ML061790371

Annual Report

ML061790371
Person / Time
Site:	La Crosse File:Dairyland Power Cooperative icon.png
Issue date:	12/31/2005
From:	Berg W, Boettcher C Dairyland Power Cooperative
To:	NRC/FSME
References
Download: ML061790371 (34)

Text

CONNECTIONS DAIRYLAND POWER COOPERATIVE 2005 ANNUAL REPORT A Touchstone Energy Cooperative

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POWERFUL CONNECTIONS A long heritage of service and dedication to meeting members' changing needs has created a "Powerful Connection" between Dairyland Power Cooperative and our distribution cooperative members. Strong bonds are the result of working together and communicating with our members and the communities where we work and live during both good and challenging times.

Dairyland's Board of Directors is a reflection of our evolving membership.

Each director-featured throughout this report-brings wisdom, diverse professional and community experience, and a variety of cooperative interests to the Board Room. Most importantly, through cooperation, they work together for the benefit of all.

Many other Powerful Connections have contributed toý Dairyland's success during the past 65 years. We have built strong-ties with our municipal customers, employees, neighboring utilities',govemring, agencies and communities to position Dairyland amrong-the leadingigelleration and transmission cooperatives in the nation.

We are a Touchstone Energy Cooperative, and through our Board of Directors, management and employees, we work hard to truly demonstrate The Power of Human Connections.

Table of Contents 2005 At A Glance..........

Back Flap President's Message............

2-3 Board of Directors.............

4-16 Powerful Connections..........

4-16 Management/Auditors' Reports... 17 Financial Statements............

18 Notes to, Consolidated Financial Statements.........

22 Our Vision, Mission &

Values................

Inside Flap Senior Staff.............

Inside Flap Dairyland Power System Map.....

Inside Back Cover Who We Are............. Back Cover

RESPONDING TO CHALLENGES After holding wholesale power rates below 1986 levels for nearly two decades, Dairyland Power Cooperative faced a significant challenge in late 2005.

Confronted by drastically increasing rail transportation rates and other cost impacts, Dairyland was forced to raise rates significantly for 2006.

Like other shippers who rely on the railroads for transportation, Dairyland has experienced severe deterioration in the quality of rail service. In the last two years, failure by the railroads on several occasions to meet contractual delivery obligations forced Dairyland to seek alternative coal sources or curtail power plant generation due to inadequate coal inventories. This has led to higher costs, since replacement coal has generally cost more, and energy purchased on the market is usually based on natural gas prices, which are dramatically higher than coal.

Even as service quality is suffering, railroads are taking advantage of a lack of competition in the rail industry to impose drastically higher rail rates. Dairyland experienced a 93 percent average increase in rail rates as of January 2006. On an annual basis, it will now cost about $75 million to ship $30 million worth of coal. This means transportation will account for over 70 percent of Dairyland's delivered coal cost in 2006.

The magnitude of this increase, combined with coal supply and purchased power costs, forced Dairyland's Board of Directors to raise rates by about 20 percent to maintain our cooperative's financial strength.

While our members have worked hard to absorb some of the impact, cost increases must ultimately be passed on to their consumer-members.

Unfortunately, this is at a time when consumers are also being subjected to dramatic price increases in home heating fuels, gasoline and diesel fuels.

airyland is working with other rail shippers - including agriculture, lumber, metal products and chemicals - to seek solutions to the problems we are facing with the railroad industry. Together, with our 2

DAIRYLAND POWER COOPERATIVE

members, we have joined these broad coalitions in asking our legislators for support in passing initiatives to improve competition and restore the application of federal antitrust laws to rail carriers.

While rail transportation is one of the most important issues we are currently facing, we cannot let Dairyland's many positive initiatives be overshadowed.

In November 2005, Dairyland acquired a 30 percent ownership share of Wisconsin Public Service Corporation's Weston 4 power plant currently under construction near Wausau, Wis. The agreement gives Dairyland a 159-megawatt share of the

$752 million, 531-megawatt (estimated) plant.

While ownership in Weston 4 will help satisfy a significant portion of our members' growing energy needs, we continue to enhance our renewable energy portfolio. In 2005, the Evergreen renewable energy marketing program expanded to include livestock manure when our first "cow power" facilities came online last summer.

Plans are underway for further participation in additional wind energy and waste-to-energy sources such as landfill gas and livestock manure.

Each power supply path we consider to meet our members' future needs has unique characteristics to evaluate, including project timing, transmission access, levels of risk and financial impacts for Dairyland and our members.

The past year certainly presented challenges for many Americans-natural disasters, health care issues and skyrocketing energy prices. These issues, and many others, weigh on our minds and impact our decisions as we plan for the future. We are very proud of our employees who continue to meet the challenges presented to them, while being strong supporters within our communities and our industry. A true example of the cooperative spirit was the month-long effort by many Dairyland employees to help restore service to electric cooperative members following a devastating ice storm in South Dakota last November.

As we look to the future, rest assured, we are being diligent in our decision-making process and will not stray from our mission to provide safe, clean, affordable and reliable electricity to our members.

WILLIAM L. BERGU President & CEO CLARENCE L. BOETTCHER, Chairman That is our ultimate "Powerful Connection" with our members.

POWERFUL CONNECTIONS 3

EXECUTIVE COMMITTEE MEMBERS CLARENCE "BUTCH" BOETTCHER Chairman, Director since: 1997 Eau Claire Energy Cooperative Hometown: Fairchild, Wis.

Butch earned BS and MS degrees in Agriculture Education from UW-River Falls. He is a farm business instructor for Chippewa Valley Technical College and a partner in a beef/crop operation. He enjoys antiques, history, hunting and fishing in his free time.

GARY WOODS Vice Chairman, Director since: 1997 Jackson Electric Cooperative Hometown: Melrose,Wis.

Gary and his wife farmed until 2000. He now rents his land and farms part-time, so he has more free time to spend with his family at their hill-top cabin with a view of five counties. He enjoys camping, hunting and watching his grandchildren grow.

Dairyland facilities are located along the great Mississippi River.

POWERFUL CONNECTIONS Dairyland Power Cooperative, along with many other power suppliers in the nation, is facing a period of significant challenge and upward cost pressures.

Now, more than ever, it is essential that we not only maintain, but strengthen, the "Powerful Connections" we have created over the past 65 years.

With the guidance of our Board of Directors and by working with our members, we will foster our strengths, withstand today's challenges and continue to build an even stronger Dairyland for tomorrow.

Investing in New Energy Resources Dairyland continues to maintain a solid financial position and is making substantial capital investments in our cooperative. The most significant projects underway include 30 percent ownership in a new supercritical coal-fired generating facility, investment in new environmental controls at Dairyland's largest coal-fired facilities, continued expansion of Dairyland's renewable energy portfolio and continued investment in transmission infrastructure.

In November 2005, Dairyland and Wisconsin Public Service Corporation (WPSC) closed a transaction in which Dairyland acquired a 30 percent ownership share of the Weston 4 power plant currently under construction near Wausau, Wis. The agreement gives Dairyland a 159 MW share of the $752 million, 531 MW (estimated) plant. Under this agreement, WPSC received $95 million in cash at closing from Dairyland for our share of the construction costs to date. Since then, 4

DAIRYLAND POWER COOPERATIVE

BERNARD WELSH Treasurer, Director since: 1995 Allamakee-Clayton Electric Cooperative Hometown: Waukon, Iowa Bernard operates a beef farm in a cow-calf operation and grows award-winning corn, soybeans and alfalfa. He enjoys golf occasionally, deer hunting and spending time with his eight grandchildren.

RAY DREGER Secretary, Director since: 2001 Dunn Energy Cooperative Hometown: Colfax, Wis.

Ray holds a BS degree in Agriculture Education & Biology from UW-River Falls and an MS in Agronomy & Plant Genetics from the University of Minnesota. He operates a 300-acre crop farm and is CEO of Seeds & Stuff Farm Market. Ray is also involved in many local activities.

Dairyland has been paying 30 percent of all Weston 4 construction costs, and will assume our share of operating costs when the plant is completed in 2008.

As a cooperative, Dairyland's decisions are based on what is best for our members. Partnering with a stable, consumer-conscious utility like WPSC, while investing in the region's energy infrastructure, is an integral part of providing members with reliable, competitively-priced power.

A significant accomplishment associated with the financial closing of the CoBank Construction Loan for our ownership in Weston 4 was the awarding of the Rural Utilities Service (RUS) lien accommodation to CoBank and a syndication of Farm Credit Banks. This lien accommodation will allow these lenders to share in the first mortgage held by RUS and other lenders.

Dairyland was the first generation and transmission cooperative (G&T) in the nation to receive this type of lien accommodation under RUS's new financing program, the "Lien Machine," which was introduced in 2003. Subsequently, RUS has modified and expanded the program to allow other G&Ts to use this tool, especially for the financing of new coal-fired power plants.

Renewable Resources Continue to Expand Despite efforts to educate and promote energy conservation, Dairyland resource planners predict that energy use in the cooperative system will continue to grow at 2 to 3 percent per year. In addition to the Weston 4 coal-fired power plant, Dairyland's power supply plans include several renewable energy initiatives.

Weston 4 is scheduled for completion in 2008.

POWERFUL CONNECTIONS 5

STEVEN HOGDEN Member at Large, Director since: 2001 Riverland Energy Cooperative Hometown: Galesville, Wis.

Steve has an educational background in soil and water conservation. He supervised at a major vegetable processing company for 24 years. Steve serves on several boards and operates a small cash crop farm. He enjoys playing trumpet, hunting, fishing and cutting firewood.

DANIEL KORN Member at Large, Director since: 2004 Vernon Electric Cooperative Hometown: Cashton, Wis.

Dan studied Heating, Refrigeration and Air Conditioning at WWTC in La Crosse. He is the Western Wisconsin Area Manager for Complete Control, Inc., a distributor for Siemens environmental controls. He enjoys small scale farming, antique tractors and hunting in his free time.

