The Energy Cooperative Annual Report 2020

1936

8 5 YEARS OF SERVICE 2021

2020

ANNUAL REPORT

Licking Rural Electrification, dba

The Energy Cooperative

Our Story 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. 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-owner energized. For 40 years, the office was located one mile south of Utica, Ohio, on State Route 13 and was built in 1959. In 1998, LRE moved the headquarters to Newark, Ohio.

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.

Licking Rural Electrification, Inc. (LRE) LRE is a cooperative that distributes safe, reliable electricity to 26,426 members in nine counties in central Ohio. LRE owns, operates, and maintains nearly 3,000 miles of distribution lines, 32 miles of transmission lines, 20 substations, and three switching stations.

Contents President’s Message 4 Licking Rural Electrification 5

National Gas & Oil Cooperative (NGO) NGO is a retail natural gas distribution cooperative that provides natural gas service to more than 36,000 residential and commercial members within a seven-county area. This service is provided through a network of nearly 1,000 miles of distribution pipelines.

NGO Propane Cooperative (NGOP) NGOP is a propane distribution cooperative that serves over 4,572 member-consumers in eight counties.

NGO Transmission, Inc. (NGOT) In 2003, NGOT became Ohio’s newest gas transmission company.

NGOT provides natural gas service to both affiliates and nonaffiliates 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.

National Gas & Oil Cooperative 6 NGO Propane Cooperative 7 NGO Transmission 7 Producers gas sales 7 NGO Development 7 Safety & administrative Report 8 Marketing & public relations 9 Treasurer’s report 11

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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Financial Statement 12 Cooperative Leadership 14

2020 Annual Report As members, we should all be proud of the history of The Energy Cooperative. Rural central Ohio had a need for electric, and strong leaders came together and made Licking Rural Electrification happen. Electricity and all the benefits that come with it changed and improved the lives of people in rural communities. Electricity made homes more comfortable and lessened workloads with electric appliances. Electric lights made the evenings longer and more enjoyable, strengthening families. Power on farms made for prosperous changes and growth.

as Johnstown and New Albany. We now have over 67,600 members and serve 15 counties. We continue to empower you, our members, with services and products that make your workloads lighter, allow you to expand your businesses, and make your homes warm, comfortable places in which to raise families and enjoy your friends.

Our values have not changed since Licking Rural Electrification lit up rural central Ohio. We have a solid foundation built on those values, but we keep our eyes on the future and on your needs as they continue to change. We hope that you share our pride in The Energy Cooperative’s history and its growth as we have been serving our member-owners since 1936.

At The Energy Cooperative, we continue to want to make your lives better, and we set goals every year to ensure we do that. Over the years of this Cooperative’s history, we have brought you natural gas, propane, as well as reliable electric because you had a need for those products.

Let us have a look inside at how our year unfolded.

As a company we continue to grow, expanding our services in areas that are also growing, such

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President’s Message

By Todd Ware, President & Chief Executive Officer As we wrap up 2020, I want to take an opportunity to recap last year and share our future plans. As you know, we decided to hold our annual meeting virtually this year due to lingering issues with COVID. The year 2020 seems to have faded into the past because of all the challenges.

However, it makes sense to take a quick look back at the progress we made last year.

each year. The electric cooperative continued to replace AMI meters as part of the second phase of this project. As always, we continue to work on maintaining our right of way to help reduce outages. Our crews trimmed, mowed, or sprayed over 1,100 miles of right of way during the year.

Each year we work hard to improve our service to you, our members. During 2020, we continued to make changes to how we handle issues and concerns when they arise. We continue to get signs that we are making progress as we got an increase in our ACSI score for both natural gas and electric, while also making a modest increase in our retention rates for both cooperatives We will continue to work hard in 2021 to meet your expectations in the service we provide you.

We continue to work hard to deliver your energy in a safe and reliable manner, while also keeping our employees safe. Safety remains our top priority. We continue to participate in national safety review programs for both electric and natural gas and are considered leaders within those programs. Our safety metrics continue to be better than both state and national industry averages and our electric cooperative has gone over twenty-one years without a lost time injury.

