2016 04 sremc ar

Achieving Excellence, Empowering Members

2016 Annual Report

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Advocates

Board of Directors

& Regulators

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Back Row: Sue Flowers, Dist. 2; Clifton McNeill Jr., Dist. 8; Dr. E. Sue Godwin-Baker, Dist. 6; Chris Spears, CEO; Jeffrey Martin, Dist. 4 and Dorcas Fisher, Dist. 5 Front Row: William E. Tew Jr., secretary, Dist. 7; Kelly Harrington, vice president, Dist. 1; Francis Clifton, president, Dist. 3 and George Williams, treasurer, At-Large

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Financal Foundation

unaudited

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2015

Assets Electric Plant at Original Cost Less Depreciation Net Plant Cash Investments Accounts Receivable Materials and Supplies Prepayments, Accrued Assets & Deferred Debits Total Assets

$236,634,434 63,833,452 $172,800,892 4,699,369 22,084,413 9,515,919 6,373,425 656,935 $216,131,043

Liabilities Long-Term Debt — RUS, CFC Consumer Deposits Accounts Payable Deferred Credits Other Liabilities Membership Fees Patronage Capital Other Equities Total Liabilities

$ 93,040,852 2,669,697 6,773,254 2,181,929 21,727,949 62,505 89,674,857 $216,131,043

Operating Statement Operating Revenue & Patronage Capital Expenses Cost of Purchased Power Distribution Expense Operations Consumer Accounts Expenses Customer Service and Information Expenses Administration General Expenses Maintenance Expenses Depreciation Amortization Taxes Interest on Long-Term Debt Total Cost of Electric Service

$ 98,779,888 62,904,117 2,887,774 3,448,288 2,770,520 4,868,057 6,072,903 7,002,166 87,567 4,537,183 $ 94,578,575

Margins Operating Margins and Patronage Capital Non-Operating Margins Other Capital Credits and Patronage Dividends Total Operating and Non-Operating Margins

$ 4,201,313 (241,400) 1,801,703 $ 5,761,643

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Milestones

& Highpoints

The next two pages feature highlights from 2015 and some insight into this year’s plans. Pictured right are President Francis Clifton (left) and CEO Chris Spears.

Growing and Improving

• Improved facilities at Fisher Substation in the Clement community.

• Completed a new breaker substation in Vander and installed a new transformer.

• Constructed new Barnhill Substation to better serve the growing western Harnett area.

• Erected 7.2 miles of transmission line and upgraded the distribution lines between Western Harnett and Barnhill substations.

• Upgraded distribution facilities in Gray’s Creek, Dunn (Timothy) and Mingo areas.

• Major upgrade of facilities along Ray Rd. and built a double circuit.

• Added new facilities to the Anderson Creek Substation to meet increasing demand.

• Finished maintenance of pad mount transformers in 50 percent of subdivisions.

• Pole inspection program: replaced 350 poles (distribution and transmission) • Implemented voltage reduction program to help reduce our peak load on high demand days and reduce costs.

• Installing “cut outs” to enable us to narrow the areas affected by an outage and get more members restored more quickly.

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A Rate For All Seasons and Surprises Over the past year, we have been working with the farming community to better meet their needs for a rate that suits the seasonal nature of their business. In January, we had a meeting to roll out the seasonal option for members in the agricultural sector. This rate option will enable these members to pay at a time of the year that is more in sync with their business, while recovering all of our necessary costs.

While working to find a solution, we also seized the opportunity to make our medium and large general service rates more attractive to our commercial members.

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Clearing Right-of-Way The Right Way

In a continued effort to meet our mission of providing safe, reliable and affordable electricity, South River EMC has stepped up our right-of-way (ROW) clearing program.

ROW is the strip of land owned by another party on which South River EMC and other utilities place their facilities. While ensuring our lines stay clear of any impediments, we take very seriously our goal of being good environmental stewards, so we have a strategically planned Integrated Vegetation Program. This approach, which is evaluated for safety and environmental impact, includes both mechanical equipment (such as tractors, bush hogs and chain saws) as well as the spraying of chemical herbicides that have been tested and approved by the EPA. Spraying of ROW is done in strict accordance with prescribed regulations. Our ROW clearing efforts paid off in the February 2015 ice storm and again in the ice event in January.

New Borrowing Partner

South River EMC has refinanced all existing Rural Utilities Service (RUS) debt with the National Rural Utilities Cooperative Finance Corporation (CFC). The Cooperative expects an annual cash flow increase for the next several years of nearly $1.5 million and a total savings of more than $20 million over the life of the loans.

The refinancing will net an additional savings of around $500,000 per year in operating costs by streamlining processes and eliminating the red tape. The process has helped us to operate more efficiently enabling us to focus on more critical areas of the business.

Fewer Lights Out

We are spending a significant amount of time studying monthly reports to define our most active facilities to create initiatives to reduce outage minutes for each area based on outage causes (i.e. power source, maintenance, equipment, etc.). This plan is being implemented in conjunction with our right-of-way clearing initiative.

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$1.5-2 million in savings annually What Is The Cost Of Service

Because our industry is changing rapidly, it is important to stay atop our rates and to ensure we are operating as an at-cost service provider. The best way to do this is to conduct an exhaustive cost-of-service study every three to four years. The study measures all aspects of our business including: power contracts, revenue requirements, load forecasts and all costs associated with serving each rate class. We have begun the process and expect results this summer. Based on current industry conditions we do not expect any surprises from this study. Continue to read your Carolina Country for more information about the results of this study.

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You Get The Credit.....Sooner When you signed up to receive electric service from South River EMC you became a member of an electric cooperative automatically. While investor-owned utilities return a portion of any profits to their shareholders, electric cooperatives operate on an at-cost basis and any money left over is earmarked to be returned to the members. South River EMC allocates capital credits each year based on how much electricity each member purchased during the year.

service with South River EMC, they will have the option to receive all alocated Capital Credits at a discounted rate after 30 days or they can wait until the regular 19-year retirement takes place and receive the full amount.

Historically, we have used the money for operating capital before returning it after 19 years. Refunds are returned to members through checks or bill credits reflecting their contribution of capital to, and ownership of, the Cooperative during those 19 years. Those funds help us control rates and reduce the amount of money we borrow from outside lenders to build, maintain, and expand a reliable electric distribution system.

Starting in 2016, the South River EMC Board of Directors have voted to implement a hybrid system to refund Capital Credits. This year, we will retire the Capital Credits to those who had electricity 19 years ago AND we will take 20-25 percent of last year’s allocation and return it to members who had service in 2015. Which means most of you will be receiving a refund this year.

Another change is that we will no longer discount Capital Credits returned before the full 19-year maturity date at the prime rate set the preceeding December 31. Instead, we will discount based on the 19-year-interest rate set by the CFC, which is our cost of borrowing money. These changes were made to better serve you, our member.

This change is not just for 2016 but for each year moving forward. Additionally, when a member moves and discontinues

Since 2001, South River EMC has refunded $33.3 million to members through Capital Credits. These returns

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were for money earned from 1982 through through part of 1997.

Electric cooperatives are an integral part of the $364 billion U.S. electric utility industry. They play a critical role in our nation’s economy and in local communities.

Electric cooperatives are: • Private, independent, non-profit electric utility businesses • Owned by the customers they serve • Incorporated under the laws of the

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states in which they operate • Established to provide at-cost electric service • Governed by a board of directors comprised of members elected by the Cooperative consumers.

Capital Credits are an advantage of being a cooperative member. You are part of something special. We are not like other electric companies, we are owned by you!

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South River Electric Membership Corporation

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