2014 Nueces Electric Annual Report

2014

Annual Membership Meeting Nueces Electric Cooperative Annual Report

Thursday, October 9, 2014 Richard M. Borchard Fairgrounds, Robstown, TX 5:30 p.m.

Registration, Voting, Activities & Dinner

7:00 p.m.

Voting Closes, Meeting, Reports & Door Prizes

75th Annual Membership Meeting

Nueces Electric Cooperative, Inc. Thursday, October 9, 2014 ~ 7:00 p.m.

Richard M. Borchard Fairgrounds, Robstown, TX

5:45 - 7:00 p.m. Registration & Entertainment Carroll High School Madrigal Singers, Stacy Weatherston, Choir Director

Children’s Entertainment by Cuddles & Critters 7:00 p.m. Voting Polls Close 7:00 p.m. Business Meeting Call to Order

Presentation of Colors, National Anthem

Brian Menking NEC President

U.S. Navy & Carroll High School Madrigal Singers, & Pledge of Allegiance Stacy Weatherston, Choir Director

Invocation

Pastor Justin Moss, Calallen Baptist Church

Recognition of Board Members, Committee Members, Special Guests & NEC Employees

Reading of Notice of Meeting & Proof of Mailing of Notice Minutes of 2013 Annual Meeting

Brian Menking David Garrison Attorney David Rosse Secretary/Treasurer

Treasurer’s Report David Rosse

Member Voting

Tommy Ermis

Election of Three Director Positions:

District 1: Dr. Rumaldo Z. Juarez

District 2: Gregg Truesdale

District 4: Donald Wayne Herrmann

Board President & CEO’s Report Brian Menking, NEC Board President & John L. Sims, NEC Chief Executive Officer

Election Tabulation Results

David Rosse Nueces Charities Check Presentation from CoBank Ken Gajdos CoBank Vice President, Electric Distribution NEC Retail Member Referral Program Winners $500 Electric Bill Credit, Runner-Up receives $250 Electric Bill Credit

Frank Wilson NEC Retail Manager

PRIZE DRAWINGS- MUST BE PRESENT TO WIN Prizes include: $500 Electric Bill Credit, Yeti Cooler, $75 Electric Adjournment

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Brian Menking

Please complete the annual membership meeting SURVEY INSERTED INTO THIS BOOKLET. Please place completed surveys in the box provided near the exit when you leave the meeting.

You may exit the parking lot to the East or the West side of the Fairgrounds.

Nueces Electric Cooperative, 2014 Election

2014 Annual Meeting

Nominees For Director District 1: Dr. Rumaldo Z. Juarez Dr. Rumaldo Z. Juarez has been an NEC member since 2008 and was appointed NEC Director to fill the vacant District 1 seat in August 2012. During his short tenure on the NEC Board, Dr. Juarez has already completed the necessary requirements for his Board Leadership Certification and the coursework to be recognized as a National Rural Electric Cooperative Association (NRECA) Credentialed Cooperative Director. Dr. Juarez serves on several Co-op committees including Strategic Planning, Governance, Finance, Nueces Charities Inc., Education, and is the Retail Marketing Committee Chair. Along with his fellow directors, he is committed to ensuring that: (1) the best interests of all NEC members and employees are served, (2) the use of renewable sources of energy are used to their full potential, and (3) that NEC continues to stay abreast the

District 2: Gregg Truesdale

Gregg Truesdale has been an NEC wires member since 1971 and was appointed NEC director in February 2010. Mr. Truesdale is a Rancher and the Foreman at a family-owned business, Wright Materials, Inc/W. T. Mining, Inc. He currently serves on the Board of Directors of W.T. Mining.

He has served on the Board of Directors for the Violet Water Supply Corporation, Nueces County Jr. Livestock Show, and has been a Trustee of the Robstown Show Barn. He serves on the Buc Days Committee and on the Nueces County Jr. Livestock Show & Sale Horse Committee. He believes the most important role of an NEC director is dedication. He is committed to the best interests of all NEC members and to maintaining an open mind. He

demands of a rapidly changing energy industry. Dr. Juarez received bachelors and masters degrees in sociology from Texas A&M University-College Station, is a Distinguished Military Graduate and a Vietnam Veteran. He received his Ph.D. in Rural Sociology from Penn State University. He is also a graduate of the Harvard Management Development Program and the Governor’s Executive Development Program.

He served for 36 years in the field of higher education in various faculty and administration appointments at several universities and is President Emeritus of Texas A&M University – Kingsville. He currently serves on the Board of Directors for the Coastal Bend Community Foundation; Robstown Area Historical Museum; Robstown Improvement Development Corporation; Robstown Area Development Commission and is a member of the Corpus Christi Northwest Rotary International Club. He resides in Calallen with his wife Teresa.

is always willing to learn and take on new endeavors and believes these are important qualities in an NEC director. Mr. Truesdale is a National Rural Electric Cooperative Association Credentialed Cooperative Director (CCD) and recently acquired his Board Leadership Certification (BLC). Mr. Truesdale serves on the NEC Capital Credit Committee, the District Boundary Committee, the Education Committee, and the Retail Market Committee. Mr. Truesdale and his wife, Mary, reside in rural Robstown and have a son, Dwayne (wife Corina) and daughter, Heather Truesdale Schomburg (husband Matt Schomburg). Mr. Truesdale and his wife are proud grandparents to Nicole, Megan and Jake Truesdale and Tyler, Maverick, Miller and Riggs Schomburg. They are also proud great-grandparents to Michael Edwards.