We put many goals in place for 2021. Once again, we have a sizable capital budget planned for the year, however it fits well within the overall financial plan. I continue to be honored to lead this cooperative and I am humbled by the great employees we have working here every day. Without our employees we would not be able to accomplish all the positive things that we do. Your Board of Directors continues to provide excellent leadership as we look toward to The Energy Cooperative’s future.

Consolidated financial results for the year were excellent as we reported a positive net margin of $9.5 million.

This result was substantially above budget. The largest driver for being ahead of budget was lower than expected operating expenses. Consolidated comprehensive income was $10.5 million which was also ahead of budget. These results raised our equity position to just over twenty percent.

New growth continued for our natural gas cooperative as we added 645 new residential members. During the year we added eighteen miles of new distribution pipe and replaced eleven miles of aging distribution pipe. The replacement of this aging infrastructure and our focus on leak repair has reduced our unaccounted-for gas to .63%, which is below industry standards. The natural gas cooperative has substantially completed its automated metering infrastructure (AMI) program, as less than 300 meters remain not on the program.

The electric division continued to focus on system reliability. Again in 2020 we spent over $9 million on capital improvement projects. Some of our major projects were upgrading the Reform station and the Loudonville station transformer and rebuilding over thirteen miles of line. These projects will help to reduce outage hours MYENERGYCOOP.COM

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Licking Rural Electrification

By Gary Glover, Vice President & Chief Operating Officer – Electric Operations

Licking Rural Electrification (LRE) strives to provide safe and reliable electric to 26,426 members across nine counties of central Ohio. LRE owns, operates, and maintains nearly 3,000 miles of distribution lines, 32 miles of transmission lines, 20 substations, and 3 switching stations. In 2020, LRE added 289 new services to its system. Maintaining these assets is no small task.

A well-designed maintenance and inspection program alerts us to any potential problem before they occur.

were treated with herbicide and 5300 trees were removed from under or near the lines that were identified as a danger or hazard trees. With all this attention given to our right of ways, trees still remain the major cause of outages.

In 2020 several upgrades and improvements were made to LRE’s infrastructure, they are, • The Reform substation relays were upgraded.

• The Loudonville substation transformer was upgraded from a 3.75MVA to a 5/7MVA for reliability purposes.

• 96% of the old AMI meter infrastructure was replaced.

• Approximately 12 miles of 12kV overhead distribution lines was rebuilt.

• .5 miles of 12kV underground distribution line was rebuilt.

• Extended the 3ph circuit down Innovation Campus West for additional load.

• Additional infrastructure was added to the Farms at Jefferson and Legacy Estates

Listed below are a few of the inspection and maintenance programs conducted in 2020: • 4,898 poles were inspected; 27 were identified as deteriorated and potentially dangerous poles that could cause outages or unsafe conditions.

• 751 faulty switches/cutouts were replaced to minimize outages to our members.

• Animal protection was installed on poles and transformers to discourage small animals from climbing poles making contact to energized equipment.

• 926 underground facilities were inspected for possible hazards, repair or replacement.

• Regulators, capacitors, and re-closers were inspected to ensure proper operation.

• Inspections of each of our substations and switch stations were completed monthly, as well as oil testing each station transformer and infrared scanning for potential hot connections.

• 360 miles of right of ways along our lines were cut and trimmed, 175 miles were mowed, 600 miles

At the close of 2020, LRE has successfully completed 21 years without a lost-time accident.

Thanks to our members, board of directors, and employees for another safe and successful year!

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National Gas & Oil cooperative

By Dan McVey, Vice President & Chief Operating Officer – Gas Operations

National Gas & Oil Cooperative provides natural gas service to more than 36,000 residential and commercial members within a seven-county area. Members of the cooperative consumed nearly 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.

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

in that area. In addition, our infrastructure replacement initiative included over 8 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 of 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 is also partnered with IGS Energy, an experienced natural gas supplier based in Columbus, Ohio, which is supplying natural gas at a fixed price to eligible consumers who want price certainty.

