Rappahannock Electric Cooperative Annual Report 2007 looking out for you
mission To enhance the lives of our customers by providing reliable electric service, dependable products and support to the communities we serve. 2 Annual Report 2007
2007 accomplishments REC began installing laptop computers in field vehicles. The computers include mapping software to make responding to a member more efficient. The right-of-way department cleared brush from over 994 miles of distribution and transmission rights of way. Maintaining REC s rights of way ensures a minimum interruption of service. REC completed construction and opened the new Louisa Service Center in October. The service center enables employees to respond quickly to service calls in Louisa County and the surrounding area. The Cooperative completed work for Caroline County with its Dawn decentralized wastewater system which involved 152 residents in Dawn, Virginia. The Contact Center handled 236,943 member phone calls in 2007. The Culpeper District s Relay for Life team raised over $12,500 for the American Cancer Society. A 34.5 kv power line was built to serve Eastern View High School in Culpeper County. The school will open in 2008. REC achieved the National Arbor Day Foundation s Tree Line USA designation for the 5th year. REC continues to be the only Tree Line USA utility in Virginia. REC received the 2007 Goodwill Award from the Fredericksburg Chamber of Commerce for its community service work. The Cooperative upgraded four substations to handle the growth occurring within the service territory. A refined Outage Management System was installed to further improve REC's response to member outages. looking out for you 3
a letter to you Dear Member: We have tackled many challenges together over the last 12 months and will continue to face many more during 2008. The utility industry has met increased pressures to provide environmentally friendly electricity to its consumers. Both Rappahannock Electric Cooperative (REC) and you, our members, have been affected by rising energy prices and increased costs of the fuels used to generate electricity. Unfortunately, these challenges are not going to be overcome in the near future. Be assured that Rappahannock Electric Cooperative is looking out for you on these issues. Because you are not only members of REC, but also our owners, we serve you and will always be advocates for your best interests. We are committed to providing you with reliable, economical power while still being good stewards of the environment. Rising energy prices have touched all of us and those prices are not coming down any time soon. The REC Board of Directors, in 2007, returned a total of $7.5 million to you which reduces your overall energy costs and helps mitigate increases in the fuel factor adjustment. REC offers a number of services such as our energy audit to help you determine ways to reduce your energy consumption. We have energy experts available to help you see where you can save money on your electric bill. And, we will continue to look for other ways to help with these rising energy prices. We are in this together. In addition, we ve heard your requests for renewable energy and we re going to be offering you the opportunity to purchase blocks of green power. REC is also doing its part to help the environment as you ll read in this annual report. As an organization, we are in favor of environmental protection and enhancements, but we are also conscious of the result that this will have on you and your energy bills. We monitor legislation both locally and in Congress to make certain that our legislators are aware of how their legislation affects you and your wallet. Still, there may come a day when your Cooperative may need to call on you to contact your legislator to voice your opinion. We know we can count on you when that time comes. As you read this annual report, you will learn about the many ways that REC is looking out for you. Whether it is advocating for you on Capitol Hill, returning money to you to help offset fuel charges, volunteering in the community or advising you on ways to conserve energy, your electric cooperative is looking out for you every day as we have been for nearly 70 years. Sincerely, Kent D. Farmer President & CEO A. Nash Johnston Chairman 4 Annual Report 2007
