Annual Report 2015

AFFORDABLE RATES

SAFETY

RELIABILITY

INNOVATION

MEMBERSHIP

COMMUNITY

YOUR BOARD OF T RUST E E S

FR O M LE FT TO RI GH T:

KRISTINA BAHR At-Large Position A BOARD PRESIDENT Trustee since 2001 • Spokane Valley, WA BRIAN SLAYBAUGH District 7 BOARD VICE PRESIDENT Trustee since 2011 • Pomeroy, WA GALE RETTKOWSKI District 5 Trustee since 1975 (Lincoln Electric) • 1995 (Inland) Wilbur, WA GERALD DAVIS At-Large Position B Trustee since 1984 • Pullman, WA

DANNY LEE District 1 Trustee since 2015 • Nine Mile Falls, WA RICHARD ZIEHNERT District 2 BOARD TREASURER Trustee since 2013 • Elk, WA JAMES KROLL District 6 Trustee since 2007 • Colfax, WA DAVID SHILL District 4 Trustee since 1990 • Spokane Valley, WA GARRY ROSMAN District 3 BOARD SECRETARY Trustee since 2012 • Davenport, WA

COOPERATIVE

YO U R

2015 ANNUAL REPORT

IT’S

COOPERATIVE

YO U R IT’S

10110 W Hallett Rd. Spokane, WA 99224

In addition to restoring power, Inland Power employees performed admirably in manning the phones, keeping the Inland operation moving forward and updating the media and community to execute an efficient restoration.

C E O A N D P R E S I D E N T ’ S M E S S AG E EVERY YEAR AT THIS TIME WE REFLECT ON WHAT WE’VE ACCOMPLISHED IN THE PAST YEAR, OUR PLANS FOR THE FUTURE, AND MOST IMPORTANTLY, ON WAYS WE CAN

Just as we had recovered from this devastating windstorm, on December 21 the snow began to fall. Not the normal beautiful Spokane snow, but heavy wet snow which toppled trees. By late evening on December 22, we had trees falling all over our system. Time after time, lines would be repaired just to come down again as more trees would snap or sag into our lines. This storm has been named the “White Christmas storm” and many of our employees worked tirelessly until the last member was finally restored on December 30.

BETTER SERVE YOU. CHARLES DICKENS ENCAPSULATES 2015 FOR YOUR COOPERATIVE PERFECTLY, “IT WAS THE BEST OF TIMES, IT WAS THE WORST OF TIMES.” In 2015, Inland Power was able to accomplish many great things to better serve you. Technology continues to shift the way we do business, allowing us to work smarter and offer better service to our members, all while reducing long-term operational costs. However, epic wind and snow storms created two of the largest and longest outages in Inland Power’s history and tested every aspect of our cooperative; internally and externally.

Difficult times, as we have found, build resolve. As we reflect on the past year, 2015 was definitely not a year of the “status quo.” But our willingness to explore new opportunities and try new things is what makes Inland Power a great cooperative.

On behalf of all of us who worked to restore power during the November wind storm and December White Christmas storm, we want to thank Inland members for your extraordinary patience and understanding during these outages. Day after day, we witnessed members show incredible heart and persistence in supporting the work of our crews and contract crews as they cleared downed trees and snow from damaged lines. Despite not having electricity in your own homes, several of you brought hot meals, coffee and words of encouragement to our crews, many of whom worked throughout the holidays, far from their own families.

The use of helicopters proved to be the only solution, without them, this outage

While working tirelessly through these outages, safety was a priority and remains at the core of everything we do at Inland Power. Our safety department sets yearly goals and we work hard to achieve them.

Inland Power’s current incident and injury record is .95 for 2015, compared to a national average of 2.53. We are very proud of our safety record in 2015. This achievement is made possible by our safety department’s routine trainings and spot inspections along with the commitment from our employees who come to work each day with a goal of zero accidents.

