 65, 69, 77, 96, 105

Murdaugh, Randy 86

Murphy, Kevin 54, 106

Murphy, Ron 51, 70, 103

Murray, Steve 47

Murthy, Krishna 80 N

National Rural Electric Cooperative Association (NRECA) 5, 10, 48, 52, 64, 79, 80, 81, 83, 92, 97

National Rural Utilities Cooperative Finance Corp. (CFC) 5, 52, 79, 80, 81, 83, 85, 87

Nations Bank 83

Natural Resources Defense Council 30

Nebraska Public Power District 54, 55

NEMO coal mine vii, 1, 7

NERC (North American Electric Reliability Corp.) 44, 45, 99 inside back cover

Neumeyer, Roger 106

New Madrid Power Plant inside front cover, i, ii, vi, vii, 2, 3, 4,7, 8, 9, 25, 35, 38, 41, 46, 51, 53, 54, 59, 60, 61, 63, 78, 94, 100, 106, 112, inside back cover

Nichols, Bernie 2

nitrogen oxides (NOx) 32, 33, 34, 35, 36, 78, 80, 108, inside back cover

Nixon, Jay 14, 46, 47, 69, 92, 95, inside back cover

Nixon, Richard vi, 34, 63

Nodaway Power Plant 12, 13, 24, 25, 80, 106, 112

Noranda Aluminum inside front cover, i, vi, 25, 26, 27, 41, 55

Norborne project 27, 29, 35, 61, 62

North American Electric Reliability Corp. (NERC) 44, 45, 99, inside back cover

Northeast Missouri Electric Power Cooperative vii, 2, 3, 31, 40, 69, 70, 72, 73, 77, 102

NOx (nitrogen oxides) 32, 33, 34, 35, 36, 78, 80, inside back cover

nuclear inside back cover, i, iii, vii, 4, 21, 22, 27, 29, 52, 55, 69, 80, 85, 92, 93, 94, 95

Nuclear Regulatory Commission 95

NW Electric Power Cooperative vii, 3, 19, 24, 27, 29, 39, 70, 77, 82, 85, 91, 96, 102

Office of Management and Budget 63

Ohrenberg, Wes 2, 5, 83

Oklahoma Association of Electric Cooperatives ii, 91, 101

Oklahoma Gas and Electric 2

open access tariff 42, 43

Order 2000 of December 1999 44

Order 888 1, 3, 6, 10, 11, 13, 43, 112

Osgood, Elbert 8

P, Q

PanEnergy Trading and Market Services LLC 5, 23, 24, 55, 112

Peabody Energy Corp. i, 3, 52, 53, 57, 59, 60, 94, 111

Pemiscot-Dunklin Electric Cooperative iv, 47, 56, 103

Powder River Basin 3, 7, 59, 112 Prairie Hill coal mine i, vii, 3, 7, 59

Primesouth LLC 25

Prudential Capital 83

PSC (Public Service Commission) iv, 26, 27, 32, 56, 64, 74, 94, 98 Public Service Co. of Okla. i, vi, vii, 21

R

railroads 54, 59, 94

Randolph, Anita 56, 57

rate increases 11, 32, 33, 56, 74, 91, 95, 100

REA vii, 5, 29

Reagan, Ronald vii

regional planning organizations 45 regional transmission organization (RTO) 11, 39, 42, 44, 101, 112 regulatory compliance 36, 44 request for proposal (RFP) 15 reliability compliance 33, 44, 96, 99, inside back cover RFP (request for proposal) 15

Rice, Rusty 94, 100 risk management 52, 53 Roe, Keith 59 Rose, Matt 54

RTO (regional transmission organization) 11, 44, 45

Rural Utilities Service (RUS) 5, 6, 24, 26, 27, 43, 52, 79, 80, 81, 82, 83, 84, 85, 86, 97, 99, inside back cover