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looking out for you Almost 70 years ago a group of local farmers came together to bring electrification to the rural areas of Virginia. They were looking out for each other and their communities. Rappahannock Electric Cooperative (REC) continues that same mission today: looking out for you. REC s leadership knows that the price of electricity is on the rise and they are continually looking for ways to add value to your membership. The Cooperative is also committed to doing what we can to conserve energy and promote conservation. Providing excellent customer service has always been a fundamental value and continues to be another way that we are looking out for you. And, REC and its employees have a long standing commitment to the communities we serve. Looking out for you is something that REC has been doing since its creation many years ago and it is something that we will continue to do. looking out for you 7
providing value In today s world, electricity is a necessity that we depend on every minute of every day. REC knows that you, our members, expect reliable, affordable electricity to power your homes and businesses. We work diligently to provide for your energy needs at the lowest possible cost. In the last few years, there have been a number of factors that have greatly affected your electric bill. The major reasons are outside REC s immediate control. The costs of the fuels used to generate electricity have continued to rise as demand increases for these fuels worldwide. These costs are a direct pass through to you on your monthly bill from our power supply cooperative, Old Dominion Electric Cooperative. REC works to offset these charges as much as possible. In addition to our Capital Credit retirement, the Board elected to return $1.4 million during 2007 to help reduce the fuel factor adjustment on your bill. Despite the increased costs of the fuels used to generate electricity, it still remains a good value when compared to other commodities. For example, for the price of a large latte at your neighborhood coffee house, a combo meal at your favorite fast food restaurant or a gallon of milk for your children s breakfast cereal, you could provide a half day s electricity to an average home. Electricity is a good value but it is just as important that you have it there whenever you flip on the switch. REC is very proud to say that our reliability system average was 99.9% in 2007. This reliability was maintained despite an ice storm in February and a major wind storm in April. No matter what Mother Nature brings our way, REC employees respond quickly and work efficiently to get the lights back on in your home or business. As a Cooperative, we go above and beyond just supplying your electricity. We want to help you manage your energy usage and protect your family, bringing added value with solutions you can rely on. That s why we developed HomeResources which offers products such as HomeGuard surge protection, Free Water Heater Repairs, Energy Audits and Rappahannock Security Services. These services are just another way we are looking out for you by adding value to your membership. 8 Annual Report 2007
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conservation Promoting energy conservation to its members may seem contradictory for a utility company. REC, however, recognizes that conserving energy not only saves you money on your electric bill, but it also protects and preserves the environment for your children and grandchildren. In 2007, REC wanted to know what you thought about green power and so we asked you in a survey. Approximately 3,600 members responded, expressing your opinion of green power and telling us how much you were willing to pay to purchase renewable energy for your home. As a result REC will be offering green power to members who are interested in purchasing renewable energy. Another way that REC works to conserve energy is through our successful and ongoing load management program. Known as the Free Water Heater Repair program, participating members allow REC to install a load control device on their electric water heater in exchange for free repairs to the electrical components. At the end of 2007, there were 28,968 members enrolled in this program. The total load reduction was 347,186 kilowatts for a total savings in 2007 of $3.7 million for your Cooperative. To further assist you with your energy conservation efforts, the Cooperative brings you timely information in Cooperative Living and bill stuffers. Brochures are also an available tool for useful tips. Our Web site, accessible twenty four hours a day, brings you immediate energy savings information. And finally, an energy expert is always just a phone call away. While helping you reduce your energy consumption, REC also recognizes that the Cooperative must practice what it preaches. To conserve our overall energy usage, REC uses biodiesel in its large trucks and we have four hybrid vehicles in our vehicle fleet. REC has had an aggressive recycling program for several years. In 2007, we recycled 1,735 light bulbs, 1,262 lbs of computer parts, 78,720 lbs of wood reels, 177,190 lbs of steel cable, 62.31 tons of wood, 832 cubic yards of cardboard, 5,400 lbs of paper, 15,175 gallons of oil, 1,000 newspapers, six air conditioning units and 140 large batteries. At REC, we are doing what we can to bring you affordable, reliable electricity, while working to be as energy efficient as possible in our day to day business operations. looking out for you 11
