1 SALEM ELECTRIC 2012 ANNUAL REPORT

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1 2012 Annual Report

2 1 SALEM ELECTRIC 2012 ANNUAL REPORT

3 table of contents Overview 3 President s Message 5 General Manager s Message 7 Administrative Services 9 Engineering and Operations 11 Member Services 13 Cash Flow 15 Financial Statements 17 Conservation Programs 19 Other Programs 21 Statistical Information 23 Board of Directors 25 Printed on recycled paper containing 10% post-consumer fiber, using vegetable-based inks.

overview»ac com plish ment [ kom plish m nt], n. 1. An act or instance of carrying into effect; fulfillment. 2. Something done admirably or creditably. 3. Anything accomplished; achievement. 4.

4 overview»ac com plish ment [ kom plish m nt], n. 1. An act or instance of carrying into effect; fulfillment. 2. Something done admirably or creditably. 3. Anything accomplished; achievement. 4. A grace or skill expected in polite society. 5. Any acquired ability or skill. e e Accomplishments are typically measured statistically with charts and tables. Salem Electric uses charts, tables and graphs to measure and compare a variety of things day to day, month to month, and year to year. These measurements allow trends to be tracked, future plans to be made, and improvements to be implemented. For instance, member comments are logged into a customer contact system to ensure we are accountable and follow-up is achieved. This system has been in place for decades and contributes to one of Salem Electric s most important goals, good customer relations. We review the comments to determine if we need to improve a process or provide additional training to our employees. 3 SALEM ELECTRIC 2012 ANNUAL REPORT

j we re proud of our 2012 accomplishments meeting expectations and providing reliable service Among these comments (written, verbal or email) are concerns about energy usage, credit issues, and

5 j we re proud of our 2012 accomplishments meeting expectations and providing reliable service Among these comments (written, verbal or ) are concerns about energy usage, credit issues, and damaged equipment. There are also those who take the time to thank SE for a quick response, a flexible payment arrangement or assistance with an energy conservation project. We value all of your comments and appreciate your praise. We will continue to try to meet your expectations and provide reliable electric service. Throughout this report you ll find examples of our accomplishments in 2012.

president s message»salem Electric is an amazing consumerowned utility. I have been a member of Salem Electric since 1978.

6 president s message»salem Electric is an amazing consumerowned utility. I have been a member of Salem Electric since Over the years I have seen Salem Electric emerge as a respected leader in the electric utility industry and recognize the need for conservation long before it was fashionable, indeed necessary, to mitigate the need for costly new generation resources. The economy is demanding new technologies to meet the future needs of our members. Electric vehicle charging stations are showing up all over the region; battery storing capabilities are coming to market at an accelerated rate. 5 SALEM ELECTRIC 2012 ANNUAL REPORT

7 j we re proud of our 2012 accomplishments we re well positioned to meet the challenges of the future It seems like a long time ago, but in 1997 Salem Electric signed on as the first Bonneville Power Administration customer to purchase wind power from the Foote Creek Rim energy project outside of Laramie, Wyoming. Today driving Interstate 84 in Eastern Oregon and Washington you see scores of these wind generators. Through this time of change we have had great staff to meet the challenges. It starts at the top with great leadership. This can be found in the two general managers that I have had the pleasure of working with. I am speaking about Jere Overs and Bob Speckman who have led the organization during my time on the Board. They have surrounded themselves with independent thinkers who, I believe, have given Salem Electric an edge in talent and achievement. Engineering and Operations Manager Roger Kuhlman, one of those leaders, recently retired. He was passionate about promoting the use of electric, battery-powered cars. His replacement, Tony Schacher, worked on early wave energy projects while a grad student in electrical engineering at OSU. Salem Electric is well positioned to meet the challenges of the future.» Jeff Anderson

8 manager s message»this year s annual report recounts the many achievements of your cooperative over the past year. One example has been the smooth transfer of duties from a group of retiring employees to their replacements. We saw many years of experience and expertise leave as our engineering and operations manager, special services representative, executive secretary and customer accounts field representative closed out their 21, 26, 28 and 33-year careers respectively. That s a big change for any organization, especially one the size of Salem Electric. The responsibilities of each of these dedicated employees has passed, through promotions and shifting of duties, to people who have had the opportunity to work closely with their predecessors. That s how we achieved that smooth transition. You can rest assured that the same goals pursued by Roger Kuhlman, Helen Findley, Danita Heuberger and Mount Brice 7 SALEM ELECTRIC 2012 ANNUAL REPORT

