2021 Annual Report Licking Rural Electrification, DBA The Energy Cooperative

2021

ANNUAL ANNUAL REPORT REPORT LICKING RURALCOOPERATIVE’S ELECTRIFICATION, DBA THE ROUND ENERGYUPCOOPERATIVE THE ENERGY OPERATION FOUNDATION 1

1-800-255-6815

CONTENTS president’s message licking rural electrification national gas & oil cooperative ngo propane cooperative ngo transmission producers gas sales ngo development safety & administrative report marketing & public relations treasurer’s report financial statement cooperative leadership

MYENERGYCOOP.COM

4 5 6 7

7

7 7 8 9 11 13 15

2

OUR STORY LICKING RURAL ELECTRIFICATION, INC. (LRE)

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.

LRE is a cooperative that distributes safe, reliable electricity to 26,824 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.

NATIONAL GAS & OIL COOPERATIVE (NGO)

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.

NGO is a natural gas distribution cooperative that provides natural gas service to more than 37,420 residential and commercial members 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 over 4,656 members 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 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.

3

1-800-255-6815

PRESIDENT’S MESSAGE

By Todd Ware, President & Chief Executive Officer

Todd Ware, President/CEO

The Energy Cooperative has over 68,900 members residing in 15 counties. 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 your needs as they continue to change. We hope you share our pride in the Energy Cooperative’s history and its growth as we have been serving our member-owners since 1936.

While we move into 2022, I must take the time to reflect on the progress of 2021. Overall, this year has been one of growth. From increasing members numbers to employee retirements, many new beginnings are taking place here at the Energy Cooperative. We are grateful to move into another year full of tremendous opportunities.

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 participate 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-two years without a lost-time injury.

Consolidated financial results for the year were excellent as we reported a positive net margin of over $9.3 million. This number was slightly better than the budget and was driven by higher sales/margins and lower expenses. In addition, consolidated comprehensive income was $9.6 million, which was over the budget. These results raised our equity position to almost twenty-two percent.

The natural gas cooperative continues to experience significant new growth as we added 729 new residential members. Over twenty-five miles of pipe were replaced or added, including upgrading aging infrastructure. The replacement of this aging infrastructure and our focus on leak repair has reduced our unaccounted-for gas to .35%. This percentage decreased by almost 44% from 2020. In addition,

MYENERGYCOOP.COM

4

the natural gas cooperative is just shy of completing its automated metering infrastructure (AMI) upgrades.

The electric division makes system reliability and outage times a top priority. Our commitment to reliability is evident with over $12 million dollars spent on capital improvement projects. From the Palmyra Substation upgrades to total distribution line rebuilds, our electric division will continue to strive toward the lowest outage percentages possible. The AMI meter project was completed with a read rate of 99.4%.

We will consider AMI enhancements to increase member benefits as they are available.

The Energy Cooperative feels strong about our members receiving the best service possible. In 2021, ACSI scores for both natural gas and electric were, like the previous year, at 83 and 89. However, the retention percentage decreased by a few points, bringing the linear score relatively flat for 2021.

The cooperative will continue seeking and reviewing opportunities to provide you with the best service. Our commitment to you is to work hard in 2022 to meet your service expectations.

The future is bright here at the Energy Cooperative.

Between massive growth opportunities and challenges, 2022 will be an eventful year. Leading this team is truly a humbling experience. We continue to retain and attract the most bright, talented employees who directly impact our bottom line. 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. Big things are coming for our communities in 2022, and we cannot wait to be a part of it.

LICKING RURAL ELECTRIFICATION

By Josh Filler, Vice President & Chief Operating Officer – Electric Operations Licking Rural Electrification (LRE) strives to provide safe and reliable electric to 26,824 members across nine counties of central Ohio. LRE owns, operates and maintains 2,992 miles of distribution lines, 32 miles of transmission lines, 20 substations and 3 switching stations. In 2021, LRE added 519 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.

Safe, reliable electricity starts with keeping our Right-ofWay (ROW) clear. ROW clearing includes cutting, mowing and spraying 15 feet from a single-phase line and 20 feet from a three phase line and certain distances around electric facilities. The Energy Cooperative uses herbicides to remove

26,824 members 519

9

unwanted weeds, brush and trees from rights-of-way. This enhances wildlife habitats by promoting grasses and other ground cover that birds, deer and small animals prefer.

