ML19318C389

Annual Rept 1979

ML19318C389
Person / Time
Site:	05000484
Issue date:	12/31/1979
From:	COOPERATIVE POWER ASSOCIATION
To:
References
NUDOCS 8007010421
Download: ML19318C389 (29)

Text

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THIS DOCUMENT P00g 9UAUTy pf T4W COOPERATIVE POWER ASSOCIATION w(jf,. : -,

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.f 1979 ANNUAL REPORT 8007010 E M ,

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TABLE OF CONTENTS l Board of Directors . . .. . . .. .... .. 2 President's Report . .. . . . ... 4 General Manager's Report . . .. . .6 Cooperative Managers . . ... 8 ,

Financial Highlights . . . .. 9 Treasurer's Report . .. . ... 10 10 Year Summary. . . . .12 Accountants' Opinion . . .. . .. 14 Balance Sheet .. . . .. . . . . .15 Revenues and Members' Patronage Capital . .. . . . .16 Changes in Financial Position. . . .. .17 Notes to Financial Statements . . .. . .. ... .18 Review of Member Systems . .. . . 21 Coal Creek Generating Station ... . .. 22 Power Supply . . . . .23 Transmission, Communication and Land Use .24 SCADA/ Microwave . . . .. . .25 Accounting. . . .. . .26 Finance. . . . . . . . . .. . 26 Contract Administration . . .26 l

l Environmental . . . . . . 27 Board Committees . .. . . 28 l

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COOPERATIVEPOWER ASSOCIATION BOARD OF DIRECTORS Left to right:

Charles Anderson, President, bleeker Cooperative Light & Power Association Litchfield Darwin Anderson, Ru'nestone Electric Association, Alexandria Don Frankhouser, blinnesota Valley Electric Cooperative, Jordan Richard Harbitz,2nd Vice. President, South CentralElectric Association, St. James PaulJost. Agralite Cooperative, Benson Arthur Kimmes, Dakota Electric Association. Farrnington Orville Lipke, bicLeod Cooperative Power Association, Glencoe blartin Lohmann, Goodhue County Cooperative Electric Association, Zumbrota Edgar bieyer, Lake Region Cooperative Electric Association, Pelican Rapids Wendell Olson, Stearns Cooperative Electric Association, bietrose Gilbert Schmitz, Redwood Electric Cooperative, Clements EmilStenzel, Wells Electric Association, Wells W. Gerald Stevens, Brown County RuralElectric Association, Sleepy Eye blichael Thorson.1st Vice President. Todd-Wadena Electric Cooperative, Wadena Lyle Wayne, Steele Waseca Cooperative Electric, Owatonna Clemens Ulbricht, Treasurer, Federated Rural Electric Association Jackson William Whitney, Jr., FROST BENCO Electric, blankato Jay York, Secretary, Nobles Cooperative Electric, Worthington

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PRESIDENTS REPORT 1979 was a milestone year for Cooperative Power Association. Coal Creek Station Unit 1 became operational on August 1,1979, and as operating agent for co-owners Cooperative Power Association and United Power Association, we moved into the business of owning and operating a major portit n of our base load supply.

The transition from power purchaser to power supplier has allowed us greater control of our business and has given us the abihty to compete in the marketplace to buy and sell power for the benefit of our consumer-members. This one single event has led to some significant changes on the part of our Board of Directors, member cooperative managers and the CPA staff.

During the past year, the decisions of our Board of Direc-tors have had a more direct effect on power cost and supply than ever before. Our approach to these issues became more efficient as the directors established five new board commit-tees to cover major CPA acti,vities.

The committees, composed of four voting directors, three and in some committees four non-voting member managers and CPA staff representatives. :eview and study in detail their respective areas of responsibilities. By concen: ating on a specific segment of the business, the directors have become much better informed and have made consistently sound recommendations to the Board.

After nearly a year of operation under the committee structure, the Board's confidence and abitties have noticeably increased. When the directors and managers have had sufficient experience in their present areas of study, they

will rotate committees to increase their expertise in other areas. This system will allow us to operate at a very high level of efficiency.

During the year, two 'of our member cooperatives,

, Faribault County Cooperative Electric Association and iBENCO (Blue Earth-Nicollet Cooperative Electric Association) completed the studies and preliminary work toward consolidation. On: December 31, 1979, these cooperatives consolidated and a new organization FROST-

. BENCO Electric, was formed. As a result, CPA now has 18

' member cooperatives instead of the former 19, but the bdsic

' electrical load remains the; same. The case of this con-solidation is primarily due to the dedicated efforts of the two i boards, the management, staff and consumer-members of the two systems. We congratulate their fine effort. g The complexities of power supply in a rapidly changing .

world can often create many problems for a generation and

_ transmission cooperative. The Coal Creek Project was

' plagued by inflationary troubles, increasing regulations and legal delays on the de line. Some of these concerns, and

? others, prompted a General Accounting Office audit during l t 1979. Although many differing accounts were circulated hbout the report, the audit was favorable to the cooperatives, directors and management. The Coal Creek Project was a large undertaking during difficult times but we can all take pride in knowing that our decisions withstood the closest scrutiny.

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l We are now in the process of reviewing and developing a complete set of board policies as part of an effort to update . .

the association. We will continue to appraise ourselves as we  :

grow and we will strive to improve our organization at all '

. l les els to make us more respon<:. e to our membership as well as more efficient. =

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Cooperative Power Association has grown considerably in

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the past five years, and will continue to develop to keep pace '

with sophisticated methods of generating and transmitting _4 electrical energy. Numerous additional personnel needed ;o -

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keep CPA operating smoothly and a complex computer -

l system have revealed a need for a larger headquarters

. $v building. In an effort to meet the Association's fast growing cw .. '

needs, the Board of Directors authorized a new office facility . ; . .. o v:4' i

to accommodate a work force of 225 and to house the g SCADA computer and related microwave communications 'y

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systems. The building which is scheduled for completion in ,

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early 1981. is partially earth sheltered with a passive solar '

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heat design. The new office will prove functional and cost ef- -

i% l fective while still m eting the needs of CPA for years to

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come.

