ML20196G075

1998 Annual Rept for Dairyland Power Cooperative

ML20196G075
Person / Time
Site:	La Crosse File:Dairyland Power Cooperative icon.png
Issue date:	12/31/1998
From:	Berg W, Koeller G DAIRYLAND POWER COOPERATIVE
To:
References
NUDOCS 9907010045
Download: ML20196G075 (33)

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e e ,. e There is something about a tick on the calendar Such impawements and our continual efforts to called the millennium that prompts one to hx>k enhance our fuel purchasing anJ plant operations both backward and forwarJ in a broader context, have been the bedrock of our conunitment to perhaps with a kinger view than usual, certainly control energy prices for our members. Our Class A with a stronger sense of how actions, decisions and rates for our member co-ops remain low, reflecting a directions play out over time. long-term trend of stabili:ing or reducing prices that have resulted in a cost-per megawatt / hour As we approach the year 2000, we at Dair31and are decline of 12.1 percent over the last 10 years. prompted to take an even closer Liok, an even more purposeful scan, of how well we have prepared for Esembling a powerful marketing machine th;s time in our inJustry and what impirtant steps Much of our energy internally Juring 1998 lie ahead. We need a clear picture of the building involved recrafting and assembling important new bhicks that bas e estaHished us in our markets as building bhicks for the future of our business - well as the new or aJJirional bhicks that must be assembling a p>werful new marketing services firmly in place as we prepare for a new century of organization anJ repositioning our energy service and success. marketing and dispatching service. s One Liok is backward - an assessment of the A significant anJ strategic accomplishment by our foundations we have laid in our operation.s, services member cooperatives during 1998 anJ early 1999 and market relationships; the other forward - to was the successful merger of EnPower, our system's the structures anJ Juections we must take to keep cooperative marketing anJ sales organi:ation, with pace with and lead the changes in our marketplace ESI, a similar group focused on off-system sales in and industry. Minnesota and aJjacent states. Overall, the view is encouraging. looking backward, This consolidation was a test of everything we are confiJent in the course we have set to reduce important to the future of DairylanJ and its costs, strengthen market relationships and improve members it was a measure of the seriousness with operating efficiencies. These efforts are translating which we confront competition, our flexibility and into better service to our co-op members anJ a resourcefulness in taking new approaches, anJ even strong price position - major factors in remaining our commitment to the funJamental structure and the provider of choice in a competitive market. philosophy of the cooperative industry in serving and securing Lical markets. Sngthening our foundational assets Solid service, JependaNe revenues anJ an What Jrove our decision to merge these aggressive market p>sition start with assets that are organi:ations was a recognition that our members tuned and timed to perform at their best. During woulJ benefit the most from a centrali:cd, focused 1998, xe maJe the difficult but necessary decision sales and marketing group. The integration to take some of our units off-line for scheduled promised a critical mass of new skills anJ maintenance and upgraJes - impnwements that attractive economies of scale that would alh>w us will result in greater unit availability, improved heat to develop new products and proviJe a new level rate, fewer forced outages anJ greater voltage and of staff support, better than any distribution system stabilit';. This effort, combined with other cooperative on its own. Equally, the consolidation improvements Juring the year to our transmission gives us a stronger market presence in the Upper system, places us in a soliJ position heading into Midwest, combining the resources and market this new millennium with a system that is ready to knowledge of 90 distribution co-ops. With the Jeliver - to our co-op customers as well as to new merger completed in the first quarter of 1999, bulk p>wer market.s and off-system sales EnPower Jerloved the " Power Tool Kit", a new opport unities. package of business anJ marketing services to

ass.st co-ops in their market planning work to Cooperative is the name of the combined Crawfiird pursue promising opportunities for power sales and and Grant-Lafayette electric cooperatives. energy services in adjacent markets. Eking strategy with financial perforrnance hcturing new relationships Of course, our steaJy financial rrflirmance i HeaJmg into this year, we had much yet to (L) in continues to be a critical tiiundation in our growth order to finalize some necessary changes to our anJ expansion into new nurkets and services, and partnership agreement on GEN-SYS Energy, which 1998 was no exteption. For the year endmg has s erved as the centrali:ed wholesale p>wer December 31,1998, we generated net margins of marieting and dispatching service for Dairyland anJ $ 3.9 million on total gross operating revenues of for.he Cooperative Power (CP) system in $165 nullion, Jown from $4.2 million in nurgins on Minne30ta. Late in 1998, CP combined operations $188 million in revenues in 1997. The difference in \\ with United Power Association (UPA). UPA operating revenues reflects the change in accounting aheady was operating a similar power trading unit pracoce in late 1997 where revenues anJ carnings bu: with a different orientation to the market than from bulk p>wer sales are now booked in GEN-SYS GEN-SYS has. To facilitate their combinanon Energy rather than at Dairyland. goita tiirward, we purchased CP's interest in i GEN-SYS. We are aggressively pursumg our strategy This financial basn cornbineJ with our natural to fortif) our marketing and risk management grengths in market preyna and custorner servien capabilitie.s and will continue to create new an providing a critical founJation in our ettiirts to opportunities to market our competitive bulk power. $"'" re anJ shape our business to meet new Among other important milestones we worked opportunities and towarJ in 1998, was a mutually beneficial wage confront compentive i agreement as part of a sheduled re-opening of our challenges. y labor contract with IBEW Local 953. Our + employees have initiated sceral quality efforts in 0"r "r"'CMY ' i the year and continue to find amovative and araight forward, our 3 effective ways of impoving our da;ly operations. focus clear, our priorities simple. We The same is true throughout the entire Dairyland are confident that our system. Our member cooperatives' track record of comnutment to the - g{g reliability anJ their intimate knowledge of the fundamental bmiding customer is a chief cornerstone of market retention bhicks of our busmess Chairman and growth strategies as we move into a new era of will position our energy services. Many of our memlers are pursuing member cooperatives new anJ innovative strategic initiatives to enhance for success in a market their competitive position. Heartland Power that will reward iJeas Cooperative, formed through the merger of Cedar that work, relationships i Valley and Winnebago electric cooperatives on that matter anJ Jan.1,1998, had a successful first year of operation. promises that are kept. , p ") In aJJition, two new member cooperatives will be created in 1999 through two mergers within the system. Riverland Energy Cooperative is the result of the merger of Buffalo and Trempealeau electric cooperatives, while Scenic Rivers Energy MMU President and CEO