9 will continue to be pursued by Tony Schacher, Britni Davidson-Cruickshank, Cindy Lenker, Chris Magee and the rest of Salem Electric s employees. There were two months in 2012 with no preventable outages. In between these two months we had major outages caused by a March 12th windstorm the worst since February and April were the 17th and 18th time Salem Electric customers experienced a calendar month with no preventable outages. The first time was in 1985 and 13 of the 18 outage-free months have occurred since the year 2000, an indication that our system design and maintenance policies are working. Non-preventable outages include things like cars hitting poles and dig-ins that disrupt our underground facilities things caused by third parties over whom we have no control. Next year, when we look back at 2013, one of our achievements will be the implementation of our first j we re proud of our 2012 accomplishments successful transitions and planning for the future automated metering pilot program. Unlike some other utilities, we have taken a measured approach to automated metering and it has already paid off as the technology has become more reliable and less costly. The purpose of our pilot program is to assure, before making a full financial commitment, that the system achieves our goal of providing our members with more control over their energy usage and the resulting electric bills. We ll keep you informed of this and many other issues in our monthly Info Bulletin and Board Report.» Bob Speckman

administrative services»the Administrative Services Department continued its focus on financial integrity and customer relations in 2012.

10 administrative services»the Administrative Services Department continued its focus on financial integrity and customer relations in We continually strive to provide friendly, efficient service and maintain open communication with our members. Members are provided a variety of ways to pay their monthly bill. In 2012 only 40% of payments were made by check. Additionally, we now have over 1,200 members receiving paperless bills just one way we can reduce waste and help the environment. Many are familiar with our in-house Member Assistance Program. Last year we spent over $215,000 helping 1,200 members. Additionally, our customer service and credit representatives, in coordination with other agencies, were able to arrange over $205,000 in financial assistance for another 800 members. The large majority of the help came through the Federal Low Income Energy Assistance Program. Other agencies such as St. Vincent de Paul, Oregon Heat, the Siletz Tribe, and The 9 SALEM ELECTRIC 2012 ANNUAL REPORT

11 j we re proud of our 2012 accomplishments Achieving Financial integrity and good customer relations Salvation Army, who administers our Dollar Check-Off Program, also provided assistance to our members. Providing our members with clear and accurate bills is another important part of good customer relations. Our meter reading and billing departments strive to meet this expectation. Last year our meter readers read 225,000 meters with an accuracy rate of 99.97%. To achieve better office efficiency, we added new software which helps our customer service staff easily locate scanned documents of key records and streamlines workflow processes. We also added a new human resources software package that helps us track and maintain internal employee benefits and payroll records. Each of these new functions saves our department time and adds efficiency which pays off by giving us more time to assist members and improve member relations. Finally, because we have been financially sound, 2012 represented the 25th consecutive year that your board has authorized repayment of capital credits earned by members from previous years. In all, SE has returned nearly $20 million since the capital credit refunding program began in SE is proud of its 2012 accomplishments and achieving its goals of financial integrity and good customer relations.

engineering & operations»the Engineering & Operations Department accomplished many things in 2012.

12 engineering & operations»the Engineering & Operations Department accomplished many things in Several pivotal projects were completed that will help maintain and improve reliability and system flexibility into the future. One project was the installation of fiber optics between our West Salem substations and our office. Once this has been activated there will be direct communication and a data link between these critical locations. Another major accomplishment is the installation of padmount remote operable switches to more easily reroute power throughout the system, minimizing outage times. Regarding reliability, there were two months during the 2012 calendar year with no preventable outages. This is testament of a strong system design and an ongoing maintenance program that helps strengthen the system and prepare us for whatever the future brings. The last and perhaps greatest accomplishment to highlight was SE s ability to work over 87,000 hours with no lost time accidents or restricted time incidents which illustrates Salem Electric s dedication to safety. 11 SALEM ELECTRIC 2012 ANNUAL REPORT

j we re proud of our 2012 accomplishments» Shangri La Phase 1 conduit installation» Backyard pole replacements using a specialized piece of equipment to access confined work areas» Continued

13 j we re proud of our 2012 accomplishments» Shangri La Phase 1 conduit installation» Backyard pole replacements using a specialized piece of equipment to access confined work areas» Continued replacement of concentric neutral primary conductor» Implemented a system model to help identify areas of improvement in SE s system design» Removed PGE interconnect on Popcorn Hill from Hughes Substation

member services»with the goal of helping members reduce their energy use and save on their electric bills, our Member Services Department is available to discuss our numerous programs and answer your

We were able to assist hundreds of our members with a variety of energy conservation projects which achieved 1,343,594 kwh savings in 2012; that s enough energy to provide power for 121 average homes

