ML12125A157

Submittal of Financial Statement and Auditors Report

ML12125A157
Person / Time
Site:	La Crosse File:Dairyland Power Cooperative icon.png
Issue date:	04/24/2012
From:	Moilien P Dairyland Power Cooperative
To:	Document Control Desk, NRC/FSME
References
LAC 14227
Download: ML12125A157 (28)

Text

PHIL MOILIEN Vice President and CFO Finance and Support Services DAIRYN POWER COOPERATIVE April 24, 2012 In reply, please refer to LAC 14227 DOCKET NO. 50-409 U.S. Nuclear Regulatory Commission Attn: Document Controlbesk Washington, D.C. 20555

SUBJECT:

Dairyland Power Cooperative La Crosse Boiling Water Reactor (LACBWR)

Possession-Only License No. DPR-45 Financial Statement and Auditors' Report

REFERENCE:

1) 10 CFR 50.71.(b)

In accordance with the requirements of Reference 1, we are forwarding three (3) copies of the Financial Statements and Independent Auditors' Reports for Dairyland Power Cooperative as of December 31, 2011 and 2010. We will forward our 2011 Annual Report to you as soon as it is completed.

Sincerely, Phil M. Moilien Vice President and CFO PMM:pls F:%FAPLS\\WORDAUDn'rUDIT.DOC Enclosures cc:

Mark Satorius, Regional Administrator, Region III John Hickman, Project Manager Don Egge, LACBWR Ed Bowen, DPC

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Dairyland Power Cooperative and Subsidiaries Consolidated Financial Statements as of and for the Years Ended December 31, 2011 and 2010, and Independent Auditors' Report

Deloitteo 50 South Sixth Street Suite 2800 Minneapolis, MN 55402-1844 USA Tel: +1612 397 4000 Fax: +1 612 397 4450 www.deloitte.com INDEPENDENT AUDITORS' REPORT To the Board of Directors of Dairyland Power Cooperative:

We have audited the accompanying consolidated balance sheets of Dairyland Power Cooperative (a Wisconsin cooperative) and subsidiaries (the "Cooperative") as of December 31, 2011 and 2010, 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 conducted our 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 that we 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 consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 consolidated financial position of the Cooperative as of December 31, 2011 and 2010, and the consolidated 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 March 28, 2012, 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, and 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 results 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 our audits.

March 28, 2012 Member of Deloltte Touche Tohmatsu

DAIRYLAND POWER COOPERATIVE AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010 (In thousands) 2011 2010 ASSETS ELECTRIC PLANT:

Plant and equipment -

at original cost Less accumulated depreciation

$1,470,033 (503,795

$1,447,329 (473,876 Net plant and equipment Construction work in progress 966,238 973,453 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 Regulatory assets -

Independent Spent Fuel Storage Installation and deferred losses on nuclear decommissioning funds 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

$10 for 2011 and 2010 Other Inventories:

Fossil fuels Materials and supplies Prepaid expenses 63,624 1,029,862 108,493 3,762 11,850 9,176 13,461 1,364 6,199 154,305 42,646 39,816 3,428 57,864 18,195 4,287 166,236

$1,350,403 54,016 1,027,469 95,324 3,204 9,312 9,176 5,733 1,357 5,873 129,979 29,819 41,325 1,124 68,787 18,199 4,622 163,876

$1,321,324 (Continued)

Total current assets TOTAL DAIRYLAND POWER COOPERATIVE AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010 (In thousands) 2011 2010 CAPITALIZATION AND LIABILITIES CAPITALIZATION:

Member and patron equities:

Membership fees Patronage capital Accumulated other comprehensive loss Total member and patron equities Long-term obligations Total capitalization OTHER LIABILITIES:

Estimated decommissioning liabilities Asset retirement obligations Postretirement health insurance obligation Accrued benefits Deferred compensation Obligations under capital leases Other deferred credits 15 175,507 (2,488) 173,034 823,122 996,156 79,880 4,199 8,116 1,511 1,364 680 1,033 96,783 15 159,885 (2,456) 157,444 856,961 1,014,405 79,058 4,077 7,449 1,490 1,357 538 416 94,385 Total other liabilities COMMITMENTS AND CONTINGENCIES (Note 10)

CURRENT LIABILITIES:

Current maturities of long-term obligations and obligations under capital leases Line of credit Advances from member cooperatives Advances from Great River Energy Accounts payable Accrued expenses:

Payroll, vacation, and benefits Interest Property and other taxes Other Total current liabilities 49,161 139,200 14,271 9,901 23,598 7,626 10,151 2,717 839 257,464 39,021 104,000 8,037 10,754 27,768 7,306 11,440 2,191 2,017 212,534 TOTAL

$1,350,403

$1,321,324 See notes to consolidated financial statements.