Our first priority is the safety of our employees, our members and the greater community. We believe that if we take the lead in safety, others follow. At the close of 2021, LRE has successfully completed 22 years without a lost-time accident.

We are very proud of this accomplishment.

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

s ine l n tio nes s u i on ib l i r t t n a s f di issio ing st o m s i l e f trans switch m 2 3 o 2 , 9 9m i l e sations & 3 2 subst

20

new services added

counties

4,940 poles inspected

18

poles identified as potentially dangerous

751

faulty swtiches replaced

5,500

inspections, Upgrades & improvements

Rebuilt 23 miles of 12kV overhead distribution lines Rebuilt 0.9 miles of 12kV underground distribution lines Continued expansion into New Albany Business Park Installed animal protection on poles and transformers Inspected 858 underground facilities for possible hazards, repair or replacement Inspected regulators, capacitors and re-closers Started 7.0 mile Highwater – Northridge 69 kV Line construction for added reliability to the Northern and Eastern portions of Johnstown Upgraded Palmyra substation transformer from 3.75MVA to 5/7MVA Completed new AMI system installation Performed full sectionalizing review in Martinsburg substation area for improved outage mitigation

hazardous trees removed

135 miles miles

335 miles

mowed

right-of-way trimmed

600 miles

of trees treated with herbicide

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 37,420 residential and commercial members 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.

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 729 new members last year and installed 20 miles of distribution mains for new growth. Most of the new mains were installed in western

Licking County in conjunction with development in that area. In addition, our infrastructure replacement initiative included over 5 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 carbonneutral natural gas at a fixed price to eligible consumers who want price certainty.

20 miles

37,420 members

7

1,000 miles

distribution mains added

distribution pipelines

counties

5 miles

distribution mains replaced

729

3 billion cf

new services added

of natural gas consumed last year

6

NGO PROPANE COOPERATIVE

By Dan McVey, Vice President & Chief Operating Officer – Gas Operations NGO Propane Cooperative provides propane service to 4,656 members in 12 counties. 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.

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.

4,656

12

counties

members

10k+ propane

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.

Our pink and lavender trucks promote cancer research and awareness, and 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.

70K miles traveled by

delivery trucks

deliveries

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 nonaffiliates 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 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 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.

SAFETY & ADMINISTRATION

By Connie Hogue, Director 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 and encourage each employee to practice safe work habits to ensure everyone goes home safely at the end of the day.

One statistic that we use to measure our safety record is incident rate, which measures the incident frequency per 100 employees. In 2021, we incurred one OSHA-recordable incident, resulting in an overall company incident rate of .59. Incident rates for Ohio electric cooperatives and various natural gas companies throughout the U.S. reported incident rates of 1.84 and 1.93, respectively. Our five-year incident rate came in at 1.17 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 2.24 and 2.25, respectively.

After successfully completing the required review in both programs, each operation continued to work on their Safety Improvement Program (SIP). The SIP is designed to outline areas of improvement that each operation works to achieve.

Our employees drove over 1.6 million miles in 2021. We incurred a total of one preventable accident which was down an impressive 73% 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 2021 year, our at-fault accident rate was .62 which is much lower than the industry average for 2021 which came in at 2.28.

Due to the pandemic our health care expenses saw a decline in the prior year, however in 2021 those expenses normalized as more people were going back to the doctor. Overall healthcare and pharmacy costs continue to rise throughout Safety awards highlight those companies that go above and the United States and the cooperative continues to watch beyond in worker safety and recognize the best of the best. these expenses very closely to ensure they remain at a Our natural gas division received a Safety Achievement reasonable and affordable level. Cost control measures such Award from the American Gas Association for experiencing as adjusting plan design and contribution levels continue to the lowest incident rate for the number of days away from be reviewed on an annual basis. work, restricted or transferred (DART), among companies In 2021, the cooperative congratulated 13 employees who of its size. retired. Each of these employees worked for the cooperative Our electric and gas operations continue to play an active for many years with an average tenure of 30 years. They role in the National Rural Electric Cooperative Association gave countless years of dedication and commitment to Safety Achievement Program and the American Gas their job and the cooperative. As we continue to look at our Association Peer Review Program. These voluntary programs aging workforce, we anticipate several more retirements in allow electric cooperatives and natural gas company 2022. Our succession planning initiatives continue to be an employees to share leading work and safety practices with important part of ensuring we have the necessary talent to peers and find opportunities for operational improvements. lead the cooperative into the future.