providing service Your membership in an electric cooperative means you are an owner. REC does not have any shareholders to answer to, only you, our member-owners. Your Cooperative is committed to going above and beyond to provide you with reliable electricity and outstanding customer service. To do this, we survey the membership to determine your satisfaction with REC, what you like and dislike, where we can improve and what needs you may have. In 2007, our average customer satisfaction rating was 81.75 out of 100. The industry average for electric utilities is 72. Although we are well above industry average, REC continues to strive to be the best. When you call REC, whether it is to report an outage or to ask a question about your bill, you are first connected to our Interactive Voice Response (IVR) system. The IVR system makes it easy for you to report an outage or choose to speak with one of our customer service representatives. The system reduces the time that you are on hold to report an outage by allowing you to enter your information. Should you prefer a customer service representative, you can easily reach one of our highly trained employees and you may also request a bilingual assistant, if that would be helpful. There were two major projects completed in 2007 that will help REC meet your needs more efficiently. The final touches were put on the Louisa Service Center in Louisa County in late summer and REC held a ribbon cutting ceremony for the facility in October. The service center allows REC to respond more quickly to outages and service calls in Louisa and the surrounding counties. Prior to its completion, employees answered calls from the Bowling Green office nearly an hour away. By decreasing the response time, service will be improved. A second project contributing to REC s improved response time and customer service is the mobile field computing initiative. In 2007, REC began installing laptop computers in its field vehicles. These computers have software that allows employees to access up-to-date maps quickly and respond to calls and outages more efficiently. Employees can also access work orders and reports that were previously only available to them in paper form. This initiative will continue in 2008. 12 Annual Report 2007
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community support REC does not just deliver your power; we are an integral part of our communities. Our employees live and work in your neighborhoods. One of REC s core values is caring. One way we demonstrate that value is by giving back to our community through monetary contributions and through volunteerism. During 2007, REC sponsored and/or donated to the Fredericksburg Area Food Bank, The Free Lance-Star s Newspapers in Education program, area high school after prom parties, Rappahannock Big Brothers Big Sisters, local fire departments and rescue squads and many more community partners. In addition, REC awarded $10,000 in college scholarships to high school seniors and $9,500 in grants to area teachers, emergency responders and non-profit organizations. Employees of the Cooperative gave over $35,000 to the Rappahannock United Way and the Piedmont United Way during the year. Participating in the Rappahannock United Way s Day of Caring event, 33 employees spent the day painting, building wheelchair ramps, sorting food and assisting others in need. Employees also participated in the Read Across America program by reading to elementary school children in REC s service territory. Project Big Heart (PBH), the REC employee volunteer organization, keeps employees involved all year long. PBH raises money through bake sales, chili cook offs, golf tournaments, breakfasts and bowling tournaments. That money is then used to help fire and rescue squads, give scholarships and buy Christmas presents for families who need a little extra help. Generously donating their free time, many employees also volunteer with area little leagues, rescue squads, fire departments, Rotary clubs, Habitat for Humanity, American Cancer Society and the SPCA. Others use their vacation time to go on mission trips to help others in poverty stricken areas of the country or regions recovering from natural disasters. Chances are if there is an opportunity to volunteer in your community, there is a Cooperative employee involved. Being a Cooperative means that REC is looking out for members in many ways. Whether that is by providing you with reliable electricity, finding ways to help you better manage your energy usage, being good stewards of the environment or making our communities better places to live, REC and its employees are proud to be your Cooperative. looking out for you 15