These storms had a significant impact on Inland’s margins for the year. Together, these two massive and historic storms had the net effect of lowering Inland’s 2015

average cost of close to $23 per meter, per year. By 2020 this standard jumps to 15% and will cost Inland members $1.6 million per year just to comply with this law.

On a positive side, in 2015 Inland Power entered its third year of our $173 million BPA Prepayment program to help support upgrades to the federal hydro system. This program is paying great dividends. To date we have saved over $6 million dollars and will save an additional $15 million in the years to come. This is a direct saving in lower electrical rates to each of you.

As you can see in the financial section of this report with the storms and all other extraordinary events during this past year, Inland’s 2015 operating margins would have only been $732,000, but the benefits of BPA prepay added $2,213,000 to your 2015 margins. This program is part of the reason that Inland Power is fiscally healthy enough to absorb the storm costs.

YO U R FA I T H I N O U R WO R K B O O S T E D T H E F L AG G I N G S P I R I T S A N D T I R E D B O D I E S O F O U R E M P LOY E E S A N D C O N T R AC TO R S . W E A R E H U M B L E D BY YO U R AC T I O N S A N D G R AT E F U L F O R YO U R S U P P O R T. F R O M A L L O F T H I S , W E H AV E L E A R N E D, T H AT I N I N L A N D T E R R I TO RY, G E N E R O S I T Y K N OW S N O B O U N D S .

The November 2015 windstorm was the worst natural disaster in Inland’s 79-year history. Near hurricane-force winds knocked down trees which brought down power poles, power lines, transformers and other equipment. During the evening of November 17, 2015 winds raised havoc with outages that rivaled Ice Storm ‘96. With the National Weather Service giving 100% confidence in 70 mph winds, we were left with 33,000 members, or 83% of our membership, without power.

would probably have lasted an additional two weeks as they allowed us to relieve the trees of the heavy snow weighing them down.

At the peak of restoration, we had eight contract crews, two tree trimming crews and eight crews from neighboring utilities working alongside Inland Power’s seven crews. This made for a total of 25 crews and three times our normal workforce. Due to this valiant effort, most all line damage was repaired and the majority of our members were back on within three days and all members were restored before the Thanksgiving holiday.

Your faith in our work boosted the flagging spirits and tired bodies of our employees and contractors. We are humbled by your actions and grateful for your support. From all of this, we have learned, that in Inland territory, generosity knows no bounds.

IN THIS REPORT CEO AND PRESIDENT’S MESSAGE

to take care of each other in times of crisis.

Thank you for never giving up on us. We feel privileged and proud to serve you.

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RELIABILITY 3 INNOVATION 5

We know that as your utility, we have a lot of good lessons to learn from these storms and we have taken actions to minimize the impact of similar events in the future.

These are the kinds of events you can’t prepare for until they happen and we have used them as learning opportunities.

One of the biggest lessons we have learned from these experiences is that Inland Power is a community of neighbors who know how

margins by over $2 million dollars. These storm costs were carefully considered by your board of trustees and it was agreed to expense these costs in 2015 and to not seek the recovery of any of these costs in any current or future rate increase.

Your cooperative also continues to be challenged by Initiative 937, which was passed by Washington voters back in 2006 – now 10 years ago. The costs of this initiative are becoming very real to Inland members. This initiative required that at least 3% of our energy resources be renewable starting in 2012, and the plentiful and carbon free power that flows from the federal hydro system does not count as renewable energy. In January of this year, the required standard jumped to 9% and increased the annual cost to Inland members to $908,000. This is an

As an Inland member, your rates remain amongst the lowest 1% in the nation, the lowest 15% in the northwest and lowest 11% in the state.