.59

incident rate compared to 1.84 & 1.93

MYENERGYCOOP.COM

1.17

five-year incident rate compared to 2.24 & 2.25

1.6 miles driven by

employees

8

.62

at-fault accident rate compared to 2.28

13

employees retired

MARKETING & PUBLIC RELATIONS

By Gary Baker, Director of Marketing & Public Relations

The Marketing and Public Relations department’s mission is to increase public awareness and strengthen the Energy Cooperative’s brand throughout our service territory. The past year was challenging due to the pandemic restrictions and precautions. To keep others safe, we chose to have fewer events. We continued to use myenergycoop.com and our social media pages to share important information with members. Additionally, we produced six issues of our Times Magazine in 2021. Each issue included important updates from our cooperative leadership team, important safety messages, energy efficiency tips and more. If you currently do not receive our magazine, I encourage you to contact us and sign up to receive the publication.

With the ongoing pandemic in 2021, we were still able to support our member communities through sponsorships and grants. Supporting programs like Dolly Parton’s Imagination Library, organized by the Knox County United Way, gave us the chance to give back to our members in times when we couldn’t physically get together. In lieu of our annual Kids Day event held at The Works, we offered “Kids Day Kits” to children of our members. The kit included multiple energy projects inside to take home and work on.

Members picked up their kits at The Works and many spent a day at the museum after picking them up.

We ended the year with a successful toy drive to benefit local families. Our members and employees purchased hundreds of toys that were donated to Salvation Army for Hope Marches On and Pack-a-Sleigh organized by the Utica Church of Christ. The toys collected gave local families a helping hand during the holiday season. Thanks to everyone who worked to make the toy drive a success!

The Member Services department works hard to meet the needs of our members and provide them with exceptional service. Last year, our member service representatives answered hundreds of calls each day, assisted members through email or live chat on our website and operated the Granville Road drive thru. We ensured our 68,900+ members received accurate and timely bills, processed all member payments and worked to settle any unpaid balances through disconnects or collections.

We have an excellent team who keep our members at the center of their work.

A special thank you goes to Member Services for a job well done in 2021.

9

1-800-255-6815

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 provided $12,000 in scholarships to high school seniors in 2021.

Abigail Derwacter Newark High School

Aevian Ricketts Newark High School

Children of members scholarship recipients Cyrus Dittmar Tri-Valley High School

Evan Powell Sheridan High School

Meghan Nelson Licking Valley High School MYENERGYCOOP.COM

Riley Jones Lakewood High School 10

TREASURER’S REPORT REP ORT

By John Klauder, District 6 Director, CCD, BL, L, DCG

For the year ended December 31, 2021, 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 18, 2022, bhm issued the audit report for the year ended December 31, 2021. The audit report contained an unmodified opinion, which in accounting terms is a clean opinion from the auditor.

In 2021, total revenues for the cooperatives were approximately $128.9 million and patronage capital received from other cooperatives was $2.2 million. Total operating expenses for the year were $121.4 million of which $66.2 million was for purchased energy. The net margin for the consolidated group was $9.4 million for 2021.

Consolidated comprehensive income for 2021 was $9.6 million. Comprehensive income is calculated by adding net margin and unrealized gains/losses on post retirement benefits plans. Comprehensive income by entity for 2021 are as follows: • • • • •

Licking Rural Electric - $4,900,000 National Gas & Oil - $4,000,000 NGO Transmission - $618,000 NGO Development – ($412,000) NGO Propane - $494,000

As of December 31, 2021, your cooperative had total assets of $328.2 million, which includes $259.2 million in net plant assets. The cooperatives invested $24.1 million in new plant assets in 2021. At the end of 2021, 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 $1.3 million in cash and short-term investments. Total liabilities were $256.3 million as of yearend.