As directors of CPA. we are aware of the responsibilities -

i given us by our member-consumers to provide them with the

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I most reliable. lowest cost power available. We take that ,

( responsibility very seriously, and I thank the entire organiza-tion including the _ tribution managers. CPA directors, and +

, l the CPA management and staff for helping us accomplish our goal during 1979.

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Sincerely, f

Charles L. Andoson l President 5

GENERAL MANAGER'S REPORT This past year, we have witnessed the culmination of eight l years of planning and construction as Coal Creek Unit I was started up in May, 1979. As operators of this major generating station, CPA has undergone significant changes and developments to keep pace with the responsibilities i

associated with power supply.

j A major emphasis during the year was on CPA's internal

- ' development to meet the complex demands of a generation l ,

1_ and transmission cooperative.

• CPA developed an environmental department to en-sure compliance with all federal and state pollution

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regulations. This department has performed the necessary air and water quality testing at the Coal Creek

_tation and is keeping abreast of new developments

,, within the field to maintain our policy of environmental potection and the intelligent me of our natural re- )

sources. i

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• Over the past year, CPA evanded its engineering )

g. g. department to keep pace with additional construction.

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. Our staff is now assisting in transmission line  !

/g ., engineering and is completing more of our substation design, enablir.g CPA to better maintain system reliabil-ty.

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• Our radio communications department assisted in the construction of 20 microwave towers in the CPA system a to serve as comm"nication links between CPA and its member cooperatives' substations. The new system will serve many purposes, but perhaps one of the most vital functions will be the transmittal of load data from sub-stations to CPA for the efficient scheduling of power. l i

With the support of our distribution cooperative staffs, the communications team spent the greater part of the year testing and installing radio and computer equip-ment in the substation. completing this enormous project on time.

• The external affairs department has continued tr-

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educate CPA's consumers on the need for conservation and home weatherization. A program explaining the production of electricity and its cost has been developed and has enhanced the public's understanding of rates and the wise use of electricity. The reaction to CPA's rate increase last year was largely offset at many of our member cooperatives by the emphash CPA placed on public contact and communicat;on. '

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• CPA expanded its computer capabilities with a material l l

management system, designed to track the inventory requirements of Coal Creek. The computer was in-stalled late this spring and will use the microwave system to transfer information between Coal Creek and CPA headquarters.

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N o Within the Power Group, CPA established a Power area will educate our members in the efficient 'use of elec-Production ' Department separate from the Plant - tricity and will reduce peak loads..

. . Engineering and Construction' Department This has Conservation may be slowing the growth of electrical use,

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' allowed a better definition and balance of resonsibilities but it hasn't yet halted it. Energy sales during the first part of in the management of power plant production, 1979 were nine percent above the same period in 1978. A operation and. engineering. The Planning Department ~ cool summer, warm winter and the possible effects of con-has been expanded to accommodate additional activity servation lowered energy use to five and a half percent for in load management, load forecasting, computer the remainder of the year New projections indicate that load .

, operations, and dispatching. The Dispatching Center growth will be 5 to 6 percent per year for the next decade.

successfully began 24 hour2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> operation to increase the ef. Though the Coal Creek Station will provide most of our consumers' power for the next ten years, additional capacity

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ficiency and flexibility in power scheduling for CPA i member needs and to facilitate all power purchases and will be needed around 1990. CPA, in recognizing its respon-sales. sibilities in meeting members' future needs, has hired a con-sulting firm to examine the attematives. In addition to the

• The purchasing department was expanded over the m re traditional ways of generating electricity, CPA is past year to aquire the additional materials, equipment, studying the possibility of bicmass, co-generation, fluidized supplies and services CPA needs with its increased re-bed combustion, coal gasification and other alternative sponsibilities. Since. purchasing, like engineering and technologies. When the study is completed this summer, finance, is one of the basic functions of the organization, CPA will decide on a course of action that will provide our.

buyers must be well trained in many fields. Determining members with a safe, reliable and low cost energy source.

needs, selecting a supplier, arriving at an equitable As we enter in a our second year as operators of the price, issuing a contract and ensuring delivery are some second largest REA finanaced generating u, nit, I of the basic functions of the department.

acknowledge the achievements of our staff, our directors and

Coal Creek Unit I has now operated smoothly for nearly . our distribution managers. Thar skill, professionalism and one year, thanks to our dedicated personnel. We are pres- dedication have allowed CFA to develop into a major -

ently anticipating the start-up of the plant s second unit. generation and transmission cooperative. Our future success Major construction advances were made last year on Unit 2, will depend on their continued support and guidance.

assuring us that we will meet the commercial operation date of November 1,1980. Chemical cleaning and steam blow

.were completed in early spring 1980. Extensive equipment testing is underway and has so far been successful. Sincerely, The 105 cubic yard dragline began operating at the Falkirk A _=

Mine on January 7,1980, providing a sufficient coal supply for _ Unit 1. The second large ' dragline is scheduled for operation October,1980 to meet the fuel requirements of T. V. Lennick Unit 2. General Manager

. The rate increases we experienced from Unit I coming on

line and those that will result from the Jnit 2 operation

- prove that it is necessary that we continue to practice con-

- servation and promote the wise use of energy to help keep costs down. CPA is presently studying a_ load management

? program and is now monitoring farm loads throughout our area to determine the most effective ways of restricting elec-

- trical use. We are confident that further developments in this t

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. FINANCIAL STATEMENTS 1979 ANNUAL REPORT COOPERATIVE POWER ASSOCIATION 1

FINANCIALlilGliLIGHTS (DOLLARS IN THOUSANDS) 1979 1978 CilANGE Operations:

Operating Revenues . $ 66,909 $ 40,941 + 63.4%

kWh Dehvered (in millions). 2.382 2.259 + 5.4%

i kW Peak Demand (in thousands). 523 489 + 6.9%

Power Cost. $ 57,918 $ 32.803 + 76.6%

Net Margins . $ 1.966 $ 2,421 - 18.8%

Financial Position:

Electric Utility Plant . $577,562 $508,932 + 13.5%

Coal Mine. > 71.885 $ 56,193 + 27.9%

l Outstanding Long-term Debt . $650.811 $550.573 + 18.2%

Member and Patron Equities . $ 10,351 $ 8,385 + 23.4 %

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TREASURER'S REPORT The financial statements of Cooperative Power as leveraged leases, REA insured loan funds and shorter Association together with the accountants' opinion from term loans from the Federal Financing Bank. By the end of Deloitte Haskins & Sells appear on pages 14 to 20. the year, a leveraged lease was completed on the first large The figures for 1979 show a smaller increase in energy dragline, a 105 cubic yard machine with a cost of $38 consumption, 5.4%, against an increase of 8.6% in 1978 million, at a substantial interest saving from other financing and a ten year compound growth rate of 8.1%. The lower available. Lease financing for a second 105 yard dragline is rate of increase was primarily weather related, but nsing costs being sought at the present time.

and our consumers' resolve to conserve energy had their im- As CPA's capital needs continue, we will continue to pact also. This increase reflects a steady 3% increase .i con. examine available financing alternatives in an ongoing effort nected consumers and a 2.4% increase in average con- to achieve further savings and to provide power at the lowest sumption per consumer during 1979. cost to our member systems and their consumers.

brgins of $1,966,000 were recorded in 1979, down from $2,421.000 in the prior year. Of the total margins recorded, $125,000 were from operations while $1,841,000 Sincerely, resulted from higher interest earnings, CFC capital credits, -

and credits for CPA funds invested in construction projects. " @

Net revenues were increased $26 million reflecting rate in. Clemens Ulbricht creases put into effect to offset the higher costs of power provided from the Coal Creek Project and other sources.

Cost of power generated or purchased rose $25 million to a total of $58 million. Also included in 1979 are costs resulting ,

from the decision to abandon the Tyrone Energy Park '

Nucicar Unit which are being amortized and recovered ovei y ,

a fifteen year period beginning in mid year. - -

The first 500 MW umt of the Coal Creek Station began <

-m operations in August 1979 with completion of the second

• unit expected late in 1980. Operating expenence on the new unit has been very favorable as reflected by availability of that unit in excess of 90% for the last five months of 1979. Con-struction activity on Coal Creek's second unit and various -

transmission projects continued at a high level as expendi. E tures of $69 million were added to utility plant. In addition, f4 construction of a new office facility was started late in the year.

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The econom'c picture experienced many sharp changes - p _;ay,w,@, j #;

'O in 1979, including high inflation and rising interest rates. In view of the higher interest costs, emphasis on financing for

~ [ M1mA the Coal Creek Preject has shif ted to alternative sources such -

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COOPERATIVE POWER ASSOCIATION 10

ENERGY SALES  % OF INCREASE A 12 %

1969 79 AVG.-8is

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-RATE OF GROWTH IN kWh DELIVERED FOR YEAR o

1%9 1974 I979 CONSUMERS  % OF INCREASE 6%

1%9 79 AVG.-265 2r

-RATE OF GROWTH IN NUMBER OF CONNECTED CONSUMERS AT END OF YEAR g l%9 1974 3979 s . . .

ENERGY PER CONSUMER

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- INCREASE ns 1 % 9-79 A AVG. - 4 25

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-RATE OF GROWTH IN AVERAGE kWh DELIVERED "

PER CONSUMER '% sed on v average consumet , at beginning and end of year) 14 9 l 1%4 1974 I97" 11

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m-COOPERATIVE POWER ' .

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10.. YEAR

SUMMARY

-POWER SUPPLYSYSTEM:

- For the Year: 1979

-- f 1978 1977. 1976 Revenue from member systems (c). .. . , $ 62,646 $40,928 - $37,938 - $30.892 :

Total operating maruin (deficit) (c) $ 125 $ - 1.548 $ 1,476 - $ 1,975 kWh delivered (in millions) . . 2.382 2,259 2,081 1,975.

Cost per kWfi deliverdd (in mills) - . 26.3 18.1 - 18.2 - 15.6

~ kW peak demand (in thousands) (a). 523 489 488 438 At Ycar End:

Miks of transmission line (d) . , , , 1,722 1,232 1.223 1,206 Cost of utility plant in service (c) , $433,110 $41,756 $31,248 $28,815 Number of employees . . .

289 218' 141 50 MEMBER DISTRIBUTIONSYSTEMS:

For the Year:

-Number of member systems . . . . . . 19 19 19 19.

Combined revenues (c) , . .., .. . $ 94.260 $70,239 F .,083 $52,395

. Average kWh per consumer (b) , ,- . . . . .17,797 '17.374 16.522 16.217 At Ycar End:

Miles of distnbution line . . . . . . . . . . . . .. .. , 36,730 36,349 35,947 35,522 Number of substations . , . . . .. . . . ... ... ... 226 221 215 =210 Number of connected consumers . ..... ... . 135.728 131,954 128,084 123.814 L

- Number of employees . - ... ,. ... , , , 672 646 646- 605.

NOTES:

(a) Based on demand billed to member systems.

. (b) Based on average number of consumers at beginning and end of year;

.(c) Dollarsin thousands;

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(d) Includds 478~milJs of CU Project transmission - 56% owned ,

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1975 - 1974 1973 1972 1971 1970 1969

$24,332 $17,913 $16,247 $13,875 $12,276 $10,529 $ 7,941

$' 872 $ 753 $ (2) $ (22) $ 195 $ (1) $ (506) 1.795 1,623 1,505 1,455 1.311 1,224 1,032 13.6 11.0 10.8 9.5 9.4 8.6 77 412. 363 334 335 300 282 245 1,180 1,141 1.060 979 964 854 741

$26,620 $24,351 $20,587 .19.043 $17,885 $14,139 $ 9,631 28 17 11 10 10 9 8 19 19 19 19 19 19 18

$42,579 $35,265 $30,701 $28,047 $25.585 $23,120 $21,054 15.218 - 14,221 13,695 13,818 13,014 12,648 11.815 35,087 34,740 34,351 34,088 33.854 33,371 31,080 206 203 192 181 174 170 158 119,753 116,150 112.112 107,681 102,908 98.570 94,979 591 586 562 555 541 556 525 53

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1 ACCOUNTANTS'LOPINION ITo the Board of Directors of

' Cooperative Power Association:

We ha've examined the balance sheets of Cooperative Power .