S

SCR (selective catalytic reduction) 35, 60, 78 scrubbers 3, 35, 94

Sega Inc. 57, 60, 61

selective catalytic reduction (SCR) 32, 33, 35, 78, inside back cover

SEMA (State Emergency Management Agency) 47

Sept. 11, 2001 44, 52, 59

SERC (Southeastern Electric Reliability Council) 11, 44, 45, 55

SERC Reliability Corp. 11, 44, 45, 55

Shaw, Don 2, 17, 18, 27, 29, 34, 35, 36, 48, 65, 68, 69, 71, 77, 92, 105

Shaw, Ralph 2, 3, 66, 68, 69, 73, 74, 104

Shaw, Winnie 68

Sho-Me Power Electric Cooperative 2, 3, 6, 15, 25, 40, 41, 46, 67, 68, 69, 73, 74, 77, 80, 90, 102, 103, 104, 105

Shook, Lacie 100

Siemens Energy 5, 23, 24, 25, 26, 40, 52, 54, 57, 58, 63, 64, 98

simple-cycle gas units 12, 24, 95

Singletary, Dan 31, 65, 68, 69, 76, 77, 105

Slaughter, Rudie v, 66, 104, 105

Smith, Kevin 24

Smith Barney 83

SO2 (sulfur dioxide) vii, 3, 7, 34, 35, 38, 94, 112

sodium bicarbonate (baking soda) 94

Solomon 83

Southeastern Electric Reliability Council (SERC) 11, 44, 45, 55

Southern Companies 2

Southwestern Power Administration (SWPA) inside front cover, v, vi, vii, 3, 16, 17, 18, 19, 21, 32, 35, 55, 74, 95, 106, 111

Southwest Power Pool (SPP) 11, 41, 42, 45, 112

Spen, Alen 5, 81

Sportsman Acres substation 41

Springfield Area Chamber of Commerce 63

St. Francis Power Plant 5, 13, 22, 23, 24, 25, 27, 46, 47, 58, 80, 84, 102, 106, 112

Stagner, Robert iv, 3, 66, 67, 68, 69, 70, 71, 72, 73, 79, 93, 104

Standard & Poor’s Ratings Service 5, 81, 82, 86, 100, 112

State Emergency Management Agency (SEMA) 47

Steele, James 3, 69, 105

Stewart, Brent 56

Stone, Bruce 2

Stork, Frank 10, 74, 91

Stump, David 2, 51, 53, 100

sulfur dioxide (SO2) vii, 3, 7, 34, 35, 38, 94, 112

Summit Power Group 22, 23, 97

Swilley, Alice 46

Swilley, Larry 46, 47

SWPA (Southwestern Power Administration) inside front cover, v, vi, vii, 3, 16, 17, 18, 19, 21, 32, 35, 55, 74, 95, 106, 111

T, U, V

Take Control & Save 30, 31, 33, 57, 90, 99, 106

TECO Energy 24, 58

Tennessee Valley Authority (TVA) vi, vii, viii, 41, 42, 43, 55, 95, 98

Thomas Hill Energy Center inside front cover, i, iv, v, vi, vii, viii,1, 2, 3, 4, 7, 24, 29, 32, 33, 35, 36, 37, 38, 39, 40, 45, 51, 52, 53, 54, 58, 59, 60, 61, 63, 80, 86, 92, 93, 94, 100, 102, 106, 111, 112, inside back cover

Thompson, Carl 69, 70, 105

Tolbert, Todd 94, 100

Touchstone Energy 10, 63, 90

TVA (Tennessee Valley Authority) vi, vii, viii, 41, 42, 43, 55, 95, 98

U.S. Army Corps of Engineers vii, 17, 18, 19

U.S. Congress vii, viii, 9, 16, 17, 18, 27, 29, 36, 45, 59, 80, 91, 93, 94, 96

U.S. Department of Agriculture 27, 79, inside back cover

U.S. Department of Interior inside front cover, 7

U.S. Department of Labor’s Occupational Safety and Health Administration 63

U.S. Environmental Protection Agency (EPA) 3, 33, 34, 35, 36, 37, 48, 90, 94

U.S. Secretary of Energy 22, 64

Udris, Jake 83, 84, 95

UMWA (United Mine Workers of America) vii, 3

Union Electric inside front cover, vi, 56

Union Pacific Railroad 3, 54, 94

Unionville Power Plant i, vii, 3, 102, 106

United Electric Cooperative 70, 103

Vire, Angie 2

Voigt, Gary 2, 105

Voss, Tom 26, 40, 55, 56, 98 Vu, Victor 80

W, X, Y, Z

Weeks, Craig 25, 52, 57, 58, 64

Westinghouse Electric Co. 58

White River Valley Electric Cooperative 6, 29, 102, 103 Wilkinson, Joe ii, 51, 76, 90, 103