District 4: Donald Wayne Herrmann Donald Wayne Herrmann has been an NEC member all his life and was appointed NEC director in January 2005. He is a National Rural Electric Cooperative Association (NRECA) Credentialed Cooperative Director, and serves on the NEC Strategic Planning/ CEO Evaluation Committee, the Building Committee, the Education Committee, and the Retail Market Committee. Mr. Herrmann is a crop farmer, rancher, and fish farmer in Nueces County.

He believes the most important role of an NEC director is to work in unity with fellow directors to make decisions that are in the best interest of the entire co-op and its members.

Mr. Herrmann attended Del Mar Technical College and

served on the Banquete ISD Board including terms as both president and vice-president. He has also served as president and vice-president of the Banquete Grain Co-op, on the board of Coastal Bend Youth City, as the finance and administrative chairman of the Banquete United Methodist Church, as a director, president, and vice-president of the Nueces County Jr. Livestock Show, and as a board member of the Texas Youth Rodeo Association and Nueces County Youth Rodeo Association. Mr. Herrmann resides in Robstown with his wife, Kathy, where they raised their three sons, Jon (wife Lacey), Scot (wife Jennifer) and Joe. Mr. Herrmann and his wife are proud grandparents to Hallee, Hayes, Hank, Landon, Logan, and Braden.

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2014

Annual Meeting

President’s Letter to Members continue to rise to the challenge. We consistently meet and exceed goals while incorporating the demands of ever-changing technology advancements and increasing EPA regulations.

Brian Menking A

s President of the Board of Directors for Nueces Electric Cooperative (NEC), and a fellow member, I am honored to provide you with a report on our 2013 accomplishments and challenges. As a member-owned electric cooperative, we come together each year to celebrate our success and to hear about your investment in your electric cooperative.

Traditionally we take this time to reflect on the previous year, however this year, as we celebrate our 75th Annual Membership meeting, I would like to take a moment to communicate some current updates regarding the Co-op’s future opportunities and areas of growth.

For 75 years, we have carefully moved Nueces Electric Cooperative forward.

Our once little cooperative, has become an innovative front runner and is known all across the U.S.. We are one of just a few co-ops in the nation to deregulate; and we are the first, and again one of just a few, cooperatives to hold Navy contracts.

Nueces Electric has persevered through hurricanes, droughts, war, and national economic decline. Through it all, our Board members and employees

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You see, your ten (10) member-elected Board of Directors are each accountable to every NEC member. We are committed to providing you with affordable and reliable electricity and distribution services. We work hard to ensure our decisions generate positive results and are in the best interest of each and every NEC member.

and decreased off-site fleet repair.

Added meeting room space has allowed for efficient trainings and communications. Finally, the implementation of advanced technology has drastically improved employees ability to communicate interdepartmentally. As a result, the Co-op is able to address member needs faster than ever before.

The former headquarters facility, located in Robstown, has been placed on the market for sale. If you have not had the pleasure of visiting and touring the new Calallen facility, I invite you to stop by

Total Capital & Gift Credits During 2013, your Board of Directors proactively evaluated and amended given back to NEC Members twelve governance policies and made a clarification revision to the bylaws which eliminated the potential for 2013 $ 7.6 Million conflicts of interest among NEC Board members and vendors. We also reduced 2012 $8 Million the Co-op’s liability equity from thirty years to twenty years thus allowing the Co-op to quickly pay off debt and $11.5 Million 2011 reduce interest payments.

However, the most prominent agenda item was the construction of new facilities, which was a result of the 2007 strategic plan. After five years of planning, the new headquarters facility was completed in September and the Co-op officially moved in on October 28, 2013.

It has been a positive adjustment to come from a facility which was originally built for 18 employees in 1949.

Co-op employees greatly appreciate the adequate space and storage they need in order to conduct daily business.

Modern loading docks and truck bays have increased operation productivity, decreased response time to outages

$ 9.7 Million

2010

$ 7.4 Million

2009 $0

$5,000,000

$10,000,000

Total Capital & Gift Credits and visit. Take a tour and see first-hand given back to NEC Members the inspiring complexity of the co-ops daily operations.

With the 2007 Strategic Plan coming to fruition, the Board of Directors implemented a new five year Strategic Plan in 2013. The plan has five main areas of focus: Safety & Health, Member Satisfaction, Growth, Work Environment,

$

and Communications. Each focus areas’ ultimate goal is to improve the Co-op’s response to members needs and to move our internal processes toward a gold standard. The plan, and progress of the plan, is evaluated each quarter by the Strategic Plan Committee to ensure goals are addressed and acted upon accordingly.