(Concluded)

DAIRYLAND POWER COOPERATIVE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (In thousands) 2011 UTILITY OPERATIONS:

Operating revenues:

Sales of electric energy Other Total operating revenues Operating expenses:

Fuel Purchased and interchanged power Other operating expenses Depreciation and amortization Maintenance Property and other taxes Total operating expenses

$393,955 17,416 411,371 123,558 65,035 91,472 37,276 28,401 7,069 352,811 2010

$396,966 18,518 415,484 143,013 47,545 92,293 42,293 29,559 7,034 361,737 Operating margin before interest and other Interest and other:

Interest expense Allowance for funds used in construction -

equity Other -

net 58,560 53,747 41,609 (696) 1,389 43,296 (524) 746 Total interest and other 42,302 43,518 Operating margin Non-operating margin 16,258 1,968 10,229 2,388 NET UTILITY MARGIN NON-UTILITY OPERATIONS:

Net revenues Operating expenses Non-utility operating income NON-UTILITY EARNINGS NET MARGIN AND EARNINGS 18,226 12,617 3,259 (2,715) 544 544

$ 18,226

$ 13,161 See notes to consolidated financial statements.

DAIRYLAND POWER COOPERATIVE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF MEMBER AND PATRON EQUITIES FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (In thousands)

Membership Fees

$15 Accumulated Other Comprehensive Loss

$(1,412)

Patronage Capital

$149,182 13,161 Total Member and Patron Equities

$147,785 13,161 61 BALANCE -

December 31, 2009 Net margin and earnings Unrecognized post-retirement costs Actuarial assumption changes Plan changes Retirement of capital credits Total comprehensive income. 2010 BALANCE -

December 31, 2010 Net margin and earnings Unrecognized post-retirement costs Actuarial assumption changes Retirement of capital credits Total comprehensive income 2011 BALANCE -

December 31, 2011 See notes to consolidated financial statements.

Comprehensive Income

$13,161 61 (705)

(400) 61 (705)

(400)

(2,456) 142 (174) 15 (2,458)

(2,458 159,885 157,444 18,226 18,226 142 (174)

(2,604)

(2,604)

$12,117

$18,226 142 (174)

$18,194

$15

$(2,488=

)

$175,507

$173,034 DAIRYLAND POWER COOPERATIVE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (In thousands) 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES:

Net margin and earnings 18,226 13,161 Adjustments to reconcile net margin and earnings to net cash provided by operating activities:

Depreciation and amortization:

Charged to operating expenses Charged through other operating elements such as fuel expense Allowance for finds used in construction -

equity Changes in operating elements:

Accounts receivable Inventories Prepaid expenses and other assets Accounts payable Accrued expenses and other liabilities Deferred charges and other 37,277 2,246 (696)

(795) 10394 530 (7,942)

(12,669)

(521 42,314 2,489 (524) 2,045 9,453 (789)

(1,248)

(2,791)

(7)

Total adjustments 27,824 50,942 46,050 64,103 Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES:

Electric plant additions Advances to nuclear decommissioning funds Purchase of investments Proceeds from sale of investments and economic development loans (34,139)

(10,052)

(160,538) 157,230 (45,409)

(3,500)

(75,051) 73,040 Net cash used in investing activities (47,499)

(50,920)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under line of credit Repayments under line of credit Borrowings under long-term obligations Repayments of long-term obligations Retirement of capital credits Borrowings of advances firom member cooperatives Repayments of advances from member cooperatives Net cash provided by financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AN D CASH EQUIVALENTS -

Beginning of year CASH AND CASH EQUIVALENTS -

End of year SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for interest 714,706 (679,506) 39,900 (63,600)

(2,604) 224,623 (219,243) 255,993 (248,805) 54,493 (37,170)

(2,458) 210,020 (216,336) 14,276 15,737 12,827 28,920 29,819 899

$ 42,646 29,819

$ 45,221

$ 36,871 2,441 6,213 Electric plant additions funded through accounts payable and accrued expenses See notes to consolidated financial statements.

DAIRYLAND POWER COOPERATIVE AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (All dollar amounts in thousands)

1.

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, and E 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 -

As of January 1, 2011, GEN-SYS has been folded into the Cooperative's operations. The Cooperative was a member of GEN-SYS, a power supply and marketing cooperative, the primary purpose of which was to schedule and dispatch generation resources and to provide other power-related support services to its members, which also included Corn Belt Power Cooperative and Distribu-Gen Cooperative. GEN-SYS was owned equally by its members, but in fiscal year 2010, 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 year 2010. All remaining net assets of GEN-SYS were distributed to members during 2011.