Wind Capital Group 19, 20, 21, 35, 99

Wind Cooperative of the Year 20, 57

“Win-Win” ii, iv, vi, viii, 25, 56, 66, 79, 98

Woodson, Mark 90

Wright, Doug 74

Y2K 38

Young, Billy vii

Young, Jim 54

About the author

Jennifer Ailor has been a rural electric cooperative member most of her life, having grown up on a farm in Linn County in north Missouri and now living in rural Christian County in the Ozarks. After teaching high school journalism, Ailor moved into hospital public relations, edited the magazine received by the 30,000 employees of telecommunications giant United Telecom (now Sprint) and wrote ads for a manufacturing company. Much of her career, however, was spent in public accounting as the director of communications for BKD, one of the country’s largest CPA firms. One of her projects there was to write the history of the firm. Now, through Ailor Communications, she helps promote the use of renewable energy in Missouri through Ozarks New Energy as coordinator of its conferences. She also teaches writing at Missouri State University; writes extensively for Associated’s corporate communications department; has published in Rural Missouri, Ozarks Farm & Neighbor and other magazines; and manages business communication projects for other clients. Telling the story of Associated’s last 15 years took her by phone and car to interviews with more than 50 people, including Associated’s management team and staff, board members and strategic partners. “What impressed me was the consistency of the message,” she said. “The respect, the trust run deep.”

THE 1980s

Early 1980s

General Manager Gerry Diddle and O.B. Clark, board president, hammer out the details of the board’s committees, freeing the board from day-to-day operational decisions and creating a more balanced and trusting power structure within the board.

1981, March

A new contract with Southwestern Power Administration gives Associated virtual control over several hydropower projects; it is replaced in 2001 with a contract that relieves Associated of that control in return for 478 MW of capacity and 1,200 guaranteed hours of peaking energy.

1981

Associated completes new line from Thomas Hill 345-kV Substation to the Kingdom City 345-kV Substation to provide outlet transmission capacity for Thomas Hill Unit 3. It’s one of many transmission projects built in the 1980s.

1982, February

Associated terminates the Black Fox Nuclear Project following the incident at Three Mile Island that changes the feasibility of building a nuclear plant in the United States.

1982

1982

The last of Associated’s coal-fired units, the 670-MW Thomas Hill Unit 3, goes on line at a cost of nearly $508 million.

1982

Associated fully computerizes its payroll, accounting and materials management functions when it installs a Prime computer system.

Associated completes a 28,000-square-foot addition to Headquarters with a high-security dispatch and computer facility offering several improvements.

1984

The Clarence Cannon Dam, a 58-MW peaking hydropower facility on Mark Twain Lake, goes on line.

1989

Looking ahead to the requirements of the 1990 Clean Air Act Amendments, Associated forms a Clean Air Act contingency fund to help pay for changes at its power plants.

1989

Associated’s considerable investment in its mining operation early in the decade – three draglines, a coal washing plant and haul trucks – pays off with the cost of coal per million British thermal units of $1.44, compared with $1.53 in 1980.

In the 1980s, Associated improves productivity of mines and equipment acquired from Peabody.

THE 1990s

Associated employees at Thomas Hill Energy Center in 1994 hoist a shaker used on top of a rail car to unload bottom-dump rail cars from the cooperative’s mines before Associated converts to low-sulfur coal from the Powder River Basin in Wyoming.

1991,

August

James J. Jura becomes general manager.

1992, May

The 102-mile, 345-kV MINT line is dedicated, a joint project of Associated and six other utilities in Missouri, Iowa and Nebraska.