DALE MANGSKAU Member at Large, Director since: 1997 Freeborn-Mower Cooperative Services Hometown: Albert Lea, Minn.

After retiring from a 44-year career with Freeborn-Mower, Dale furthered his cooperative involvement and support as a Board member. Dale also served 28 years with the National Guard, retiring as a Colonel. He enjoys camping, fishing and reading.

LYNN PETERSON Member at Large, Director since: 2003 Barron Electric Cooperative Hometown: Barron, Wis.

Lynn earned a BS degree in Dairy Husbandry from the University of Minnesota. As an approved dairy judge, he's judged at county fairs and dairy shows.

He was ranked 6th in the nation and a member of the U of M judging team. Lynn teaches Dairy Farm Management part-time at a vocational college.

Together with Microgy, Inc., (a subsidiary of Environmental Power Corp.) and our member cooperatives, Dairyland celebrated bringing our first anaerobic digester "cow power" facility online with a ribbon cutting at Five Star Dairy in Elk Mound, Wis., in June 2005. Five Star Dairy is served by Dunn Energy Cooperative. The next digester project was brought online last summer at the Wild Rose Dairy, served by Vernon Electric. The Norswiss Farms project came online in the Barron Electric service area in April 2006. Additional projects are planned with the Daley Dairy (People's) and Bach Farms (Taylor).

Dairyland is planning to expand our investment in the Adams Wind Farm in Minnesota and our Seven Mile Creek Landfill gas-to-energy facility near Eau Claire, Wis. Dairyland is also working with Waste Management, Inc., and will be receiving an additional 8 MW of renewable energy from landfills in Bruce, Wis., and Lake Mills, Iowa, in 2006.

While the implementation of energy conservation programs, load management and the addition of new renewable energy resources are partially addressing the projected energy needs, Dairyland will continue to assess additional resources to meet our members' future energy needs.

Addressing Nuclear Facility Issues Last August, Dairyland entered into a contract with Duratek, Inc., a national nuclear waste services contractor, to facilitate the removal and disposal of certain non-fuel components from Dairyland's La Crosse Boiling Water Reactor (LACBWR) nuclear facility, which was shut down in 1987.

Over the next two years, Duratek will license, remove, package, transport and dispose of LACBWR's reactor pressure vessel (RPV), as wellas some other waste products also having a relatively low level of radiation.

The RPV and other material will be shipped to a repository,. operated by a Duratek subsidiary, in Bamwell, S.C. Shipment is anticipated to take place in mid-2007.

These procedures are key steps in the LACBWR decommissioning process.

Achieving the complete decommissioning of LACBWR has been an important objective and this waste removal moves us closer to that long-term goal.

Although LACBWR has been inactive since 1987, maintaining the facility until the spent fuel can be moved to a long-term storage facility currently costs Dairyland and our members about $5.3 million annually. Dairyland has set aside over $77 million in a trust to pay for the ultimate decommissioning of LACBWR and has not had to additionally fund this trust for the past few years.

Consumers in the Dairyland system have paid the DOE nearly $4.6 million under the High Level Waste Act to support development of a permanent nuclear spent fuel repository. Congress has supported the recommendation of President Bush to proceed with licensing of Yucca Mountain, Nev., for this purpose, however legal and budget problems have caused further delays. The fact remains that storage of fuel at Yucca is still many years in the future.

To facilitate a better situation for the near-term, Genoa FuelTech (a subsidiary of Dairyland) and seven other utilities formed Private Fuel Storage, LLC (PFS). For nearly nine years, PFS has been working to secure an interim central storage site for spent nuclear fuel in Utah. PFS addressed several concerns of the Nuclear Regulatory Commission (NRC) and received authorization for a license from the A ribbon-cutting was held at Five Star Dairy, our first "cow power" facility.

LACBWR, located on Dairyland's Genoa Site.

POWERFUL CONNECTIONS 7

LAURIE ENGEN Assistant Secretary, Served Board since: 1998 Dairyland Power Cooperative Hometown: Caledonia, Minn.

Laurie joined Dairyland in 1982. As Executive Assistant to Dairyland's President and CEO, she also supports the Board. Laurie lives on a beef farm with her husband and two sons. She enjoys socializing, biking, gardening, cooking, quilting and crocheting.

NILES BERMAN General Counsel, Served Dairyland since: 1986 WheelerVan Sickle & Anderson Hometown: Madison, Wis.

Niles has worked with electric cooperatives since graduating from law school in 1975 (BA from the University of Cincinnati and JD from UW-Madison). In his free time, he volunteers for charitable organizations, and enjoys reading books on history and science, traveling and talking about his family.

Dairyland lineworkers enhance reliability with transmission improvements.

NRC in late 2005. A facility license was issued in February 2006. While the license was effective immediately, PFS will not begin the 18 to 24 month construction process, until customer support is secured. Marketing of the facility for safe, secure storage for spent nuclear fuel rods is currently underway.

Delivering Power Reliably Dairyland is committed to meeting the transmission requirements of our member cooperatives and continues to focus on improving the reliability of our transmission system. There were nearly 40 miles of transmission line constructed (new/rebuilt/upgraded) in 2005 in order to improve service and reliability.

These line construction projects included design upgrades which increased operating voltage and/or conductor size, resulting in reduced energy loss and increased cost savings.

In 2006, Dairyland is beginning a two-year implementation of a "Distribution Automation" system throughout the service area. This telecommunications project will reduce leased line fees and enhance data options for cooperatives in the Dairyland system.

Managing the transmission portion of Dairyland's operations requires planning with other utilities, normally as part of a regional transmission organization (known as an RTO in the industry). Dairyland continues to work with other utilities to ensure cooperative perspectives are included in decisions being made regarding management of the vast electricity grid, and continues to evaluate RTO options.

8 DAIRYLAND POWER COOPERATIVE

DIRECTORS ALLEN BEADLES Director since: 1997 Jump River Electric Cooperative Hometown:Jump RiverWis.

Allen works to find "fun" in all he does. He is Jump River town chair, and serves on the Taylor County Board of Supervisors and Foundation for Rural Housing. He previously served on Federated Insurance, CFC and WECA boards. He enjoys fishing, hunting and scuba diving.

MARLYN BOTTOLFSON Director since: 1999 Polk-Burnett Hometown: Amery, Wis.

Marlyn's family owns and operates Bottolfson Farms, Inc.,

a dairy farm with cash crops and steers for market. In addition to serving his cooperative, Marlyn likes to fish, hunt deer, bowl and spend time with their grandchildren in his free time.

Responding to Those in Need Late in 2005, Dairyland responded quickly to a call for help by another cooperative G&T in need. Approximately 40 Dairyland lineworkers, mechanics, field operations truck drivers and construction crew staff helped repair storm damage in East River Electric Cooperative's service territory in South Dakota. A snow and ice storm caused devastating damage, toppling 1,200 of East River's transmission structures and leaving many homes and businesses without electricity.

The crews brought replacement poles and construction equipment including digger-derrick trucks, basket trucks and line trucks to assist in the effort.

Dairyland crew members, working in sub-zero temperatures, insisted on helping until power was restored to the region, staying on the job nearly a month (Nov. 30 to Dec. 21, 2005).

Protecting our Environment Continuing our emphasis on protecting our environment, Dairyland is making significant investments in new equipment to remove emissions (including mercury, sulfur dioxide, nitrous oxide and particulate matter) from combustion flue gas at our largest generating facilities. Dairyland has budgeted more than

$142 million in our 2006-09 construction work plan for the emission controls; work is proceeding with baghouse construction at the 380 MW Genoa Station No. 3 and 400 MW John P. Madgett Station in 2006. Engineering for additional projects is also underway.

Dairyland assisted in restoration efforts following a severe South Dakota ice storm.

POWERFUL CONNECTIONS 9

Dairyland has reduced sulfur dioxide emissions by 80 percent since the early 1970s and developed a market to recycle byproducts (flyash) from the coal used to generate electricity. In 2005, about 85 percent of Dairyland's flyash was recycled for beneficial re-use.

In addition, Dairyland has taken steps to reduce mercury in equipment and product use at power plants and other cooperative facilities, including efforts to reduce use of mercury-containing batteries and switches and by recycling fluorescent light bulbs.

Dairyland also works closely with member cooperatives to protect the A Peregrine falcon soars high above environment by encouraging energy conservation programs and ensuring that a Dairyland nesting site.

the load management program continues to help balance the energy needs of the system. Dairyland estimates that our load management program saves the system 60 MW of power in the summer and about 150 MW in the winter-the equivalent of a small power plant. This helps enhance reliability for our members during extraordinary times. It also preserves our environment and reduces energy costs for all members with additional savings for participating members. Together, the Dairyland system of electric cooperatives achieved a total savings of over $5.3 million through this program in 2005.

In early 2005, a milestone was reached in Dairyland's Peregrine Falcon Program when a pair of falcons moved from a manmade nest box at the Alma Site to a cliff dwelling in the Mississippi River valley. A return to the Peregrine's natural nest site is the ultimate goal of the program, making this a very rewarding achievement. Since 1997, about 60 falcon chicks have hatched at Dairyland's Genoa and Alma nesting sites. Bird Cams are installed to allow students and other bird enthusiasts a close-up view of these raptors via the Intemet. Other examples of environmental stewardship include the prairie restoration on the Genoa solid waste site, purple loosestrife control and establishing platforms for osprey, blue bird and wood duck nesting.

POWER SALES (Thousands of MWh)

Maintaining Financial Strength Despite inflationary increases in many areas of business, Dairyland successfully 6,000 held rates below 1986 levels through 2005-a significant accomplishment.

Dairyland's rates actually declined from 1986 to 1999, with incremental increases from 1999 to 2005.