? Association as of December 31.1979 and 1978,' and the related -

' statements of revenues and _ members'.. patronage capital and -

J changes in financial position'for the years then ended. Our exami

- nations were made in accordance with generally accepted auditing -

= standards and, accordingly, included such tests 'of the accounting

. records and such other auditing procedures as. we considered necessary in the circumsta'nces.- ..

In our opinion, the aforementioned financial statements present fairly the financial' position of the Association at December -

31,1979 and 1978, and the results of its operations and changes in its financial position for the years then ended, in conformity with' generally accepted accounting principles applied on a consistent L basis.

Deloitte Haskins & Sells -

Minneapolis. Minnesota March 31,1980 -

COOPERATIVE POWER '

ASSOCIATION a

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LBALANCE!SHEETSL December 31 ASSETS -

1979 1978

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. ELECTRIC UTILITY PLANT (Notes 1 and 3): .

-- Plant in service. . . . . . . .. .. .. . .. . .... .... . . . $433,110,205 . $ 41,755,754 Construction work in progress . . . . . . ...... .. . . .. -144,451,623- 467,177,092 Less accumulated provision for depreciation and amortization.. ... . . . (13,090,689) -(7,115,387)

Electric utility plant - net . .. . . . . .. ... . .. ... . 564,471,139 501.817,459 COAL MINE (Note 3): .

. Deferred development and coalleaseholds . .... .. . .. . . 8,856,094 6,210,850 Equipmen,t under construction. . ...... .. .. ... ... . . '15,921,213- 23,928,492-Adva 1ces to Falkirk Mining Company for development of coal mine . .. . 25,519,135 26,053,464 Leased equipment (Note 4) . . . .. .... .. . .. . 21,588.809 __.

Coal mine. . . . . . .. . .. . . . .. 71,885,251 56,192.806

' OTHER ASSETS ANDINVESTMENTS:

Funds held by trustee . Pollution Control Revenue Bonds (Note 5):

Construction fund . . . . . . . .. .. . .. . 5,807,007 21,925,738 Debt service reserve fund . . . . . 5,975,865 5,978,766 Investments - at cost (Note 4) . ..... . . 26,407,957 .4,142,044 Deferred charges. Tyrone (Note 6). . . 11,165,686 _

Less accumulated amortization Tyrone. . .. . .. (155,709) __

Deferred charges - CU Project (Note 3). . . 6,232,457 _

Total other assets and investments . 55,433,263 32,046,548 UNAMORTIZED DEBT EXPENSE. . 1,008,495 1,055,750 CURRENT ASSETS:

Cash - general . . . 3.475,102 209,294 Cash - restricted. . . ..... . 363,726 401,759 Accounts receivable . members . . . . 7,124,663 5,001,030 Accounts receivable - cther . '. . 2,436,578 1,519,077 Coalinventory (Note 3) . . 3.403,576 800,529 Fuel oilinventory . at average cost. . . 664,752 146,723 Materials and supplies. . . . . . . 1.903.776 28,462 Deferred power costs (Note 2) . 777,060 1,422,479 Prepaid expenses . . . 691,269 172,761 Total current assets . . 20,840,502 9,702,114 TOTAL ASSETS (Note 5) . . $713,638,650 $600,814,677 LIABILITIES MEMBER AND PATRON EQUITIES:

Memberships . . . . . . . $ 2,100 $ 2,100 Patronage capital. .......... . . 10,274,050 8,307,690 Members' contributions for debt service . . 74,866 74,866 Total member and patron equities. 10,351,016 8,384,656 LONG - TERM DEBT (Note 5) . . . . 650,811,330 550,573,095 LEASE OBLIGATIONS (Note 4) . . 21,406,759 _

CURRENT LIABILITIES

= Long-term debt due wi hin one year . . . . . . . . . .. .. . 1,208.838 725,000 Lease payments due within one year (Note 4) . .. . 182,050 _

Accounts payable ~ . . . . . ..... . . ... 14,749,559 19,216,055

- Construction retainages payable . . . . .., . . .. .. . 8,531,820 16,708,197 Members' deposits. . . . .'. . . . .. .. , 1,639,093 1,639,093

= Accrued taxes . . . . . . . . . . . . . . ... . . . 2,220,088 1,252,046 Interest and other accrued expenses . . . . . . 2,538.047 2.316,535

Total current liabilities . . . . . .. . ... .. . . 31,069,495 41.856,926 TOTAL LIABILITIES. . . . ... . .. . .. $713,638450 $600,814,677 LSee accompanying Notes to Financial Statements:

15 U _ , ,

COOPERATIVE POWER ASSOCIATION STATEMENT OF REVENUES AND MEMBERS' PATRONAGE CAPITAL

' Year ended December 31 1979 1978 REVENUES:

Billed revenues and patronage capital- members . . . $64,616,042 $42,094,255 Less billed revenues in excess of power costs (Note 2) . (1,969,717) (1,165,852) i Billed revenue - others 4,262,926 12,273 Net ievenues . . 66.909.251 40.940,676 OPERATING EXPENSES:

Purchased power . 35,827,895 32,116,668 ,

Generation costs: i Fuel 6,098.593 211,624 l Depreciation , 3.425,863 103,176 1nterest . 9,636,981 288,966 Other. .. . 2,928,255 82,117 Transmission expense. .. 2.019,690 2,276,084 l Administrative and general expense . 2,049,018 1,468,003 i Depreciation and amortization . -1,270,933 955.355 Property and other taxes . . . 1,484, % 3 1,302,Q34 -

Interest expense . ... .... . 33,208,987 32,239.531 1 Interest to construction (Note 1), (31,167,068) (31,651.827) l Total operating expenses . 66,784,110 39,392,331 l OPERATING MARGIN, . . 125,141 1,548.345 I OTHER INCOME:

Allowance for funds used during construction (Note 1) . 870,783 501, % 9 l Interest and other income. .. ... 7F,702 290,354 I Distribution and financing cooperative capital credits. 244,734 80,022  ;

- Total other income . , , . 1,841.219 872,345 NET MARGIN , . , , 1,966,360 2,420,690 i PATRONAGE CAPITAL AT BEGINNING OF YEAR . 8.307.690 5,887.000 PATRONAGE CAPITAL AT END OF YEAR . $10,274.050 $ 8,307,690 j See accompanying Notes to FinancialStatements.