Accounting System and Reporting -

The accounting records of the Cooperative are maintained in accordance with the unifonrm 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 overhead, 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 as of December 31, 2011 and 2010.

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 3.3% of depreciable plant balances for 2011 and 2010, respectively.

Allowance for Funds Used during Construction -

Allowance for funds used during construction (AFUDC) 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 (4.12% in 2011 and 4.05% in 2010) to certain electric plant additions under construction. The amount of such allowance was $2,107 in 2011 and $1,539 in 2010. The borrowed funds component of AFUDC for 2011 and 2010, was $1,411 and

$1,015, respectively (representing 2.76% and 2.67% in 2011 and 201.0, respectively). The equity component of AFUDC for 2011 and 2010 was $696 and $524, respectively, (representing 1.36% and 1.38% in 2011 and 2010, respectively). The borrowed funds components were included as a reduction of interest expense in the consolidated statements of revenues and expenses.

Interest during Construction -

Interest during construction represents the interest expense on debt borrowed during construction for specific projects and is capitalized as a component of the electric plant for which the debt was incurred. These capitalized interest amounts for 2011 and 2010 are $0 and $530, respectively.

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 31, 2011, 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 regulatory accounting, 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 as of December 31, 2011, are comprised of a premium on debt refinancing which is being amortized over approximately 20 years (the remaining life of related original debt), renewable energy power purchase agreements which are being amortized over 20 years, 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. In 2011 and 2010, abandoned project charges of $278 and $524, respectively, were expensed and included in "Other-net" on the consolidated statements of revenues and expenses.

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 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 will realize the loss as a reduction in investment income on decommissioning funds. In 2011 and 2010, the Cooperative realized $467 and $1,880, respectively, of losses on these investments as a result of other-than-temporary impairment (OTTI).

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 2008, the Cooperative created a regulatory asset for

$16,479 related to mark-to-market losses from investment assets in the nuclear decommissioning trust fund, and will be amortized no later than 2019. The balance of this regulatory asset is $6,111 as of December 31, 2011. In 2011, the Cooperative created a regulatory asset for $5,750 related to the spent nuclear fuel storage transfer project. In addition, the Cooperative also created a regulatory asset in 2011 for $1,600 related to the recognition of the decommissioning liability of the Independent Spent Fuel Storage Installation (ISFSI). Both of these regulatory assets will be amortized through rates over ten years beginning in 2012. The balance of these regulatory assets total $7,350 at December 31, 2011.

Cash and Cash Equivalents -

Cash equivalents include all highly liquid investments with original maturities of three months or less. Cash equivalents consist primarily of commercial paper, stated at cost, which approximates market.

Fossil Fuels and Materials and Supplies -

Coal inventories as well as materials and supplies inventories are stated at the lower of average cost or market prices.

Recoverability of Long-Lived Assets -

The Cooperative accounts for the impairment or disposal of long-lived assets, such as property and equipment, whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. An impairment loss is recognized when estimated undiscounted cash flows expected to result from the use of the asset, plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on quoted market prices or other valuation techniques. To date, management has determined that no impairment of these assets exists.

Sulfur Dioxide Emission Allowances -

The U.S. Environmental Protection Agency (EPA) requires power plants to hold sufficient allowances to cover emissions of sulfur dioxide. Under these requirements, the Cooperative is required to surrender one emission allowance per ton of sulfur dioxide emitted. Currently, emission allowances are recorded under the inventory method at a cost of $0. As of December 31, 2011 and 2010, the Cooperative sold $1 and $11, respectively, of emission allowances through the EPA annual mandatory auction. These amounts were recorded as revenues in the non-non-operating margin.

Nitrogen Oxide Emission Allowances -

Beginning in 2009, the EPA requires power plants to hold sufficient allowances to cover emissions of nitrogen oxide. Under these requirements, the Cooperative is required to surrender one emission allowance per ton of nitrogen oxide emitted. Actual emissions exceeded the allocation amounts, thereby requiring the Cooperative to purchase additional allowances.

As of December 31,2011 and 2010, they are recorded in inventory at lower of average cost or market prices ata total cost of $46 and $980, respectively. The obligation to EPA to meet 2011 and 2010 emissions are $39 and $619, respectively, and have been charged to plant expense. The transfer to EPA of the 2011 seasonal allowances occurred February 2012, and the transfer to EPA for the annual allowances is expected to occur in May 2012. The remaining allowances in inventory are available for 2012 emissions.

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 (the "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 2011 and 2010, the power cost adjustment to the class A members resulted in credits to sales billed of $228 and $672, respectively.

These amounts are recorded in sales of electric energy in operating revenues.