In the following pages you will see what makes your cooperative special. We are a member owned cooperative – serving you, our members, at cost. After 79 years, Inland’s core mission has never changed – that is to provide safe, reliable electricity at affordable rates and with great member service. On behalf of all Inland employees and board members, it is an honor and a privilege to serve your energy needs. It is in this spirit that we extend a heartfelt thank you to the Inland employees for their dedication and effort and for what they do day after day and throughout the year. We look forward to a great 80th year of serving your energy needs.

MEMBERSHIP 7 COMMUNITY 9 FINANCIALS 11 INLAND BY THE NUMBERS

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CHAD JENSEN KRISTINA BAHR CHIEF EXECUTIVE OFFICER BOARD OF TRUSTEES, PRESIDENT

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RELIABILITY

2015 SUMMARY

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Completed three-year PCB testing program on all of Inland Power’s 29,685 distribution transformers.

Crews continue to replace aluminum bells and cutouts. 386 bells and 927 cutouts were replaced in 2015 alone.

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67,542 out of 101,918 poles have now been tested and treated in the last six years.

Replaced 968 poles and stubbed 171 poles that failed Inland’s test and treat program.

Completed preventative maintenance plan for the Egypt, Valleyway, Vera and West Plains substations.

Long-range operations and engineering work plans are on schedule to further reduce outages and improve reliability as well as prepare for future growth.

ONE OF OUR GOALS is to provide electricity in such a way that you don’t even think about it – the power is just there when you need it. In reality, much thought and effort goes into delivering electricity to you. We work 24/7 to ensure that service is available to you at the flip of a switch. From time-totime, events beyond our control create outages and 2015 was one for the record books. In 2015, Inland Power was hit with two of the largest outages since Ice Storm ‘96. The wind storm was the largest outage event in Inland Power’s 79-year history.

Immediately following this storm, we lost power to approximately 10,000 members just in time for Christmas. Snow and trees continued to fall bringing down our lines and lights we had just gotten on would go black again. Our employees worked tirelessly to rebuild power lines, remove trees, answer member calls and restore power as quickly as possible during both of these storms.

We also want to thank our contractors and neighboring utilities who sent crews to help with this effort.

W E WO U L D L I K E TO E X P R E S S A H E A R T F E LT T H A N K YO U TO O U R M E M B E R S F O R T H E I R PAT I E N C E A N D U N D E R S TA N D I N G A S W E WO R K E D T H R O U G H T WO E P I C P OW E R R E S TO R AT I O N E F F O R T S D U R I N G T H E W I N D S TO R M I N N OV E M B E R A N D “ W H I T E C H R I S T M A S ” S N OW S TO R M I N D E C E M B E R .

Inland finds, develops and uses the latest technology available to proactively look at system improvements, capital investment projects and to be innovative in solving every reliability issue.

While the storms were a significant part of 2015, your operations team was steady at the helm making service improvements throughout the year. Dozens of reliability and system improvement projects were completed in 2015. They range from testing transformers, replacing poles, bells and cutouts and rebuilding several miles of overhead and underground line. Inland Power is dedicated to serving you and will continue into 2016 and beyond. Listed to the left is a summary of the accomplishments made over the last 12 months.

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I N N OVAT I O N 2015 SUMMARY

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4 5 6

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Successful conversion to NISC and our digital meter system, Tantalus, which allows us to remotely read meters and proactively inform us of any power outages.

Inland Power’s Automatic Vehicle Location (AVL) system pinpoints the exact location of Inland Power vehicles. It also sends alerts to our fleet department if there are any issues with our vehicles.

Completed a system conversion of our internal phone system for greater reliability and functionality.

Ongoing internal upgrades to improve network monitoring and management.

Proactively initiated a cyber-security audit and assessment program.

Developed and implemented a disaster recovery program.

I N L A N D P OW E R N OW O F F E R S I T S M E M B E R S M O R E I N F O R M AT I O N AT T H E I R F I N G E R T I P S : I M P R OV E D S E L F S E RV I C E O P T I O N S , A C O N V E N I E N T M O B I L E A P P A N D A M E M B E R - F R I E N D LY AC C O U N T M A N AG E M E N T SYS T E M .