As part of a major initiative to install new pipeline infrastructure, we connected over 600 new members last year and installed almost 20 miles of distribution mains for new growth. Most of the new mains were installed in western Licking County in conjunction with development

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Ngo Propane cooperative

By Dan McVey, Vice President & Chief Operating Officer – Gas Operations NGO Propane Cooperative provides propane service to more than 4,500 members within a 12-county area.

Members of the Cooperative consumed over three million gallons of propane last year. The propane delivery trucks traveled more than 70,000 miles and drivers made more than 10,000 deliveries in all kinds of weather conditions, proving our commitment to providing our members with safe, reliable propane service.

Our pink and lavender trucks promote cancer research and awareness, and local veteran groups are supported by our red, white, and blue truck. The Cooperative donates $0.01 for each gallon delivered from the themed trucks to charitable organizations. We also have a green and blue truck promoting propane as a clean energy fuel.

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.

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

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

NGO Transmission 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 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 around 80,000 barrels and 1,000,000 Mcf. 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 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.

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Safety & Administration Report

By Connie Hogue, Director of Human Resources & Safety 2020 was undoubtedly an interesting year with the COVID-19 pandemic causing numerous restrictions to be put in place to keep everyone safe. Items like restrictions on social distancing and room capacity limits challenged us to develop more creative ways to keep safety in the forefront along with continuing to provide training opportunities targeted to keep employees up to date on certifications and the like.

Fortunately, technology provided us with the ability to continue open communications with our employees and continue to provide safety training during a time that we could not physically be together. By utilizing video conferencing, we were able to provide safety training and open communication with all employees.

and safety practices with peers and find opportunities for operational improvements.

After successfully completing the required three-year review in both programs, each operation worked on developing a Safety Improvement Program (SIP). The SIP is designed to outline areas of improvement that each operation will work to achieve over the next three years.

Our employees drove over 1.75 million miles in 2020. We incurred a total of four preventable accidents which was up 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 2020 year, our at-fault accident rate was 2.71 which is slightly higher than the industry average for 2020 which came in at 2.24. We continue to work on developing new ways to reduce our at-fault accident rate and continue to focus on providing additional education surrounding driving awareness.

Despite the challenges that 2020 presented our employees continued to keep safety first. One statistic that we use to measure our safety record is incident rate, which measures the incident frequency per 100 employees.

In 2020, we incurred two OSHA-recordable incidents, resulting in an overall company incident rate of 1.17.

Incident rates for Ohio electric cooperatives and various natural gas companies throughout the U.S. reported incident rates of 1.29 and 2.52, respectively. Our five-year incident rate came in at 1.48 which is significantly lower than the five-year average for the private industry and utility industry as represented by incident rates of 2.86 and 2.05, respectively.

Our overall health care expenses for the 2020 calendar year were relatively flat as compared to the prior year.

We continue to watch these expenses very closely to ensure they remain at a reasonable and affordable level.

Cost control measures such as adjusting plan design and contribution levels continue to be reviewed on an annual basis.

Safety awards highlight those companies that go above and beyond in the area of worker safety and recognize the best of the best. Our natural gas division received an Industry Leader Accident Prevention award from the American Gas Association for achieving a total DART (days away, restricted or transferred) incidence rate below the industry average.

In 2020, the cooperative congratulated three employees who retired. All three were long tenured employees with over 100 years of service collectively. Each one 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 2021. Our succession planning initiatives continue to be an important part of ensuring we have the necessary talent to lead the cooperative into the future.

Our electric and gas operations continue to play an active role in the National Rural Electric Cooperative Association Safety Achievement Program and the American Gas Association Peer Review Program. These voluntary programs allow electric cooperatives and natural gas company employees to share leading work

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Marketing & Public Relations

By Gary Baker, Director of Marketing & Public Relations The Marketing and Public Relations department’s mission is to increase public awareness while strengthening The Energy Cooperative brand. This year we were challenged with the COVID-19 pandemic.