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-M_ = M = Eosting generation efficiency year olJ hydro power unit is due for rehcensing in = The foundation of success in competitive power early 2001, so we concentrated during 1993 on a 5 services is the atility to generate k3w-cost energy range of operational anJ environmental tests timeJ and tied to market needs and opportunities. required for the application. These stuJies were r Over the last year, Dairyland implemented several completed successfully la3t year and were included in = employee-based improvement efforts to rednce costs the application for relicensing we filed early this year T of generation and improve unit efficier.cy and with the Federal Energy Regulatory Commiwion. E availabihty. These measures control wholesale power costs and improve reliability liir our member Ehancing transmission reliability cooperatives while allowing us to capture market A key factor in improving rehabihty and nyaxineing share fer off-system anJ off peak power sales. bulk pourr 3 ales efficiency is the quahty of transmission systems, and DairylanJ completed Nearly 70 percent of our generation comes from several major transmission projects last year that ' 4_ three coal-fired plants, about two percent from strengthen our links to member cooperatives anJ M renewable sources such as our hydroelectric facility adjacent systems. We upgraded or rebuilt more than anJ our partnership in the Evergreen winJ 54 miles of transmission line last year, and added CE generation turbine project, with the balance coming more than nine mile.s of new lines - all of w hich from purchases of bulk power on the open market. work together to improve operating voltaue, expand _]j the capacity of the system for power sales anJ in 1998, we embarked on a program designed to improve efficiency by minimi:ing line loss. give us the capacity and flexibility to achieve m aggressive targets liir generation anJ purchaseJ A major focus during the year was the continuing g power, with marked improvement in unit effons to get regulatory appnwal f ir the Chisaco availability and reduced outage periods. Among our transmission line. The joint proposal by Dair3 anJ 1 = successful projects was a major maintenance and Northern States Power (NSP) calls fiir a new M overhaul of the John P. Madgett Station in Ahna, 2 30-kilovolt transmi+ ion hne from NSP's Chisaco M= Wis., to correct tube failures in the reheater section. County (Minn.) substation, and enJine at our Apple River substation near Amery, Wis. 6 In ikcember 1998, our employees at the coal-fired -= Ceow3 station in Genoa, Wis., successfully We proposed the hne more than two years ago to T completeJ a major replacement /upgraJe of the ensure reliable service to our customers. The current -E plant control system, ensuring the unit was on line transmission system is at risk and this project is = to meet winter demanJs. The outage also focused crucial to thousanJs of peorle in the area. Pubhc on control room enhancements anJ featured our meetings anJ hearings have been held in both M first use of an innovative control rmm simulator Minnesota and Wisconsin to heir reculators Q that allowed technicians to check systems anJ Jetennine whether we can proceeJ with the = control processes at every step of the project. project. We anticipate a decision by luth = During the controls outage, the very high states in early summer 1999. -M pressure /high pressure turbine was = overhauled resulting in a 6 to 7 percent Tlw aggewiw prognuns to enhanw g efficiency gain. efficiency haw translated into real value for .= our member coogrratives and their = A small but important part of our customers. We have successfully controlled generation comes from the 21-our costs for power which allows our watt Flambeau Station hyJroelectric - markets to use energy as a strateeic tool facJity in Ladysmith, Wis This 47-fiir growth.

Our commitment to preserving and pnitecting the turbine fann that supplies the Evergreen program. quality of our environment is not just a pn> gram at This environmental marketing program allows Dairyland. It retlects a deeply hell view that good participants to purchase blocks of pmcr for a / environmental practices actually reflect efficient nulest amount above rates for conventional power. ( anJ sounJ operations and contribute to the The project features three wind turbines in overall economic and social health of the markets southwestern Minnesota that generate, on average, we serve. Since we draw upon natural resources two megawatts of electricity - enough to pnver to serve our members, we have an obligation to approximately 550 homes. Mirroring a national ) give back to our environment and preserve its study that suggests three out of four consumers resources for future generations. At Dairyland, woulJ be willing to pay more fiir electricity from this commitment takes many forms - large anJ renewable sources, Dairyland's Evergreen program small, regulated and voluntary - but it is has alreaJy reached its target sales goal of 1,800 fundamental to being part of anJ contributing to blicks of energy (100 kWh each), and there is a = the markets that are so much a part of our waiting list of interested co-op members. livelihood - as we are to theirs. o Eccess on land and in air $veloping long-term solutions Our commitment to environmental compliance One of the most obvious building blocks in our anJ performance also extends to environmental environmental stewardship is preseiving the quality stewardship - findmg ways to enhance the of our air. Our improvements in power pn>Juction environment that go beyond our operations. We come with a matching improvement in air had success "on land anJ in the air" during the year emissions perfiirmance - a critical success factor with two visible and effective programs that given nxlay's aJJed scrutiny of the air quality involved our employees anJ several community impacts of coal fired generation. We continued our volunteers. What had alreaJy been a successful impressive track record of controlling sulfur dioxiJe effort to create nesting sites for threateneJ emissions, reductions that have totaled up to 80 peregrine falcons received or.e of the highest percent since the early 1970s. We are improving endorsements we coulJ ever hope to see - the our market to recycle bypnxluct materials from the rerum of the parents to the nests in Spring 1998 coal useJ in generation of electricity. and again in 1999. During 1998, our efforts continueJ to develop a Our employees were also key to another program safe, long-term solution for storage of spent nuclear last year to help restore native prairie grasses in the fuel fnim our boiling water reactor in Genoa, Wis., region - in this case, at a site near Genoa, Wis. that was shut down in 1987. A Dairyland Working wah the Prairie Enthusiasts, our subsiJiary, Genoa FuelTech, is working with a employees learned techniques of umque coalition of eight other utilities to controlled bums that invigorate the secure federal permits fiir a proposed gennination of native grasses anJ tempirary storage facility in Utah prairie plants. What makes this that will ensure safe fuel storage and project particularly satisfying and help us reduce our $3 milhon per representative of the value of year expense for maintaining the giving back to the lanJ is that the spent fuel at our site. grassland area was the site of the ash dispisal from our coal plants, Tlus last year saw an impressive but has now been reeeeded for start of our one-third future generations with nearly 60 partnership interest in the wD spec es of native prairie plants. %wu