S

-s50 Unfortunately, the combination of several factors has caused Dairyland's members to be impacted by a 20 percent wholesale rate increase for 2006

-4,000 (nearly a penny per kWh) over the 2005 rate. This was implemented with a Vtemporary surcharge of about 12 percent (about a half-cent per kWh) January through April 2006 and a wholesale rate increase on May 1, 2006.

The three largest cost impacts are seen in the areas of coal transportation, coal 0

0 supply and purchased power.

2,000 The most significant of the factors is an unexpected doubling of costs for rail I.

transportation of coal to Dairyland's power plants in Genoa and Alma, Wis. It

-00 will now cost about $75 million to ship $30 million worth of coal, with Etransportation accounting for over 70 percent of Dairyland's delivered coal Z

cost in 2006. (The coal is shipped via rail and/or barge to Dairyland plants

'01

'02

'03 04

'05 from mines primarily in Wyoming and Utah.)

10 DAIRYLAND POWER COOPERATIVE

RONALD CHURCHILL Director since: 2001 Oakdale Electric Cooperative Hometown: Reedsburg, Wis.

Ron was a dairy farmer for 35 years; his sons now operate the family farm. He has been an area rep for Agromatic, Inc., for the past 25 years, and has served the public since first being elected to the town board at age 21. He enjoys golf and University of Wisconsin Badger football.

DENNIS ENGEL Director since: 1995 Taylor Electric Cooperative Hometown: Dorchester, Wis.

Dennis was Chairman of the Board from 2000-2005. Dennis and his wife own and operate Clark Co-Line Dairy. They have three daughters, two sons-in-law and recently became grandparents.

In his free time, Dennis enjoys hunting, softball, snowmobiling, golf and bowling.

DEAN FISHER Director since: 1996 Hawkeye REC Hometown: Lawler, Iowa Dean earned an associate degree in Farm Operations from Iowa State University. He now rents his farm, but still tends to a few sheep and feeds cattle. He enjoys fishing and hunting in his free time.

CLARENCE HOESLY Director since: 2003 Clark Electric Cooperative Hometown: Granton,Wis.

Clarence and his oldest son operate a 346 acre dairy and Holstein beef farm. In his free time, he sings with the Clark County Male Chorus which has performed at national events. He also collects musical clocks and guns.

FRANK JASURDA Director since: 1998 Price Electric Cooperative Hometown: Phillips, Wis.

Since his "retirement" in 1994, Frank feeds about 270 heifers each morning on the family farm which his son and a partner now own. He has been very active in community organizations and loves to dance to "old time" music and play cards.

FRANCIS KLATT Director since: 1993 St. Croix Electric Cooperative Hometown: Emerald, Wis.

Francis has been an auto body parts and supply salesman for the past 14 years. When he's not "on the road," he enjoys singing and playing guitar and banjo in his free time. He also is an outdoorsman and likes to spend time hunting and fishing.

oombustion turbine, a natural gas burning peak periods of energy use.

12 DAIRYLAND POWER COOPERATIVE

GERALD KOELLER Director since: 1984 Scenic Rivers Energy Cooperative Hometown: Potosi, Wis.

Gerald was Chairman of the Board from 1995-2000. He lives on their family farm-now operated by his sons. Gerald has been involved in many community organizations including the school board, town board and milk marketing board. In his free time, he enjoys working in his shop.

EUGENE MILLER Director since: 1999 People's Cooperative Services Hometown: Theilman, Minn.

Eugene sold the family farm to his sons in 1991. In addition to serving his electric cooperative, he serves on the town board and "helps out" on the farm in his retirement. He enjoys woodworking and spending time with his 24 grandchildren.

2005 Financial Report Despite the challenges, Dairyland's financial results for 2005 were very strong.

Dairyland had an excellent year financially and achieved a 2005 margin of

$11.7 million, the highest level in the last 20 years, while leaving the 2005 wholesale rate unchanged from the 2004 level. This has increased the member's equity in Dairyland which improves Dairyland's ability to finance our future capital needs. Dairyland is recognized by the financial community as a very strong organization as evidenced by the recent affirmation of an "A" credit rating by Standard and Poor's and an A2 by Moodys Investors Service.

Total operating revenues increased to $247 million, compared to $229 million in 2004. Dairyland experienced an increase in total electric sales in 2005. Total sales were at 6.18 billion kilowatt-hours (kWh)-up from 2004 sales of 5.63 billion kwh.

Fuel to operate our generating facilities, primarily coal, accounted for Dairyland's largest annual expense-the plants used about 3.2 million tons of coal in 2005.

Historically, Dairyland's total margins have been returned to members in the form of patronage Capital Credits. In 2003, Dairyland's Strategic Financial Management Policy was changed to allow Dairyland to retain non-operating margins to build equity in the cooperative and enhance Dairyland's ability to finance future power supply projects (such as Weston 4). In addition, the policy provides that the annual retirement of allocated Capital Credits will not exceed 2 percent of the accumulated Capital Credit balance assigned to our members.

2005 Expense Dollar A. Other - 14.74%

B. Salaries & Benefits - 13.14%

C. Fixed Costs - 19.99%

D. Margins - 4.75%

E. Fuel & Purchased Power - 47.38%/

POWERFUL CONNECTIONS 13

JUDY MURPHY Director since: 1993 Richland Electric Cooperative Hometown: Richland Center, Wis.

Judy earned a BS degree in Education from UW-Platteville.

Judy and her late husband, Joe, operated a dairy farm for 35 years. She is now a fifth grade teacher and considers working with children a "delightful pleasure and honor."

Judy is also treasurer of their cooperative and town clerk.

KENDAL NICHOLS Director since: 2005 Class B Cooperatives Hometown: Wisconsin Dells, Wis.

Kendal has a BS degree in Marketing from UW-La Crosse.

He operates a 1,400 acre corn, soybean and vegetable farm and Angus beef operation. The Nichols farm, which his grandfather started, will turn 100 in 2006. Kendal enjoys collector cars, snowmobiling and boating.

POWER GENERATED

& PURCHASED (Thousands of MWh)

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Marketing Our Power GEN-SYS Energy is a Minnesota cooperative founded by Dairyland that markets bulk power to other utilities in the Mid-continent Area Power Pool (MAPP).

Authorized by the Federal Energy Regulatory Commission (FERC), GEN-SYS engages in wholesale electric power transactions at market-based rates and operates as Dairyland's wholesale power marketing agent. GEN-SYS' members S,000 include Dairyland, Corn Belt Power Cooperative of Humboldt, Iowa, and Distribu-Gen of La Crosse. (Distribu-Gen was formed to provide electric cooperatives support in the acquisition of distributed generation products and services.)

4,ooo Connected to our Communities Part of Dairyland's mission is to "work with our members to improve the quality of 3,00 life of their customers and the economic and social well-being of the region." One way Dairyland seeks to accomplish this goal is through our Economic Development Loan Program. The program is focused on stimulating tangible economic benefits to local business and community development efforts. Dairyland has also been very successful in accessing funding for economic development through the USDA

,000 Rural Economic Development Loan and Grant Program.

Since 1990, the Dairyland Board of Directors has approved 214 economic 0

development loans totaling approximately $16.8 million. In 2005, the Board approved 10 loans totaling more than $835,000. These programs have been

,esters extremely beneficial in helping communities create long-term jobs and

'01

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'04

'05 New in 2005: Methane di*

produced 1,871 MWh 14 DAIRYLAND POWER COOPERATIVE

GLENN PETERSON Director since: 2005 Pierce-Pepin Cooperative Services Hometown: Arkansaw, Wis.

The son of a Pierce-Pepin lineman-turned manager, Glenn earned an associate degree in Electronics. A retired electrician, he is township supervisor and volunteers in his.

community. He enjoys restoring cars, woodworking, collecting tractors,. bow hunting and motorcycling.

JEFF REDALEN Director since: 2005 Tri-County Electric Cooperative.

Hometown: Fountain, Minn.

Jeff works with his wife, Michelle, in their family's furniture business, Drury's. They have three retail stores in, southeastern Minnesota. leff.previously worked as a manager of a cooperative grain elevator. Jeff's main hobby is farming. He also enjoys other outdoor activities.

enhancing the quality of life in rural areas. They also help Dairyland's members increase energy sales and secure long-term contracts with large power users.

That helps stabilize rates for everyone.

Employees were generous in 2005, making significant contributions (matched by Dairyland) to fundraisers for victims of the Tsunami and Hurricane Katrina.

Dairyland was also once again a "Pacesetter" company for the 2006 United Way campaign and employees did an admirable job of setting the pace for generous community giving, with contributions matched at 65 percent by Dairyland.

As a founding member of the Touchstone Energy Cooperatives brand, Dairyland works to sustain a powerful connection with the communities where we operate facilities through participation in numerous community events and projects. The region's Touchstone Energy Cooperatives are a major sponsor of the Touchstone Energy-YMCA "Got Energy?" triathlon (supports the YMCAs "Strong Kids" campaign) and supporter of the Wisconsin state high school track meet, regional basketball tournaments, parades, fairs and many other events.

Annually, employees team up for the American Cancer Society Run-Walk, assist at "Rotary Lights" (a community event that brightens the holidays and raises donations for area food pantries) and hold a Community Gift Program where employees purchase holiday gifts for neighboring nursing home residents.

As a Touchstone Energy Cooperative, our vision will remain focused on our members and our commitment will always create a "Powerful Connection."

Touchstone Energy Cooperatives support the WIAA state track championship.

The accompanying pages include the 2005 audited financial statements of Dairyland Power Cooperative.

POWERFUL CONNECTIONS 15

LEONARD RICKE Director since: 1984 Jo-Carroll Energy Hometown: East Dubuque, III.

After a tour of duty in Korea, Leonard formed a new home construction company. After 41 years, he retired and keeps busy with an apple orchard and vegetable gardens. He has served 50 years on a volunteer fire department and 51 years as a trustee in the Village of Menominee.