16

J p

h STATEMENT OF CHANGES IN FINANCIA1L POSITION Year ended December 31 1979 1978 FUNDS WERE PROVIDED BY:

Net margin . .. .. ... . $ 1,966,360 $ 2,420,690 items not requiring outlay of working capitalin current period:

Depreciation and amortization . . 4.980.613 1,094,549 Allowance for funds used during construction . . . . (870,783) (501.969)

Distribution and financing cooperative capital credits. (244,734) (80,022)

Interest earned on debt service reserve fund held by trustee . (186,194) (167,166)

Funds provided by operations . 5,645.262 2,766,082 Sale of dragline (Note 4) . ....... ... 21,130,000 _

investment of dragline proceeds (Note 4) . ... .... (21.130,000) _

Increase in deferred depreciation - CU Project (Note 3) 1,200,000 __

Proceeds from issuance of:

Pollution control advances . . . . . . . . .. 16.307,828 _

Long-term debt (net of funds held t y trustee) . 118,677,573 181,165,987 Notes payable - to be refinanced . _ 15,300,000 Memberships . _ 200 Total . 141,830,663 199,232.269 FUNDS WERE USED FOR:

Dragline capitalized lease (Note 4) . . . 21,588.809 _

Capitalized lease obligation (Note 4) . ... (21.406,75?) _

Electric utility plant and coal mine expenditures (net of a!!owance for funds) . . . . . 94,618,678 200,973.244 increase in deferred charges - CU Project (Note 3)... .... 6,232,457 _

Reductions of long-term debt and notes payable , , 18.257,218 718,889 increase in investments - net of dragline proceeds . . . . . . 614,442 2,794,824 Debt issue expense on Pollution Control Revenue Bonds. _ 1,091,768 Total . 119,904.845 205.578.725 INCREASE (DECREASE) IN WORKING CAPITAL . $ 21.925.818 $ (6.346.456)

DETAll OF INCREASE (DECREASE) IN WORKING CAPITAL:

Cash and temporary cash investments . $ 3,227,775 $ (43.005)

Accounts receivable ' .

3.041,134 1,667,561 Inventories. ,, .. , , 4,996,390 975,714 Deferred pcwer costs . ., (645,419) 977,590 Prepayments . . . . ... . 518,508 12,474 Long-term debt due within ,ne year . . (483,838) (8,000)

Lease payments due within one year . . . . (182,050) _

Accounts payable . .... . 4.466,4 % (3.363.881)

Construction retainages payable . . 8,176.377 (4,173,005)

Int: rest and other accrued expenses . (221,512) (2.026,206)

Accrued property taxes. FXe.043) (365.698)

TOTAL.... , . $ 21,925.818 $ (6.346.456)

See accompanying Notes to Financial Statements.

17

.. NOTES TO FINANCIAL STATEMENTS 'ieWit" ASSOCIATION

1.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES System of Accounts - The accounting records of Cooperative Power Association (CPA) conform to the uniform system of accounts prescribed by the Federal Energy Regulatory Commission and the Rural Electrification Administration (REA).

Under such system, utility plant is stated at original cost and the cost of additions includes contracted work, direct labor and materials, allocable overheads, interest charged to construction, and allowance for funds u3ed during construction.

Interest charged to construction (borrowed funds) and allowance for funds (other than borrowed funds) used for construction are included in construction work in progress and credited to operating expenses and other income, respectively. The rates ap-phed to construction work in progress reflect the actual interest rates for borrowed funds (reduced by the effect of interest earned on construction funds held by trustee) and the prevailing short-term investment rates for other than borrowed funds.

CPA is exempt from Federal and state income taxes.

Depreciation and Amortization - The provisions for depreciation and amortization of the electric utility plant are provided on the straight-line method based on estimated service lives of the property. Such provisions as a percent of the average balance of depreciable property were 2.95% in 1979 and 3.17% in 1978.

Reclassifications - Cert #n reclassifications have been made to 1978 financial statements to conform to the 1979 present-ation.

MEMBER SERVICE CONTRACTS CPA has long term wholesale power contracts with each of its members whereby it agrees to provide all of the power required by the member system to the extent that CPA has such power available. Power is provided to its members at cost and, accor-dingly, any variation between cost (defined as power costs incurred less certain deferred power costs incurred in December after the billing to its members) and the aggregate amounts collected is included in accounts receivable or accounts payable. In addition to the cost of power, the members agree to pay a billing rate which is projected to cover all other costs and necessary reserves (operating margins).

3. CU PROJECT AND COAL MINE CU Project - CPA is participating to the extent of 56% in the construction and operation of two 500 megawatt generating units in North Dakota and related transmission facilities (CU Project). The first unit was completed and became operational in August of 1979 and the second unit is scheduled for completion in late 1980. (See Note 8). The unused financing commitment from REA for either insured or guaranteed loans for the CU Project is $216 million at December 31,1979 (of which CPA's share is $121 million).

One-half of the interest, depreciation and property taxes associated with the common plant and transmission system is being deferred until unit two is completed. The deferral of these costs has been approved by REA, and will be amortized to expense on a straight-line basis over approximately 20 years.

Cral Mine - CPA and the other co-owner, United Power Association, have entered into an agreement with Falkirk Mining '

Company for the development of a coal mine adjacent to the CU Project which will supply the plant's fuel requirements.

Deferred development cost is principally interest capitalized on advances to Falkirk. These cost deferrals have received REA approval and will be charged to the cost of coal generally on a units-of production method over the first 100,000,000 tons of coal mined after the developmental period.

The co-owners are required to provide financing for all costs associated with the development of the mine. CPA's advances at December 31,1979 have been used by Falkirk Mining Company as follows:

Coallands and leaseholds. , $ 1,030.000 Coal mine equipment. . , 10,725,000

~ Less alk>wance for depreciation, depletion and amortization. (960,000)

Construction in progress , , 11,589,135 Mtne development costs. . .

2,145,000 Working capital. ., 990,000 Total advances . . .

$25,519,135 18

s .