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InJustry research clearly shows tlut energy electric Jistnbunon cooperatives, incluJmm customers want to th> business with people they DairylanJ, Great River Energy (Elk River, hhnn.), trust, people with a track record of perfiinnance Basin Electric Power Cooperative (Bi uurck, and a reputation for truly unJerstanding anJ N.D.)/ East River (htaJison, S.D.), and hiinnkota responding to the distinctive needs of their markets Power Cooperative (GranJ Forks, N.D.). anJ customer,. Dairyland and its members, like many other co-ops, have natural strengths in their AJJuional cooperatwes, incluJmg the G>rn Belt relationships with customers and their presence in Power Cooperative (I hunh > Lit, Iowa) setem, h;we local markets. At the same time, Jeregulation of chosen a subscription option fbr EnPower pnducn our industry has spawned new consumer and services By early 1999, ah,ut 90 co-ops haJ ewectations and heightened Jemand fi>r a new jomed EnPower. generation of energy products and services. ois for a new century Dairyland and as members are buikhng on their EnPower centrah:es the develornient of services ""d "d"'b '"nunonly sought after by co-ops to liiundation of service to cus, >mers by assembling a P whole new structure and approach to meet these help strenchen core businew anJ planning skilh, to emerging needs. Dairyland member cooperatives collectively pursue new marker opportunnies, and to had the foresight two years ago to call for the auract and retain new customer load or revenues. creation of EnPower to aJJress grow ing needs for P""iP"""M '"'"P' '"" '" lor t heir En Power " Tool more efficient sales, marketing and product Kit" of marketing programs by selecting from a development. range of Jistinctive and proven pnducn anJ Cttsromer planning, inarketing, strategy and sales EPower consolidation adds strength support services developed by or through EnPower A new EnPower has now been created from the a Busine.s services, such as market research, pncing successful merger of the original Dair3 land system's strategy, negotiation support anJ market plannma, EnPower and ESI, a similar group created by co-ops are designed to help co-ops focus anJ leveraec their in hiinnesota anJ neighbonnu states. EnPower is marketing m J sales efforts designed to leverage the successful approach of the a hiarket Jevelopment programs invoke special co-Lp industry - cooperation - anJ itutch it with sales teams witti Lical cia,per;itives to ptirsue centrali:ed, cost-effective pnduct Jevekspment to opportunities m aJjacent markers for bulk peer create an impressive range of business, marketing sales and other energy rel.ned sertwes and consumer services not normally seen outsiJe n EnJ-user pn>Jucts, w hich can be "re.branJed" the nation's largest energy markets. By devehiping by hica! cooperatives to sell Jirectly to their pnducts anJ services with a cooperative agricultural, conunercial, industnal anJ organi:ation, these co-ops are able to take resiJennal customers, incluJe servwes such as advantage of their intimate knowledge of the energy m.uugement, home services, power market and historically strong customer quality, financmg/leasine, lighting, billing and G relationships. They have created a valuable energy Jesign. array of pnducts uniquely tailored to agricultural, commercial, industrial and By the end of in first full scar, EnPowcr haJ residential markets. alreadv Jeplo>ed nuinerous produco and services and helped secure several new The new EnPower is supported by sales contracts among member - and in turn, EnPower .o cooperatives. EnPower is aho s J supports - four regional f M i ; m enjoymg early suct ess wah of t-generation and transmission y$ 4 Q~ k system sale 3 to Ihe conunercial q systems (G&Ts) and their anJ indusnial sector.

e o f. o ..T lt is tradinonal for p>wer coiremtives to " stay Earlier this year, Dairyland initi ned a buy-out of , jp fl within their walls" and focus on serving the CP's interest in GEN-SYS Energy after CP 6l j iinmedute needs and requirements of customers. combined operations with UPA, fonning Great However, Dair3 and has long recogni:ed that we can River Energy. GEN ~SYS continues to pursue 1 best optimi:e our assets and enhance the comirritive pu rnerships or alliances which strengthen its abihty I ..j 1. .t position of our member caveratives by pursuing to maximi:e the value of Dairyland's generation '.w market opp >rtunities that fit our skills and resources. assets while protecting its expisure in the ' ^ our market outreach thrusts are in tuu areas: e the sale or trading of wholesale bulk p>wer with in aJJirion, EnPower offers promising nurgins and g.".. cameratives, unbries and municindities in; and strategic opponunities in retad sales of p>we. and " rursuma power contracts and %ehind-the-meter" energy consuhing/nunagement services to end-h hY or energy nunagement service agreements. users. DairylanJ's member cooperatives luve earned q' N,y : solid reputations for service and rehability in areas EN-SYS Energy expands sales adjacent to larger markets in the region. Co ops can q. 4 (.. UEN-SYS Energy, Dairyland's wholesale marketinM be well-owirioned m be an ahernate choice for v p, unit, which provides power tmJme, dispatch and customers seeking energy consuhing and service. a T scheduling services for our generation assets, i 1/ ;/ ; continueJ steady sales during 1998. GEN ~SYS was Enhancing value, extending reach . i' h : estabhshed in January 1996 as a partnership irylanJ is also stretching its luunJaries in s '. < between Dair) land and Cooperative Power anJ is operations by working harJ to derive more value responsible for bulk power sales and for making from our existing tran mission facilitics anJ market purchases of power to meet native load enhancing the capabihties of the system. ' /, ' ;. 4 Jenunds not already met by our own generation f :" Y '. sources. GEN-SYS expanJed sales into other n;wer P>uilhng upon and unproving our aisnnu systeni allous us to stretch our boundaries to better serve I; a puls Juring the year as Dairyland's low-cost 's current and future members. A state-of the-art L "J E ' - generation proved to be competitive choices for .fa other utihties facing supply shortfall 3 and higher communications system is a vital tool as 7 pnxluenon costs. wquirements change and improvements in functionahty become avadable that can enhance .s The rehabihty of Dairyland's facilities was a key efficiency. We implemented the latest " ^ l, Q fp;j factor in the security of uwer supply to our communications technologies to increase coverage l / D$ l members daring the panic in the wholesale market and rehability with the completion of a nonh hup 1.. ' d.' 5 that accompanied near catastnphic outage microwave system upgraJe in 1998. 63 conditions in the region as well as others in late In askhtion, five new distribution substations weie N [[ i June. GEN-SYS was a pnxluctis e net seller during constructed to meet the growing needs of our this perturbation in the market. This whole 7c3.[jd sequence of events underscores the need to ensure niember cooperatives. ' ' 1 H.f i, that sohd risk management capabihties continue t" Negotiations with a neighluring unhty have been 4 y.;;j be a strategic focus. underway to ensure our members obtain enhanced C hi 1998, the Pardeevdle (Wis.) value fnnu the system through the ser ice "e wceive unJer their network -c, municipal selected GEN-SYS as its transnission tariff. Dairyland also .b energy supplier. GEN-SYS c. ,s .y au negenatea sevena u,nm ne inuesina

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'"--""""'""'~~~~~~~" G p* 4 The relationship of electric cooperatives and the attraction efforts, and pnwiJe an imponant signal 1JLE communities thev serve has been one of mutual to investors and partners about the long-term

. A Irnefit, mutual respect anJ mutual support.

viabihty of these h> cal growth efforts. These loans Cooperatives were born out of a need by are repaid to Dairyland not just in payments, but communities for a level of service and commument also in real economic growth that leads to greater that couhl only come from within. Electric demand for power and vervices. Since the loan ,6, cooperatwes have gniwn and flourished as their pnigram was initiated ia 1990, DairylanJ loans h;we communities have grown and flourished. In turn, helped create more than 2,200 johs and more than ..j. communities have benefited from having local 50 million kilowatt-hours of electne sales each year. P partners commitred to the long-tenn viability of their unique economy. One emuurk of the imponant rok moperane .u,, can play in facilitating local economic Eoperation among cooperatives development was the joint effort of EnPower anJ ,O On an industry level, electric cooperatives have DairylanJ member Polk Ilurneti Electric always recognized the special role they have played Cooperative m surport of a new industrial park in ff in providing energy services to thousands of Osceola, Wis. Polk-Burnett and EnPower were aNe J,' communities across the country. They have to secure low interest federal loans, along with 'i1 ' cooperated in sharing iJeas, resources anJ other state anJ local funding, to suppon approaches that strengthen the capabihties of infrastructure development at the site. Polk-individual member cooperatives. This cooperation Bumett has been awarJed the service rights to the is one of the principle bmiding bhicks of park, which otherwise would have been in the . f-cooperative organi:ations. operating territory of an investor-owned utility. Tius legacy of cooperation anJ service between Dairyland and as distribution cooperatives are Dairyland anJ its industry and conununities is now alreaJy Jemonstrating their abdity to be 3 an important point oflevera e. As in the past, the influential and effective in stimulating growth in % l 7. same mutual benefit that forged such close their markets and bringing new services to their M;.. relationships now is leadmg to new partnerships anJ customers. Ilowever, Dairyland also recogni:es the