ARTHUR RIEMER SDirector since: 1980 Bayfield Electric Cooperative Hometown: Marengo,Wis.

As the longest currently-serving director, Art brings a wealth of experience to the Board Room.

A retired farmer, Art is also a field representative for the USDAs National Agricultural Statistics Service. He enjoys reading, sports, cards, news and politics.

ROGER SOLOMONSON Director since: 1996 Heartland Power Cooperative Hometown: Leland, Iowa Roger operates a cash grain (coin and soybean) farm. He loves to bicycle across Iowa, canoe and travel the country by ship, plane or car with his wife.

Roger is very involved in his church and enjoys having their five grandchildren live next door.

GEORGE WEBB Director since: 1989 Chippewa Valley Electric Cooperative Hometown: Bloomer, Wis.

George has been very active in helping his community grow. He is president of People's State Bank, past president of Bloomer Hospital and Nursing Home and vice president of Chippewa Valley Satellite. He also enjoys hunting, fishing, gardening and spending time with family.

FINANCIAL REPORT Report of Management Responsibility Management is responsible for the preparation and integrity of the financial statements and representations in the annual report. Management uses its best judgment and resources to ensure that such statements present fairly the financial positions, results of operations and cash flow of Dairyland Power Cooperative.

Dairyland maintains a system of internal controls which is designed to provide reasonable assurance that transactions are recorded in accordance with management's authorization, that financial statements are prepared in conformity with generally accepted accounting principles applied on a consistent basis and that assets are safeguarded.

The Board of Directors, through its Audit Committee, has responsibility for determiningthat management fulfills its responsibilities for preparation of financial statements and financial control of operations. The Audit Committee meets regularly with management and the cooperative's independent public accountants to discuss internal control, financial reporting and auditing matters.

April II, 2006

• La Crosse, Wisconsin Dairyland Power Cooperative Independent Auditors' Report To the Board of Directors of Dairyland Power Cooperative:.

We have audited the accompanying consolidated balance -sheets of Dairyland Power Cooperative and subsidiaries (the "Cooperative"), a Wisconsin cooperative, as of December 31, 2005 and 2004, and the related consolidated statements of revenues and expenses, member and patron equities, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Cooperative's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conductedour audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require thatwe 'plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Cooperative's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Cooperative as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report, dated April 11, 2006, on our

• consideration of the Cooperative's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the result of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of the audit.

April 11, 2006

• Minneapolis, Minnesota Deloitte & Touche LLP POWERFUL CONNECTIONS 17

ASSETS Consolidated Balance Sheets As of December 31 (In thousands) 2005 2004 Electric Plant:

Plant and equipment-at original cost..................................

Less accumulated depreciation............................

Construction work in progress.........................................

Total electric plant............................................

Other Assets:

Nuclear decommissioning funds.......................................

Investments under debt agreements-marketable securities...............

Economic development loans and other investments.................

Investments in capital term certificates of National Rural Utilities Cooperative Finance Corporation....................................

Investment for deferred compensation..................................

Deferred charges.....................................................

Total other assets.............................................

Current Assets:

Cash and cash equivalents............................................

Accounts receivable:

Energy sales, net of allowance for doubtful accounts of $110 for both 2005 & 2004..............................................

O th er............................................................

Inventories-at average cost:

Fossil fuels.......................................................

M aterials and supplies.............................................

Prepaid expenses....................................................

Total current assets............................................

T o t a l................................................................

$ 806,659 (378,718)

$ 769,262 (371,481) 427,941 397,781 180,913 66,921 608,854 464,702 84,634 80,605 2,361 18 6,409 6,941 9,176 9,176 1,033 1,030 6,452 6,806 110,065 104,576 3,748 2,785 25,263 22,716 3,782 3,722 25,651 26,867 14,196 14,265 1,416 1,617 74,056 71,972

$ 792,975

$ 641,250 See notes to consolidated financial statements.

18 DAIRYLAND POWER COOPERATIVE

CAPITALIZATION

& LIABILITIES Capitalization:

Member and patron equities:

M em bership fees..................................................

Patronage capital.............................................

Total member and patron equities...............................

Long-term obligations................................................

Total capitalization............................................

Other Liabilities:

Estimated decommissioning liabilities............................

Asset retirem ent obligations..........................................

Postretirement health insurance obligation.............................

Accrued sick leave benefit pay.....................................

Deferred com pensation.............................................

O ther deferred credits................................................

Total other liabilities...........................................

Commitments and Contingencies (Note 8)

Current Liabilities:

Current maturities of long-term obligations.............................

L ine o f cred it.........................................................

Advances from member cooperatives...................................

A ccounts payable....................................................

Accrued expenses:

Payroll and vacation pay............................................

Interest.....................................................

Property and other taxes............................................

Other........................................................

Total current liabilities T o ta l........................................................

Consolidated Balance Sheets As of December 31 (In thousands) 2005 2004 14 14 108,517 98,775 108,531 98,789 510,357 377,020 618,888 475,809 84,634 80,605 807 2,520 2,009 1,479 1,374 1,033 1,030 3,804 94,277 85,018 21,548 19,787 24,500 6,190 2,870 35,278 18,208 6,148 6,090 6,432 5,575 2,114 1,861 2,100 1,532 79,810 80,423

$ 792,975

$ 641,250 See notes to consolidated financial statements.

POWERFUL CONNECTIONS 19

REVENUES

& EXPENSES Consolidated Statements Years ended December 3.1 (In thousands) 2005 2004

$238,945

$221,117 7,697 7,809 Utility Operations Operating Revenues:

Sales of electric energy...............................................

O th er..............................................................

Total operating revenues.......................................

Operating Expenses:

F u e l...............................................................

Purchased and interchanged power.....................................

Other operating expenses.............................................

Depreciation and amortization.........................................

M aintenance........................................................

Property and other taxes..............

Total operating expenses.......................................

Operating Margin Before Interest and Other.....................

Interest and Other:

Interest expense O ther-net.........................................................

Total interest and other.....................................

O perating M argin..................................................

Non-O perating M argin..........................

N et U tility M argin..................................................

Non-Utility Operations:

N et revenues........................................................

Operating expenses..................................................

Operating incom e.............................................

Interest incom e......................................................

Non-utility earnings before income taxes.........................

(Provision) Benefit for income taxes....................................

N on-U tility Earnings...............................................

N et M argin and Earnings...........................................

246,642 228,926 89,224 27,631 51,402 23,479 22,281 4,592 218,609 28,033 74,223 33,077 49,051 18,132 27,830 4,287 206,600 22,326 21,234 234 21,468 6,565 1,665 8,230 20,269 220 20,489 1,837 1,309 3,146 4,788 (713) 4,075 1

4,076 (588) 3.488 2,492 (545) 1,947 5

1,952 22 1.974 11,718 5,120 MEMBER & PATRON EQUITIES (In thousands)

Balance, December 31, 2003 Additional membership fees Net margin and earnings Retirement of capital credits Balance, December 31, 2004 Net margin and earnings Retirement of capital credits Balance, December 3 I, 2005 Membership Fees Patronage Capital Total Member & Patron Equities

$ 13

$95,566

$95,579 1

1 5,120 5,120 (1,911)

(1,911)

$ 14

$98,775

$98,789 11,718 11,718 (1,976)

(1,976)

$ 14

$108,517

$ 108,531 20 DAIRYLAND POWER COOPERATIVE

CASH FLOW Cash Flows from Operating Activities:

Net m argin and earnings..............................................

Adjustments to reconcile net margin and earnings to net cash provided by operating activities:

Depreciation and amortization:

Charged to operating expenses..........................

Charged to fuel expense..........................................

Changes in operating elements:

Accounts receivable....................................

Invento ries.....................................................

Prepaid expenses and other assets.................................

Accounts payable................................................

Accrued expenses...............................................

Deferred charges and other.......................................

Total adjustm ents.............................................

Net cash provided by operating activities.........................

Cash Flows from Investing Activities:

Electric plant additions...............................................

Purchase of investm ents............................

Proceeds from sale of investments and economic development loans.......

Net cash used in investing activities.............................

Cash Flows from Financing Activities:

Borrowings under line of credit.........................................

Repayments under line of credit.......... I............................

Borrowings under long-term obligations................................

Repayments of long-term obligations...................................

Retirem ent of capital credits...........................................

Borrowings of advances from member cooperatives.......................

Repayments of advances from member cooperatives......................

Net cash provided by financing activities.........................

Net Increase (Decrease) in Cash and Cash Equivalents...........

Cash and Cash Equivalents-Beginning of year....................

Cash and Cash Equivalents-End of year..........................

Supplemental Cash Flow Information:

Cash paid for interest................................................

Assets aquired assum ing liabilities.....................................

Consolidated Statements Years ended December 31 (In thousands) 2005 2004

$ 11,718 5,120 23,479 18,132 2,055 1,894 (2,607)

(3,644) 930 (6,351) 301 (12) 17,070 4,342 2,426 5,508 (419)

(1,744) 43,235 18,125 54,953 23,245 (163,676)

(52,616)

(302,490)

(113,156) 300,234 114,397 (165,932)

(51,375) 106,500 70,900 (131,000)

(46,400) 155,012 12,212 (19,914)

(15,609)

(1,976)

(1,911) 139,021 114,244 (135,701)

(113,948) 111,942 19,488 963 (8,642) 2,785 11,427 3,748 2,785

$ 23,502

$ 18,544

$ 27,384 6,246 See notes to consolidated financial statements.

