The Energy Cooperative's 2022 Annual Report

2022

ANNUAL REPORT LICKING RURAL ELECTRIFICATION, DBA THE ENERGY COOPERATIVE

CONTENTS PRESIDENT’S MESSAGE

4

LICKING RURAL ELECTRIFICATION

5

NATIONAL GAS & OIL COOPERATIVE 6 NGO PROPANE COOPERATIVE

7

NGO TRANSMISSION

7

PRODUCERS GAS SALES

7

NGO DEVELOPMENT

7

SAFETY & ADMINISTRATIVE REPORT 8 MARKETING & MEMBER SERVICES

9

TREASURER’S REPORT

11

FINANCIAL STATEMENT

13

COOPERATIVE LEADERSHIP

15

M Y E N E R GYC O O P. C O M

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O U R S T O RY In 1936, a group of farmers in Licking and Knox counties decided to take advantage of a federal program offered by the Rural Electrification Administration (REA) by forming an electric cooperative known as Licking Rural Electrification (LRE). At inception, five people were employed to service 410 members and 143 miles of electric line. The George Conrad Farm on Smoketown Road was the first member energized. For 40 years, the office was located one mile south of Utica on State Route 13 and was built in 1959.

In 1998, LRE moved the headquarters to Newark.

LICKING RURAL ELECTRIFICATION, INC. LRE is a cooperative that distributes safe, reliable electricity to 27,055 accounts in nine counties in central Ohio. LRE owns, operates and maintains over 3,000 miles of distribution lines, 40 miles of transmission lines, 20 substations and three switching stations.

In October of 1998, Licking Rural Electrification, Inc. acquired National Gas & Oil Company and its subsidiaries.

Today, the Cooperative family includes National Gas & Oil Cooperative, Producers Gas Sales, NGO Development Inc., NGO Transmission, Inc., and NGO Propane Cooperative.

The Energy Cooperative is the trade name used by LRE and its subsidiaries which operate as separate corporations.

NATIONAL GAS & OIL COOPERATIVE NGO is a natural gas distribution cooperative that provides natural gas service to more than 38,225 residential and commercial accounts within a seven-county area. This service is provided through a network of 1,000 miles of distribution pipelines.

NGO PROPANE COOPERATIVE (NGOP) NGOP is a propane distribution cooperative that serves nearly 5,000 accounts in twelve counties.

NGO TRANSMISSION, INC. (NGOT) In 2003, NGOT became Ohio’s newest gas transmission company. NGOT provides natural gas service to both affiliates and non-affiliates through a network of 150 miles of transmission pipelines and three underground gas storage fields.

NGO DEVELOPMENT, INC. (NGOD) NGO Development Corporation owns interest in more than 100 oil and natural gas wells in Central Ohio.

PRODUCERS GAS SALES, INC. Producers was formed in response to deregulation of the natural gas industry. Producers is a marketer of natural gas and serves high-volume consumers. The natural gas service is provided by interstate supply, local production, and on-system storage fields.

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P R E S I DE N T’S M E S SAG E

By Todd Ware, President & Chief Executive Officer Our values of serving you, our members, have not changed since Licking Rural Electrification lit up rural central Ohio in 1936. Members are at the heart of all the work we do. At the same time, we realize that we must evolve to keep pace with your needs. We hope you share our pride in The Energy Cooperative’s history and our growth over the years.

replacement of this aging infrastructure and our focus on leak repair has reduced our unaccounted for gas drastically over the past four years.

ELECTRIC

The electric division makes system reliability and member outage times a top priority. Our commitment to reliability is evident with over $17 million dollars spent on capital improvement projects. These projects arr centered around rebuilding aging infrastructure and constructing new distribution lines. Our electric division will continue to strive toward the lowest outage percentages possible. To that end, we reduced our outage times down to 1.6 hours per member, while also cutting line loss down to 4.5%.

Todd Ware, President/CEO

2022 was a year of continued growth and change within our cooperative.

One of the biggest milestones was the retirement (paying) of capital credits back to our electric members. This was a goal of the board and cooperative management for many years. We saw an increase in our membership last year as well as many employee retirements, both leading to many new beginnings at The Energy Cooperative. We are grateful and excited to move into another year full of opportunities.