OVER THE PAST THREE YEARS, your cooperative embarked on initiatives that will bring improved technologies, better reliability, lower operating costs and enhanced options and features for you, our members. We are just a couple of months away from finalizing our system upgrade to digital meters. In addition, we successfully converted our financial, customer billing, engineering and operating platforms to National Information Solutions Cooperative (NISC).

Both of these conversions allow Inland Power to offer its members more information at their fingertips: improved self-service options, a convenient mobile app and a member-friendly account management system.

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MEMBERSHIP 2015 SUMMARY

I N L A N D P OW E R S T R I V E S TO P R OV I D E OUR MEMBERS WITH THE HIGHEST LEVELS OF SERVICE POSSIBLE.

YOU COULD ASK any employee and they would tell you without hesitation that their number one priority, other than safety, is our members.

Inland Power strives to provide our members with the highest levels of service possible. From the initial stages of setting up service with Inland Power, to answering account questions to helping you save money on your energy bill, we are here for you. We want to make each and every contact that you have with us easy and efficient. Our great employees are just one way we make doing business with Inland Power easier.

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$735,350 in energy conservation incentives to our members during the year.

3,790,866 kWh in energy savings.

2,563 energy efficiency rebates distributed to our members.

$1.5 million in capital credits distributed to our members (23,866 checks). Owning your own utility has its advantages.

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Overall member satisfaction rating of 95%, compared to the cooperative average of 82%.

Fully deployed SmartHub, a payment gateway that offers members multiple ways to make payments, access to detailed usage information and email notifications. SmartHub is available online and as a mobile app.

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Completed both phases (899 units) of our community solar program offered to our membership.

148 members are taking advantage of this great program.

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Met the Washington renewable requirement (I-937) of 3% in 2015. This requirement moves to 9% in 2016-2019.

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CO M M U N I T Y THE BENEFITS INLAND POWER brings to the community don’t stop at your light switch. Your board and co-op employees support programs and projects that are good for our community. Inland Power’s employees live in the same communities as you, the members we serve. This year your cooperative returned almost $60,000 to the communities we serve in the form of charitable donations. By sponsoring youth sports teams, local high schools, scholarships to member’s children and more, we are making our communities better places to live.

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Touch-A-Truck

Completed the second full year of the Operation Round Up program.

Donated to nine charities and have collected over $25,000 to give back to our membership. Thanks to our generous members whom generosity knows no bounds.

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Employees adopted Snowdon Elementary as Inland Power’s school, sponsoring 103 students through a Bite 2 Go program, providing them food over the weekend where they would go without. They also donated backpacks and shoes to students in need.

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$20,000 donation to SNAP, providing energy assistance to hundreds of our members.

Employees participated in the Junior League of Spokane’s Touch-A-Truck program for the 5th straight year.

15 - $1,000 excellence award college scholarships and three - $1,000 lineman scholarships for line school awarded to member’s children and dependents.

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Sponsored several community sports teams, along with participating in livestock auctions and 4H groups to support our incredible youth.

T H E B E N E F I T S I N L A N D P OW E R B R I N G S TO T H E C O M M U N I T Y D O N ’ T S TO P AT YO U R L I G H T SW I TC H .

We completed our second full year of Operation Round Up. On a voluntary basis, our members allow us to “round up” their electric bills to the next whole dollar each month. This spare change goes into a trust fund for the purpose of providing local grants and donations. We currently have over 2,100 members that have signed up for this fantastic program to help our community. Giving back to our community is just one way Inland helps further improve our members’ lives.