POWERFUL CONNECTIONS 21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 2005 & 2004 (All dollar amounts in thousands)

I. NATURE OF BUSINESS AND ORGANIZATION Business: Dairyland Power Cooperative and Subsidiaries

("Dairyland" or the "Cooperative") is an electric generation and transmission cooperative organized under the laws of the states of Wisconsin and Minnesota. The Cooperative, whose principal offices are located in Wisconsin, provides wholesale electric service to Class A members engaged in the retail sale of electricity to member consumers located in Wisconsin, Minnesota, Iowa, and Illinois, and provides electric and other services to Class C, D, E, and F members.

Principles of Consolidation: The consolidated financial statements include the accounts of Dairyland, GEN-SYS Energy

("GEN-SYS"), and Dairyland's wholly owned subsidiary, Genoa FuelTech, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

GEN-SYS Energy: The Cooperative is a member of GEN-SYS, a power supply and marketing cooperative, the primary purpose of which is to schedule and dispatch generation resources and to provide other power-related support services to its members, which also include Corn Belt Power Cooperative and Distribu-Gen Cooperative. GEN-SYS is owned equally by its members, but in fiscal years 2005 and 2004, substantially all of the GEN-SYS activities that produced margin, including energy purchases and sales, were derived from Dairyland. Dairyland has consolidated the accounts of GEN-SYS in the consolidated balance sheets, the consolidated statements of revenues and expenses in non-utility operations, and the consolidated statements of cash flows for fiscal years 2005 and 2004.

Accounting System and Reporting: The accounting records of the Cooperative are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission as adopted by the Rural Utilities Service ("RUS"), the Cooperative's principal regulatory agency.

Electric Plant. The cost of renewals and betterments of units of property (as distinguished from minor items of property) includes contract work, direct labor and materials, allocable overheads, and allowance for funds used during construction, and is charged to electric plant accounts. Included in accumulated depreciation are nonlegal or noncontractual costs of removal components. As a result, the cost of units of property retired, sold, or otherwise disposed of, plus removal costs, less salvage, is charged to accumulated depreciation and no profit or loss is recognized in connection with ordinary retirements of property units. A provision for these nonlegal or noncontractual costs of removal components is recognized based on RUS-approved depreciation rates. The Cooperative is unable to obtain the information to separate the cumulative removal costs at December 31, 2005 and 2004.

Maintenance and repair costs and replacement and renewal of minor items of property are charged to operations.

Depreciation: Depreciation, which is based on the straight-line method at rates that are designed to amortize the original cost of properties over their estimated useful lives, includes a provision for the cost of removing and decommissioning the properties. The provision for depreciation averaged 2.8% and 2.7% of depreciable plant balances in 2005 and 2004, respectively.

Allowance for Funds Used During Construction: Allowance for funds used during construction represents the cost of external and internal funds used for construction purposes and is capitalized as a component of electric plant by applying a rate (5.1% in 2005 and 4.5% in 2004) to certain electric plant additions under construction.

The amount of such allowance was $ 1,870 in 2005 and $1,519 in 2004 and was included as a reduction of interest expense in the consolidated statements of revenues and expenses.

Deferred Charges: Deferred charges represent future revenue to the Cooperative associated with costs that will be recovered from customers through the rate making process. As of December 3 1, 2005, the Cooperative's deferred charges are being reflected in rates charged to customers. If all or a separable portion of the Cooperative's operations no longer become subject to the provisions of Statement of Financial Accounting Standards ("SFAS") No. 71, Accounting for the Effects of Certain Types of Regulation, a write-off of deferred charges would be required, unless some form of transition recovery (refund) continues through rates established and collected for the Cooperative's remaining regulated operations. In addition, the Cooperative would be required to determine any impairment to the carrying costs of deregulated plant and inventory assets. Deferred charges at December 31, 2005, primarily represent a premium on debt refinancing which is being amortized over approximately 20 years (the remaining life of related original debt) and costs associated with preliminary project survey and investigation activities. The preliminary project survey and investigation costs will either be capitalized as property and plant if the projects move forward, or be expensed if the projects are abandoned.

Investments: Investments in marketable debt and equity securities classified as available-for-sale are reported at fair value, with the interest, dividend income, and realized gains reported in non-operating margin. The unrealized gains and losses increase or decrease the nuclear decommissioning liability (see Note 3). The Cooperative continually monitors the difference between cost and estimated fair value of its investments. If any of the Cooperative's investments experience a decline in value that the Cooperative believes is other than temporary, the Cooperative realizes a loss.

Regulatory Assets and Liabilities: The Cooperative's accounting policies and the consolidated financial statements conform to accounting principles generally accepted in the United States of America applicable to electric cooperatives in accordance with the provisions of SFAS No. 71.

Cash Equivalents: Cash equivalents include all highly liquid investments with original maturities of three months or less, unless the cash equivalent relates to trust funds held for long-term purposes (see Note 3). Cash equivalents consist primarily of commercial paper, stated at cost, which approximates market.

Included in accounts payable at December 31, 2005 and 2004, are

$1,331 and $1,357, respectively, of outstanding checks. These obligations will be satisfied with cash and cash equivalents.

Coal Stock and Materials and Supplies: Coal inventories are stated at the lower of average cost or market prices. Materials and supplies inventories are stated at average cost, which approximates market.

22 DAIRYLAND POWER COOPERATIVE

Recoverability of Long-Lived Assets: The Cooperative follows the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and periodically reviews the carrying value of long-lived assets for potential impairment by comparing the carrying value of these assets to the estimated undiscounted future cash flows expected to result from the use of these assets. Should the sum of the related, expected future net cash flows be less than the carrying value, an impairment loss would be recognized. No impairment

.losses have been identified and recorded in the consolidated financial statements during 2005 and 2004.

Emission Allowances: The U.S. Environmental Protection Agency

("EPA") has requirements limiting the amount of sulfur dioxide which can be emitted from the Cooperative power plants. Under these requirements, the Cooperative was allotted one emission allowance per ton of sulfur dioxide emissions. Currently emission allowances are recorded under the inventory method at a cost of

$0. At December 31, 2005 and 2004, the Cooperative sold $266 and

$107, respectively, of emission allowances through the EPA annual mandatory auction. These amounts were recorded as revenues in the nonoperating margin.

Sales of Electric Energy. Revenues from sales of electric energy are recognized when energy is delivered. The Class A wholesale rates approved by the Cooperative's Board of Directors have a power cost adjustment that allows for increases or decreases in Class A member power billings based upon actual power costs compared to plan. For 2005 and 2004, the power cost adjustment resulted in a charge to the Class A members of $1,258 and $0, respectively. These amounts are recorded in sales of electric energy in operating revenues.

Other Operating Revenue: Other operating revenue includes primarily revenue received from transmission service and is recorded as services are provided.

Accounting for Energy Transactions: Contracts that did not meet the accounting definition of a derivative, as defined by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, are accounted for at historical cost. The Cooperative's energy contracts that qualify as derivatives continue to be accounted for at fair value under SFAS No. 133 and No. 149, unless those contracts meet the requirements of and have been designated as "normal purchase/normal sale" as provided by SFAS No. 133 and No. 149. These contacts are exempted out of fair value accounting. The Cooperative does not have any energy contracts that are required to be accounted for at fair value as of December 31, 2005 and 2004.

Dairyland and GEN-SYS have evaluated the guidance under Emerging Issues Task Force ("EITF') No. 03-1I, Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not "Held for Trading Purposes" as Defined in Issue No. 02-3, as well as EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and have determined that GEN-SYS' energy purchases and sales activities will be presented on a net basis within the non-utility operations section of the consolidated statements of revenue and expenses.

Non-operating Margin: The non-operating margin for the years ended December 31, 2005 and 2004, include the following:

2005 2004 Investment income............................

$ 619

$ 667 Investment income on decommissioning funds....

4,467 2,378 Provision-recorded as estimated decommissioning liabilities....................

(4,467)

(2,378)

O ther........................................

1,046 642 Nonoperating margin..........................

$ 1,665

$ 1,309 Income Taxes: The Cooperative's utility operations are generally exempt from federal and state income taxes and, accordingly, no provision for such taxes is recorded in the consolidated financial statements.

For its non-utility operations, the Cooperative accounts for income taxes using the liability method, under which deferred income taxes are recognized for temporary differences between the income tax and financial reporting bases of the Cooperative's assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Cooperative had $588 of accrued income tax expense during 2005, including $463,130 federal income tax expense and $125,200 state income tax expense, based on a net margin before taxes of $4,076,441. The difference between actual federal tax rate and statutory rate of 34% is attributable to the application of prior period net operating loss ("NOL")

carryforward and tax-exempt patronage revenue. The difference between actual state tax rate and statutory rates for the states of Iowa, Minnesota, and Wisconsin is attributable to the application of prior period state NOL and other allowed deductions. In 2004, there was no accrued income tax expense due to the reversal of a valuation allowance recorded against prior period NOL carryforwards to offset taxable income. Because the cooperative never received a benefit on the NOL, due to the valuation allowance placed against it, there will be no expense recognition on taxable income until the NOL is utilized. At December 31, 2005 and 2004, the Cooperative recognized an income tax benefit of $421 and

$22, respectively, due to a reversal of a valuation allowance due to the use of a net operating loss carryforward.

A valuation allowance has been recorded to reduce the deferred tax asset to an amount that will more likely than not be realized. The Cooperative does not anticipate utilizing the net operating loss prior to its expiration. Therefore, a valuation allowance equal to the deferred tax asset is necessary. The Cooperative's deferred taxes as of December 31, 2005 and 2004, were as follows:

2005 2004 Deferred tax asset (NOL)........................

$ 54,000 $ 453,783 Valuation allowance............................

(54,000) (453,783)

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

Actual results could differ from those estimates.

POWERFUL CONNECTIONS 23

Concentration of Rislk During both fiscal years 2005 and 2004, the Cooperative derived 11% of its revenue from a single customer.

Approximately 48% of the labor force for the Cooperative is under a collective bargaining agreement that expires January 31, 2008.