Other Operating Revenue -

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

Accounting for Energy Contracts -

Contracts that did not meet the accounting definition of a derivative are accounted for at historical cost. The Cooperative's energy contracts that qualify as derivatives continue to be accounted for at fair value, unless those contracts meet the requirements of and have been designated as "nonnal purchase/normal sale." The Cooperative does not have any energy contracts that are required to be accounted for at fair value as of December 31, 2011 and 2010.

Dairyland and GEN-SYS 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, 2011 and 2010, includes the following:

2011 2010 Investment income 506 523 Investment income on nuclear decommissioning funds:

Net (losses) earnings (116) 5,078 Realized gains 7,595 1,922 Realized losses and losses due to OTTI (4,829)

(2,146)

Provision -

recorded as estimated decommissioning liabilities (2,650)

(4,853)

Other 1,462 1,864 Non-operating margin

$ 1,968

$ 2,388 Energy and Natural Gas Sales and Purchases -

In its non-utility operations for 2010, the Cooperative presents revenue from energy and natural gas sales, net of cost. For the purposes of additional disclosure, the gross sales and purchases as of December 31, 2010, representing $499 of the

$3,259 net revenues from non-utility operations are presented below:

2011 2010 Energy sales

$38,421 Natural gas sales 992 Energy purchases 37,933 Natural gas purchases 981 Use of Estimates -

The preparation of consolidated 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. Significant estimates in the consolidated financial statements relate to inventory reserve, postretirement benefit obligations, self-funded medical insurance reserves, asset retirement obligation liabilities, fixed-asset depreciable lives, and litigation and contingencies. Actual results could differ from those estimates.

Concentration of Risk -

During fiscal years 2011 and 2010, the Cooperative derived 8% and 10%,

respectively, of its revenue friom a single customer.

Approximately 48% of the labor force for the Cooperative is under a collective bargaining agreement that expires January 31, 2014.

Subsequent Events -

The Cooperative considered events for recognition or disclosure in the consolidated financial statements that occurred subsequent to December 31, 2011 through March 28, 2012, the date the financial statements were available to be issued. All material subsequent events have been disclosed in these consolidated financial statements.

2.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2011, the Financial Accounting Standards Board (FASB) issued an update to Accounting Standards Codification (ASC) 220, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Regardless of the presentation option chosen, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued another update to ASC 220, which defers the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified firom other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented while the FASB reassesses the costs and benefits of this provision. All other requirements in the June 2011 update to ASC 220 have not been deferred. The required amendments are effective for the Cooperative for the year ending December 31, 2012, and annual periods thereafter. Management does not expect adoption of the required amendments to have a significant effect on the Cooperative's consolidated financial position or results of operations.

In September 2011, the FASB issued an update to ASC 715-80, Compensation - Retirement Benefits -

Multiemployer Plans, which requires that employers provide additional quantitative and qualitative disclosures for multiemployer pension plans and separate disclosures for multiemployer other postretirement benefit plans. The amendments are effective for the Cooperative for the year ending December 31, 2012, with early adoption permitted. The amendments must be applied retrospectively for all prior periods presented. Management does not expect adoption of the amendments in this update to have a significant impact on the Cooperative's consolidated financial position or results of operations.

3.

INCOME TAXES The Internal Revenue Service has determined that Daiiyland is exempt from federal income taxes, under Section 501(c)(12) of the Internal Revenue Code. Accordingly, the Cooperative's utility operations are generally exempt from federal and state income taxes, and, no provision for such taxes is recorded in the consolidated financial statements.

For its non-utility operations in 2010, the Cooperative accounted for the income taxes using the liability method, under which deferred income taxes are recognized for temporary differences between the income tax and financial reporting basis of the Cooperative's assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. There was no provision for income taxes at December 31, 2010.

With the dissolution of Gen-Sys during 2011, final tax returns have been filed. No deferred tax assets were realized and all federal and state NOL carryforwards lapsed.

-1I -

4.

AVAILABLE-FOR-SALE INVESTMENTS Investments under debt agreements and nuclear decommissioning funds as of December 31, 2011 and 2010, are classified as available-for-sale, recorded at fair value, and include the following:

Fair Value 2011 2010 Cash and cash equivalents

$ 39,197

$28,090 U.S. government securities 42,227 23,677 Corporate bonds 6,360 7,904 Common stocks 22,957 36,519 Foreign obligations 1,514 2,339

$112,255

$98,529 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.