16 Annual Report 2007 management
Bruce Barnett Vice President Corporate Services Robert Ellis Vice President Engineering & Operations Ron Harris Manager of Engineering & Technical Services Rhonda Curtis Manager of Customer Services & Public Relations Maxie Rozell Director of Safety Robert Beard Culpeper District Manager Ernest Bates Bowling Green District Manager Craig Lewis Manager of Administrative Services & Controller Carolyn White Director of Human Resources looking out for you 17
Lee S. Estes Region III A. Nash Johnston Chairman / Region IV William M. Alphin Region I Frank D. Ashley Region II Richard C. Oliver Vice Chairman / Region VII Linda R. Gray Treasurer / Region VIII Frank B. Boxley, Jr. Secretary / Region V William C. Frazier Region VI Wickham B. Coleman Director at Large William E. Lane Region IX Darlene H. Carpenter Director at Large 18 Annual Report 2007
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financials SOURCES OF REVENUE 66% Residential 27% Large Commercial 6% Small Commercial 1% Public Building EXPENSE ALLOCATION 75% Purchased Power 15% Operating Expenses 6% Depreciation 4% Interest Operations & Patronage Capital 2007 2006 (consolidated) (in thousands) (in thousands) Operating Revenue $ 272,544 $ 242,992 Operating Expenses Cost of Power/Cost of Goods Sold 191,608 165,616 Transmission 627 740 Distribution Operations 8,110 7,706 Distribution Maintenance 11,378 10,566 Consumer Accounts 8,703 7,582 Consumer Service 1,141 1,101 Administrative and General 9,499 9,063 Total Operating Expenses 231,066 202,374 Other Expenses Depreciation 14,918 14,041 Interest on Long-term Debt 9,634 9,724 Other 306 225 Total Other Expenses 24,858 23,990 Total Expenses 255,924 226,364 Operating Margins 16,620 16,628 Non-operating Margins Patronage Capital Assigned 4,207 4,709 Interest Income 2,328 2,621 Other 262 192 Total Non-operating Margins 6,797 7,522 Net Margins 23,417 24,150 Patronage Capital Beginning of Year 215,009 198,211 Retired Patronage Capital (6,851) (7,352) Other Comprehensive Income (Loss) (1,789) Patronage Capital End of Year $ 229,786 $ 215,009 20 Annual Report 2007
Balance Sheets 2007 2006 (consolidated) (in thousands) (in thousands) Assets Utility Plant $ 326,567 $ 306,710 Investments 73,630 69,806 Current Assets 60,362 51,423 Deferred Charges 1,920 2,667 Total Assets $ 462,479 $ 430,606 Equities and Liabilities Equities Membership Fees $ 418 $ 411 Patronage Capital 229,786 215,009 Total Equities 230,204 215,420 Long-term Debt 177,157 172,091 Current Liabilities 35,783 31,114 Other Liabilities 19,335 11,981 Total Equities and Liabilities $ 462,479 $ 430,606 Summary of Financial Performance (consolidated) Operating Revenue $ 272,544 $ 242,992 Operating Expense 231,066 202,374 Interest Expense 9,634 9,724 Net Margins 23,417 24,150 Net Plant 326,567 306,710 Total Assets 462,479 430,606 Member Equity 229,786 215,009 Modified Times Interest Earned Ratio 3.0 3.0 Modified Debt Service Coverage Ratio 2.7 2.6 Operating Statistics Total Active Services 97,592 95,687 Kilowatt-Hours Sold (in millions) 2,525 2,437 Miles of Line 12,393 12,160 Active Meters Per Mile of Line 7.88 7.87 Equity Distributed to Members $ 7,151,082 $ 7,670,533 Number of Employees 298 298 ACTIVE SERVICES THOUSANDS 86 88 93 96 98 2003 2004 2005 2006 2007 OPERATING REVENUES MILLIONS OF DOLLARS 180 17 198 23 225 NET MARGINS MILLIONS OF DOLLARS 26 243 273 2003 2004 2005 2006 2007 COST OF POWER* MILLIONS OF DOLLARS 111 123 145 165 191 2003 2004 2005 2006 2007 24 23 2003 2004 2005 2006 2007 *Excludes Cost of Miscellaneous Goods Sold looking out for you 21
22 Annual Report 2007 featured employees
Don Penney Meter Technician First Class Employed January 1989 LEFT TO RIGHT: A. Nash Johnston Elected to the Board June 1985 Kent Farmer President & CEO Employed November 1979 Ryan Garner Apprentice Lineman Employed February 2004 CLOCKWISE FROM THE BOTTOM: Art Baum First Class Lineman Employed June 2003 Brandon Weaver Apprentice Lineman Employed October 2006 Dana Franklin First Class Lineman Employed June 1997 Ernest Young General Foreman Employed August 1977 ART DIRECTION & DESIGN: NEIL GLANCY PHOTOGRAPHY: KARL E. STEINBRENNER COVER & p13 MICHAEL STEWART p5, p17, p18 & BACK COVER NEIL GLANCY p14 JEANNETTE TOSCANO p6, p9 BRIAN WOLFE p10 PRINTING: CARDINAL PRESS SOY INKS, RECYCLED PAPER LEFT TO RIGHT: Carolyn Merritt HR/Payroll Specialist Employed March 1997 Kathy Childress Lockheed Martin Employed June 1998 Sherry Norton-Williams Rappahannock Area Kids on the Block Teri Fahnestock Departmental Assistant Employed March 2001 looking out for you 23
P.O. Box 7388, Fredericksburg, VA 22404 800.552.3904 / www.myrec.coop