Reclassifications: Certain 2004 amounts have been reclassified to conform to the 2005 presentation. These reclassifications had no effect on the net margin and earnings or patronage capital as previously reported.

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In November 2004, the FASB issued SFAS No. 151, Inventory Costs, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling cost, and wasted material. The statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not expect that its adoption will have a significant impact on the Cooperative's financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29, which amends Opinion 29 to eliminate the exception to fair value nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance-that is, transactions that, are not expected to result in significant changes in the cash flows of the reporting entity. The provisions of this statement shall be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Management does not expect that its adoption will have a significant impact on the Cooperative's financial position or results of operations.

3. AVAILABLE-FOR-SALE INVESTMENTS Investments under debt agreements and nuclear decommissioning funds at December 31, 2005 and 2004, are classified as available-for-sale and include the following:

The contractual maturities of marketable debt securities, which include U.S. government securities, foreign obligations, and corporate bonds, at December 31, 2005, is as follows:

Fair Value Cost Due within I year..............................

179 182 Due after I year through 5 years..................

11,743 11,800 Due after 5 years through 10 years................

8,320 8,368 Due after 10 years..............................

25,325 25,526

$ 45,567

$ 45,876 Information regarding the sale of available-for-sale marketable securities, including nuclear decommissioning trusts, for the years ended December 31, 2005 and 2004, are as follows:

2005 2004 Proceeds from sale of securities.................. $ 298,786 $ 105,801 Realized gains.................................

2,017 564 For the purposes of determining realized gains and losses, the cost of securities sold is based upon specific identification.

Securities in the portfolio are reviewed to determine whether they have been other-than-temporarily impaired. At December 31, 2005, the Cooperative's investments contained approximately 146 securities whose fair market value was below cost. Of these, approximately 15 were common stock, 66 were corporate bonds, 7 were foreign obligations, and 58 were U.S. and government securities. The Cooperative recognized no impairment losses in either of the fiscal years ended December 31, 2005 and 2004, as their decline in value does not meet the Cooperative's criteria for classification as an other-than-temporary impairment. The following table shows gross unrealized losses and the fair value of investments that are in unrealized loss position and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2005:

Cash and cash equivalents...

U.S. government securities...

Corporate bonds...........

Common stocks............

Foreign obligations.........

2005 2004 Fair Fair Value Cost Value Cost

$11,696

$11,696

$ 9,246

$ 9,246 32,620 32,900 29,598 29,574 11,744 11,750 15,556 15,264 29,732 25,552 24,634 20,647 1,203 1,226 1,589 1,582

$86,995

$83,124

$80,623

$76,313 Since the Cooperative intends to adjust rates in the future to reflect changes in the fair value of investments held in its nuclear decommissioning trust, unrealized gains of $3,871 and $4,310 on these investments at December 31, 2005 and 2004, respectively, are included in estimated decommissioning liabilities. Investments under debt agreements represent amounts arising from the sale of assets that are encumbered by mortgages and restricted by the RUS for use on future generation and transmission construction projects. At December 31, 2005 and 2004, the fair value of investments under debt agreements approximated cost.

Common stocks.........................

Corporate bonds.................................

Foreign obligations...............................

U.S. governmental securities.......................

Common stocks Corporate bonds.................................

Foreign obligations...............................

U.S. governmental securities.......................

Common stocks..................................

Corporate bonds.................................

Foreign obligations...............................

U.S. governmental securities.......................

Less Than 12 Months Fair Unrealized Value Loss

$ 3,198 206 8,135 110 502 16 22,847 326

$ 34,682 658 12 Months or Longer Fair Unrealized Value Loss

$ 2,197 347 350 2

490 29

$ 3,037 378 Total Fair Unrealized Value Loss

$ 5,395 553 8,485 112 502 16 23,337 355

$37,719

$ 1,036 24 DAIRYLAND POWER COOPERATIVE

Investment income on the consolidated statements of revenues and expenses is net of investment fees of approximately $339 and $346 for the years ended December 31, 2005 and 2004, respectively.

4. LINES OF CREDIT To provide interim financing capabilities, the Cooperative has arranged lines of credit with availability aggregating approximately

$52,000 principally through CoBank at a rate of 5.86% and 3.92% at December 31, 2005 and 2004, respectively. Borrowings outstanding were $0 and $24,500 at December 31, 2005 and 2004, respectively.

Average borrowings outstanding were $20,900 and $7,300 during the years ended December 31, 2005 and 2004, respectively.

Compensating balance requirements and fees relating to the lines of credit were not significant in 2005 or 2004. The line of credit is renewable annually as to terms and conditions, and the principal balance must be paid in full within one business day of expiration unless unilaterally extended by CoBank. The next renewal date is September 2006.

The Cooperative also allows member cooperatives to prepay their power bills and pays interest on these prepayments based on current short-term borrowing rates. Interest expense on member cooperative advances were $367 and $176 during 2005 and 2004, respectively. These amounts have been included in interest expense in the consolidated statements of revenues and expenses.

5. LONG-TERM OBLIGATIONS Long-term obligations at December 31, 2005 and 2004, consist of the following:

Approximately $7,545 of the City of La Crosse, Wisconsin, Pollution Control Bonds (the "Bonds") is due in September 2014, and $16,060 is due in February 2015. On December 27, 2001, the Bonds were reissued at fixed interest rates of 5.45% for the $7,545 of Bonds due in 2014 and 5.55% for the $16,060 of Bonds due in 2015.

Substantially all of the Cooperative's assets are pledged as collateral for these obligations under the Consolidated Mortgage and Security Agreement with RUS, which extends through December 31, 2055. The Cooperative is required to maintain and has maintained certain financial ratios related to earnings and liquidity in accordance with the covenants of its loan agreements as of December 31, 2005.

Scheduled maturities of the Cooperative's long-term obligations, excluding debt to be refinanced, at December 31, 2005, were as follows:

Years Ending December 31 20 06.................................................

200 7............................

2008................................

2009.................

20 10.................................................

Thereafter.........................

$ 21,548 22,899 55,816 22,208 22,628 284,438

$429,537 Federal Financing Bank obligations, 3.5% to 6.8%...

RUS obligations, 2%, 5%, and grant funds.......

CoBank notes, 5.8% and 7.4%....................

City of La Crosse, Wisconsin, Pollution Control Bonds, 5.45% to 5.55%.........

Other, 4%, due in installments through 2006.......

Long-term debt..............................

Short-term debt expected to be refinanced-CoBank, Weston 4 construction notes, 5.2% to 5.3%..

Adjusted long-term debt.........

2005 2004

$ 334,210 $ 295,918 21,558 24,563 49,999 52,403

,23,605 23,605 165 318 429,537 396,807 102,368 531,905 396,807 The scheduled maturities'for the debt to be refinanced with RUS of

$102,368 will be determined at the time the debt is refinanced.

6. FINANCIAL INSTRUMENTS The fair value of the Cooperative's financial instruments other than marketable securities and short-term borrowings, based on the rates for similar securities and present value models using current rates available, at December 31, 2005 and 2004, is estimated to be as follows:

2005 2004 Recorded Fair Recorded Fair Value Value Value Value Less current maturities........................

21,548 19,787 Total long-term obligations......................

$ 510,357 $ 377,020 Quarterly principal and interest payments on the long-term obligations to the Federal Financing Bank extend through 2031. Long-term obligations to the RUS are payable in equal quarterly principal and interest installments through 2013. Payments on the CoBank 5.8% and 7.4% notes are due monthly or quarterly through 2019.

The Cooperative has secured loan agreements with CoBank for

$280,000 to finance the Cooperative's share of construction costs of the Weston 4 generating station project (the "Project") which is expected to be in service in 2008. At December 31, 2005, the outstanding balance of these loans was $102,368. The Cooperative has obtained guarantee commitments from the RUS for $280,000 to provide permanent long-term financing for the Project and, accordingly, the CoBank construction loan is included in long-term obligations in the accompanying consolidated balance sheets. Any advances from RUS for long-term financing for the project are pursuant to the terms of the Consolidated Mortgage and Security Agreement between the Cooperative and RUS.

Assets:

Economic development loans and other investments...... $

6,409 6,409 Investments in capital term...

certificates of NRUCFC......

9,176 9,176 Liabilities:

Long-term obligations.......

531,905 555,616 5,941 5,941 9,176 9,176 396,807 421,771

7. RETIREMENT OF CAPITAL CREDITS The Cooperative's Board of Directors has adopted a policy of retiring capital credits allocated to members on a first-in, first-out basis. As part of an equity development strategy adopted in 2003, patronage capital retired will be limited to no greater than 2% of the total patronage capital balance at December 31 of the prior year.

Accordingly, $1,976 and $1,911 were retired in 2005 and 2004, respectively, representing a portion of 1984 and 1983 capital credits.

This policy is subject to annual review and approval by the Board of Directors and the RUS, and no cash retirements are to be made which would impair the financial condition of the Cooperative or violate any terms of its agreements. Also beginning in 2003, the amount of non-operating margins assigned to members each year is POWERFUL CONNECTIONS 25

at the discretion of the Board of Directors. Any unassigned non-operating margins will become unallocated reserves and part of permanent equity. Patronage capital at December 31, 2005, includes 2005 margins assignable of $6,565 and unallocated reserves of $5,153. Patronage capital at December 31, 2004, includes 2004 margins assignable of $1,837 and unallocated reserves of $3,283.

8. COMMITMENTS AND CONTINGENCIES The Cooperative acquired a 30% ownership share of the Weston 4 power plant currently under construction near Wausau, Wisconsin, from Wisconsin Public Service Corporation ("WPSC") in November 2005. The Cooperative paid WPSC $95 million for its share of construction costs incurred to the closing date. The acquisition gives the Cooperative a 159-megawatt share of the 531-megawatt supercritical coal-fired facility for which WPSC obtained regulatory approval and began construction in October 2004. The plant is expected to be in service in 2008. As a 30% owner, the Cooperative will be responsible for approximately $242million of the Weston 4 plant costs plus interest during construction and Dairyland's owner costs for a total estimated cost of $280 million. The Cooperative's estimated expenditures as of December 31, 2005, are

$88 million in 2006, $46 million in 2007, and $20 million in 2008.