The contractual maturities of marketable debt securities, which include U.S. government securities, foreign obligations, and corporate bonds, as of December 31, 2011, are as follows:

Fair Value Cost Due within 1 year

$ 2,324

$ 2,318 Due after 1 year through 5 years 16,004 15,849 Due after 5 years through 10 years 14,940 14,453 Due after 10 years 16,834 15,386

$50,102

$48,006 Information regarding the sale of available-for-sale marketable securities, including nuclear decommissioning trusts, for the years ended December 31, 2011 and 2010, is as follows:

2011 2010 Proceeds from sale of securities

$156,830

$72,766 Realized gains 3,234 1,656 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. The Cooperative has recorded impairment write-downs of its investments of $467 and $1,880 in 2011 and 2010, respectively, as the Cooperative cannot represent that it has the intent and ability to hold securities until they recover in value, since that decision is outside of its sole control. In accordance with restrictions enacted by the Nuclear Regulatory Commission, the Cooperative does not control the day-to-day management of nuclear decommissioning trust fund investments. The nuclear decommissioning trust of the Cooperative is managed by independent investment managers with discretion to buy, sell, and invest to achieve the broad investment objectives set forth by the Cooperative.

Investment income included in non-operating margin on the consolidated statements of revenues and expenses is net of investment fees of approximately $346 and $333 for the years ended December 3 1, 2011 and 2010, respectively.

5.

LINES OF CREDIT To provide interim financing capabilities, the Cooperative has arranged committed lines of credit with availability aggregating approximately $300,000. On November 18, 2011, a syndicated credit facility was executed with CoBank acting as lead arranger. This facility has a five-year term and provides funds both for short-term working capital requirements and for capital projects until permanent financing can be obtained through RUS. Some capital projects will last longer than one year, but the intent is to pay down the line of credit as permanent funding is received. Compensating balance requirements and fees relating to the lines of credit were not significant in 2011 and 2010. Information regarding line of credit balances and activity for the years ended December 31, 2011 and 2010, is as follows:

2011 2010 Interest rate at year-end Total committed availability at year-end Total borrowings outstanding at year-end Average borrowings outstanding during year 1.24%

2.61 %

$300,000

$250,000

$139,200

$104,000

$132,381

$ 89,841 The Cooperative also allows member cooperatives to prepay their power bills and pays interest on these prepayments based on current short-term borrowing rates. Advances from member cooperatives totaled

$14,271 and $8,037 at December 31, 2011 and 2010, respectively. Interest expense on member cooperative advances were $189 and $255 during 2011 and 2010, respectively. These amounts have been included in interest expense in the consolidated statements of revenues and expenses.

6.

LONG-TERM OBLIGATIONS Long-term obligations as of December 31, 2011 and 2010, consist of the following:

2011 2010 Federal Financing Bank obligations, 2.6% to 6.8%

RUS obligations, 4.125% and grant funds CoBank notes, 6.2%, 7.4%, 2.9%, and 4.3%

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

$805,487 6,664 59,826

$822,266 6,982 42,933 23,605 Long-term debt Less current maturities Total long-term obligations 871,977 48,855 895,786 38,825

$823,122

$856,961 Quarterly principal and interest payments on the long-term obligations to the Federal Financing Bank extend through 2040. Long-term obligations to the RUS are payable in equal monthly principal and interest installments through 2024. Payments on the CoBank 6.2%, 7.4%, 2.9%, and 4.3% notes are due monthly or quarterly through 2021.

On December 27, 2001, the Bonds were reissued at fixed interest rates of 5.45% for the $7,545 of Bonds with an expected maturity date of September 2014 and 5.55% for the $16,060 of Bonds with an expected maturity date of February 2015. On February 22, 2011, the Bonds were redeemed with principal and interest payments without penalty and were replaced with long-term obligations through CoBank in June 2011.

In order to provide additional financing alternatives, during 2011 the Cooperative took action to substitute an indenture of mortgage for its consolidated mortgage and security agreement with RUS, CoBank, and U.S. Bank National Association. The Cooperative executed, filed and recorded an indenture of mortgage, security agreement, and financing statement, dated as of September 13, 2011 (the "Indenture"), between the Cooperative, as grantor, and U.S. Bank National Association, as trustee. The perfected lien of the Indenture on substantially all of the Cooperative's assets secures equally and ratably all of the Cooperative's long-term debt with the exception of an unsecured note to CoBank (balance

$23,311 at December 31, 2011). The Indenture was filed and recorded in September 2011, and the prior consolidated mortgage was then released and discharged of record in January 2012. The Cooperative is required to maintain and has maintained certain financial ratios related to earnings in accordance with the covenants of its loan agreements as of December 31, 2011.

Scheduled maturities of the Cooperative's long-term obligations as of December 31, 2011, were as follows:

Years Ending December 31 2012

$ 48,855 2013 38,194 2014 36,984 2015 36,753 2016 30,402 Thereafter 680,789 Total

$871,977

7.