Though we continued promoting The Energy Cooperative’s commitment to safety we were careful not encourage gatherings of any kind. Externally we continued to use social media, billboards, radio and local print to promote the traditional “Call Before You Dig”, “Just Drive” and “Slow Down, Move Over “campaigns.

Our member events are always a highlight each year.

The Energy Cooperative Kids Day 2019 was awarded the 2020 Gold Award for Best Event by NRECA. When we return, Kids Day will be bigger than ever and will once again take place at The Works in downtown Newark. Most of the year, the cooperative utilized our social media platforms as our most effective way to communication with our members.

The challenges for the member services department were many in 2020. At one point in late spring and early summer, all 6 member service representatives (MSR) were working from home. The MSRs were remarkable as they seamlessly took care of our members. The Energy Cooperative stopped disconnect and late fees for much of the year. This helped our members that might be facing challenges as a result of COVID-19. The billing department also did a great job of keeping bill printing on time with very few problems even though they were working from home. And finally, the drivethru was open most of the time but we closed the lobby indefinitely to keep our employees as safe and protect them from the virus. A special thank you goes out to the Member Services team for a job well done.

The Energy Cooperative continued to help many partnerships by supporting several programs or events within the service territory. Unfortunately, the Big Brothers Big Sisters of Licking and Perry Counties Bowl for Kids event, where we annually have several employees participate did not occur this year.

In Knox County, The Energy Cooperative continued to support United Way’s Dolly Parton Imagination Library, a book gifting program that mails free books to children from birth to age five.

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INVESTING IN OUR YOUTh 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 provide $12,000 in scholarships to high school seniors.

Congratulations Class of 2020 • •

• •

Riley Bunstine, Northridge High School graduate, attending Ohio University with a major in biological sciences and a minor in Spanish.

Riley will also be on the varsity swim team.

Mya Lepley, Utica High School graduate, attending The Ohio State University with a major in biology with a pre-medicine track.

Ellie Kidwell, Tri-Valley High School graduate, attending Kansas State University with a major in animal science.

Riley Burnstine

M YMason E N EMitchell RGYCOOP.COM

Ellie Kidwell

Kenny Sloan

• • •

Mason Mitchell, Sheridan High School graduate, attending The Ohio State University with a major in bio chemistry with a pre-medicine track.

Kenny Sloan, Watkins Memorial High School graduate, attending University of Cincinnati with a major in aerospace engineering.

Peter Stedman, Licking Valley High School graduate, attending University of Cincinnati with a major in computer science.

Mya Lepley

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Peter Stedman

Treasurer’s Report

By John Klauder, District 6 Director, CCD, BL

For the year ended December 31, 2020, 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 16, 2021, bhm issued the audit report for the year ended December 31, 2020. The audit report contained an unmodified opinion, which in accounting terms is a clean opinion from the auditor.

In 2020, total revenues for the cooperatives were approximately $108.5 million and patronage capital received from other cooperatives was $2.4 million. Total operating expenses for the year were $100.6 million of which $48.1 million was for purchased energy. The net margin for the consolidated group was $9.5 million for 2020.

Consolidated comprehensive income for 2020 was $10.5 million. Comprehensive income is calculated by adding net margin and unrealized gains/losses on post retirement benefits plans. Comprehensive income by entity for 2020 are as follows: • • • • •

As of December 31, 2020, your cooperative had total assets of $310.5 million, which includes $245.9 million in net plant assets. The cooperatives invested $20.5 million in new plant assets in 2020. At the end of 2020, the company had $41.6 million of patronage capital in other cooperatives, including Buckeye Power and Cooperative Finance Corporation (CFC). Included in total assets was over $2.5 million in cash and short-term investments.

Total liabilities were $248.2 million as of year-end.

The cooperative has equity of $62.3 million as of the end of 2020. Equity for the combined entities has grown to 20.08 percent.

As of December 31, 2020, The Energy Cooperative serves approximately 67,600 members. During 2020, we paid out approximately $6.9 million in taxes and retired over $84,000 in patronage capital credits to estates. If you have additional questions about this financial report, please contact the office at 1-800-255-6815.