The cooperative has equity of $71.9 million as of the end of 2021. Equity for the combined entities has grown to 21.91 percent.

As of December 31, 2021, The Energy Cooperative serves approximately 68,900 members. During 2021, we paid out approximately $7.5 million in taxes and retired over $75,000 in patronage capital credits to estates.

INCOME STATEMENT Income Statement

Year Ending December 31, 2021 REVENUES Residential and Commercial Sales

$105,090,770

Industrial Gas Sales

19,973,173

Oil and Gas Production

1,361,180

Interest and Non-Operating, Net

2,404,859

Total Revenues

$128,829,982

Expenses Purchased Energy

$66,205,205

Operations and Maintenance

13,756,725

Administrative and General

13,667,965

Depreciation and Depletion

12,023,023

General Taxes

7,531,187

Interest

8,254,338 Total Expenses

$121,438,443

Patronage Capital Credits

$2,146,476

Income Tax (Benefit) Expense

$153,655

Other Comprehensive Income (Loss)

$255,528

Comprehensive Income

$9,639,888

patronage capital Capital Credits Refunded Prior to 2012

$7,937,297

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

2021

75,223

Total Refunded MYENERGYCOOP.COM

$8,756,327 12

BALANCE SHEET Balance Sheet

Year Ending December 31, 2021 Assets Property, Plant and Equipment, Net

$259,225,515

Investments

$41,000,044

Current Assets Cash and Cash Equivalents

$1,276,600

Accounts Receivable, Net

16,898,676

Gas in Underground Storage

5,746,170

Materials and Supplies

3,415,500

Prepaids and Other

386,212 Total Current Assets

$27,723,158

Other Assets Deferred Tax Asset

$87,914

Long-Term Receivables

142,856 Total Other Assets

$230,770 $328,179,487

Total Assets

Liabilities & Equity Current Liabilities Accounts Payable

$11,064,349

Accrued Property and Other Taxes

6,003,058

Current Maturities of Long-Term Debt

10,788,106

Note Payable - Line of Credit

6,000,000

Other

8,097,112 Total Current Liabilities

$41,952,625

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

$198,846,571

Other Accrued Liabilities

15,469,202

Member & Patron’s Equities

71,911,089

Total Long-Term Liabilities & Equity

$286,226,862

Total Liabilities & Equity

$328,179,487 13

1-800-255-6815

BOARD OF DIRECTORS 5

Wayne Zollars, District 5

Donald Hawk, District 1 CCD, BL, DGC

1

Jack Schmidt, District 3 CCD, BL, DGC

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 Daniel Dupps, District 4 CCD, BL, DGC

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).

Cooperative Leadership

Todd Ware, President/CEO

Dan McVey, VP/ COO Gas Operations

MYENERGYCOOP.COM

Josh Filler, VP/COO Electric Operations

Pat McGonagle, VP/CFO 14

Connie Hogue, Director of HR & Safety

Gary Baker, Director of Marketing & PR

Brianna Stone, Executive Assistant

Eneergy En

FOR WHAT

MATTERS MOST

1.800.255.6815

myenergycoop.com 15

1-800-255-6815

ENERGY COOPERATIVE’S VISION IS THAT OUR MEMBERS TRULY BENEFIT FROM RECEIVINGISSAFE AND RELIABLE WITH HIGHLY RESPONSIVE FOUNDATION TO UTILIZE MEMBERENERGY CONTRIBUTIONS TO INVEST IN SERVICE AT FAIR AND REASONABLE PRICES SO THAT THE COMMUNITIES WE SERVEMEMBERS ARE ENHANCED TO OUR PRESENCE. COOPERATIVE AND THEDUECOMMUNITIES WE SERVE.

••

•• •

•• ••

ENERGY COOPERATIVE 1500 GRANVILLE ROAD NEWARK OH 43058 ENERGY COOPERATIVE 1500 GRANVILLE ROAD NEWARK OH 43058 MYENERGYCOOP.COM 1-800-255-6815 16 1-800-255-6815 MYENERGYCOOP.COM/OPERATION-ROUNDUP

MYENERGYCOOP.COM

4

•