D collaborations that wdl ensure these communities continuing importance of working with other jy gain all the benefits of a more competitive power cooperatives to induence the direction of

.) m-marketplace for energy services. Throughout the our industry, collaborate on marketing rn> grams J 1. ? many changes unJerway in the inJustry, electnc anJ ensure that customers recogni:e the abihty of 4 cooperatives continue to be respected as a rehable, cooperatives working together to meet unique R competitive supplier of energy sernces. needs of customers on a broad scale. That is w hy Eosting local economies Dairyland is active on project teams and workmg E ~ committees of several trade organi:ations and Dairvland's commumty investment program i' inJuvry groups that are focused on strengthemng C. E. focuscJ on stimulating tangible economic benefit" the reputation and effectiveness of electric W" ; to hical business and community development cooperatives acmss the U.S. Dairyland was one efforts. In 199& the DairylanJ board of the founding members of Touchstone approved 23 economic development Energy", the national branding l Lians totahng $2 nullion to pn, gram by the National Rural support various ecoaomic Electric Cooperative Association, development ventures. These which has raised awareness ' 1: -,e ; - low interest loans are designed nationally of the strengths of l . S {' '.. to attract matching g power cooperatives in today's 1.5 provide support for other grant' competitive energy market.

'D s...., - - -.

gg Eecutive Committee Gerald Koeller - Chainnan Grant Lafayette Electric Cmperative Duane Solum - Vice Chairman ) ' ~ SN,- lblk-Ibrnett Electric Cmperative Robert Anderson Treasurer y Tri-County Electric Cmperative F ~ Judy Murphy - Secretary Richland Electric Cmperative I Art Riemer - Member At Large IbyficLI Electne Cooperative / Ken Sonsalla - hiember At Lar e Trempealeau Electric Cooperative I l GeorgeWebb - hiember At Large 7 Chippewa Wiley Electric Cooperative 9 g l Laurie Engen - Assistant Secretary /, Dair3 and Ibwer Cmperative j 1 Niles Berman - Legal Counsel I $ rectors c

. ~

Clarence Boettcher i 9 Eau Claire Electric Coolwrante T Sandra Davidson 'g-Crawford Electric Cooperante Richard Dierauer Buffalo Electric Cooperative John Donner jump River Electnc Cooperative M h . M4,f } Dennis Engel j Taylor Electnc Cooperative i .f + r County Electric Cuyrrative e ,._.....,__,...._,,,.m,,,..,,,,,,

. gg J Ron Foley L f Pierce Pepin Cmperative Services I- ~ Henry Janezich Clark Electric Cmperative l q f Frank Jasurda Price Electric Cmperative M [ .y; Robert Kelbel ,) Vernon Electric Cmperative 4 g' Roland Kelley . [H-. 3 OakJale Electnc Cmgwrative Francis Klatt ) St. Croix Electnc Cmperative J Dale Mangskau Frechirn-hiower Cmperative Services Selmer Nelson ./ V' Barron Electric Cooperative Leonard Ricke Jo-Carroll Electric Cmperative ~ T 4 - O' Quentin Rucker People's Cmperative Services [ Roger Solomonson -r Heartland Power Cooperative 'A RayTolley I /f h Class B hiemtvrs / T Wayne Weber h Dunn Electric Coo;wrative g Bernard Welsh ./ Allamalee-Clayton Electric Cooperative ; 3r ,Iy. ,g. Gary Woods g, .?~ Jackson Electric Cooirrative g

e ErVision... 3 ..is to be the provider of choice for energy and services to our customers. .: f-4 Er Mission... 4 ...is, as a cooperative organization, to provide competitively priced energy and services to our William L. Berg customers and maximum value to our owners, President and CEO ( i

k consistent with the wise use of resources.

~ We will work with our members to improve the s CharlesV.Sans Crainte Vice President, Generation economic and social well-being of the region. President & CEO, GEN-SYS Energy 4 ErValues... k Our members are the reason for our existence. 7"*, g J We will strive to provide services that exceed McnrcdJamun 1999) their expectations, emphasizing honesty, quality and other sound business principles. e ( Our employees and the people we serve are vital to our success. To promote excellence, we will support and encourage employee ,i.. -( Bruce H. Staples development for the purpose of matching g4. Vice President, Transmission qualified people to the right jobs while being sensitive to the importance of job satisfaction. Sg Mary L. Lund We will encourage open, honest and timely Director, Human Resources 1e,, ~ Q two-way communication. Working as a team, T i we will respect each other and balance ~ p empowerment with accountability.

6 As we conduct our business, we will be responsible members of our community, good I

stewards of the environment and follow sound Alison J.Thimis safety practices, while continually improving Senior Vice President, Robert C. Mueller EnPower our processes and services. Vice President, Finance & Administration

l Power Generated & Purchased Power Sales (Thnand of Mith) (Thanand.s of M\\Y h) E Purchased 3 ooperatives 6,0 00......... < *. 6,000.... 5,0 0 0......... 5,000... 4,000... 4,000.. 3,000-3,000-2,000 2,000 1,000 1,000 ~' 1994 1995 1996 1997 1998 1994 1995 1996'l997 1998 - - 7. 1998 Revenue Dollar ~ 1998 Expense Dollar Cla'ss A Ot$er C &E 75 % P

8. 8 3

e .47% 7 Margins Fixed 2.34% Costs

systmunan Smber Distribution Cooperatives Eiryland Facilities Class A Members Alnu Generanng Site / Alma,4,is. Wisconsin Flimbeau Hydro Station /Ladysmith, Wn.

1. Barron Electric Cooperative /Ilarron Genoa Generanng Site / Genoa. Wis.

2. BayfielJ Electric Cooperatise,Inc./ Iron Rncr L Cluppewa Valley Electric Oxipera:ive/ Cornell hnicipal Customers

4. Clark Electric Guperative/Greenemi

a. City of Arcadia, Wis.

5. Ibnn Elecinc (niperanve/htenomonie

b. Vdl M M 4's 4

6. Eau Claire Electnc (nywrative/ Fall Lrcek

7. Jat Lson Electric Oxqwrative/ Black River Falls

.]? g

8. Jump River Electnc Guperative,Inc./Ladysnuth (5"Y "I 9'"Y:

9. OakJale Elecenc G=qvratite/OaLJale "Y"""""""

10. l'icrce-Pepin Coogwrative Services /Ellsworth

g. Cay op"orest CW,loua

11. Polk-Burnett Electnc Guivrative/Centuria li. Cay of inl wnince, Iowa i

12. Pace Electric G = grranve, Inc./Pluthps I L Richlan i Electric Goperanve/Richland Center

{ jay of La Farge,4,n. L '"I"*"

14. Riverland Energy G x gwranve/ Arcadia b k"Y "

Uune I. Iwo merner of Ihada and Trempealcau1 N"Y "S""?'"'