2015 SUMMARY

4H-Palouse Area Robotics Team 9

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2015 FINANCIALS

RESIDENTIAL RATES FOR 2015 PER KWH NATIONAL AVERAGE 12.73 CENTS/KWH Average customer usage based on 1,000 kWh’s/month EIA Data, November 2015

NUMBER OF MEMBERS 40000

BALANCE SHEETS 2015

2014

39,872

2011 2012 2013 2014 2015

EXPENSES TAXES, DEPRECIATION & INTEREST

EQUITIES, MARGINS AND LIABILITIES

Equities and Margins $ 92,467,000 $ 90,717,000 Accounts Payable 5,978,000 4,682,000 Long Term Debt 59,233,000 61,849,000 BPA Long Term Debt 149,954,000 158,944,000 Other Liabilities 10,135,000 4,613,000 Deferred Gain and Credits 3,193,000 3,384,000

$ 320,960,000 $ 324,189,000

39,010

30000

38,950

Net Utility Plant $ 147,323,000 $ 144,021,000 Non-Utility Plant 6,000 7,000 Investments in Assoc. Org. 5,091,000 4,746,000 Cash & Cash Equivalents

493,000 408,000 Accounts & Notes Receivable 10,380,000

9,015,000 Materials and Supplies 3,259,000

3,050,000 BPA Prepayment 152,103,000 160,440,000 Other Prepayment 1,944,000 2,222,000 Other Assets 361,000 280,000

$ 320,960,000 $ 324,189,000

39,502

35000

38,660

ASSETS

20% 29%

ADMIN & OPERATIONS

51%

POWER COSTS

REVENUE

STATEMENTS OF REVENUES & MARGINS 2014

RESIDENTIAL

69%

OPERATING REVENUE $ 66,822,000 $ 68,077,000

EXPENSES Cost of Power 33,958,000 34,758,000 Operations and Maintenance 10,121,000 9,083,000 Consumer Accounts & Marketing 2,457,000 2,563,000 Administrative & General 6,573,000 6,631,000 Depreciation 6,492,000 5,965,000 CAPITAL CREDIT Taxes 4,075,000 4,069,000 (THOUSANDS) Interest 2,414,000 2,540,000

3,159,000 $

4,423,000

$1,500

$

IRRIGATION

INLAND POWER HAS THE LOWEST RATES IN THE NATION OUT OF 891 COOPERATIVES IN THE COUNTRY INLAND POWER RANKS 13TH FOR LOWEST RATES.

RETIREMENTS

INLAND POWER

NATIONAL AVERAGE

$1,250

Net Margins

12%

WASHINGTON AVG.

$1,250

Total Cost of Electric Service $ 66,090,000 $ 65,609,000 1200

Operating Margins 732,000 2,468,000 Net Benefits of BPA Prepay 2,213,000 2,042,000 600 Non-Operating Margins 214,000 (87,000)

COMMERCIAL

7.8¢ 9.37¢ 12.73¢

$1,500

2015

$1,500

21%

2011 2012 2013 2014 2015

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ANNUAL NUMBER OF MEMBER SERVICE CALLS

77,243

I N L A N D BY THE NUMBERS

1,485

AVG. WEEKLY SERVICE CALLS

5,716

2015

NOVEMBER WIND STORM CALLS

4,593 DECEMBER SNOW STORM CALLS

1,485

5,716

4,593

WEEKLY AVERAGE

NOVEMBER WIND STORM

DECEMBER SNOW STORM

NUMBER OF MILES DRIVEN TO SERVE YOU IN 2015

570,126 $64,953,000

ELECTRICITY SALES

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EMPLOYEES

MEMBERS

39,872

90

MILES OF LINE

7,638

WE ARE THE LARGEST COOPERATIVE IN WASHINGTON

TOTAL ASSETS

$320,960,000

NET MARGIN

$3,159,000

NET BENEFITS OF BPA PREPAY IN 2015

$2,213,000

CAPITAL CREDITS RETURNED

$1,500,000

AVERAGE MONTHLY RESIDENTIAL MEMBER BILL AVERAGE DAILY RESIDENTIAL MEMBER BILL

$106 $3.53

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