Coal will be purchased from Falkirk Mining Company at the cost of production (including depreciation, de,,letion and amor-i tization) plus an agreed profit. Price of coal during the development period Is set based on the per ton cost of prodt.ction estimated to be incuired after Se development period plus an agreed Profit. Production costs in excess of this price (less an agreed profit) are inc'uded in mine development costs.

Falkirk Mining Company reduces the advances from CPA in an amount equal to the cost of coal delivered. Coal mine equip-ment is amortized on a straight line method over their estimated usefullives. Amortization of coallands is calculated on the units-of-production method based on estimated recoverable tonnages. Mine development costs will also be amortized, after the dev;1opment period, on the units-of-production method.

The co-owners have unconditionally guaranteed a leveraged lease which was entered into by the coal mining company for ap-proximately $5 million (of which CPA's share of the guarantee is $2.8 million).

4. LEASED DRAGLINE On December 27,1979 CPA and UPA entered into an agreement for the sale and leaseback of a dragline to be used in the coal mining operations. CPA received as proceeds on the sale approximately $21,130,000 in cash which has been invested at Decembet 31,1979. These proceeds will be used to pay for future CU Project construction. The lease agreement provides for semi annual lease payments over 25 years plus two-five year renewal options. The agreement provides that UPA and CPA will have the right of first refusal should a disposition of property occur.

The following is a schedule by years of the future minimum lease payments under the capital lease together with the present value of the minimum lease payments as of December 31,1979.

Year Ending December 31:

1980. $ 866,126 1981. . 1,732,251 1982. 1,732.251 1983. 1,732,251 1984. 1,732,251 Later Years . .

35,511,157 Total minimum lease payments. 43,306,287 Less: amount representing interest . (21,717,478)

Present Value of Lease Payments. $ 21,588,809

5. LONG-TERM DEBT December 31 1979 1978 Mmtgage notes payable to United States of America:

2% due through 2011. $ 22,917,860 $ 23,683,649 5% due 1979 through 2011. 28,191,358 3,376,446 Federal Financing Bank Promissory Notes - from 7.42% to 12.28% due 1981 through 2012 . 519,761,000 430,638,000 Croperative Financing Corporation (CFC) term loan due 1982, interest at 1/2% over prime. . 12,000,000 7,400,000 City of Underwood, North Dakota, Pollution Control Revenue Bonds:

Scrial Bonds - from 5.00% to l 6.75 % due 1980 through 1999 20,995,000 20,995,000 Term Bonds 7.00% due 2008. 29,305,000 29,305,000 Notes payable - to be refinanced . 18,850,000 35,900,000 Total. .. 652,020,218 551,298,095 Less due within one year . , 1,208,838 725,000 Total. . . . .

$650.811,380 $550.573.095

.CPA has lines of credit of $70 million from CFC for interim financing for its power supply projects. Outstanding notes payable have been classified as long-term debt since commitments have been obtained from the REA for long-term financing of the major power supply project under construction.

19

7 NOTES TO FINANACIAL STATEMENTS CONTINUED

~

~ The Pollution Control Revenue Bonds are unconditionally guaranteed by CFC. The bond agreement requires that the unex-1 pended portion of the bond proceeds be held in escrow by a trustee in a construction fund to reimburse CPA for costs when in-

- curred in construction of the pollution control facilities at the CU Project. The agreement also requires that a debt service reserve fund be_ established for the last principal and interest payment of the term bonds. The term bonds are subject to sinking fund

. redemption at 100% of the principal amount prior to their stated maturity date beginning in 1999 through 2308.

All assets of CPA are pledged as collateral to the long-term debt.

6. TYRONE ENERGV PARK in 1977 CPA entered into a participation agreement with Northern States Power Company and two other electric utilities for a 17.4% ownership interest in the Tyrone Energy Park project. A 1100 megawatt nuclear generating unit was to be constructed near Durand, Wisconsin. On March 6,1979 the Wisconsin Public Service Commission issued an order denying the application for a certificate of need for the proposed project. On July 24,1979 the participants agreed to cancel the project. CPA has in-curred approximately $11,165,000 (including interest expense) related to the project. It is estimated that additional cancellation costs, net of recoverable costs, could increase CPA's cost related to Tyrone to approximately $ 14,000,000.

The $11,165,00 of costs incurred by CPA at December 31,1979 are being financed through a $12,000,000 CFC 5 year inter-mediate term loan. CPA hasapplied to CFC for a $14,600,00015 year loan bearing interest at 9-1/2% per year. Approvalis pending at December 31,1979.

The costs are being deferred and amortized to expense, and recovered through billings to member cooperatives over a 15 year period as approved by CPA's Board of Directors.

7 CAPITA! TERM CERTIFICATES When CPA joined CFC in 1970 they agreed to purchase 3% Capital Term Certificates of CFC through 1984. Future annual purchases, which are based on operating revenues, are estimated by management to aggregate $4,511,000. In addition to this agreement, the Pollution Control Revenue Bonds agreement required CPA to purchase 3% certificates in the amount of

$2,515,000 in 1978. Investments in 3% Capital Term Certificates amounted to $4,284,078 at December 31,1979 and

$3,)95,773 at December 31,1978.

8. CONTINGENCIES AND LITIGATION A lawsuit has been instituted by opponents of the CU Project against the Minnesota Energy Agency (MEA) seeking to set aside the certificate of need for the CPA/UPA transmission line and related facilities within the State of Minnesota. CPA and UPA are participating inasmuch as they are the real parties of interest. It is the opinion of legal counsel that the plaintiff will not prevail in this lawsuit.

CPA and UPA have initiated eminent domain proceedings to acquire right-of-way easements which could not be obtained through negotiation for the construction of the Dickinson Wilmarth segment of the CU transmission line. Certain property owners have objected to the taking of easements on the grounds that the certificate of need issued by the MEA for the line segment was improperly issued. CPA and UPA have been upheld by a district court and have received a favorable determinatien by a special three-Judge panel formed for the purpose of gathering additional evidence. The property owners have appealed to the Minnesota Supreme Court. It is the opinion of legal counsel that the decision of the three-judge panel will be sustained. If the contention that the ' certificate of need was improperly issued is upheld the cooperatives would be required to make reapplication for the certificate of need before being able to proceed with the casement acquisitions.