ACSI SCORES

We feel very strongly about our members receiving the best service possible. In 2022, ACSI scores for both natural gas and electric were 85 and 84. The retention percentage increased slightly for 2022, however these percentages have remained relatively flat since 2016.

SAFETY

The future continues to be bright for the cooperative and our communities. Between massive growth opportunities and challenges, 2023 will be another eventful year.

Safety remains, and will always be, at the top of our priorities. We work hard to deliver your energy reliably while keeping employees and members safe. We continue to take part in national safety review programs for electric and natural gas and are considered leaders within those programs. As a result, our safety metrics continue to be significantly better than both state and national industry averages. Our electric cooperative has gone over twenty-three years without a lost-time injury.

FINANCIALS

I feel very honored to lead this outstanding team of employees at the cooperative. We have been able to retain and attract the brightest, talented employees who directly impact our bottom line and your service. Their high level of loyalty and dedication to the cooperative and its principles is evident. In addition, I’m grateful for a Board of Directors who continues to provide excellent leadership and support to The Energy Cooperative family.

Consolidated financial results for the year were excellent as we reported a positive net margin of over $8.6 million.

This number was slightly better than the budget and was driven by higher sales/margins and higher capital credits received. As an offset to those increases, we also saw higher than budgeted expenses due to inflationary pressures. In addition, consolidated comprehensive income was $10.3 million which was over the budget.

These results raised our equity position to almost 22.5%.

NATURAL GAS

The natural gas cooperative continues to experience significant new growth as we added 900 new residential members. During 2022, the natural gas cooperative spent just under $11 million dollars on capital improvement projects. Over 26 miles of pipe were replaced or added including upgrading aging infrastructure. The

M Y E N E R GYC O O P. C O M

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L I C K I N G R U R A L E L E C T R I F I CAT I O N

By Josh Filler, Vice President & Chief Operating Officer - Electric Operations Licking Rural Electrification (LRE) strives to provide safe and reliable electric to 27,055 members across nine counties of central Ohio. LRE owns, operates and maintains 3,008 miles of distribution lines, 40 miles of transmission lines, 20 substations and 3 switching stations. In 2022, LRE added 477 new services to its system. Maintaining these assets is no small task. A well-established maintenance and inspection program alerts us to any potential problem before they occur.

Safe, reliable electricity starts with keeping our Right-ofWay (ROW) clear. Tree related outages make up 37% of total outages and result in 75% of total member outage hours. ROW clearing includes cutting, mowing and spraying 15 feet from a single-phase line and 20 feet from a three phase line and typically 10 feet around underground electric facilities. The Energy Cooperative uses herbicides to remove unwanted weeds, brush and trees from rightsof-way. This cuts down future trees that can impact the line as well as makes for quick accessibility during outages or emergencies. There is an upside to herbicides in that it enhances wildlife habitats by promoting grasses and other

27,055 accounts

477

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ground cover that birds, deer and small animals prefer.

Our number one priority is the safety of our employees, our members and the general public. We believe that if we take the lead in safety, others will follow. At the close of 2022, LRE has successfully completed 23 years without a losttime accident. We are very proud of this accomplishment and owe it to our employees and their culture of safety.

Thank you to our members, Board of Directors and employees for another safe and successful year.

l ion

ine

s

t ibu ines r s t l on i n dis t o f i ta o iss gs m n i s h n tra switc of & ns at i o

s ile m 8 es 0 0 , 3 mil 4 0 subst 20

3

new services added

counties

5,602 poles inspected

82

poles identified as potentially dangerous

I N S P E C T I O N S , U P G RA D E S & I M P R OV E M E N T S Completed the 7.0 Mile Highwater – Northridge 69 kV Line improving reliability to

our Northridge Substation Performed full sectionalizing review in the Highwater substation area for improved outage mitigation Inspected 937 underground facilities for possible hazards, repair or replacement Rebuilt 24.5 miles of distribution line classified as aging infrastructure Built a 3.1 Mile distribution Tie-line between Apple Valley and Jelloway Stations Several substation upgrades to eliminate load limiting equipment Inspected all regulators, capacitors and reclosers