LEASES Operating Leases -

The Cooperative has entered into lease agreements under which it is the lessee on an operating lease for a Caterpillar coal dozer, six rail cars, and fleet vehicles. These transactions are covered in the master lease agreement and have lease terms ranging from four to 15 years. At the end of the leases, the Cooperative can either purchase the equipment at fair market value, continue to lease the assets, or return the equipment to the lessor. Rent expense was $494 and $337 in 2011 and 2010, respectively. The schedule of future minimum lease payments as of December 31, 2011, is as follows:

Years Ending December 31 2012

$ 530 2013 495 2014 403 2015 181 2016 39 Thereafter 268 Total

$1,916 Capital Leases -

The Cooperative has entered into several capital lease agreements for work equipment and computer equipment. The transactions are covered in the master lease agreement with lease terms of four or five years. At the end of the lease, the Cooperative can purchase the equipment for a bargain purchase price. The gross amount of the leases was $585 and $641 as of December 31, 2011 and 2010. The accumulated amortization of the capital leases was $170 and $52 as of December 31, 2011 and 2010. The principal and interest payments were $331 and $136 in 2011 and 2010, respectively.

The schedule of future minimum lease payments as of December 31, 2011, is as follows:

December 31 2012

$ 381 2013 368 2014 253 2015 45 2016 10 2017 1

Total minimum lease payments 1,058 Amounts representing interest 72 Present value of minimum lease payments 986 Current maturities 306 Long-term capital lease obligations

$ 680

8.

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 as of December 31, 2011 and 2010, is estimated to be as follows:

2011 2010 Recorded Fair Recorded Fair Value Value Value Value Assets:

Economic development loans and other investments

$ 11,850 11,850 9,312 9,312 Investments in capital term certificates of NRUCFC 9,176 9,176 9,176 9,176 Liabilities -

long-term obligations 871,977 1,105,802 895,786 928,970 Assets and Liabilities Measured at Fair Value -

Accounting principles generally accepted in the United States of America establish a framework for measuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and provides for required disclosures about fair value measurements. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange.

A description of the inputs used in the valuation of assets and liabilities are as follows:

Level I inputs utilize observable market data in active markets for identical assets or liabilities. Level 2 inputs consist of observable market data, other than that included in Level 1, that are either directly or indirectly observable. Level 3 inputs consist of unobservable market data, which are typically based on an entity's own assumptions of what a market participant would use in pricing an asset or liability as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest-level input that is significant to the fair value measurement in its entirety. The Cooperative's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

During 2011, the Cooperatives transferred cash equivalents of the economic development loans and other from Level 3 to Level I based on a re-evaluation of the observable inputs used in the fair value calculation.

The following table summarizes the Cooperative's assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and 2010, aggregated by the level in the fair value hierarchy within which those measurements fall:

Fair Value Measurements Using Quoted Prices in Significant Active Markets for Other Significant Identical Assets Observable Unobservable and Liabilities Inputs Inputs 2011 Fair Value (Level 1)

(Level 2)

(Level 3)

Assets -

investments:

Nuclear decommissioning funds

$108,493

$108,493 Investments under debt agreements -

marketable securities 3,762 3,762 Economic development loans and other 11,850 1,639 10,211 Investments in capital term certificates of National Rural Utilities Finance Corporation 9,176 9,176 Investment for deferred compensation 1,364 1,364

$134,645

$110,132

$5,126

$19,387 Fair Value Measurements Using Quoted Prices in Significant Active Markets for Other Significant Identical Assets Observable Unobservable and Liabilities Inputs Inputs 2010 Fair Value (Level 1)

(Level 2)

(Level 3)

Assets -

investments:

Nuclear decommissioning funds

$ 95,324

$95,324 Investments under debt agreements -

marketable securities 3,204 3,204 Economic development loans and other 9,312 9,312 Investments in capital term certificates of National Rural Utilities Finance Corporation 9,176 9,176 Investment for deferred compensation 1,357 1,357

$118,373

$95,324

$4,561

$18,488 The changes in Level 3 recurring fair value measurements using significant unobservable inputs for the years ended December 31, 2011 and 2010, are as follows:

2011 2010 Economic development loans and other:

Balance -

beginning of year 9,312

$ 8,047 New investment and loans made 2,649 821 Loan repayments received (266)

(188)

Patronage capital allocations 452 623 Reinvested net earnings 9

Transfer to Level 1 (1,936)

Balance -

end of year

$ 10,211

$ 9,312 The valuation of this security involved management's judgment after consideration of market factors and the absence of market transparency, market liquidity, and observable inputs.

9.