1993, February

The Clean Air Act Amendments of 1990 lead to Associated’s exiting the coal business, closing its mines and beginning reclamation of 12,000 acres of mined land.

1995, January 1

Associated cuts its rates by an average of 17 percent to a level lower than any since 1981, earning it the second lowest wholesale electricity rate in the nation.

1995, December

The conversion to low-sulfur coal at both Thomas Hill and New Madrid power plants is completed, reducing emissions of sulfur dioxide 90 percent.

1996

Associated’s first formal bond ratings earn it an AA- from Fitch Investors Service LP, A1 from Moody’s Investors Service and AA from Standard & Poor’s Ratings Service, opening up new financing markets for the cooperative.

1996

Associated takes advantage of the Federal Energy Regulatory Commission’s Order 888 and the Energy Policy Act of 1992 by creating a power marketing team.

1996, October

Associated announces a partnership with PanEnergy to construct its first natural gas-powered plant: St. Francis Power Plant, a 250-MW, gas-based power generation facility, dedicated in September 1999. Its second 250-MW unit is completed in March 2001.

1997, October

Associated announces it will leave Southwest Power Pool, which has been approved to operate as a regional transmission organization. The move confirms Associated’s intent to control its own transmission.

1997, November KAMO Power selects Associated as the power supplier for its nine electric cooperatives in northeast Oklahoma.

1999

The first of Associated’s gas “peakers,” the 107-MW Essex Power Plant and the 182-MW Nodaway Power Plant, begin operations, to be followed in 2002 with the 321-MW Holden Power Plant.

THE 2000s

2000, February

Selective catalytic reduction equipment, designed to reduce emissions of nitrogen oxides by about 93 percent, on New Madrid Unit 2 becomes operational; Unit 1 follows in January 2002.

2000, June

The 522-MW combinedcycle Chouteau Power Plant begins operations, followed by the 540-MW Chouteau 2 Power Plant in 2011.

2005, August 15

Associated purchases partially constructed 580-MW, combined-cycle natural gas-based power plant in Dell, Ark. After construction is completed, the plant begins operating in June 2007.

2006, April

Associated’s first wholesale power supply rate increase in 20 years takes effect, enabling the cooperative to meet a projected $1.7 billion in costs for new generation and environmental controls.

2007, September 17

Bluegrass Ridge Wind Farm, Missouri’s first utility scale wind farm, is dedicated, followed by Cow Branch and Conception wind farms in 2008 and Lost Creek Wind Farm in 2010, all projects Associated helps make possible by providing transmission and agreements to purchase all the power generated for 20 years.

2008, February

Associated’s board decides to delay indefinitely plans to build a 660-MW coal plant near Norborne, Mo., in Carroll County, citing increasing construction costs and uncertainties about carbon regulations.

2008,

March 7

Associated’s “Take Control and Save” energy-efficiency program debuts, building on the distribution cooperatives’ longtime energy efficiency efforts.

2008, December

Associated finishes installing selective catalytic reduction equipment on Thomas Hill Energy Center’s three units, enabling a 90 percent systemwide reduction of nitrogen oxides emissions by the Jan. 1, 2009, Clean Air Interstate Rule deadline.

2009, Jan. 26-28

Associated and more than 3,300 line workers respond in record time to a historic ice storm that severely damages high-voltage transmission and distribution facilities in southeast Missouri; within 17 weeks, Associated is ready for summer’s peak demand.

2010, June

U.S. Department of Agriculture Rural Utilities Service approves a $490 million loan for the 540-MW Chouteau 2 gas plant, providing funding that could save as much as $200 million over the 30-year loan.

2010, September

Associated and the six G&Ts successfully meet the requirements of all 47 standards examined in the North American Electric Reliability Corp.’s audit, the result of diligence by the two tiers in dedicating more resources to reliability compliance.

2010, November Associated joins other Missouri utilities and Gov. Jay Nixon in urging legislative support for an early site permit for a second nuclear power plant proposed by Ameren Missouri.

Bluegrass Ridge Wind Farm in northwest Missouri.