642 miles

465 miles right-of-way trimmed

133 miles miles mowed

of trees treated with herbicide

5,703

hazardous trees removed

N AT I O N A L G A S & O I L C O O P E R AT I V E

By Dan McVey, Vice President & Chief Operating Officer — Gas Operations National Gas & Oil Cooperative provides natural gas service to more than 38,000 residential and commercial accounts within a seven-county area. Members of the cooperative consumed over three billion cubic feet of natural gas last year. This gas service is provided through a network of nearly 1,000 miles of distribution pipelines.

development in that area. In addition, our infrastructure replacement initiative included over 4 miles of distribution mains and associated service lines.

We continue efforts to reduce the cost of natural gas by utilizing underground storage and bringing in supply from the shale drilling areas in Ohio, West Virginia and Pennsylvania. Having access to these recently developed resources lowers the transportation cost and provides more market competition for gas pricing. The Energy Cooperative has also partnered with IGS Energy, an experienced natural gas supplier based in Columbus, Ohio, which is supplying carbon-neutral natural gas at a fixed price to eligible consumers who want price certainty.

We are committed to providing our members with safe and reliable natural gas service.

As part of a major initiative to install new pipeline infrastructure, we connected over 900 new members last year and installed 22 miles of distribution mains for new growth. Most of the new mains were installed in western Licking County in conjunction with

22 miles

38,225 accounts

7

1,000 miles

distribution mains added

distribution pipelines

counties

4 miles

distribution mains replaced

900

3 billion cf

new services added

of natural gas consumed last year

6

N G O P R O PA N E C O O P E R AT I V E

By Dan McVey, Vice President & Chief Operating Officer — Gas Operations NGO Propane Cooperative provides propane service to nearly 5,000 accounts within a 12-county area.

Members of the cooperative consumed over 3.5 million gallons of propane last year. The propane delivery trucks traveled more than 75,000 miles and drivers made more than 10,000 deliveries in all kinds of weather conditions, proving our commitment to providing our members with a safe and reliable propane service.

This also allows members to pay for only the propane they use each month and avoid a costly bulk tank refill.

We continue to focus on providing affordable fixed-price propane with metered service. Our metering option helps members budget for their energy needs and avoid price increases that sometimes occur during the winter season.

4,956

12

counties

accounts

10k+

propane deliveries

As part of our commitment to community, we have four themed delivery trucks with special colors and decals.

Our pink and lavender trucks promote cancer research and awareness. Local veteran groups are supported by our red, white, and blue truck. We also have a green and blue truck promoting propane as a clean energy fuel. The cooperative supports charitable organizations based on propane deliveries from the themed trucks.

75K miles

traveled by delivery trucks

NGO TRANSMISSION

NGO DEVELOPMENT PRODUCERS GAS SALES

The primary role of NGO Transmission is to provide firm gas delivery service to the consumers of National Gas & Oil Cooperative and Producers Gas Sales. Transportation opportunities are also available for any qualifying gas shippers within Ohio. NGO Transmission provides natural gas service to both affiliates and non-affiliates through a network of over 150 miles of pipeline and three underground gas storage fields. These gas storage fields help balance the pipeline system and can provide up to half the daily supply needs of the pipeline system.

NGO Development Corporation owns interest in more than 100 oil and natural gas wells in Central Ohio. Many of these wells provide natural gas supply to the cooperative’s pipeline system. Oil and natural gas reserves total over 80,000 barrels and one billion cubic feet. Monthly production averages 650 barrels of oil and 8,000 Mcf of natural gas. Currently we have more than 40,000 acres of land under lease for future oil and natural gas development. Most of the acreage is in the wet gas and oil producing region of the Utica shale.

Producers Gas Sales operates as an affiliated on- system marketing company for large commercial and industrial members.

Producers Gas Sales arranges for acquisition and transportation of natural gas through the pipeline system to our large consumers. The volume of gas transported to large commercial and industrial members totaled over three billion cubic feet and represents more than half of the total gas sold or transported through the transmission and distribution systems.