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 assigned patronage capital balance as of December 31 of the prior year. Accordingly, $2,604 and $2,458 were retired in 2011 and 2010, respectively. 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. Since 2003, the amount of non-operating margins assigned to members each year is at the discretion of the Board of Directors. Any unassigned non-operating margins will become unallocated reserves and part of permanent equity. Patronage capital as of December 31, 2011, includes 2011 margins assignable of $15,562 and unallocated reserves of $2,664.

Patronage capital as of December 31, 2010, includes 2010 margins assignable of $9,705 and unallocated reserves of $3,456.

10. COMMITMENTS AND CONTINGENCIES The Cooperative's estimated 2012 construction program expenditures, including Weston 4, are $93,874 with financing expected to be provided by borrowings and internally generated funds.

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 with one-to four-year terms. The estimated commitments under these contracts as of December 31, 2011, were $106,494 in 2012,

$109,036 in 2013, $75,288 in 2014, and $65,674 in 2015.

In May 2006, the Cooperative received a request for information from the EPA under Section 114 of the Clean Air Act. A request for additional information was received in May 2009. The Cooperative responded to both requests. In June 2010, the Sierra Club filed a "citizen suit" against the Cooperative under the Clean Air Act. In July 2011, the Cooperative, the EPA and the Sierra Club reached agreement in principle for the disposition of any violations, asserted or unasserted, occurring prior to the entry of a consent decree. The Cooperative is negotiating the terms of a consent decree with EPA and the Sierra Club. In connection with that process in February 2012, the EPA issued a summary notice of violations, which EPA counsel has advised is a pro forma step in the process for entry of a consent decree.

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.

11. 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. Pension costs for this pension plan were $10,402 in 2011 and $9,972 in 2010.

Postretirement Health Insurance Obligation -

Certain 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 detenrined 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 plan is unfunded. The accumulated postretirement benefit obligation (APBO) and the amounts recognized in the consolidated financial statements as of and for the years ended December 31, 2011. and 2010 are as follows:

2011 2010 Amount recognized in the consolidated balance sheets:

Total accrued qualified and nonqualified benefit obligation

$8,314

$7,723 Less current portion included in accrued expenses -

other (198)

(274)

Long-tern portion

$8,116

$7,449 Change in benefit obligation:

APBO -

beginning of year

$ 7,723

$ 6,239 Service cost 315 299 Interest cost 376 347 Plan changes 400 Actuarial loss 174 705 Benefits paid (274)

(267)

APBO-- end of year

$ 8,314

$ 7,723 Funded status of plan -

December 31

$ (8,314)

$ (7,723)

Accrued postretirement health insurance obligations recorded at year-end

$ (8,314)

$ (7,723)

Change in plan assets:

Fair value of plan assets -

beginning of year Employer contribution 274 267 Benefits paid (274)

(267)

Fair value of plan assets -

end of year Change in accumulated other comprehensive loss:

Net loss at prior measurement date

$ 2,456

$ 1,412 Prior service cost 400 Actuarial loss 174 705 Recognition in expense (142)

(61)

Accumulated other comprehensive loss

$ 2,488

$ 2,456 Components of net periodic postretirement benefit cost:

Service cost -

benefits attributed to service during the year 315 299 Interest cost on accrued postretirement health insurance obligation 376 347 Amortization of prior service cost 39 Amortization of unrecognized actuarial loss 103 61 Net periodic postretirement benefit expense 833 707 Employer cash contributions expected to be made to the plan during the fiscal year ending December 31, 2012 is $198. The amount of accumulated other comprehensive loss expected to be recognized during the fiscal year ending December 31, 2012, is an actuarial loss of $107 and amortization of prior service cost of $39.

For measurement purposes, a 4.96% and 5.66% discount rate was assumed for 2011 and 2010, respectively, to determine net periodic benefit cost. The 201.1 and 2010 annual health care cost increase assumed is 7.49% and 7.99%, respectively, decreasing gradually to 5% for 2020 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 $110 and the end-of-year APBO by $981. A one percentage point decrease in the assumed health care cost trend rates would decrease the total of service and interest cost components by $91 and the end-of-year APBO by $840.

Estimated future benefit payments from the plan as of December 31, 2011, are as follows:

Years Ending December 31 2012

$ 198 2013 260 2014 326 2015 422 2016 457 2017-2021 3,510 Defined-Contribution Plan -

Dairyland has a qualified tax-deferred savings 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 this plan by Dairyland were $1,112 and $1,073 for 2011 and 2010, 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 total liability was $1,710 and $1,685 as of December 31, 2011 and 2010, respectively. The cost for this sick leave benefit was $215 in 2011 and

$287 in 2010.

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 $1,364 and $1,357 as of December 31, 2011 and 2010, 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 were $8,870 and $8,848 for 2011 and 2010, respectively.