The Cooperative's estimated 2006 construction program expenditures, including the Weston 4 project, are $103,262, with financing expected to be provided by borrowings and internally generated funds.

The Board of Directors of Dairyland and the RUS have approved credit support for GEN-SYS of $20 million, and the RUS has authorized Dairyland to provide $5 million of net additional funding annually. As of December 31, 2005 and 2004, no additional funding has been provided. As of December 31, 2005 and 2004, Dairyland had issued guarantees on behalf of GEN-SYS for

$9.9 million and $9.2 million, respectively.

The Cooperative is a party to a number of generation, transmission, and distribution agreements, under which costs and/or revenues are recognized currently based upon the Cooperative's interpretations of the provisions of the related agreements.

Differences between the estimates used in the consolidated financial statements and the final settlements are recorded in the year of settlement.

The Cooperative has entered into various coal purchase contracts from one to five years. The estimated commitments under these contracts as of December 31, 2005, were $90,024 in 2006, $84,377 in 2007, and $53,456 in 2008.

The Cooperative has been named as a defendant in various lawsuits and claims arising in the normal course of business.

Although the outcome of these matters cannot be determined at the present time, management and legal counsel believe these actions can be successfully defended or resolved without a material effect on the consolidated financial position, results of operations, or cash flows of the Cooperative.

9. EMPLOYEE BENEFITS Multiemployer Defined Benefit Pension Plan: Pension benefits for substantially all employees are provided through participation in the National Rural Electric Cooperative Association ("NRECA")

Retirement and Security Program. Pension benefits are funded in accordance with the provisions of the program and are based on salaries, as defined, of each participant. The Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendment Act of 1980, imposes certain liabilities on employers who are contributors to multiemployer plans in the event of a plan termination or an employer's withdrawal. These plans have not been terminated, nor has the Cooperative undertaken any plans to withdraw from participation. Since the program is a multiemployer plan for accounting purposes, the accumulated benefits and plan assets are not determined or allocated separately for each participating company. The Cooperative may be contingently liable for its share of the plans' unfunded vested liabilities. The Cooperative cannot obtain information from the plans' administrators to determine its share, if any, of unfunded vested benefits. Pension costs for this pension plan were $4,642 in 2005 and $4,273 in 2004.

Postretirement Health Insurance Obligation: Employees of the Cooperative retiring at or after age 55 are eligible to participate in a postretirement health care plan through age 65. Eligible dependents of the retired Cooperative employees are also eligible to participate in this plan through age 65. Retirees pay 100% of the premium amount for this coverage. The premium is based upon the combined medical claims experiences of all active employees and retirees. If premiums were determined based upon the medical claims experience of retirees only, the resulting premium for retirees would be higher. The difference between the premium paid by retirees and the potential actual premium amount is the basis for the postretirement benefit obligation.

The Cooperative uses a December 31 measurement date for its Plan.

The postretirement health care plans are unfunded. The accumulated postretirement benefit obligation and the amounts recognized in the consolidated financial statements as of and for the years ended December 31, 2005 and 2004, are as follows:

2005 2004 Amount recognized in the consolidated balance sheet:

Total accrued qualified and nonqualified benefit obligation..............................

$ 2,745

$ 2,123 Less current portion (included in accrued expenses-other)............

(225)

(114)

Long-term portion................................

$ 2,520

$ 2,009 Change in benefit obligation:

Benefit obligation-beginning of year............

$ 5.287

$ 5,047 Service cost.................................

193 184 Interest cost................................

351 332 Actuarial gain...............................

(135)

Participant contributions......................

80 136 Benefits payments...........................

(194)

(412)

Benefit obligation--end of year.................

5,582 5,287 Funded status:

Funded status at December 31.................

$ (5,582)

$ (-5,287)

Unrecognized actuarial loss...................

(2,837)

(3,164)

Accrued postretirement health insurance obligations recorded at year-end...............

$ 2,745

$ 2,123 26 DAIRYLAND POWER COOPERATIVE

2005 2004 Change in plan assets:

Fair value of assets-beginning of year...........

Employer contribution........................

114 276 Participant contributions......................

80 136 Benefits paid................................

(194)

(412)

Fair value of assets-end of year................

Components of net periodic postretirement benefit cost:

Service cost-benefits attributed to service during the year....................

193 184 Interest cost on accrued postretirement health insurance obligation.................

351 332 Amortization of unrecognized actuarial loss......

192 205 Net periodic postretirement benefit expense.......

736 721 For measurement purposes, a 6.5% discount rate was assumed for both 2005 and 2004. The 2005 and 2004 annual health care cost increase assumed is 12.0% and 11.0%, respectively, decreasing gradually to 5.0% for 2011 and thereafter. A one percentage point increase in the assumed health care cost trend rates would increase the total of service and interest cost components by $81 and the end of year APBO by $623. A one percentage point decrease in the assumed health care cost trend rates would decrease the total of service and interest cost components by $70 and the end of year APBO by $561.

Postretirement Health.

Insurance Obligation.

Expected future benefit payments:

.. I 2006............................................

225 2007.....

I.....................................

21.1 2008.......................................

263 2009.............................................

3 18 2010.............................................

388 20 11-20 15........................................

2,297 Defined Contribution Plan: Dairyland has a qualified tax-deferred savings plan ("401(k) Plan") for eligible employees. Eligible participants may make pretax contributions, as defined, with Dairyland matching up to 2.5% of the participants' annual compensation. Contributions to these plans by Dairyland were

$813 and $812 for 2005 and 2004, respectively.

Accrued Sick Leave Benefit: Certain employees are eligible to receive amounts at the time of retirement related to a discontinued sick leave policy. Eligible employees will be paid for a fixed number of sick leave hours at the wage rate in effect at retirement. The liability was $1,615 and $1,634 at December 31, 2005 and 2004, respectively. The cost for this sick leave benefit was $241 in 2005 and $175 in 2004. Based on a historical analysis of benefits paid, the Cooperative anticipates it will pay $136 during 2006 for accrued sick leave benefits related to this policy.

Other Plans: The Cooperative offers key employees deferred compensation plans available through NRECA. The plans permit qualifying employees to defer a portion of their salary until future years. The accumulated deferred compensation balance is not available to employees until termination, retirement, or death.

All amounts of compensation deferred under the plans and all income attributable to those amounts (until paid or made available to the employee or other beneficiary) are solely the property and rights of the Cooperative (not restricted to the payment of benefits under the plan), subject only to the claim of general creditors.

Participants' rights under the plans are equal to those of general creditors of the Cooperative in an amount equal to the fair market value of the deferred account for each participant. The related assets and liabilities, totaling $1,033 and $1,030 at December 31, 2005 and 2004, respectively, are reported at contract value, which approximates fair value.

The Cooperative also provides employees with medical insurance coverage, short-term and long-term disability, and life insurance, which are funded by employer and employee contributions. The Cooperative's costs related to these benefits was $6,169 and $5,652 for 2005 and 2004, respectively.

10. RELATED-PARTY TRANSACTIONS The Cooperative provides electric and other services to its Class A members. The Cooperative received revenue of $188,087 and

$177,009 in 2005 and 2004, respectively, for these services. The Cooperative has accounts receivable from its Class A members of

$17,603 and $17,232 at December 31, 2005 and 2004, respectively.

The Cooperative has notes payables to the Class A member of

$6,190 and $2,870 at December 31, 2005 and 2004, respectively.

These notes are related to the prepayment program. Class A members have the option of paying their electric bill in advance and in turn the Cooperative pays the members interest income. The Cooperative's interest expense related to the prepayment program was $367 and $176 in 2005 and 2004, respectively.

The Cooperative has interest-bearing loan receivables from Class A members of $2,402 and $3,179 at December 31, 2005 and 2004, respectively. These loan receivables are related to the Economic Development program whereas Class A members can borrow funds from the Cooperative which the members in turn loan to Economic Development projects in their service territories. These loans are typically repaid to the Cooperative over ten years. The Cooperative recorded interest income related to the Economic Development program of $93 and $104 in 2005 and 2004, respectively.

II. LONG-TERM POWER AGREEMENTS The Cooperative has a power agreement with Great River Energy

("GRE") to share costs and benefits of a 380-megawatt coal-fired generating unit ("Genoa 3") located in Genoa, Wisconsin. This agreement remains in effect until the retirement of the unit from service or until the payment in full of all obligations arising from the construction of the unit, whichever is later. Under the agreement, the capacity costs are shared equally by the Cooperative and GRE, and GRE is required to pay additional amounts for actual energy purchased. The Cooperative provided substantially all the financing for the construction of the unit and GRE does not guarantee any portion of any debt of the Cooperative. As a result, the Cooperative records the assets, debts, and operating costs of Genoa 3 on the consolidated financial statements. Energy charges to GRE under the agreement were $27,811 and $26,243 during 2005 and 2004, respectively.

POWERFUL CONNECTIONS 27

12. ASSET RETIREMENT OBLIGATIONS An asset retirement obligation ("ARO") is the result of legal or contractual obligations associated with the retirement of a tangible long-lived asset that result from the acquisition, construction, or development and/or the normal operation of a long-lived asset. The Cooperative determines these obligations based on an estimated asset retirement cost adjusted for inflation and projected to the estimated settlement dates, and discounted using a credit-adjusted risk-free interest rate. Upon initial recognition of a liability for ARO, the Cooperative capitalizes the asset retirement cost by increasing the carrying amount of the related long-lived asset by the same amount as the liability. The Cooperative allocates that asset retirement cost to expense using the straight-line method over the remaining useful life of the related long-lived asset. The accretion of the obligation is recognized over time up to the settlement date. Any future change in estimate will be recognized as an increase or a decrease in the carrying amount of the liability for an asset retirement obligation and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset.