15. St. Cron Elecinc Gwiperanve/B.dJwin

[,

"[j;' ("{ 'V

16. 5cenic Rivers Energy Oxq>eranve/Lmcaster n, g g,, g g,,,

Uuly l. lw9 merger of trauprJ aml(, rant-lafayene) g, y,g j pg, g, y 17.Tashir Electnc Goperanve/htedford

p. Oty of Rushford, hiinn?

18. Vernan Electnc (,ngwranve/Testby g

gg g, y lowa r. Village of Viola, Wis.

19. Allamalce-Clayton Electric Qx gwrative, Inc./Postulle

• GEN-s.s b.egy cwomen

20. Hawkeye Tn County Eletrne Ox3rrative/Cresco

21. Heartland Power G=3rranveffhompson & St. Ansgar Minnesota

22. Freeborn.hiower Goivrative Services /AHen Lea 2 L Peoplei Gu qwrante Services / Rochester

24. Tri-Giunty Electne Cx3rranve/RushforJ MINNESOTA I

lilinois

f

25. Jo-Carnill Electric Geirrative, Inc./

Eh:abeth k k Class B Members tas [ Adams-Columb a Electne Gx3rrativel -~ Friendship, Wn. w Central Wnconsin Elecinc Gx qwranve/ l-l'* Y 4 lota,Wn. ji > L Oconto Electnc Geperative/ W f_)1- ] [- JYlSCONSIN Oconto Falls, Wo. ] Rak County Electnc Gx perante Associanon/Janesvale, w n. > r 3 \\1 b vl ~ y ) 7ll F i . ErT Cooperatives l ylw3. d'kl l l .---J-Class C Members IOK l h lwl L~ Oxgwrante Power /EJen Pr.urie, himn. .. f~P 7 J, htinnkota Pow er G u veranve, Inc./ Abj J ' \\35L j Grand Forks, ND. Uruted Power Assaianon/ Elk River, hiinn. I l l f ,JLL1NO!S3

i port of Management Responsibility hianagement is resp nsible for the preparation anJ integrity of the financial statements and representations in the annual report. hianagement uses the best judgement and resources to ensure that such statements present fairly the financial positions, results of operations and cash flow of Dairyland Power Cooperative. ( Dairyland maintains a system ofinternal controls which is Jesigned to proviJe reasonable assurance 3 that transactions are recorded in accordance with management's authori:ation, that financial statements are prepared in conformity with generally accepteJ accounting principles applied on a consistent basis and that assets are safeguarded. The board of directors, through its AuJit Committee, has responsibility for determining that management fulfills its responsibilities for preparation of fmancial statements and financial control of operations. The Audit Committee meets regularly with management, Dairyland's internal auditor and \\ the Cooperative's inJerendent public accountants to discuss internal control, financial rep >rting and athhting inatters. DAIRYLAND POWER COOPER ATIVE La Crosse, Wisconsin February 26,1999 \\ } Eport ofIndependent Public Accountants To the hiembers and Board of Directors of Dairyland Power Cooperative: We have auJited the accompanying consohJared balance sheets of Dairyland Power Cooperative (a Wisconsin cooperative) and Subsidiaries as of December 31,1998 anJ 1997, and the related consolidated statements of revenues and expenses, member anJ patron equities, and cash flows for the years then ended. These consolidated financial statements are the respin.ibility of the Cooperative's management. Our respinsibility is to express an opinion on these consoliJateJ financial statements based on our audits. We conducteJ our auJ ts in accordance with generally accepted auditing standarJs and the standarJs applicable to financial audits contained in Govermnent Aidting Standards, issued by the Comptroller General of the Linited States. Those standards require that we plan and perform the auJit to obtain reasonable assurance about whether the fmancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anJ Jisclosures in the financial statements. An audit also incluJes assessing the accounting principles used and significant estimates maJe by management, as well as evaluating the overall financial statement presentation. We believe that our auJits provide a reasonaHe basis for our opinion. In our opinion, the consoliJared financial statements referreJ to abom nresent fairly, in all material respects, the financial position of DairylanJ Power Cooperative and :- 'iaries as of December 31,1998 anJ 1997, and the results of their operations and their cash flows for th > ears then enJed in conformity with generally accepted accounting principles, in accordance with Guvenunent Aidring Starufards, we have also issued our rep >rt, Jared February 26,1999, on our consiJeration of the Cooperative's internal comrol over financial repirting and our tests of its compliance with cenain provisions of laws, regulations, contracts and grants. ARTHL'R ANDERSEN LLP hiinneapolis, hiinnesota, February 26,1999

Onsolidated Balance Sheets Assets As of December 31 1998 1997 (In ThousanJs) ELECTRIC PLANT: Plant and equipment, at original cost. $ 630,693 $ 612,308 Less-Accumulated depreciation. (314,817) (303,690) 315,876 308,618 Construction work in progress. 29,878 24,019 Total electric plant 345,754 332,637 l OTHER ASSETS: Marketable securities. 31,760 52,277 Economic development loans and other investments. I3,736 11,503 Investments in capital term certificates of National Rural Utilities Cooperative Finance Corporation. 9,176 9,176 L)eferred charges 5,369 7,556 Nuclear decommissioning trust 66,875 54,865 Total other assets. 126,916 135,377 CURRENT ASSETS: Cash and cash equivalents. 431 950 Accounts receivable. Energy sal-s. 16,433 15,029 Other. 12,547 5,290 Inventories, at average cost. Fossil fuels. 24,898 18,498 Materials and supplie< 9,936 9,788 Prepaid expen.ses. 838 990 Total current assets. 65,083 50,545 $ 5 37,75 3 $ 518,559 l The accompanying notes are an integral part of these consolidated balance sheets. I

9nsolidated Balance Sheets Capitalization and Liabilities As of December 31 1998 1997 (In Thousands) CAPITALIZATION: hiember and patron equities-hiembership fees. 12 12 Patronage capital. 91,497 88,088 AccumulateJ other comprehensive income. 489 757 Total member and patron equities. 91,998 88,857 Long-term obhgations. 303,948 318,638 Total capitali:ation. 395,946 407,495 ESTlhiATED DECOhihilSSIONING LIABILITIES. 66,875 54,865 COhthilThiENTS AND CONTINGENCIES (Note 7) CURRENT LIABILITIES: Current maturities of long-term oblications. 14,476 12,778 ,E Short-term borrowings. 34,200 22,000 Advances from member cooperatives. 3,379 3,241 Accounts payable. I1,491 6,737 Accrued exrenses-Payroll and vacation pay 5,461 5,707 Taxes. 2,147 1,941 Interest 1,038 872 Other. 2.740 _ 2,923 Total current liabil:aes < 4.9 3 2 56,199 $ 537.753 $ 518.559 The accompanying notes are an integral part of these consolidated balance sheets. l

Unsolidated Statemsnts of R:vsnuss and Expenses For the Years EnJed December 31 1998 1997 (In ThousanJ3) OPERATING REVENUES: Sales of electric energy. $ 157,326 $ 179,976 Other.. 7,655 8,292 i Total operating revenues. 164,981 188.268 OPERATING EXPENSES: Fuel. 52,338 59,676 Purchased and interchanged power. 13,837 29,875 l Other operating expenses. 35,110 36,264 Maintenance 16,141 12,173 Depreciation and amorti:ation. 25,321 26,157 Taxes, other ihan income. ,,41 < ,,960 Total operating expenses. I50,164 172,105 Operating margin before interest and other. 14,817 16,163 INTEREST AND OTilER: Interest expense. 20,232 21,775 Other expense, net 308 513 Total interest and other. 20,540 22,288 Operating deficit. (5,723) (6,125) l NONOPERATING MARGIN, principally investment income. 9,582 10,368 l Net margin 3.859 $ 4.243 The accompanying notes are an integral part of these consolidated financial statements.