12. RELATED-PARTY TRANSACTIONS The Cooperative provides electric and other services to its class A members. The Cooperative received revenue of $320,601 and $305,760 in 2011 and 2010, respectively, for these services. The Cooperative has accounts receivable from its class A members of $31,760 and $31,398 as of December 31, 2011 and 2010, respectively.

The Cooperative has advances from member cooperatives for class A members of $14,271 and $8,037 as of December 31, 2011 and 2010, respectively. These advances 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 $189 and $255 in 2011 and 2010, respectively.

The Cooperative has interest-bearing loan receivables from class A members of $945 and $882 as of December 31, 2011 and 2010, respectively. These loan receivables, which are recorded as part of other assets, 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 10 years. The Cooperative recorded interest income related to the economic development program of $38 and $44 in 2011 and 2010, respectively.

13.

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 Station #3") located in Genoa, Wisconsin. Under the agreement, GRE will pay for 50% of the costs of operating the plant and GRE is entitled to take 50% of the output of the plant. 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.

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 $33,065 and $44,263 during 2011 and 2010, respectively. As of December 31, 2011, GRE had $9,901 on deposit with the Cooperative for its share of the 2011 estimated operating coal inventory at Genoa 3.

14. 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 results 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 carlying 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 ARO and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset.

The Cooperative determined that it has AROs related to future removal and disposal of asbestos at its power plants. The Cooperative recorded no additional liability to its discounted liability in 2011 and recorded an additional liability of $685 to its discounted liability in 2010 related to this obligation. 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.

The Cooperative has established a decommissioning trust to accumulate the estimated amounts necessary to decommission a nuclear power plant that the Cooperative formerly operated. The assets of this trust in the amount of $80,405 as of December 31, 2011, and $77,916 as of December 31, 2010, are outside the Cooperative's administrative control and are available solely to satisfy the future costs of decommissioning. The assets of a second fund, a supplemental reserve of $28,088 as of December 31, 2011, and $17,408 as of December 31, 2010, are designated to be used for such decommissioning efforts or for removal and temporary storage for the spent nuclear fuel pending permanent storage by the U.S.

Department of Energy (DOE). These amounts are recorded as other noncurrent assets in the consolidated balance sheets. The nuclear decommissioning obligation is recorded in the consolidated balance sheets in other noncurrent liabilities.

A reconciliation of the beginning and ending aggregate carrying amount of the obligations as of December 31, 2011 and 2010, is as follows:

2011 2010 Balance -

beginning of year

$ 83,135

$ 80,164 Additional obligation due to change in estimated cash flows 685 Accretion in ARO 122 165 Incurred costs on decommissioning projects (12,675)

(10,548)

Provision recorded as decommissioning liabilities 13,497 12,669 Balance -

end of year

$ 84,079

$ 83,135 The Cooperative did not record a conditional ARO related to the dismantlement of the dam and drainage reservoir for the hydro generation plant at Flambeau, the restoration of land to preexisting condition at Genoa Station #3 site related to the land rights permit, dismantlement of equipment and removal of generators related to the easement interest at various power plants, and the removal of transmission lines in various corridors, because the Cooperative does not have sufficient information to estimate the fair value of the ARO.

15. 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 DOE is responsible for the storage and disposal of spent nuclear fuel removed from nuclear reactors. LACBWR will remain in safe storage status (SAFSTOR) until decommissioning of LACBWR is complete. By statute, the DOE was to have begun accepting spent fuel in January 1998, but has not yet licensed and established a repository. The Cooperative filed a damages claim against the United States government in the United States Court of Federal Claims to recover its costs generally incurred after 1998 related to spent fuel remaining at LACBWR. The initial claim covered the period from 1999 through 2006. Subsequent suits are expected to be brought for the continuing costs arising from the presence of the spent fuel. The initial claim was tried in July 2008 and resulted in a damages award in December 2009 of approximately $37,600. That award decision was appealed by the government. During 2011, $25,600 of the award has been affinned for DPC with no further appeals available to the government for that amount. The trial court award of the remaining $12,000 was vacated by the United States Court of Appeals for the Federal Circuit and remanded to the trial court for reconsideration. A decision on the remand is expected during 2012. That decision is subject to further appeal. No payments for damages will be received until the completion of the appeals process. None of the award damages are reflected in the consolidated balance sheets or statements of revenues and expenses. The Cooperative is completing the temporary dry storage facility project located on the LACBWR site and expects to move the spent fuel to this ISFSI facility during 2012. Dismantlement of nonessential LACBWR plant 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. Annual SAFSTOR costs are recorded on an as incurred basis and are incorporated into the annual budget and rate making process. The Cooperative's policy is to provide 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 and SAFSTOR costs are recovered from the class A members. Earnings on the 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.

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