The Cooperative adopted FASB Interpretation No. 47 ("FIN 47"),

Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143, on December 31, 2005. Upon adoption of FIN 47, the Cooperative has determined that it has AROs related to future removal and disposal of asbestos at its power plants. The Cooperative recorded an additional discounted liability of $807 related to this obligation.

The Cooperative has established two decommissioning funds to accumulate the estimated amounts necessary to decommission a nuclear power plant that the Cooperative formerly operated. The assets of one of these funds, a trust of $77,306 at December 31, 2005, and $73,471 at December 31, 2004, are available solely to satisfy the future costs of decommissioning. The assets of the second fund, a supplemental reserve of $7,328 at December 31, 2005, and $7,134 at December 31, 2004, are designated to be used for such decommissioning efforts, but such designation is subject to change by the Cooperative's Board of Directors. These amounts are recorded as other noncurrent assets in the consolidated balance sheets. The nuclear decommissioning obligation in other noncurrent liabilities is recorded in the consolidated balance sheets.

There are no assets legally restricted for purpose of settling the ARO related to future removal and disposal of asbestos. This ARO is recorded in other noncurrent liabilities in the consolidated balance sheets.

A reconciliation of the beginning and ending aggregate carrying amount of the obligations as of December 31, 2005 and 2004, is as follows (in thousands):

equipment and removal of generators related to the easement interest at various power plants because the Cooperative does not have sufficient information to estimate the fair value of the asset retirement obligations as the Cooperative cannot reasonably anticipate potential settlement dates for these obligations.

13. NUCLEAR REACTOR The La Crosse Boiling Water Nuclear Reactor ("LACBWR") was voluntarily removed from service by the Cooperative effective April 30, 1987. The intent was to terminate operation of the reactor, and a possession-only license was obtained from the Nuclear Regulatory Commission in August 1987.

Under the Nuclear Waste Policy Act of 1982, the United States Department of Energy ("DOE") is responsible for the storage and disposal of spent nuclear fuel removed from nuclear reactors once a long-term underground repository is established and licensed.

LACBWR will remain in safe storage status ("SAFSTOR") until the last spent fuel element is removed from the site. The DOE was to have begun accepting spent fuel in January 1998, but has not yet established a repository. The Cooperative continues to evaluate alternatives for moving the spent fuel to a temporary dry storage facility. Dismantlement of nonessential systems is proceeding on an ongoing'basis. The LACBWR Decommissioning Plan calls for final decommissioning no later than 2025.

The estimated costs of decommissioning the nuclear generating

.facility are based on a decommissioning cost study. The Cooperative has adopted a policy of providing additional funding of the nuclear decommissioning trust, as necessary, through rates or through transfers from the supplemental reserve, and with future earnings, to ensure the trust will be sufficient to cover final decommissioning expenses. The annual decommissioning expense, including SAFSTOR costs, is recovered from the Class A members. Earnings on the n-nuclear decommissioning funds and the equivalent provision for nuclear decommissioning costs are recorded as non-operating

-margins, since the plant is no longer in service.

The following table summarizes the funded status of the

• Cooperative's decommissioning obligations:

Estimated decommissioning cost obligation as of December 31, 2005.....................................

$ 84,634 Effect of escalating cost to expected settlement date of 2025 (assuming a 4.1% weighted average escalation rate)...........

60,494 Estimated future decommissioning (undiscounted)............

145,128 Effect of discounting obligation (assuming a 4.5% risk-free rate)....

(66,453)

Discounted decommissioning cost obligation..................

78,675 Assets restricted for purpose of settling the decommissioning obligation...............................

77,306 Assets Board designated for purpose of settling the decommissioning obligation............................

7,328 84,634 Assets available for purpose of settling the obligation in excess of decommissioning obligation.................... $ 5,959 Balance-beginning of year.....................

Obligation recorded upon adoption of FIN 47......

Provision recorded as decommissioning liabilities..

Balance-end of year..............

I............

2005 2004

$ 80,605

$ 77,369 807 4,029 3,236

$85,441

$80,605 The Cooperative did not record a conditional asset retirement obligation related to the dismantlement of the dam and drainage reservoir for the hydro generation plant at Flambeau; the restoration of land to pre-existing condition at Genoa Station #3 site related to the Land Rights Permit; and dismantlement of 28 DAIRYLAND POWER COOPERATIVE

OUR VISION, MISSION

& VALUES Our Vision

... is to be the provider of choice for energy and services to our customers.

Our Mission

...is, as a cooperative organization, to provide competitively priced energy and services to our customers and maximum value to our owners, consistent with the wise use of resources. We will work with our members to improve the quality of life of their customers and the economic and social well-being of the region.

Our Values Our members are the reason for our existence. We will strive to provide services that exceed their expectations, emphasizing honesty, quality and other sound business principles.

Our employees and the people we serve are vital to our success. To promote excellence, we will support and encourage employee development for the purpose of matching qualified people to the right jobs while being sensitive to the importance of job satisfaction. We will encourage open, honest and timely two-way communication. Working as a team, we will respect each other and balance empowerment with accountability.

As we conduct our business, we will be responsible members of our community, good stewards of the environment'and follow sound safety practices, while continually improving our processes and services.

SENIOR STAFF Left to right:

Charles V. Sans Crainte Vice President, Generation Brian J. Boettcher Director, Information Technology Chuck S. Callies Vice President, Power Delivery Dale L. Pohlman Vice President, Strategic Planning Mary L. Lund Vice President, Human Resources Brian D. Rude Director, External Relations Robert C. Mueller Vice President, Finance &

Administration William L. Berg President and CEO

MEMBERS Class A Members Wisconsin

1. Barron Electric Cooperative/Barron

2. Bayfield Electric Cooperative, Inc./Iron River

3. Chippewa Valley Electric Cooperative/Comell

4. Clark Electric Cooperative/Greenwood

5. Dunn Energy Cooperative/Menomonie

6. Eau Claire Energy Cooperative/Fall Creek

7. Jackson Electric Cooperative/Black River Falls

8. Jump River Eledtric Cooperative, Inc./Ladysmith

9. Oakdale Electric Cooperative/Oakdale

10. Pierce-Pepin ZCooperative Services/Ellsworth

11. Polk-Burnett/Certuria

12. Price Electric Codperative, Inc./Phillips

13. Richland Electric Cooperative/Richland Center

14. Riverland Energy Cooperative/Arcadia

15. St. Croix Electric Coopefative/Hammond

16. Scenic Rivers-Energy Cooperative/Lancaster

17. Taylor Electric Cooperative/Medford

18. Vernon Electric Cooperative/Westby Iowa

19. Allamakee-Clayton Electric Cooperative, Inc./

Postville

20. Hawkeye REC/Cresco 2 1. Heartland Power Cooperative/Thompson & St.

Ansgar Minnesota

22. Freeborn-Mower Cooperative Services/Albert Lea

23. People's Cooperative Services/Rochester

24. Tri-County'Electric Cooperative/Rushford Illinois

25. Jo-Carroll Energy, Inc./Elizabeth Class B Members Adams-Columbia Electric'Cooperative/Friendship, Wis.

Central Wisconsin Electric Cooperative/Iola, Wis.

Oconto Electric Cooperative/Oconto Falls, Wis.

Rock County Electric Cooperative Association/Janesville, Wis.

Class C Members Cooperative Power/Elk River, Minn.*

Minnkota Power Cooperative, Inc./Grand Forks, N.D.

United Power Association/Elk River, Minn.*

• Part of Great River Energy Class D Members '& Others

a. City of Arcadia, Wis.

b. Village of Argyle, Wis.

c., :Village of Cashton, Wis.

d. City of Cumberland, Wis.

.e. City of Elroy, Wis.:

f. City of Fennimore, Wis.

• g.- City of Forest City, Iowa

i. City of, La_ Farge, Wis.

i:!iCty of Lake Mills, Iowa

1. C'y of Lahesboro, Minn.

Sk[. dity of McGregor, Iowa Class F Members

1. Village of Merrillan, Wis.

m. City of New Lisbon, Wis.

n. City of Osage, Iowa

o. Village of Pardeeville, Wis.

p. City of Rushford, Minn.

q. City of St. Charles, Minn.

r. Southern Minnesota Municipal Power Agency/

Rochester, Minn.

's. Village of Viola, Wis.

EN-SYS Energy/La Crosse, Wis.

,.,G4enerating Facilities-i-feadquarters/La Crosse, Wis.

Alma Generating Site/Alma, Wis.

Elk Mound Generating Station/Elk Mound, Wis.

Flambeau Hydro Station/Ladysmith, Wis.

Genoa Generating Site/Genoa, Wis.

McNeilus Wind Farm/Adams, Minn.

Seven Mile Creek Landfill Station/Eau Claire, Wis.

TRANSMISSION LINES SUBSTATIONS IV V

tiles as Miles as Operating

'oltage-kV Total 161 607.52 115 0

69 2,494.08 34.5 10.39 Total 3,111.99 Type Number Total Capacity kVA Plant 8

959,000 Transmission 30 962,400 Distribution 251 944,750 Total 291 2,866,150

DAIRYLAND POWER COOPERATIVE SYSTEM MAP

) 14WA 35 ENERGY RESOURCES GENERATING STATIONS Type Station Total Net Capacity in MW Coal:

Alma 1-5...

204 John P Madgett Station............

400 Genoa Station #3................

380 Total Coal 984 Combustion Turbine:

Elk Mound 1-2...................

94 Hydro:

Flambeau 1-3.....................

24 Landfill Gas:

Seven Mile Creek.................

3 Biogas (Manure Digesters):.............................

I Total Generation 1,10 6

-L