President’s Message By Todd Ware, President & Chief Executive Officer

Due to concerns surrounding the coronavirus, we were unable to hold our traditional annual meeting this year. Instead we released a virtual business meeting on our website. Board Chairman Nelson Smith called the meeting to order and introduced the Board of Directors. The cooperative’s legal Todd Ware counsel announced the results of our recent Director elections, and I shared an update that I typically give in person during the annual meeting. I also want to share those highlights in this newsletter.

COOPERATIVE FINANCES

In 2019, the cooperative had a positive margin of $6.7 million, as compared to 2018 net margin of $9.9 million. We finished just ahead of our budget of $6.4 million for 2019. The comprehensive income for the year was $5.3 million. Comprehensive income is calculated by adjusting net margin by any unrealized gains/losses from post retirement health plans. In 2019, we have a $1.4 million unrealized loss. Major factors impacting our 2019 results were weather, operating expenses and reduced patronage capital from our generation supplier Buckeye Power. The year 2019 was 7 percent warmer than the 30-year average and 6 percent warmer than 2018. This resulted in lost revenue of $4 million for the cooperative.

Operating expenses were lower than budget by 1.5 percent or $800,000. Our Debt Service Coverage (MDSC) remained strong at 1.46. This ratio measures our cash flow versus our debt payments. Our bank requires a minimum of 1.35 MDSC two out of every three years. We continued to grow equity as it has grown to 17.23 percent as of December 31, 2019.

SAFETY IS ALWAYS OUR TOP PRIORITY

Our electric and gas operations continue to participate in the National Rural Electric Cooperative Association (NRECA) 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 and safety practices along with their peers and they look for and often find opportunities for operational improvements. We successfully completed required commitments in both programs during 2019.

MEMBER SERVICE MEASURES

One way we measure our level of service is through our annual American Consumer Satisfaction Index (ACSI) scores. Our scores continue to increase steadily. The electric cooperative scored 84 with a 78% retention rate, and our natural gas cooperative scored 87 with an 81% retention rate. Both scores are well above the utility industry average.

QUESTIONS FROM MEMBERS

When will the cooperative start paying capital credits/ dividends? Your Board of Directors have the authority to institute payments of capital credits if it is not harmful to the condition of the cooperative. Our primary lender requires our equity to be at 20% or higher before we pay capital credits to members. Our equity level at the end of 2019 was 17.2%. The Board is working towards the goal of paying capital credits. At this time, however, I do not know when that will be. The Energy Cooperative currently allocates capital credits to members and pays capital credits to member estates. Why do I pay a fixed cost for natural gas in the summer when I do not use it? Our goal is for all member classes to share fixed costs equally. We have a large amount of expenses that are fixed. The monthly facility fee covers the cost of providing you access to the natural gas pipeline system year round. The Energy Cooperative must maintain and have the system available year round. The fixed cost does not change depending on the time of year. Whether you use a lot or a little energy each month, the cost of delivering natural gas to your home or business stays the same. Rates must be designed to align fixed revenues with fixed costs. This principle also applies to our electric rates. I would like to conclude by thanking our members. We appreciate the accolades our employees receive when working in your backyard, especially during severe weather and dangerous conditions. We have a very dedicated group of employees who hard work everyday. With their efforts, and the strategic direction provided by the Board of Directors, The Energy Cooperative will continue to provide you with safe, reliable, and affordable energy — now and always.