Licking Rural Electric - $5,900,000 National Gas & Oil - $4,500,000 NGO Transmission - $780,000 NGO Development – ($1,200,000) NGO Propane - $520,000.

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Income Statement Income Statement Year Ending December 31, 2020 Revenues Residential and Commercial Sales

$92,624,406

Industrial Gas Sales

12,467,477

Oil and Gas Production

973,108

Interest and Non-Operating, Net

2,399,864

Total Revenues

$108,464,855

Expenses Purchased Energy

$48,055,461

Operations and Maintenance

12,483,410

Administrative and General

12,822,097

Depreciation and Depletion

11,678,216

General Taxes

6,951,517

Interest

8,573,709 Total Expenses

$100,564,410

Patronage Capital Credits

$2,451,716

Income Tax (Benefit) Expense

$877,848

Other Comprehensive Income (Loss)

$1,041,222

Comprehensive Income

$10,515,535

Patronage Capital Capital Credits Refunded Prior to 2011

$7,873,005

2011

64,292

2012

96,760

2013

79,692

2014

98,402

2015

88,465

2016

91,437

2017

79,573

2018

61,395

2019

63,917

2020

84,166

Total Refunded

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$8,681,104

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Balance Sheet Balance Sheet Year Ending December 31, 2020 Assets Property, Plant and Equipment, Net

$245,872,039

Investments

$41,577,417

Current Assets Cash and Cash Equivalents

$2,506,063

Accounts Receivable, Net

14,970,815

Gas in Underground Storage

3,070,035

Materials and Supplies

2,078,946

Prepaids and Other

185,395 Total Current Assets

$22,811,254

Other Assets Deferred Tax Assets

$73,912

Long-Term Receivables

189,862

Total Other Assets

$263,774

Total Assets

$310,524,484

Liabilities & Equity Current Liabilities Accounts Payable

$8,102,144

Accrued Property and Other Taxes

5,661,675

Current Maturities of Long-Term Debt

10,351,656

Note Payable - Line of Credit

5,300,000

Other

6,230,453 Total Current Liabilities

$35,645,928

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

$196,648,741

Other Accrued Liabilities

15,879,156

Member and Patronage Equities

62,350,659

Total Long-Term Liabilities & Equity

$274,878,556

Total Liabilities & Equity

$310,524,484

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Board of Directors

Donald Hawk, CCD, BL, DGC, District 1, Vice Chair

Nelson Smith, CCD, BL, DGC, District 2, Chair

Jack Schmidt, CCD, BL, DGC, District 3,

Dan Dupps, CCD, BL, DGC, District 4

John Parkinson, CCD, BL, DGC, District 5

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).

John Klauder, CCD, BL, DGC, District 6, Secretary/Treasurer

Dustin Buckingham, CCD, BL, DGC, District 7

Todd Ware, President/CEO

Dan McVey, VP/COO Gas Operations

Joanne Little, CCD, BL, DGC, District 8

Tom Graham, CCD, BL, DGC, District 9

Cooperative Leadership

Gary Glover, VP/COO Electric Operations

Pat McGonagle, VP/CFO

“Additional recognition goes to the employees of The Energy Cooperative who work for the betterment of our communities while they provide our members with safe, affordable, and reliable energy, 24/7/365.”

– Todd Ware, President & CEO Connie Hogue, Director of HR & Safety

Gary Baker, Director of Marketing & PR

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Margy Klein, Executive Assistant 14

1936

8 5 YEARS OF SERVICE 2021

We are there for you When you need us most

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1-800-255-6815

1936

8 5 YEARS OF SERVICE 2021

The Energy Cooperative’s vision is that our members truly benefit from receiving safe, reliable energy, and highly responsive service, at fair and reasonable prices, and that the communities we serve are enhanced due to our presence.

The Energy Cooperative • 1500 Granville Road • Newark • OH • 43058 myenergycoop.com • 1-800-255-6815