While the strategic plan was created in 2013, the real work to actually implement the plan began in 2014. Throughout this year, your Board of Directors has given careful evaluation to the needs of the Co-op membership and the need to maintain strong financial health.

I would like to take a moment to share some current Board of Director discussions.

First, as EPA regulations strengthen, Nueces Electric has been forced to research viable options to balance existing power resources while continuing to adequately, and cost effectively, meet members’ daily demand for electricity. You may have noticed articles or commercials asking co-op members to share their voice at www.action.coop.

Nueces Electric Cooperative’s official stance is: we advocate for a diverse portfolio of energy resources as to not become too dependent on one energy source over another.

Because of the increased demand for electricity, and the costly EPA regulations on generated power, the NEC Board of Directors has given extensive consideration to finding renewable energy (solar) resources for members.

Alternatives to fuel-generated power are still in discussion and at this time we have not found a renewable energy option that helps us reduce the current cost of power or is a viable resource which requires little to no subsidization by membership who are not participating in the program.

Next, the Board is currently assessing the escalating cost pressure of delivery and distribution services. Nueces Electric Cooperative last adjusted rates in 2010, which was based on a 2008 cost of service study. A lot has happened in the U.S. since 2008 which has directly impacted the Co-op. Insurance costs of all varieties have escalated and

property taxes have increased dramatically. The Co-op has often been praised for increased reliability over the past five years; this has been the result of an invaluable line maintenance program which has resulted in decreased outages and decreased cost associated with frequent repairs and major replace-

weather barriers, NEC power lines live in harsher environmental elements. As a result, the NEC tariff will be evaluated to determine how we can take pressure off NEC Retail and establish self-sufficient wire-area tariffs.

Additional contributing factors to NEC

While the strategic plan was created in 2013, the real work to actually implement the plan began in 2014. Throughout this year, your Board of Directors has given careful evaluation to the needs of the Co-op membership and the need to maintain strong financial health. ments. Additionally as we strive to provide convenient and member-friendly access to the Co-op, we have upgraded our member service technology and acquired upgraded metering technology. The Co-op has also experienced and increase in compliance and regulatory costs to meet or exceed unfunded government mandates such as health care and regulatory compliance.

While no new jobs have been added since early 2013, the Co-op did grow the workforce by approximately fifteen employees since 2008 in order to handle the size and complexity of NEC. All of these imposed factors have led the Co-op to begin an assessment of our tariff and the need for a current cost of service evaluation as the NEC Retail Division has been subsidizing distribution costs for the last four to five years.

Finally, we are looking at how we can align NEC Retail rates with competitive retail electric rates in Texas. NEC has determined a few key factors which are contributing to the higher than average retail rate.

As previously mentioned, NEC Retail is absorbing wire distribution cost.

Currently, NEC’s average distribution cost is approximately ¢3 per kWh. AEP (an investor owned utility or IOU) is currently around ¢5.5 per kWh. With a higher rate of meters per mile of line than NEC, our distribution rate is almost 50% lower than the IOU. It costs NEC much more than an IOU to maintain power lines because 1) we have fewer connections to the lines to offset the cost associated with maintenance and 2) being in the country with limited

Retail rates include: high power costs, member service technology improvements and increased write-offs in Retail area due to higher churning.

On a positive note, this past spring NEC accounting personnel fortunately identified tax the co-op had not been accounting for. As a non-profit cooperative, NEC does operate differently than normal electric providers; however we are required to pay certain taxes. NEC self-identified an error with the Marginal Gross Receipts Tax (a government mandated assessment to all competitive electric providers in Texas) and took the necessary steps to petition the state of Texas to resolve the payment.

We are fortunate the state appreciated our forward actions and decreased the payment from the original $8 million to $2.2 million. This will certainly impact our annual margins but we are grateful we were able to reduce the impact.

For several years, I have concluded my address to membership with a reminder that we are the “Cooperative Difference” which means we work together toward a common vision... As we look to the future, your NEC Board of Directors continues to be excited about NEC’s mission and opportunities. For 75 years, we have made every decision with your best interests in mind and we value your dedicated support and loyalty to our Cooperative. With our members’ active participation and involvement, NEC will continue to be a successful cooperative for another seventy-five years and beyond.

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www.nueceselectric.org

C.E.O. Letter to Members

By John L. Sims

2013 will undoubtedly go down in the Nueces Electric Cooperative history books as the year of big changes.

Change can be scary, but we feel NEC has made positive steps in several directions to put building blocks of success in place as the future of electric generation and distribution is seeing critical changes on the horizon. Leadership and your Board of Directors are being cautiously proactive and should be commended for their due diligence while implementing processes to strengthen the Co-op’s foundation.