McLean County, North Dakota has levied an ad valorem tax on the improvements at the Coal Creek Station located in that county The cooperatives have contested the tax. The North Dakota Tax Appeals Board made a determination favorable to the cooperatives. McLean County appealed to the district court and the district court decided against the cooperatives. It is expected that the cooperatives will appeal to the North Dakota Supreme Court. The amount of taxes in dispute is approximately

$585,000. If the cooperatives are required to pay any or all of the disputed amount the amount will be capitalized as part of the cost of the project.

In the opinion of management should any litigation or proceedings postpone the scheduled completion date of the CU Project, such' delay could increase the cost of the project. Any increase in costs would result in increased rates in order to recover the ad-ditional costs.

CPA has a long-term purchase power agreement with a Wisconsin cooperative. On June 30,1978 the Wisconsin Department

_ of Revenue notified the Wisconsin cooperative of an additional assessment of sales tax on the sales of power under the agreement for the years 1973 through 1976. The assessment amounted to approximately $850,000 plus accrued interest. The assessment

' has been appealed. The outcome is uncertain at this time. If the appealis unsuccessful CPA will be required to pay some portion

- of the assessed amount' plus accrued interest.- Such an amount would be recovered through billings to CPA's member cooperatives.

~20-

A REVIEW OF CPA'S 19 MEMBER SYSTEMS kWh  % of kWh Miles of Number of Purchased increase line Consumers During 1979 over 1978 Agt: lite Cooperative, Benson Ramon Mi!!ctt, General Manager. 2.752 4.542 96,720.291 6.43>

[ENCO Electric, Mankato

• Donald Amundson, General Manager 1,906 6.567 115,539.491 7.1 Urown County Hural Elect. Ass'n., Sleepy Eye Leshe R. Schrupp. Jr.. General Manager. 1,310 3.305 79.174,53M 7.8 D .kota Electric Ass *n., Farmington Richard Okerberg, General Manager . 1.908 28.261 462,394,925 2.1 Fcribault County Coop. Elect. Ass'n., Frost

• Donald Amundron. General Manager . 662 1,362 25,837.805 7.5 - -

F; der:ted Hural Electric Ass'n., Jackson Marvin Johnson, General Manager. 2,066 4,720 105,973.866 7.2 Goodhue County Coop. Electric Ass *n.. Zumbrota .

Cecil Holsing. General Menager . .. 1.042 3,435 69,204,792 5.7 le.ke Region Co.op Electrical Ass'n., Pelican Rapids Clarence Peterson, General Manager. 4,958 17,404 '219,694.831 4.9 McLeod Coop. Power Ass'n.. Glencoe Bernard Janowski. General Manager. 1,724 -5.102 108.193,667 ' 10.0 ' i' Meek:r Coop. Light & Power Ass'n., Litchheld -

Duane Henkelman. General Manager . 1,616 5.961 108.238.003 4.4 Minnesota Valley Electric Coop., Jordan ,

Francis Fiebelkom. General Manager . 2,104 10.455 178.266.832 4.9 Nobl;s Cooperative Electric, Worthington Douglas Wallace General Manager . 2.089 ' , 4,840 94.260.076 a 7 9. ; [.-;

Hedwood Electric Cooperative'. Clements Albert Lennick, General Manager. 1.2n2 2.480 54.579.370 7.9 R:nestone Electric Ass'n,. Alexandria Vernon Jutila, General Manager. 2,571 8.461 125.620.146 4.8 South Central Electric Ass'n., St. James LeRoy Nelson General Manager . 1,986 4.079 110,475,201 8.6 Stxrns Coop. Electric Ass'n., Melrose Eugene Sullivan. General Manager. 2.904 12,488 216,046,958 6.8 Steela Waseca Coop. Electric, Owatonna Donald Larson, General Manager. 1.797 6.065 99,121,861 4.7 Todd.Wadena Electric Coop., Wadena Jon Be!!gowan, Geracral Manager. 1,874 5,589 100,799,620 4.3 W:lla Electric Ass'n., Wells Wi!!iam Motl. General Manager. 259 612 11. % 8.734 5.9 Tot:1. ... .. . . . ........ . ........ ....... .... . ... .

36,730 135,728 2.382.111.003 5.43,

• Consolidated toform Blue Eanh . Nicollet . Fanbault Cooperative Electric Association effective January 1.1980.

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ther conservation strategies the demand could grow more POWER SUPPLY PLANNING slowly. Demand, however, is expected to exceed supply in the late 1980s.

As a wholesale supplier for 18 member distribution Based on this mformation, the CPA Board of Directors cooperatives, CPA must estimate load growth w.th.in its ser-i hired the consulting firm of TERA, Inc. to study the alter-vice area and plan generation accordingly. CPA,s natives for supplying the power system needs for the late progressive methods of preparing a system forecast include a 1980s. The firm's approach will emphasize alternative study of historic trends, an analysis of economic factors and technologies and conservation as well as the traditional an end use analysis.

power sources.

In studying economic factors, CPA attempts to measure

.Ibe study will include an arialysis of various plant sizes, the effect of consumer income, fuel oil price and the price of t pes of fuels, and purchase options. In addition, each alter-electricity as it relates to the future use of power. This method native will be evaluated to determine its sensitivity to various allows forecasters to predict changes in electrical use as load growths, escalation rates and interest rates. When the people choose various forms of energy.

study is completed, CPA will discuss recommendations with l A relatively new concept, the end use analysis is used t its member cooperatives.

, estimate household use of electricity by individual appli-I ances. Information for this analysis is gathered from a sample .,, .,,,

survey of consumers from each distribution cooperative. 4 M 43 :' i Consumers are asked about the numbers of home appli-ances or farm equipment they own, their use of the equip-Z il' : I

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! ment and the installation date. With this information, CPA 4 Can determine the saturation rate of electrical appliances to assist in forecasting future electrical needs.