14 member services»with the goal of helping members reduce their energy use and save on their electric bills, our Member Services Department is available to discuss our numerous programs and answer your energy-related questions. Helping you achieve energy savings is the focus of our Member Services Department. We were able to assist hundreds of our members with a variety of energy conservation projects which achieved 1,343,594 kwh savings in 2012; that s enough energy to provide power for 121 average homes for a year. A typical home involved in Salem Electric s weatherization and heat pump programs could save hundreds of dollars annually, increasing the comfort of the occupants and the value of the home. Reducing your energy usage pays off in different ways. The most obvious way is that members save energy which means they save money. In addition, many of the contractors who complete these projects are Salem-based so the expense to complete most projects is re-invested in the local economy. Lower electric bills are easier to manage for our 13 SALEM ELECTRIC 2012 ANNUAL REPORT

j we re proud of our 2012 accomplishments Achieving energy savings while reducing usage members and lower energy use

When you use less energy, the low cost power purchased by Salem Electric can serve more load, avoiding the need to

You re not only saving for yourself, but you re helping all SE members maintain low rates.

15 j we re proud of our 2012 accomplishments Achieving energy savings while reducing usage members and lower energy use keeps rates down for everyone. When you use less energy, the low cost power purchased by Salem Electric can serve more load, avoiding the need to build new and much more expensive generation resources. You re not only saving for yourself, but you re helping all SE members maintain low rates. One of the methods used to detect efficiency of a home is a blower door test shown at right. Whether you own a business and want to improve your lighting, weatherize your home, purchase an energy-efficient appliance, or have questions about your energy usage, our Member Services Department is eager to help.

16 »» Where it came from: How it was used: cash flow General Service Sales 37% ($9,197,739) Miscellaneous 1% ($219,580) street lighting 1% ($341,615) Operating expenses 33% ($8,028,642) Available for Plant improvements 20% ($5,064,048) Interest <1% ($6,718*) Residential sales 61% ($15,074,037) taxes 5% ($1,333,010) Cost of power 42% ($10,400,553) * Interest on member deposits held by Salem Electric. 15 SALEM ELECTRIC 2012 ANNUAL REPORT

17 5-year growth highlights Electric Plant in Service Depreciated $29,712,262 $28,878,452 $28,398,655 $27,527,701 $27,113,199 Maximum System Peak Demand in MWs* Summer Winter kwhs Sold 312,072, ,983, ,222, ,922, ,244,829 Gross Revenue $24,832,971 $23,252,829 $22,381,853 $23,539,574 $25,266,058 Net Margin $3,612,611 $3,127,665 $2,580,241 $3,116,498 $4,319,971 Taxes $1,333,010 $1,275,910 $1,257,402 $1,286,996 $1,288,559 Number of Accounts Billed 18,578 18,545 18,516 18,544 18,487 Number of Employees Payroll Cost per Dollar of Revenue Capital Reserve Refunds $1,521,107 $1,458,607 $1,666,544 $1,143,246 $1,246,618 * MWs historic peak was set 12/23/98

18 financial statements» Balance Sheet ASSETS Distribution Plant in Service Depreciated $26,378,343 $25,644,942 General Plant in Service Depreciated 3,333,919 3,233,510 Construction Work in Progress 20,954 14,020 Cash and Temporary Investments 18,112,373 17,260,089 Receivables (Net) 1,978,902 1,971,837 Materials and Supplies 839, ,635 Prepayments 472, ,364 Other Assets 435, ,270 TOTAL ASSETS $51,572,038 $49,535,667 LIABILITIES AND EQUITIES Long Term Debt $0 $0 Accounts Payable BPA 1,019,571 1,278,301 Other Accounts Payable 107,188 81,666 Consumer Deposits 298, ,814 Accrued Expenses 2,400,755 2,258,693 Other Liabilities 8,522,069 8,107,313 Member Equity 34,961,445 33,375,371 Capital Credits Retired 3,290,024 3,093,116 Capital Credits Payable 972,830 1,052,393 TOTAL EQUITIES AND $51,572,038 $49,535,667 AND LIABILITIES 17 SALEM ELECTRIC 2012 ANNUAL REPORT

19 » Statement of Income and Expenses INCOME EXPENSES Residential $15,074,037 $14,164,933 General Service 9,197,739 8,565,643 Miscellaneous 219, ,685 Street Lighting 341, ,568 Cost of Power $10,400,553 $9,589,441 Operating Expenses 8,028,642 7,812,933 Depreciation and Amortization 1,451,437 1,437,876 Taxes 1,333,010 1,275,910 Interest 6,718 9,004 TOTAL INCOME $24,832,971 $23,252,829 TOTAL EXPENSES $21,220,360 $20,125,164 NET MARGIN $3,612,611 $3,127,665