.'jy,-l((.

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Accumulated .'/ Other . (. J. T ' '. Memben hip Patronage Comprehensive Fees Capital income Total December 31,1996 11 $ 87,184 148 $ 87,34 3 .T .l Comprehensive income:

? 1 - -

Net margin 4,243 4,243 cD, ? Other comprehensive income-Unreali:ed gain on securities 609 609

f J.LL.

Comprehensive income 4,243 609 4,852 Membership issued 1 I f.. (:[,f.( Retirement of patronage capital (3,339) (3,339) .,?,f 4.. December 31,1997 12 88,088 757 88,857 21-m' ' h..I. l. Comprehensive income: Net margin 3,859 3,859 -Q c'- Other comprehensive income-Unreali:ed loss on securities (268) (268) /. [.[ Comprehensive income 3,859 (268) 3,591

i] ~..,

Retirement of patronage capital (450) (450) f,). # m December 31,199S 12 $ 91.497 489 $ 91,998 E-m 1 y :_.y...

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• The accompanying notes are an integral part of these consolidated financial statements, hNNhN

& ?. :e,j., @NiidFO

Unsolidated Statements of Cash Flows For the Years EnJed Ikcember 31 1998 1997 (In Thousand3) l OPERATING ACTIVITIES: Net margin 3,859 4.243 Adjustments to reconcile net margin to r et cash provided by operating activities-Depreciation and amorti:ation. 25,321 26,157 Other. 1,059 956 Changes in operating elements: h Accounts receivable (8,661) (1,089) Inventories (6,548) 10,563 Prepaid expenses. 152 (155) Accounts payable 4,754 (1,197) Accrued expenses (57) 1,289 Net cash proviJed by operating activities. 19,879 40,767 INVESTING ACTIVITIES: Electric plant aJJitions. (29,106) (27,688) Purchase of investments. (23,580) (9,089) Sale of investments. 41,864 11,147 Advances to nuclear Jecommissioning trust. (7,904) (8,054) DeferreJ charges, net. (568) 3,456 Net cash used in investing activities. (19,294) (30,228) FINANCING ACTIVITIES: Short-term borrowings, net 12,200 6,000 Borrowings unJer long term oNigations. 50,185 23,605 Repayments of long-term obligations. (63,177) (38,555) Retirement of capital credits. (450) (3,339) Advances from member cooperatives. 138 1,585 Net cash used in financing activities. (1,104) (10,704) Net Jecrease in cash and cash equivalents. (519) (165) CASH AND CASH EQUIVALENTS: Beginning of year. 950 1,115 End of year. 431

950, s

SUPPLEhiENTAL CASH FLOW INFORhiATION: Cash paid for interest, net of amounts capitali:ed $ 20,065 $ 22,441 The accornpanying notes are an integral part of these consolidated financial statements. l a

Otes to Consolidated F: ancial Statements Note 1. Nature of Business and Summary of to electric plant accounts. The cost of units of pnperty Significant Accounting Policies: retired, sold or otherwise disposed of, plus removal costs, Organization and Business less sah age, is charged to accumulated Jerreciation. No Dairyland Power Cmperative (the Goperative) is an ofit or L>ss is recogni:ed m connection with ordmary electric generation anJ transmissit a cmperative organi:ed retirements of property units. hiaintenance and reniir costs under the laws of the states of Wisconsin and hiinnesota. and replacement and renewal of minor items of property are armJ ni options. The G xperative, whose principal offices are Licated in Wisconsin, provides wholesale electric service to Class A Depreciathm members engaged in the retail sale of electricity to member Depreciation is Provided based on the straight-hne consumers located in Wisconsin, hi nnesota, Iowa, Ilknois methoJ at rates which are JesigneJ to amorti:e the anJ hiichigan, and proviJes electric and other services to original cost of propenies over their estimated useful in es Class C, D and E members. and inc!udes a provision for the cost of removmg and Jecommissioning the properties. The provision for The accounting records of the Guperative are maintained in accordance with the uniform system of account

• dereciaion as erageJ 4.3% and 4.5% of Jerreciable plant balances in 1998 and 1997.

prescnbed by the Federal Energy Regulatory Commission as adopteJ by the Rural Unknes Service (RUS), the Allouunce for Funds Used During Omstrucchm Goperative's pnncmal regulatory agency. Allowance for funds used Juring construction represents the cost of external and mternal funJs used for During 1997, the Cooperative tonned Gen-Sys Energy (Gen-Sys), an integrated generation alhance cmperante construction purposes and is capitalized as a component of electric plant by applying a rate (7.7% m 1998 and 6A% with Cmperative Power (CP). Gen-Sys functions as an in 1997) to certain electric plant aJJitions under energy marketing organi:ation by integrating the power construction. The amount of such allowance is mcluJed generation capabihties of the Cmperative and CP, leaJmg to increased efficiency of both entities' power generation in interest anJ other JeJuctions and aprroximated $1,551 in 1998 and $771 in 1997. systems and reJuceJ operational costs. The G operative accounts for its 50% ownership interest in Gen-Sys unJer Cash ami Cash Equicalents the equiry method, with the Goperative's share of Cash equivalents include all highly liqmd investments Gen-Sys operating results incluJeJ in purcha. sed anJ with original matunties of three months or less. Cash and interchanged power in the accompanying consohdated cash equivalents consist pnmarily of commercial raper, statements of revenues and expenses. Subsequent to stated at market, which approximates cost. The December 31,1998, the Cooperative agreed to purchase Cooperative classifies certain cash anJ cash equivalents as CP's membership interest, at which time CP's generation investments when they relate to trust funJs held for long-capabihty will no longer be part of Gen-Sys. term purposes (see Note 2). During 1996, the Guperative maJe an initial investment Investments in Pnvate Fuel Storage LLC (PFS), which had been in accordance with Statement of Financial Accounting organi:ed by eight utihties to estabbsb a site to store spent Standards (SFAS) No.115, " Accounting for Certain nuclear fuel. The Guperative's total investment is not Investments m Debt anJ Equity Secunties," mvestments in material and will be recovered in service rates. marketable Jebt and equity seconnes dassified as held-to-Principles of Consolidation matunty are repirted at amorti:ed cost: secunnes classificJ The consohdated financial statements include the accounts as traJine are reported at fair value, with unreah:ed gains of the Cooperative and its u holly owned subsidiaries, Curtis anJ Lisses includeJ in nonoreranna marum; and securines Telecommunications, Inc. and Genoa FueiTech, Inc. All classified as available-for-sale are reported at fair value, with significant intercompany balances anJ transacnons have unreah:ed gams and h>sses excluded from margms and been ehminated in consohdation. reponed as other comprehensive income as a separate comp >nent of member and nitron equities. Income Taxes Regulators Assets The Goperative is generally exempt from federal and state erwante s aaounung pohcies and the e income taxes and, accordmaly, no provision for such taxes is I'"""d"I "'""'"' """f""" recorded in the consohdated financial statements. """"I""U""'""'" generally accepted accounting pnnceles apphcable to Plant Addithms elecnic cooperanves in accorJance with the provisions of The cost of renewals and bettennents of umts of property SFAS No. 71," Accounting for the Effects of Certain Type, (as distinguished from minor items of property) is charged of Regulation."In the event that a portion of the