To supplement the end use analysis, CPA is also studying l

clectrical farm equipment use. The first cooperative in the s region to perform this type of study, CPA will monitor i

several types of farm equipment to determine electrical T  ?*

s demand and times of use. This information will help refme  %. .  %

' P "yy, estimates of total electrical use on the farm and ' vill help - . fc assess the potential for load management. m, y CPA is currently estimating a growth in peak demand of %g l about 5.5% annually, although with load management and f

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TRANSMISSION, COMMUNICATIONS AND LAND USE l

! A number of projects were completed during 1979 to improve reliability and to meet the ever increasing needs of the CPA

! member distribution cooperatives. Three capacitor banks were installed to support the transmission voltage, four bulk substation )

.! transformers were changed out and increased in size and two 69 kV transmission tie lines were completed along with the l

{ necessary transmission lines to serve four new distribution substations.

j During the last four months of 1979, CPA prepared for the 1980 construction program. W.th the large amount of anticipated I 1 construction, it was determined that CPA perform its own design of substation and transmission lines. This work will consist of:

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• The purchase or aquisition of easments for 10 capacitor banks or switching station sites and the coordination of right of-way i activities on 210 miles of transmission line.

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• Design and implement the mobile radio system and complete the installation of the microwave / data retrieval system. i f e Oversee the design and construction of 20 projects which include capacitor banks, transformer additions, substation expan-sion and new substations.

• Coordinate the desigd, specifications and construction management of 19 projects which include 131 miles of transmission line. ,

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l l SCADA/ MICROWAVE PROJECT In an effort to modermee CPA's methods of momformy load quantities and generation scheduling. the floord of Directors approved two major pron >r is m 1978 the Supervisory Control and Data Aquisition (SCADA)

< omputer and the nucrowave communa ations wstem Groundbreaking for the microwave tower foundations began in the fall of 197x The concrete work for 14 towers was completed before the winter free /c and tower erec tn>n began A difficult winter. however. dejased fur-ther tower and antenna woik To keep the project on schedule. radio bu:ldmys and amny were installed throughout the winter f ~ mal tower erec tum and antenna placement were completed at 20 sites hv May 1979 The CPA microwave system was tied into the CPA UPA Coal Creek Protect mic rowave system to connect the Cooperatives nv >rthern ami southern wstems one vear after construction began Under the M 'ADA contract. renn>te ternunal units (RTU) began arriving m the sprmq of 1979 Over 2(K) computer panels were wired. mounted and mstalled mwie CPA's distnbution substatico meter huis Over 100 elet trona mternal hardware boards were tested during the wmter of 1980 m preparation for final assembiv on the total RTU package Total system testmq has bequo m preparation for the SCADA onnputer operation The task of mamtaming the SCADA microwave equipment mvolves he mrs . .t traung a spare pmts mventory and the capability of qu ck respe 'nse h , an alar m f 3ecause of CPA's ge< > graphical diversifwation. the seruc e area is ihuded mto zones with regional service centers in Alexan-dna I armmqton and Eagle Lake The location of these service centers and a special nucrowave alarm system will improve response time for system emergencies the i onstr uctu m of four remam'ng microwave sites. additional RTil nucr< > wave system testing and the installation and testing of the SCAliA c omputei are planned for 1980 This system will replace the pr e se n t metermy method and will make generation scheduling and monthh; bAnq an easier and more efficient 'ask in ad<htn n the nurrowave communications system has the capabilities to proude "oa c and data commumcations among CPA. its member t ooperatn es and neighbonny utihties The system was engineered to proude a i onunumcations network for future load management while still offenny future c ommunications growth for CPA and its members

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I ACCOUNTING CONTRACT ADMINISTRATION The commercial operation of Coal Creek Unit 1 increased Because of the increased number and the greater com-the accounting and financial responsibilities of Cooperative plexity of Cooperative Power Association's contracts with Power Association The monitoring and analysis of fuel costs other organizations, the position of contract administrator and the spare parts inventory, budgeting, payroll and fixed was authorized during 1979 by the Board of Directors. The asset accounting comprise the primary function of the Coal Coal Creek Project has required several contractual Creek Accounting Department. In addition, the generation agreements with United Power Association as well as joint costs and the financial position of the Coal Creek Project are CPA and UPA agreements with the Falkirk Mining Com- ,

reported to various federal and state agencies, as well as the pany. Updating of the transmission agreements with the area CPA and UPA Boards of Directors. CPA also accounts for its utilities is also in progress.

share of the investment in dc and ac transmission facilities of the Coal Creek Project.

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,m ~g: . .g s FINANCING Alternative methods of financing pollution control and coal mining equipment have saved CPA consumers over $45 million in interest costs. A $90 million pollution control bond was placed in August,1978 to finance pollution control equipment at the Coal Creek Station. A $5.5 million leveraged lease on a parting dragline and shovel was ob-tained in November,1978 while a subsequent leveraged lease was obtained on the 8750 dragline in December,1979.

Additional efforts are currently being made to obtain a third leveraged lease for the second 8750 dragline.

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. Board Committees Exe:utive Generation and Fuels Charles Anderson, President Directors: Edgar Meyer, Chairman Michael Thorson,1st Vice-President Richard Harbitz Richard Harbitz,2nd Vice President Arthur Kimmes Jay York, Secretary MichaelThorson Clemens Ulbricht, Treasurer Managers: Francis Fiebelkorn Ted Lennick, General Manager M rvinJ hnson LeRoy Nelson Richard Okerberg James Herbert, Assistant Genera Manager, Power Group Transmission, Communication and Land Use Finance and Audit Directors: Martin Lohmann , Chairman Directors: Orville Lipke , Chairman Wendell Olson Gilbert Schmitz Emil Stenzel Clemens Ulbricht Jay York Lyle Wayne Managers: Donald Amundson Managers: Duane Henkelman Albert Lennick Bernard Janowski Ramon Millett Vernon Jutila Clarence Peterson James Heiser. Assistant General Manager, Transmission, Communication and Land Use Vernon Carlson, Assistant General ,

Manager, Finance and Accounting )

External Affairs Personneland Administration Directors: Gerald Stevens , Chairman Directors: William Whitney Jr., Chairman Charles Anderson Don Frankhauser Darwin Anderson Paul Jost Martin Lohmann JayYork Managers: Jon Beligowan Managers: Cecil Holsing Donald Larson William Motl Eugene Sullivan Les Schrupp Douglas Wallace Bruce Bredeson, Director Ted Lennick, General Manager of AdministrativeServices

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