The Co-op ended 2013 with favorable net margins. Items contributing to the favorable year-to-date net include NEC Retail’s excellent job on maintaining consistent rates given erratic seasonal impacts, and the stepped-up use of cash management techniques in mitigating interest expense.

1882 Electricity first came to America in 1882. By 1930, people living in cities had power but investor owned utilities didn’t deem it profitable to build power to rural America.

The Co-op’s largest expense is a our purchased power and generation cost, which across the US, increased in 2013.

In 2013, the Co-op experienced an 8.1% increase in our cost of purchased power over 2012. This was $2 million (or 5%) over the 2013 budgeted cost. We are fortunate that the co-op signed a reliability power agreement with STEC at the end of 2012 which guarantees a reliable source of generated power rather than purchasing totally off the volatile open market. In total, NEC purchased 726,641,910 kWh and sold 667,331,621 kWh. Members average use was 1,308 kWh per month which is a 3% decrease in usage compared to 2012.

The Co-op saw a 14.4% increase in total assets and debits. Of the $154.6 million; utility plant investments totaled $104.3 million, property and

1938 FDR signed the Rural Electrification Act in 1935.

NEC was chartered on December 12, 1938 with 592 members and initially built 252 miles of line.

investments totaled $37.2 million, current assets totaled $10.9 million, and deferred charges were $2.2 million.

Total Operation and Maintenance expenses increased by 7% over 2012 but NEC ended the year 10% over the 2013 budget.

Patronage and Operating margins were relatively even between 2012 and 2013. All eligible members received a total of $7.7 million in Capital Credits and Merry Christmas Credits during November and December 2013.

As Brian mentioned our largest point of pride, and the catalyst to several proactive programs, is the new NEC headquarters facility located in Calallen TX. We have worked diligently to ensure little to no financial impact on membership and have made appropriate adjustments to balance and reduce anti-competitive conditions between Nueces Electric and our competitive electric retail subsidiary arm , NEC Retail.

1946

1946

In 1946, the Co-op took a loan to expand to Jim Wells, Kleberg & Live Oak to serve an additional 478 members. The first Capital Credits were retired in 1959. in 1962 NEC paid off the first loan.

They celebrated by burning the note. (shown above)

The NEC territory has survived 6 hurricanes (Carla, Celia, Fern, Allen, Dolly & Claudette) as well wars, ice storms, and droughts.

2014 Annual Meeting

1.800.NEC.WATT

In December 2013, the Co-op kicked off our 75th Anniversary Celebration with a Grand Opening of the Calallen headquarters. It was a wonderful day filled with excitement of the new facility, reflection of our history, and joyful comradery with fellow members.

For several years, the Board and employees had waited in eager anticipation for a new facility that would comfortably fit the co-op’s needs. The 2007 strategic plan was brought to fruition in the best possible way and we thank all of those who were involved in the planning and development of each of our five facilities. I would like to commend Alamo Architect, Fulton Construction, project Control, Naismith Engineering, Lundy and Franke Engineering, NRG Engineering and Bender Wells Clark Deign on their professionalism and execution of the plans. I would like to sincerely thank NEC’s Chief Operations Officer, Varzavand Irani, for the excellent job he did as project manager. Finally, I would like to show a great amount of appreciation to the

1999 Until the late 70’s, 90% of members read their own meters and submitted their usage.

In 1999, NEC upgraded to automatic meters. In 2015, NEC will upgrade to advanced meters.

Board of Directors Vice President and Building Study Committee Chair Bill Hartman. Bill invested endless hours of volunteer time to these facilities. His knowledge and leadership have been invaluable throughout the process.

He has lead the co-op with grace and humility and the co-op is extremely fortunate to have him. While we celebrated our grand opening, I had the pleasure of presenting Bill with a plaque and announcing that the co-op will be naming the lineman training after him in gratitude of his service.

Finally, I am extremely proud to report that through an annual member satisfaction survey, NEC membership indicated a 90% approval rating in satisfaction with Nueces Electric Cooperative. 87% of membership also indicated the Co-op was meeting or exceeding expectations and the co-op scored and 88% satisfaction rating when compared with other utilities.

91% of members indicated they would choose NEC again.

2000 In 2000, NEC members approved opening the territory to competition. The Choice Pilot Program switched the first members on September 1, 2004.

2008 March 17, 2008, NEC was awarded a fifty-year, $90 million, U.S. Department of Defense contract to maintain (and eventually own) the electric distribution lines at NAS-CC, NASK and area airfields.

As we end 2013, I would like to thank the membership for believing in your electric cooperative. This year marks my twentieth year as CEO of this fine organization. I continue to stand in awe of the talent of the employees and the overwhelming support of the member-owners. In the past 75 years, we have taken electricity from a privilege of the rich, to a basic quality of life. Each year we feel the impact of a technologically advanced society which is consuming more electricity than ever before and we continue to rise to the challenge to meet your needs.

You can be certain that Nueces Electric is not only surviving, we are thriving. NEC is leading the way for future electric cooperative development. I will not be with you in 75 years, but I am certain that our home grown cooperative, built by our members and owned by our members, will continue to remain strong.