Cmperative's operations is no longer subject to the Note 2. Marketable Securities: provisions of SFAS No. 71 as a result of the effects of compention, the Cooperative could be required to investments classified as avadable for sale, including the determine any impairment to assets and wnte down the nuclear decommissioning trust, at Itcember 31 include the assets to their fair value. folkiwing (in thousands): 1*7 In 1996, the Cooperative's board of directors authori:ed a plan whereby all regulatory assets or liabihties incluJed in $e M. cy ny deferred charges or credits were accumulated and are to be Cash and cash equnmlents.. $ 5.6W $ 5,6W $ 4.563 $ 4.563 recovered in service rates over a three-year period. U.S. government wunues. 37,653 37,103 52,376 51,924 Remaining deferred charges of $2,627 will be amorti:ed to G>rroraic h'nds. 25m4 25,290 26,664 26.442 expense with appropriate recognition in service revenues. C'mmon suds. 29.449 19.551 2 L537 17.059 $ 98.615 $ k7.643 $107.142 $ 99.9% The Cooperative follows the provisions of SFAS No.121, " Accounting for the impairment of Long-Lived Assets and for long-Lived Assets to Be Disposed Of," which requires Since the Coolwrive intends to aJjust rates in the future to reflect change, in the market value of investments held that the recoverabdity of long-hved assets be periodically n its nuclear decommissiomng trust, unreah:ed gains of reviewed if there are inJications that such assets might be $10,503 and $6,397 on these investments at December 31, i I impaired. SFAS No.121 has not had a material effect on 1998 and 1997, are included in estimated decommissioning the Cooperative's financial position or resuhs of liabihties. o operations. The contractual maturities of marketaHe debt securities, Revenue Recognition which incluJe U.S. government secunties anJ cornitate Revenue from electric energy deliveries is recogni:ed w hen bonds, at December 31,1998 were as follows (in thousands); such electric energy is Jelivered. j j Use of Estimates s\\, ny Fair The preparation of fmancial statements in conformity with tbe u nhin one year.. $ 3,324 $ 3.401 generally accepted accountmg principles requires Ike atter onc scar thn, ugh (n e years. 27.697 27.268 management to make estimates and assumptions that Ibe after (ne sean ihnwh ten scan. 17,980 17,563 affect the renirted amounts of assets and liabihties anJ the after icn years. 14.4s6 14.159 disclosures of contingent assets and liabihties at the date of 5 6t44 $ 62w the financial statements and the reported amounts of revenues and expenses during the reporting period. Gross unrealized gains and losses at December 31 Ultimate results could differ from those estimates. (excluding investments in the nuclear decommissioning Reclassificathms trust) were as follows (in thousands): Certain 1997 amounts have been reclassified to conform l* 1*7 to the 1998 presentation. These reclassifications had no effect on net margin or patronage capital as previously Unreali:eJ uains. $ 3,215 2,014 reported. unrean:ca iosses. (2.7263 (i.257) Recently issued Accounting Pronouncements The Fmancial Accounting Standards Ibard has released SFAS No.130," Reporting Comprehensive income," Informanon regarJing the sale of marketable securities for effective for fiscal years beginning after December 15, the years ended December 31 is as follows (in thousands): 1997. SFAS No.130 establishes standards for reporting and display in the fmancial statements of total net income 1* IW7 P" red' f'"* 'dle "f 'ce"""c' and the components of all other nonowner changes in b""""O "" "I"I"' h have been equity, referred to as comprehensive income. The 'e '" 54 gi l, SII'$_ Cooperative adopted SFAS No.130 on January 1,199S, recogni:ing other comprehensive income from the Reah:ed losses. 105 177 Cooperative's marketable securities. Other comprehensive income is presented in the accompanying consohdated statements of member and patron equities. For the purposes of detenmning reah:eJ gains and losses, the cost of secunties solJ is based up>n specific iJentificanon. i

Note 3. Lines of Credit: expire in July 2002, luve been issucJ on Ivhalf of he To provide mienm financing, the G=reranve has arranged G=>;rratn e to the trustee to pnivide funds for payment of hnes of creJn aggregating arrroximately $ 37 milhon, pnne.d of any wh hoa r4emd or nplusW pnor to ilut dec. pnncipally thnnigh the National Rural Unhties O xigrrative Fmance Girporation (NRUCIC) at a rate no Substantially all of the G= verain c's assets are pledged as greater than pnme plus 1% (6.15% at ikccmirr 11,1998). coll.ncral for these obhganons. The Gwigrrative is required Ibrmwings outstanJmg were $14.2 mdhon and $22.0 to anJ h.n m.untameJ certain fmancul ratios related to nulhon at l\\sember 31,1998 and 1997. Average carmngs and hquiJay in accordance w nh the covenants of lorrowmgs outstandmg were $19.6 million in 1998 and its loan agreements. $12.3 nulhon in 1997, Cornpensating balance requirements and fees relating to the hnes of credit were not sigmficant m Schduled inmunties of the Cooperatnc's long tenn 1998 or 1997. obliganons at December 31,1998 were as follows (in thousan1): The G= perative also allows member ciuperatn es to prepay their pimer bills anJ pays interest on these prepaytnents [.;;", ^ {"" baseJ on current short-term borrowmg rates. Interest 3 m expense on member cooperante advances ($404 in 1998 ig pe g. i g,igq and $377 in 1997) has been included in intercsr expense.

