Cullman Electric Cooperative

1. Cullman Electric Cooperative WELCOME Educators Exchange Denise Feldner and Kimberly Oliver July 7, 2008

2. PREVIEW • What is a cooperative? • Seven Cooperative Principles • Why Electric Cooperatives? • Electric Cooperatives Today • Cullman EC – the history • Cullman EC – the present • REA/USDA/RUS Relationship • National Rural Utilities Cooperative Financial Corporation (CFC) • Tennessee Valley Authority • Related Organizations • Questions & Hopefully Answers

3. What is a Cooperative? • Cooperative: an enterprise or organization owned by and operated for the benefit of those using its services

4. Seven Cooperative Principles (1-2) All cooperative businesses adhere to these seven guiding principles: • Voluntary and Open Membership — Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political, or religious discrimination. • Democratic Member Control — Cooperatives are democratic organizations controlled by their members, who actively participate in setting policies and making decisions. The elected representatives are accountable to the membership. In primary cooperatives, members have equal voting rights (one member, one vote) and cooperatives at other levels are organized in a democratic manner.

5. Seven Cooperative Principles (3) • Members’ Economic Participation — Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing the cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.

6. Seven Cooperative Principles (4-5) • Autonomy and Independence — Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy. • Education, Training, and Information — Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their cooperatives. They inform the general public, particularly young people and opinion leaders, about the nature and benefits of a cooperative.

7. Seven Cooperative Principles (6-7) • Cooperation Among Cooperatives — Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional, and international structures. • Concern for Community — While focusing on member needs, cooperatives work for the sustainable development of their communities through policies accepted by their members.

8. Why Electric Cooperatives? • Investor-owned utilities saw no potential for a reasonable return on the required investment to extend lines to those in rural America • Municipal systems shared the IOU’s view and along with the IOUs the munis refused REA low-interest loan funds offered to subsidize such extensions • RESULT: Rural residents organized to collectively provide a service for themselves that they were not otherwise able to have

9. Electric Cooperative’s Today • > 940 Electric Cooperatives – U.S. * Own 43% of electric lines - 2.4 Million Miles * Provide electricity to 75% the U.S. land mass * Density 7 Meters / Mile * Serve only 11% of the U.S. Population * Deliver 10% of all kWh sold * Employ > 67,000

10. America’s Electric Co-op Network

11. Electric Cooperatives In Alabama • 23 Electric Cooperatives – Alabama * Provide electricity to 70% of State * Serve more than 1 million people or 25% of the States total population

12. Cullman EC – Some History • Organized on May 25, 1936 as Cullman County Electric Membership Corporation • 2nd Electric Cooperative organized in Alabama • 1st co-op in Alabama to qualify for REA Loan • 1st co-op to provide electrical service

14. Cullman EC – The Present • 3rd Largest Co-op in Alabama * 32,106 Members * >42,000 member-accounts in Cullman, Winston, Lawrence, & Morgan Counties • 82% Residential – 18% Commercial • 2 Offices – Cullman & Addison • 104 Active Employees (99 f/t – 5 p/t) • 3,382 miles of line • Cullman EC Density – 12.4 meters / mile

15. Financial Statistics • Utility Plant - $157,186,151 • Net Plant Value - $108,317,946 • Long-Term Debt - $54,003,544 • Total Operating Revenue-$83,747,688 • Cost Purchased Power - $60,210,926

16. Density, Subsidy, & Other Stuff (2007 Data) • Investor-Owned (IOUs) * 33 Customers per mile * $44 per customer subsidy • Municipal (City-Owned) * 43 Customers per mile * $69 per customer subsidy • Rural Electric Cooperatives * 7 Members per mile * $10 per Member subsidy

17. Electric Utility Comparisons IOU PU Co-ops Total Number of Organizations 220 2,000 930 3,150 Number of Total Customers 101 m 20 m 17 m 138 m Size (median #cust.) 400,000 2,900 12,000   Customers, % of total 73% 15% 12%   Revenues, % of total 76% 14% 10%   kWh sales, % of total 75% 15% 10% Sales (billions kilowatt hours) Residential 950 198 211 1,360 Commercial 1,010 203 72 1,285 Industrial 723 151 80 954 Other 4 3 0 7 Total 2,687 556 363 3,606 Miles of Distribution Line 50% 7% 43%  Customers/mi. line (density) 35 46.6 7.0 33.9 Revenue per mile of line $62,665 $86,302 $10,565 $60,827 Distribution plant per Customer $2,229 $2,309 $2,845 $2,362 Assets ( billions ) $694 $170 $97 $961 Equity ( billions ) $190 $53 $30$ 273       Note: "Investor-Owned" includes data for IOU affiliates engaged in competitive retail markets where appropriate • Source: 2005 EIA, RUS Data, CFC NRECA Strategic Analysis ▪ Last Updated: February 2007

18. REA / RUS Relationship • BANKER - 2% interest – 100% loan amount - 2% hardship & 5% other – 100% loan - 2% hardship & 5% other – 70% loan amount with 30% from supplemental lender - 5% hardship & 7% municipal bond rate capped or muni rate uncapped at 70/30 split

19. National Rural Utilities Cooperative Financial Corp. (CFC) • Supplemental Lender - Organized by Cooperatives across the United States in 1969 - Returns patronage capital annually - Active in many other areas of the cooperative business

20. Tennessee Valley Authority • TVA Governance – TVA Act (Rev. 1959) • Long-Term Contracts • River Management – No appropriated Funds • Fertilizer Plant – Agriculture & War effort • Power Supply – Self-funding - Fossil Fuel 62% - Nuclear Fuel 30% - Hydro 7.4% - Natural Gas CT <1% • 7 States Power Corp – Member-Owned • Rate Oversight • Economic Development $7 million in Cullman & Winston County (8 Loans) $440,000 in Grants through Valley Advantage

21. Related Organizations • TVA – Tennessee Valley Authority • TVPPA – Tennessee Valley Public Power Association • AREA – Alabama Rural Electric Association • NRECA – National Rural Electric Cooperative Association • NAPPA – North Alabama Public Power Association • NAIDA – North Alabama Industrial Development Association

22. Related Organizations - Continued • CFC – National Rural Utilities Cooperative Financial Corp. • REA – Rural Electrification Administration • USDA – United States Department of Agriculture • ACRE – Action Committee for Rural Electrification

23. REA / RUS • RUS – Rural Utilities Service • Approved Materials Listing • Engineering Design Specifications • Construction Standards • Operation Practices and Procedures • Proper Accounting Procedures

24. Questions & Hopefully Answers THE END