2013 October 28, 2014, employees moved in to the new Calallen headquarters from the Robstown facility which was built in 1949 to house 18 employees. The Calallen facility, Ricardo remodel, Ben Bolt and Orange Grove facilities are a result of the 2007 Strategic Plan.

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www.nueceselectric.org

Balance Sheet

Operating Statistics

Assets: What We Own

Revenues: What We Took In

Net Utility Plant

$104,300,710

Sale of Electric Power

$71,838,422

Cash in Bank

$1,443,959

Miscellaneous Electric Revenue

$1,203,873

Investments

$35,677,164

Nonoperating Revenue

$2,414,421

Accounts Receivables

$4,316,586

TOTAL REVENUES

$75,456,716

Materials and Supplies

$2,306,059

Prepayments

$168,932

Other Current & Accrued Assets

$2,709,971

Deferred Charges and Other Assets

$2,187,102

TOTAL ASSETS

$154,617,512

Liabilities: What We Owe Membership Fees & Member Deposits $2,354,144

Purchased Power

$47,009,162

Operations and Maintenance

$3,992,338

Consumers Accounting

$4,448,975

Administrative and General Expenses

$4,941,326

Depreciation

$4,303,131

Interest

$3,183,474

TOTAL EXPENSES

$67,878,406

Long-Term Debt

$69,008,178

Current & Accrued Liabilities

$16,560,961

Patronage Capital and Equities

$60,731,419

Deferred Credits

$5,962,810

Operating Margins

$3,960,016

TOTAL LIABILITIES

$154,617,512

Nonoperating Margins

$3,600,660

TOTAL MARGINS

$7,560,676

Day or night, rain or shine, NEC crews are on-call to restore your power. In 2013, NEC employees drove 842,308 miles.

That equals almost 34 trips around the world!

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Expenses: What We Paid Out

Margins: What We Had Left

2014 Annual Meeting

1.800.NEC.WATT How Your 2013 NEC Dollar Was Spent How NEC Dollar WasWas Spent How Your 2013 NEC Dollar Was Spent HowYour Your2013 2013 NEC Dollar Spent How Your 2013 NEC Dollar Was Spent 6% 6% 6% 6% 5% 5% 5% 6% 5% 5% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 6% 6% 6% 6% 6%

Cost of Purchased Power Cost of Purchased Power Cost of Purchased Power Cost of of Purchased Powerpower Cost Purchased Cost of Purchased Power

69% 69% 69% 69%

Distribution Operations & Distribution Operations Distribution Operations & Distribution Operations & Distribution Operations & Maintenance Distribution Operations & Maintenance Maintenance Maintenance & Maintenance Maintenance Customer Service Accts. & Customer Service Accts. & Customer Service Customer Service Accts. &Accts.&& Customer Service Accts Info.

Customer Service Accts. &Info.

Customer Service Info.

Customer Service Customer Service Info.

Information Customer Service Info.

Administrative & Administrative & General General Administrative & General Administrative & General Administrative & General Administrative & General

69%

Net Net Interest Net Interest NetInterest Interest Net Interest Net Interest

667,331,621 kWh

Number of Poles 88,900

687,541,579 kWh

2011

670,000,000

680,000,000

Number of Transformers 18,276 690,000,000

NEC Retail 2013 Power Resources NEC Retail 2013 Power Resources Total Power Purchase = 730,159.90 MW

Total Power Purchase = 730,159.90 MW (1MW = 1,000 kWh) (1MW = 1,000 kWh)

Calpine 39%

Members on Operation Round-up 19,762

Total Miles of Line 3,200 683,905,308 kWh

660,000,000

Number of Accounts 47, 712

Number of Facilities 6

2012

650,000,000

Number of Members 33,138

Members using NEC / Halo Flight Guardian Program 1,187

Total Power Sold 2013

By The Numbers

Open Market 18% Renewables

8%

SMEC 23%

STEC 12%

Number of Employees 82 Business Office: 23 Operations: 30 IT / Metering: 9 Engineering: 6 Compliance & CEO: 6 Retail: 6 Facilities: 2 Annual Miles Driven 842,308 Competitive Retailers in the NEC Territory 25 8

2013

Updates By Department Operations Department In 2013, the operations department completed an impressive 2,383 field jobs. The crews added 15 miles of line which brought NEC to a total of 3,194 miles of energized power line. Line crews connected 154 new services and retired fifteen services. Total services in place increased by 519 in 2013 which brought the total services in place on our distribution lines to 22,820. During this time, NEC Invested $2.9 million into NEC maintenance programs which included tree trimming and pole inspections to ensure your poles and wires are protected and remain in good working condition for years to come.

For the 2013 reporting period, outages averaged seven hours and forty-five minutes per member. This is 65% over the five year average of five hours and forty-five minutes.