SA F E T Y & A D M I N I S T R AT I O N

By Connie Hogue, Vice President of Human Resources & Safety Safety continues to be a core value of the cooperative.

We strive to continuously improve our safety culture for the well-being of our employees, members and the public. We set annual safety goals and expectations while encouraging each employee to practice safe work habits to ensure everyone goes home safely at the end of the day.

highest score of “Satisfactory”. These are the highest scores in the State and something we are very proud of.

MOTOR VEHICLES

Our employees drove over 1.6 million miles in 2022. We incurred a total of two preventable accidents, which was up one from the prior year. We monitor our vehicle accident statistics by a measurement known as an accident rate.

The accident rate represents the number of motor vehicle accidents for every one million miles driven. For the 2022 year, our at-fault accident rate was 1.19 which is much lower than the industry average for 2022 which came in at 2.16.

SAFETY RECORD

One statistic that we use to measure our safety record is incident rate which measures the incident frequency per 100 employees. In 2022, we incurred one OSHArecordable incident resulting in an overall company incident rate of .57. Incident rates for Ohio electric cooperatives and various natural gas companies throughout the U.S. reported incident rates of 2.13 and 2.32, respectively. Our five-year incident rate came in at 1.06 which is significantly lower than the five-year average for other Ohio electric cooperatives and various natural gas companies as represented by incident rates of 2.18 and 2.21, respectively.

HEALTHCARE

VOLUNTARY PROGRAMS Our electric and gas operations continue to play an active role in the National Rural Electric Cooperative Association Safety Achievement Program (RESAP) and the American Gas Association Peer Review Program. These voluntary programs allow electric cooperatives and natural gas company employees to share leading work and safety practices with peers and find opportunities for operational improvements. After completing the required review in both programs, each operation develops a Safety Improvement Program (SIP). The SIP is designed to outline areas of improvement that each operation works to achieve.

In 2022, our electric division completed a three-year RESAP review with an onsite observation conducted by other electric cooperative personnel. Of the 17 areas the RESAP Team evaluated, 47% of the areas scored the highest score of “Strong”, and 52% scored the second

.57

incident rate compared to 2.13 & 2.32

M Y E N E R GYC O O P. C O M

1.06

five-year incident rate compared to 2.18 & 2.21

Health care expenses have normalized from the pandemic and in 2022 we experienced a slight increase in our overall medical and pharmacy expenses. Overall healthcare and pharmacy costs continue to rise throughout the United States and the cooperative continues to watch these expenses very closely to ensure they remain at a reasonable and affordable level. We continue to evaluate and implement various cost control measures such as adjusting plan design and contribution levels continue to be reviewed on an annual basis.

SUCCESSION PLANNING

In 2022, the cooperative congratulated 8 employees who retired. Each of these employees worked for the cooperative for many years with an average tenure of 32 years. They gave countless years of dedication and commitment to their job and the cooperative. As we continue to look at our aging workforce, we anticipate several more retirements in the years ahead. Our succession planning initiatives continue to be an important part of ensuring we have the necessary talent to lead the cooperative into the future.

1.6 miLLION

miles driven by employees

8

1.19

at-fault accident rate compared to 2.16

8

employees retired

M A R K E T I NG & M E M B E R S E RV IC E S

By Heather Juzenas, Vice President of Marketing & Member Services The Marketing & Member Services department includes the cooperative’s communications, public relations, contact center and member account functions (billing, payments, disconnects and collections. We focus on creating positive interactions with our members and work to demonstrate the cooperative difference in everything we do.

CONTACT CENTER

Our contact center averages four hundred phone calls a day. Our representatives respond to member requests from myenergycoop.com and the SmartHub app. The team also welcomes new cooperative members when they move into our service territory. They help members understand how their energy use relates to their bill and how to manage all aspects of their account. Our contact center had the following interactions with members during 2022: • 92,207 member calls • 12,702 website inquiries • 530 member chats • 4,982 first time cooperative members welcomed

external communications throughout the entire cooperative. This includes advertising, digital media, direct member communications, as well as sponsorships, events and community relations. In 2022, the marketing and communications team: • Hosted Kids Day at the Works with over 2,000 members • Produced 6 issues of The Energy Cooperative’s Times magazine • Engaged 56,240 people on Facebook • Connected with 21,879 people on Instagram • Supported 182,000 website visits

The top priority for our department is to effectively serve our members. We have an excellent team and look forward to continuing our efforts in 2023.

