2013-04-SREMC-AR

South River-0413 AR_Layout 1 3/8/13 3:17 PM Page 1

A SUPPLEMENT TO CAROLINA COUNTRY

South River-0413 AR_Layout 1 3/8/13 3:17 PM Page 2

Board of Directors

South River EMC Board of Directors back row (left to right): Kelly Harrington, Carlton Martin, William E. Tew Jr., Mary Talley and Laurie B. Chancy. Front Row: Dorcas Fisher, George Williams and Francis Clifton.

Not pictured: Glenn Riddle

page 2

South River-0413 AR_Layout 1 3/8/13 3:17 PM Page 3

First Priority: Safety Electricity is an essential part of our daily lives. It helps to power our activities, but it also demands respect because it is very dangerous.

South River EMC, along with electric cooperatives across the country, have collaborated to create an enhanced national safety program to ensure our employees and members remain safe at all times.

This program is called the Rural Electric Safety Achievement Program (RESAP) and it embraces two fundamental guiding principles that are essential to achieving safety excellence: 1. Safety must be embraced as a core value where the actions and decisions of the cooperative reflect an unwaivering commitment to safety at all levels of the organization, to create a culture of safety.

2. Cooperative leaders and employees take ownership of the systems and processes that create a safe working environment.

The key components of the RESAP include: • Adoption of the guiding principles of the program.

• A formal three-year cycle safety program assessment.

• An annual safety improvement plan.

• Frequent safety training to maintain safety awareness.

• Annual update of cooperative safety performance measures.

This program builds on a previous program and requires cooperatives to take safety awareness to a new level in their organization.

South River EMC has created a safety improvement plan that formalizes the planned safety improvement efforts of the Cooperative into a disciplined continuous improvement cycle.

An emphasis is placed on continually assessing the current state of safety performance then prioritizing improvement actions toward the greatest areas of improvement.

We do all of this to ensure our employees and members stay safe!

page 3

South River-0413 AR_Layout 1 3/8/13 3:17 PM Page 4

Executives’ Report Here we are well into 2013 and find ciently and to troubleshoot more precisely that we are busy as ever. This year, like and perform system improvements in a safer manner. An ongoing maintenance and im2012, will be marked by technological upgrades, increasing costs, industry changes provement program is necessary to ensure system reliability and safety as well as keepand regulatory uncertainty. ing pace with growth.

Innovation through technology has revoWe currently have 5,377 miles of electric lutionized our society as well as our induslines spanning five counties strung across a try. Over the past five years we have made significant investments in technology to en- series of 72,000 utility poles connecting 27 substations. We must continually monitor hance our business operation, system reliaall of this equipment in order to maintain bility and service to our members. the proper voltage levels at substations and These advancements are enabling us to to ensure the lines and poles are in good take advantage of opportunities such as a condition. We also place a great deal of emnew customer-owned generation program phasis on right-of-way clearing to enhance where signals are sent through the meter to service reliability. In the work plan for the activate the generators. We are also able to offer members a prepaid metering soIncreases In Utility Expenses lution that allows members to tailor their energy payments around their In just one year (2010-11) steel prices jumped 31 percent. household budgets. Additionally, we Copper prices hit record highs in 2011. In are able to offer energy monitoring the past year, copper wire prices have for all members who are interested in increased 16 percent. tracking their daily, weekly or The cost to build a new clean coal plant is monthly energy use patterns.

26 percent higher than just one year ago and These investments have also paid expected to continue to climb. off by allowing us to work more effiThe cost of utility poles, towers and fixtures has jumped 20 percent. page 4

South River-0413 AR_Layout 1 3/8/13 3:17 PM Page 5

Francis Clifton, president Buddy G. Creed, excutive vice president & CEO

next four years we plan to build two new substations in our highest growth areas -Gray’s Creek and western Harnett County.

We also plan to build additional transmission lines and perform substation upgrades.

The costs associated with maintaining our system and purchasing power are steadily increasing. Although we have implemented several measures to hold down costs, some increases are beyond our control. We have experienced a nine percent increase in wholesale power costs in the past four years alone. Additionally, there have been a myriad of government regulations pertaining to air and water quality that have been implemented at facilities that

generate electricity. These regulations come with short timelines for compliance, which results in increased costs.

Other issues facing the industry are the advanced age of our national utility infrastructure and the costs associated with grid modernization. All of these elements combined have resulted in the Cooperative assessing a wholesale power cost adjustment (WPCA) for most of 2012. We are currently in the final stages of a cost of service and rate study, which will determine if our rates are adequate to meet our expenses. The results should be available soon and any changes will be applied the latter part of the year.

No matter what the future holds, you can rest assured that we take measures to reduce costs daily. Additionally, through our power supplier, the North Carolina Electric Membership Corporation, we maintain a diverse portfolio of electricity generated using a variety of fuels, this is vital to meeting the growing demands for electricity and to providing a reliable, sustainable and affordable energy supply. page 5

South River-0413 AR_Layout 1 3/8/13 3:17 PM Page 6

The Value of Electricity For the cost of lunch, — most members can power their house for an entire day.

For the price of a tank of gas — most people can power their home nearly two weeks.

Lower your thermostat three degrees, save over $400 a year — enough to treat your family to a movie every month.

Invest in a high efficiency heat pump and save over $1,500 a year — enough for a weekend getaway.

Switch to CFL bulbs and save $100 a year — enough to run a ceiling fan for an entire year.

page 6

South River-0413 AR_Layout 1 3/8/13 3:17 PM Page 7

Assets

2011

Financial Highlights

$198,454,262 Electric Plant at Original Cost 48,563,778 Less Depreciation $149,890,484 Net Plant 5,139,238 Cash 13,866,548 Investments 9,898,845 Accounts Receivable 1,714,931 Materials and Supplies 2,017,080 Prepayments, Other Accrued Assets and Deferred Debits $182,527,126 Total Assets

2012 $209,534,821 52,360,215 $157,174,606 4,714,319 15,521,411 10,592,442 1,661,173 1,814,382 $191,478,333

Liabilities Long Term Debt - RUS, CFC Consumer Deposits Accounts Payable Deferred Credits Other Liabilities Membership Fees Patronage Capital Other Equities Total Liabilities

$89,426,052 2,520,079 7,044,761 2,100,535 18,566,113 73,010 62,796,576 $182,527,126

$91,180,250 2,582,081 6,931,751 2,253,870 21,228,725 70,230 67,231,426 $191,478,333

Operating Statement Operating Revenue and Patronage Capital Expenses Cost of Purchased Power Distribution Expense Operations Consumer Accounts Expenses Customer Service and Information Expenses Administration General Expenses Maintenance Expenses Depreciation Amortization Taxes Interest on Long Term Debt Total Cost of Electric Service

$89,603,794 59,053,069 2,431,626 2,700,393 2,217,020 3,605,404 4,876,022 5,974,743 2,954,937 4,673,579 $88,486,793

$92,259,918 58,247,985 2,179,640 2,534,152 2,641,178 3,996,351 5,369,582 6,142,198 2,997,618 4,729,775 $88,838,479

$1,117,001 446,524 1,363,048 $2,926,573

$3,421,439 434,788 1,451,052 $5,307,279

Our Margins Operating Margins and Patronage Capital Non-Operating Margins Other Capital Credits and Patronage Dividends Total Operating and Non-Operating Margins

unaudited

page 7

South River-0413 AR_Layout 1 3/8/13 3:17 PM Page 8

South River Electric Membership Corporation 17494 US 421 S

Dunn, NC 28334

www.sremc.com