This increase is primarily contributed to drought conditions which caused high amounts of dirt to settle on poles resulting in a large amount of arch related pole fires throughout the NEC system. Lightning strikes, car wrecks, tractor incidents, and high winds also contribute to the higher than normal outage rate.

A few of the large projects included the completion of San Diego feeder lines one and four from the San Diego substation. Crews replaced the cross arms with large scale fiberglass arms to reduce service concerns. Additionally, NEC began a reconductoring project along County Road 303. As the population expanded, this experienced frequent electrical blinks and the Co-op recognized the need to upgrade the system to accommodate the higher demand. Line contractors began the process to upgrade from a one-phase to a three phase. This project spans four miles and includes the replacement of almost 50 poles. The project will be completed in late 2014. Finally, the Outlets at Corpus Christi Bay held a groundbreaking ceremony on July 10, 2013. NEC has met with and completed the design for the outlets.

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NEC Retail In the Fall of 2012, the PUC voted to double its cap for wholesale electricity rates from $4,500 to $9,000 per megawatt hour using a three year plan. Starting June 1, 2013, the price jumped to $5,000 per megawatt hour and to $7,000 MWh on June 1, 2014; and will go to $9,000 MWh, effective on June 1, 2015.

NEC Retail felt it was financially best to sign a long-term power agreement for all IUO areas (members living on AEP, Oncor, Centerpoint & TNMP powerlines) in order to help keep NEC out of the wholesale market where the price fluxuates hourly.

Thanks to members spreading the word, NEC Retail enrolled 1,681 new members who were referred by friends or family using the Member Referral Program. This totaled $76,720 returned to members! Through the Member Referral Program, members can receive $60 for each person they refer. The program is unlimited so feel free to refer as many people as you would like to. NEC Retail also gave back $5.5 million to members through Merry Christmas Credits.

NEC Retail was voted #1 for the 2013 Caller Times Best of the Best. This was very exciting for Retail as historically they had been beaten out for the #1 spot by larger retail electric providers. But the readers spoke and they love NEC Retail!

In 2013, NEC Retail was also recognized with a Telly Award for their “Together We Save” ad campaign created by Morehead, Dott, Rybak and associates. The Telly Award is a highly sought after recognition as it recognize the best of the best in video and film commercials for local, regional and cable TV.

Compliance Department In 2013, eighty NEC employees worked a total of 154,068 business hours plus 16,388 hours of overtime. Total payroll equaled $33 million.

Throughout 2013, NEC’s compliance department diligently worked to create and continues to evaluate the Strategic Plan while meeting and exceeding all Public Utility Commission requirements and successfully addressing all regulatory, EEOC, OSHA and TCEQ requirements.

NEC managed partnerships with twenty-five competitive retail electric providers offering service in the NEC distribution territory.

Over 390,000 pieces of communication was distributed to members. Fifty-four area organizations benefited from partnerships with Nueces Electric Cooperative.

In 2013 NEC was recognized by Texas Electric Cooperative with an ACRE Award (The Action Committee for Rural Electrification) for achieving the highest enrollment growth in Texas.

Finally, with safety as a priority, NEC implemented a Safety Team Challenge as an interactive employee safety program. As a result, NEC experienced low on-the-job injury incident rates and the Coop’s workers compensation experience modifier dropped to an outstanding 1.01. Additionally, NEC employees received 52 safety and job development trainings.

Business Office In 2013, the business office recognized the need to upgrade the out-of-date online payment system and was able to cost effectively upgrade the payment system using the existing vendor.

The Smarthub online payment system not only made the payment process faster and user-friendly, NEC was able to provide members with a mobile app, weather comparisons which impact usage, increased communication, and allowed members to differentiate past due from current due payments.

The accounting department restructured to created a Controller position and hired a Senior Accountant to compensate for the retirement of long-time office manager, Linda Johnson. The billing and new member department merged to created a Member Care Department. Employees were then cross trained to handle all member inquiries equally.

Next, the accounting department changed from a cash basis to accrual basis accounting process (meaning NEC is better matching revenue to expenses).

A cash management system was implemented to keep as little cash on hand as possible which resulted in decreased borrowing and minimized debts and associated fees. To date we have $15 million in capital expenditures that NEC has paid for without incurring debt. As a result, the Co-op incurred no debt to build the Orange Grove facility.

Finally, the Board approved a long-term debt management plan to create a common payment structure where debt can be paid down as quickly as possible with the lowest interest rate possible.

Additionally, it emphasizes the sale of capital and in turn uses those proceeds to pay down debt.

You might be asking yourself if this has an impact on your Capital Credits (a.k.a your equity in the co-op). These measures actually increase end of year credits and patronage capital. As NEC eliminates debt, the Co-op decreases the amount of interest paid which results in increased net margins ... all of which is given back to members in the form of Capital Credits.

2014 Annual Meeting In 2013, 19,477 members contributed to Operation Round-up for a total of $124,577! Combined with a $5,000 grant from Co-Bank, additional cookbook sales, earned interest, and miscellaneous donations; NEC was able to donate over $136,000 to area 501c3 organizations. Operation Round-up began in 1996 as a support for HALO Flight after the organization lost critical funding. Halo Flight remains the largest beneficiary, and NEC has expanded the program to support others as well.