20 conservation programs» Residential Compact fluorescent lights Includes Simple Steps Smart Savings retail programs. Lights Sold/Installed/Distributed 6,579 Annual kwh Savings 253,975 LED Decorative Lights Boxes Sold 232 Annual kwh Savings 1,160 Weatherization Of the homes weatherized, 31 were low-income households. Homes Weatherized 319 Annual kwh Savings 396,030 Heat Pumps Standard and Ductless Units Installed 80 Annual kwh Savings 204,236 High-efficiency appliances Refrigerators 131 Freezers 24 Clothes Washers 99 Water Heaters 21 Heat Pump Water Heaters 3 Total Units 278 Annual kwh Savings 47, SALEM ELECTRIC 2012 ANNUAL REPORT

21 » Commercial and Industrial Solar Water Heating There were no solar water heating systems installed in 2012, but there were some inquiries. Energy Smart Design Projects Completed 21 Annual kwh Savings 428,674 Loan program In partnership with a local bank; 5 percent interest loans were available for the Weatherization, Heat Pump and Solar Water Heating programs Loans Granted 9 Amount Loaned $36,039 Energy Savings Plan There were no projects completed in 2012, but some are underway. j IN 2012 Salem Electric members saved 1,343,594 k W hs enough to serve 121 homes for one year

22 » Community Assistance other programs MEmber assistance Programs Heating Bill Assistance Residential members who heat with electricity and meet income guidelines are eligible for assistance with their winter electric bill through the Salem Electric Member Assistance Program. NON-SENIOR 2012 SENIORS DISABLED NON-DISABLED TOTAL Participants ,212 Amount $39,176 $53,340 $122,497 $215,013 Dollar Check-off Over $14,000 was collected from members through our voluntary Dollar Check-off Program which is forwarded to The Salvation Army for distribution to our members throughout the year. Habitat Improvement Program The Habitat Improvement Program allows Salem Electric members to make automatic monthly contributions through their electric bill to improve local native fish and wildlife habitats. Pledges can be canceled at any time. Contributions are forwarded to the Mid-Willamette Watershed Alliance, a 501c3 organization. Donations collected in Polk County were assigned to habitat improvements in the Glenn/Gibson Creek Watershed and donations from Marion County funded Claggett Creek projects. Donors 49 Funds Donated $2, SALEM ELECTRIC 2012 ANNUAL REPORT

23 Community Salem Electric strives to be a responsible, supportive member of the communities it serves. Our employees are actively involved in dozens of business, civic and community organizations. Through donations, Salem Electric contributed approximately $50,000 to over 70 organizations in A college scholarship program is available for individuals residing in Salem Electric s service area. Ten $1,000 scholarships were awarded in Whether it s supporting youth activities, supporting local schools, volunteering at, or sponsoring, family-oriented community events, your electric cooperative is involved. Renewable energy Renewable energy is produced by resources such as solar, geothermal and water. Salem Electric buys all its power from the Bonneville Power Administration (BPA). According to BPA, approximately 80 percent of their power comes from dams and other renewable sources. The remaining 20 percent is generated by other means including some non-renewable resources (gas and nuclear). From late 1998 through 2003 Salem Electric evaluated other renewable resource options and signed an agreement with BPA in October 2006 to purchase 1.8 MWs in June 2009 which replaced approximately 6.2 percent of the non-renewable resources from BPA. The contract expired in October 2011 but Salem Electric continues to investigate affordable renewable energy options. In addition, there were two new net metering projects installed by members in 2012 totalling 7.72 kw of capacity.

24 statistical information»» Accounts Billed kwhs Sold , ,099 17,462 17,951 18,545 18,516 18,544 18,487 18,338 18, ,072, ,983, ,222, ,922, ,244, ,776, ,033, ,985, ,435, ,061, SALEM ELECTRIC 2012 ANNUAL REPORT

25 » Capital Reserve Refunds 2012 $1,521,107» Wholesale Power Purchased 2012 $10,400, ,458, ,589, ,666, ,728, ,143, ,177, ,246, ,378, ,312, ,114, , ,952, ,078, ,848, ,082, ,422, ,075, ,779,721

26 » Officers» Directors board of directors Jeff Anderson» President Jim Dyer» Vice-President Carl Beach» Secretary/Treasurer Jerry Berger Alicia Bonesteele Paul Ennor 25 SALEM ELECTRIC 2012 ANNUAL REPORT

j Management staff Joe Van Meter Robert J.

C. Richman» Information Technology Manager Anthony

27 j Management staff Joe Van Meter Robert J. Speckman» General Manager Terry M. Kelly» Assistant General Manager Jack N. Belleque» Administrative Services Manager Michael C. Richman» Information Technology Manager Anthony C. Schacher» Engineering and Operations Manager Michele S. Adkins» Executive Assistant

28 633 Seventh Street NW PO Box 5588 Salem, OR phone: fax: web: salemelectric.com Find this publication on our website.

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