002.

i s,es; N0 I. I5,41% Thereaf ter. 241 906 Note 4.Long-Term Obh.gations: , gi g long-term obhgations at ikcember il consisteJ of the foHowing (in thousands): Note 5.FairValue of Other Financial instruments: 199s 199,< icJeral Finanung Ilank obhganons. The fair value of the G=verative's financial instruments 5.0% to 9.4%. $ 19),976 $N1.141 other than marketable secunnes anJ short tenn horrowmus, RUS oNiganons, 2% 24.2 N 2N011 based on the rates for simdar secunties, o estimated to be as RUS uNiganons 5% 24.724 25,714 o ows at en r (m thous.mM NRUCFC oNiganons,6.0%. c00 1,149 NRUCFC intenncJiate loan 6.4% 11.104 im igg 7 Collank note,5.8% 50,185 Carning F.nr C uning 1an City of la Crosse, hunsin, pollution Value Value Value Valoc Control lionds, vanaNe rate, 5.1 % at Auctu llecember 11,1998. 2iA05 21h05 L ononut Jes clorenent Other,4% Juc in installrnents laarn and other through N09. 1.096 100 in s esr ment s. $ 11.716 $ 12.985 $ 11.501 $ 10.7 46 116.424 111.416 in estments m tapital lxw Current matunnes. ( I 4.47M (12.77M tenn (crtdn arcs of Totallong tenn oNiganons. $ D 4.94 4 $ ilR6 h NRUCFC 9.176 6.2 10 9J 76 5,41% Liakhtics: Quarterly principal and interest payments on the long-term obligations to the Federal Fmancme Bank (FFB) extenJ through 2021. Long-tenn obhgations to the RUS are Note 6. Retirement of Capital Credits: payable m equal quarterly principal and interest installments through 2016. Pnncipal and interest payments on the The Coogrranw's h urJ of Jins ton. has aJopted a poho of NRUCFC obhgations are Joe in varyme mstalhnents "'"""M C"P""I '"d "' "U"""d '" '""I"' "" " I'"' ""- thniugh 1999. 6nt-out basn so that at no tune wdi the Coogwranvc ncam as patmnage carnal any capnal conrnbutcJ or deposaed Ille note payab!c to CoBank Was issued m 1998, wah tbc more than 20 yean prior to the current year. Auordmely, pnKecds tised pnmardy to repay the NRUCIC intennedute 1978 and 1977 capital credas were rennsi in 1998 anJ 1997. Lun and other previously outstandmg debt. Principal and hnplementation of thn pokcy n subjet t to annual reuew interest on the ColkmL note is Jue quarterly thn> ugh 2008. anJ approval by the hurd of Jirectors and the RUS, and no Approximately $7,545 of the City of La Cnwse, Wnconsin-cash retirements are to ir enaJe whic h woukl unp.ur the Pollution G>ntnd IbnJ, are due in September 2014 and nnancul condinon of the G=verante or violee any tenn, of ns agreemenn. Peronage urnal m ikccmh r 31, UN8 $16,060 are Jue m February 2015, unless previously called. Bank letters of creJn aggreganng $23.6 nulhon, which and 1997 mcludes nurgun awignable of $3.M9 and $4.241. m

i 1 ~ Note 7. Commitments and Contingsncirs: Note 9. Nuclear Reactor: f; The Goperatne's estimated 1999 construction program The La Crosse Ibihng Water Nuclear Reactor .. 1 expenJaures are $27.4 million. Fmancing of con *truction (LACl3WR) was voluntanly removed from sernce by ~. is expected to be provided by borrowings from the FFIl the Cmperative effective Ar 130,1987. The intent U and internally generated funds. was to terminate operation of the reactor, and a " possession only" license was obtamed from the Nuclear 'e-In connection with the tennination of a coal supply Regulatory Conunission in August 1987. The facihty is .. ~ 2-. - " - ' agreement, the Goperatn e has established an escn*' n a " safe storage" status and is expected to remam so (. ' account to funJ any future contingencies relating to the unni at least the year 2019, at which time 7 terminated agreement. The escrow account is incluJed in decommissioning is expected to commence, although ',' J other investments on the accompanying consolidateJ the manner of Jecommissioning has not been balance sheets. determined. All LACl3WR-related fixed assets have . f j ' ~ ' The Cmperanve is a party to a number c.f generation, been anionced to operaung expene ~- transmission and dtsenbunon agreements, under which The provision for depreciation for the estimated costs costs and/or revenues are recognized currently based upon of decommissioning the nuclear generating facility is the Cmperative's interpretations of the provisions of the eqal to the amounts contributed to the nuclear 1 c related agreements. Differences between the estimates decommissioning trust as well as the related earnings - C f i1 1 used in the consohdated financial statements and the of the trust. The provision for the cost of 'E-final settlements are recorded in the 3 ear of settlement. Jecommissioning was $7.9 mdhon in 1998 and $8.5 The Gioperative relies extensively on computeri:ed nullion in 1997. The Cooperative has aJopted a ? !,~ C : systems for operations, information systems and other policy of funJmg decommissioning costs currently, and L, e. 9 'ii r L programs anJ has implemented a program to iJentify the related investments of $66.9 million are included , N, and adJrer possible issues resulting from the use of in other assets, while the estimated decommissioning S n. date-sensitive systems. The Cooperative does not habihties are reflected as a long-tenn liabihty. believe the costs of the remediation wdl be material, ,Lj j but unanticipated costs, delays or an inabihty to Note 10.New Accounting Pronouncements: comrlete the program successfully could have an i,.. g, t' adverse effect on the Cmperative. Statement of Financial Accounting Standards (SFAS No.133) m. c The Cmperante has been named as a defendant m in June 1998, the Financial Accountmg StanJards [T various lawsuits and claims arising in the nonnal course of Ibard issued SFAS No.133, " Accounting for i ;- business. Ahhough the outcome of these matters cannot Derivative Instruments and Hedging Activities." The ~','% be detenmned at the present time, management anJ legal statement estabhshes accountmg anJ reportmg counsel beheve these acnons can be successfully defended standards requiring that every Jerivative instrument Gf .fJ1 or resolved without a material effect on the (mancial (incluJmg certain derivative instruments embedJed in - fH position or results of operations of the Cooperanve. other contracts) be recorJed in the balance sheet as s- =v s .L 4 jb either an asset or liabihty measured at its fair value. 1J Note 8. Pension Plan and Postretirement The statenient requires that changes in the derivanve's ' f,;. l ' E Benefits: fair value be recogni:ed currently in earnings unless i specific hedge accounnne cnteria are met. Special - H f s. ' ( ~7 Pension benefits for substannally all employees are accounting for quahfying hedges allows a Jenvative's 4.. provided through participation in the National Rural gains and losses to offset related results on the hedgeJ Electric Cooperative Association Retirement anJ item m the income statement and requires that a '~f I/ F: Secunty Program. Contnbutions are determined in company must formally Jocument, Jesignate and assess p accordance w th the provisions of the program anJ are the effectiveness of transactions that receive hedge

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based on salanes, as defined, of each participant. accounnng. SFAS No.133 is effective for fiscal years ,.. T ',i Pension costs for this pension plan were $2,195 in 1998 begmning after June 15,1999. ./ and $1,592 m 1997. As of January 1,1998, the date of N the last avadable actuarial valuation, net assets of the The Cooperative has not get quannfieJ the impact of . T plan exceeJed the actuarial present value of adopong SFAS No.133 on the financial statements accumulateJ plan benefas. and has not determined the timing of or method of the aJoption of SFAS 133. ?. ?., ^ g g

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