Through Operation Round-up, Members round-up their bill to the nearest dollar. Each month all of the money is donated, on behalf of NEC members, to our charitable foundation, Nueces Charities, Inc. who then distributes 100% of the funds to the community.

Funding applications can be found at: www.nuecescharities.org

Alice Counseling Ctr.

$10,000 American Heart Association $1,500 American Red Cross $2,500 Ben Bolt Volunteer Fire Dept $7,600 Boys and Girls Club of Harlingen $2,500 Brush Country CASA

$10,000 Christus Spohn Health System $3,500 Development Foundation Communities in Schools $10,000 Corpus Christi Art Center $2,500 Corpus Christi Hope House $6,500 Corpus Christi Metro Ministries $10,000 Corpus Christi Pregnancy Resource Ctr $5,000 Driscoll Children’s Hospital $5,000 Emmanuel Christian Fellowship $2,000 Community Center Girl Scouts of Greater South Texas $2,000 HALO Flight $24,000 Junior Achievement $5,000 March of Dimes

$3,000 Mission of Mercy $4,000 Palmer Drug Abuse

$5,000 Presbyterian Pan American School $2,500 Ronald McDonald House $4,500 South Texas Council, Boy Scouts $1,000 The Rise School of Corpus Christi $2,500 Timon’s Ministry $4,000 24 Total Organizations $136,100

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www.nueceselectric.org President: Brian Menking Vice President: Bill Hartman Secretary-Treasurer: David Rosse Assistant Secretary-Treasurer: Tommy Ermis

Board of Directors

Dr. Rumaldo Z. Juarez District 1

Gregg Truesdale District 2

Maxine Stewart District 5

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David Rosse District 3

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Election packets are available each June for the districts slated for election. Districts 3, 5 and 9 will be slated for election in 2015.

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Additionally, all Board members serve on committees within the Co-op such as the Governance, Retail, Finance, Nueces Charities, Education, Strategic Plan, Building Study, and Annual Meeting, as well as several other committees.

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Directors serve a three-year term. Through the National Rural Electric Cooperative Association (NRECA) Directors receive training and support to carry out their respective duties.

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Which District Are You In?

Your Nueces Electric Cooperative Directors are elected by you, the members. Each Director represents a district and works to ensure the needs of your district are being met. As a Board, the Directors set policy and ensure the Co-op remains in good financial health.

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1.800.NEC.WATT

2014 Annual Meeting

2013 Annual Meeting Minutes Call to Order The 74th annual meeting of the members of Nueces Electric Cooperative, Inc., was held on Thursday, October 10, 2013, at the Richard M. Borchard Fairgrounds in Robstown, Texas. The number of members present and registering was 956 with 5368 represented by mail-in ballot, for a total of 5824 members voting. (Exhibit “A”). Upon determining that a quorum was present, the meeting was called to order by President Brian Menking at 7:00 p.m. The United States Navy presented the colors and Carroll High School Madrigal Singers led the audience in the Star Spangled Banner. Father William Marquis, St. Thomas the Apostle Catholic Church, delivered the invocation.

Recognition of Board, Special Guests & NEC Employees President Menking introduced the Board of Directors and the Community Involvement Committee. Recognition was given to special guests in attendance and employees.

Reading of Notice of Meeting & Proof of Mailing of Notice Cooperative Attorney Joe Finegan read the “Proof of Mailing of the Notice of the Annual Meeting.” After the reading, the document was submitted to Secretary-Treasurer David Rosse for attachment to the official minutes of the meeting.

Minutes of 2012 Annual Meeting President Menking stated that the minutes of the 2012 annual meeting had been provided in the October 2013 issue of the Texas Co-op Power Magazine and the Annual Report booklet. Upon calling for corrections or additions to the minutes, a motion was made, seconded and duly carried that the minutes of the 2012 Annual Membership Meeting be adopted as published.

President & CEO Reports President Menking and CEO John L. Sims delivered simultaneous reports through a pre-recorded video message to members which followed the information distributed to members in the printed President’s and CEO Report provided in the October 2013 issue of the Texas Co-op Power Magazine, as well as the Annual Report booklet.

President Menking highlighted the return of $5.5 million to members in 2012 through Merry Christmas Credit and Capital Credits of $2,869,507 as well as informed membership on the progress of the new headquarters and Orange Grove Service Center.

CEO John L. Sims presented 2012 operation highlights including the ground breaking on April 30, 2013, on a new headquarters facility located at the intersection of County Roads 52 and 69 just south of Calallen. The project has been five years in development and will serve the distribution part of NEC and allow for improved maintenance and response time to outages keeping the costs of electricity affordable.