MEMBER ACCOUNTS

This team greets members at our Granville Road drive thru, generates more than 69,000+ energy bills each month and processes all member payments. They also oversee disconnects for non-pay and the cooperative’s collections efforts. During 2022 this team handled: • 13,000+ members in our drive thru • 31,613,591 ccfs billed to natural gas members • 413,962,494 kwhs billed to electric members • 3,662,579 gallons billed to propane members • 371 accounts delinquent accounts disconnected

Please reach out to us if you have questions or concerns about your account or service. We are always here to help! You can reach our member services by calling 740-344-2102 or by sending a message from our website at myenergycoop.com/contact.

MARKETING & COMMUNICATIONS

192K

Our Marketing & Communications team manages

website visits

92,207 member calls

9

13K

members visited our drive thru

56,240

people engaged on Facebook

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I N V E S T I N G I N O U R YO U T H Children of Members Scholarship Recipients Investing in our future means investing in our youth. Today’s children will become future homeowners, business owners and the leaders of our communities. As a cooperative, it is important to instill in our youth an understanding of what it means to be a cooperative owner and to show them the cooperative difference. That is why we proudly provided $12,000 in scholarships to high school seniors in 2022.

Ava Vadala

Charles Lightle

Newark High School

Zanesville High School

Children of members scholarship recipients Cianna Woltz-Yarnelli

Kaitlyn Mull

C-TEC

Fredericktown High School

Mark Hettinger

Scott Moore

Johnstown High School M Y E N E R GYC O O P. C O M

John Glenn High School 10

TREASURER’S REPORT

By John Klauder, District 6 Director, CCD, BL, DCG For the year ended December 31, 2022, the Board of Directors engaged bhm cpa group, inc. to perform an audit of the cooperatives’ books and records. The bhm group has extensive experience in auditing both utilities and cooperatives. On March 22, 2023, bhm issued the audit report for the year ended December 31, 2022. The audit report contained an unmodified opinion, which in accounting terms is a clean opinion from the auditor.

In 2022, total revenues for the cooperatives were approximately $157.4 million and patronage capital received from other cooperatives was $2.7 million. Total operating expenses for the year were $151.4 million of which $90.6 million was for purchased energy. The net margin for the consolidated group was $8.6 million for 2022.

Consolidated comprehensive income for 2022 was $10.3 million. Comprehensive income is calculated by adding net margin and unrealized gains/losses on postretirement benefits plans. Comprehensive income by entity for 2022 are as follows: • Licking Rural Electric - $4,600,000 • National Gas & Oil - $4,700,000 • NGO Transmission - $422,000 • NGO Development - $413,000 • NGO Propane - $243,000 As of December 31, 2022, your cooperative had total assets of $362 million which includes $281 million in net plant assets. The cooperative has invested $33.1 million in new plant assets throughout the year. At the end of 2022, the company had $41 million of patronage capital in other cooperatives, including Buckeye Power and Cooperative Finance Corporation (CFC). Included in total assets was over $2.4 million in cash and short-term investments.

Total liabilities were $280.6 million as of year-end.

The cooperative has equity of $81.4 million as of the end of 2022. Equity as a percentage of assets for the combined entities has grown to 22.49 percent.

As of December 31, 2022, The Energy Cooperative serves approximately 70,000 accounts. During 2022, we paid out approximately $8.3 million in taxes. The cooperative paid $154,000 in patronage capital credits to estates and $673,000 in general retirements to electric members.

If you have additional questions about this financial report, please contact the office at 740-344-2102.

I N C O M E S TAT E M E N T INCOME STATEMENT

YEAR ENDING DECEMBER 31, 2022 REVENUES Residential and Commercial Sales

$119,459,098

Industrial Gas Sales

33,050,231

Oil and Gas Production

2,263,766

Interest and Non-Operating, Net

2,583,799 Total Revenues

$157,356,894 EXPENSES

Purchased Energy

$90,604,258

Operations and Maintenance

15,808,468

Administrative and General

15,612,464

Depreciation and Depletion

12,467,825

General Taxes

8,277,575

Interest

8,665,483 Total Expenses

$151,436,073

Patronage Capital Credits

$2,677,877

Income Tax (Benefit) Expense

$24,983

Other Comprehensive Income (Loss)

$1,762,157

Comprehensive Income

$10,335,872

PATRONAGE CAPITAL Capital Credits Refunded Prior to 2013

$8,034,057

2013

79,692

2014

98,402

2015

88,465

2016

91,437

2017

79,573

2018

61,395

2019

63,917

2020

84,166

2021

75,223

2022

827,173

Total Refunded M Y E N E R GYC O O P. C O M

$9,583,500 12

BALANCE SHEET BALANCE SHEET

YEAR ENDING DECEMBER 31, 2022 ASSETS Property, Plant and Equipment, Net

$280,991,760

Investments

$41,012,855

Current Assets Cash and Cash Equivalents

$2,446,087

Accounts Receivable, Net

21,201,402

Gas in Underground Storage

10,370,875

Materials and Supplies

5,385,930

Prepaids and Other

465,787 Total Current Assets

$39,870,081

Other Assets Long-Term Receivables

$117,854 Total Other Assets

$117,854 $361,992,550

Total Assets

LIABILITIES & EQUITIES Current Liabilities Accounts Payable

$15,399,113

Accrued Property and Other Taxes

6,409,881

Current Maturities of Long-Term Debt

11,705,883

Note Payable - Line of Credit

9,500,000

Other

8,532,348 Total Current Liabilities

$51,547,225

Long-Term Liabilities & Equity Long-Term Debt, Net of Current Portion

$214,882,171

Other Accrued Liabilities

14,147,826

Member & Patron’s Equities

81,415,328

Total Long-Term Liabilities & Equity

$310,445,325

Total Liabilities & Equity

$361,992,550 13

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B OA R D O F D I R E C T O R S

5

Wayne Zollars, District 5

Donald Hawk, District 1 CCD, BL, DGC

1

Brad Patton, District 3

Dustin Buckingham, District 7 CCD, BL, DGC

3

Nelson Smith, District 2 CCD, BL, DGC

7

2 John Klauder, District 6 CCD, BL, DGC

9

6 8 Mike Pettit, District 4

Tom Graham, District 9 CCD, BL, DGC

Joanne Little, District 8 CCD, BL, DGC

4

The designations Credentialed Cooperative Director (CCD), Board Leadership Certification (BL), and Director Gold Certificates (DGC) are earned by Directors upon their completion of a series of certification classes provided by the National Rural Electric Cooperative Association (NRECA).

C O O P E R AT I V E L E A D E R S H I P

Todd Ware, President/CEO

Dan McVey, VP/COO Gas Operations

M Y E N E R GYC O O P. C O M

Josh Filler, VP/COO Electric Operations

Pat McGonagle, VP/CFO

14

Connie Hogue, VP/HR & Safety

Heather Juzenas, VP/Marketing & Member Services

Scott Stitts, VP/CIO

Energy

740-344-2102

FOR WHAT MATTERS MOST

myenergycoop.com 15

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THE ENERGY COOPERATIVE’S VISION IS THAT OUR MEMBERS TRULY BENEFIT FROM RECEIVING SAFE AND RELIABLE ENERGY WITH HIGHLY RESPONSIVE SERVICE AT FAIR AND REASONABLE PRICES SO THAT THE COMMUNITIES WE SERVE ARE ENHANCED DUE TO OUR PRESENCE.

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THE ENERGY COOPERATIVE 1500 GRANVILLE ROAD NEWARK, OH MYENERGYCOOP.COM 740-344-2102 M Y E N E R GYC O O P. C O M

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