Construction on this facility continues and should be fully operational by the end of 2013. The Orange Grove Service Center is reaching comple-

tion also. NEC met or exceeded all OSHA requirements and celebrated three million miles of safe driving by co-op employees and hosted its 21nd Annual First Responder training for front-line emergency personnel located in our delivery service territory. 84 NEC employees worked a total of 167,163 hours. NEC Retail had consumer growth of 5.5% and NEC Retail consumers purchased 478,938,772 kilowatt-hours (kWh) of electricity in 2012. This represents a 6.1% reduction in kWh sales due to milder weather conditions in the NEC service area. In October 2012 NEC Retail entered into a service agreement with STEC to provide a reliable source of power for all Retail needs in response to ERCOT predicted power shortages throughout the State of Texas. This agreement will help keep rates affordable and reduce impacts to members due to market fluctuation. Nueces Charities, thanks to members’ generosity through Operation Round-up, was able to donate $116,500 to a total of 25 non-profit charities who submitted grant requests. NEC invested a total of $17,000 to support 24 community Relay for Life events and NEC employees raised almost $10,000 to donate as well.

NEC received recognition with an A+ rating from the Better Business Bureau and was recognized by the Corpus Christi Caller Times as “Best of the Best Reader’s Choice” winner. A motion was made, seconded and duly carried to approve the reports as presented.

Treasurer’s Report President Menking stated the Treasurer’s Report had been provided in the October 2013 issue of the Texas Coop Power Magazine and the Annual Report booklet. A motion was made, seconded, and duly carried to dismiss with the reading of the Treasurer’s Report and to approve the report as printed.

Member Voting Secretary David Rosse read the nominating, voting and election procedures for Directors as outlined by the NEC By Laws. Survey and Ballot Systems (SBS) supervised the collection and counting of the ballots.

Upon completion of the counting of the ballots, the following results were announced and certified by Ryan O’Conner, a representative of SBS and Board Secretary David Rosse: District 6 Director: Tommy Ermis 5473 Votes District 7 Director: Bill Hartman 5488 Votes District 8 Director: Brian Menking 5486 Votes District 10 Director: Gladys Lippincott 4078 Votes District 10 Director: Ken Combs 1454 Votes It was declared that those elected as Directors for Districts 6, 7, 8 and 10 are: Tommy Ermis, District # 6; Bill Hartman, District# 7, Brian Menking, District # 8, and Gladys Lippincott, District 10, all for three year terms.

Adjournment There being no further business, the meeting was adjourned at 7:35 p.m.

After the Business Meeting was adjourned, Frank Wilson conducted the drawing of attendance prizes.

12

NEC Employees In 2013, eighty NEC employees worked a total of 154,068 business hours plus 16,388 hours of overtime. Total payroll equaled $33 million.

ADOLFO ALEMAN 42 ROSIE AVALOS 39 WARREN HOELSCHER 39 MARY PAVELKA 35 DEE MOLINA 33 LARAE MARTIN 32 AL PENA 31 ELOISE FLORES 29 CHRIS KNETIG 29 LARRY LEHMAN 27 TYRON HEFLIN 26 ALBERT PENA 25 PETE RAMIREZ 25 MANUEL MAYORGA 24 FRANK WILSON, NECR* 21 JOHN SIMS, CEO 20 ALBERT GOMEZ 19 SARAH FISHER, CCO 17 ROBERT BRIONES 16 ADRIANA PENA 16 ROLAND SAMANIEGO 16 ROLAND TREVINO 14 RHONDA HAMLYN 13 JOE RIVERA 12 AVAN IRANI, COO 11 JASON RAMIREZ 11 RAYMUND PINA 11 JOE CANTU 11

13

CASSY HILL PAULA SHADLE SIMON AVILA JOSE RAMIREZ GLORIA SALAZAR CHRIS MARTINEZ DOUG WILSON SERGIY SERYOGIN MANUEL PINA CLAY DENNIS SONIA STOUT HILDA LOPEZ PEDRO SALINAS ROXANE FLORES VICKY GARCIA LIANE ANZALDUA 6 ROXANNE ELIZONDO CYNTHIA GARZA-VELA SYLVIA GARCIA RICHARD PADILLA JESUS OLIVAREZ CHRIS CARRION LEO SALINAS JOSE HUERTA ANGELA RODRIGUEZ AMANDA ELIZONDO BENNY TORRES MICHELE MATHIS *

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KENNETH KRUEGER* ISABEL CAVAZOS* ERNEST ABREGO JULIE BEDSOLE ERIC HERMAN KEVIN PETROSKY ROBBIE SORRELL BEATRICE REYES-GARCIA* ROSANA ADAMS CRISSY TAMEZ BRANDON PENN ROBERT HOLLOWAY CHRISTINE GRISSOM JULIANNE COLEMAN WILL COLLIER VELMA VASQUEZ* MARCO PEREZ ANDREW RAMOS JOE LOCKHART NICK WEBER GUS GONZALEZ JON SHEPARD VLADIMIR LOBANOV BILL GUNN JOHN GUZMAN SCOTT ROSING *NEC Retail Employee

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www.nueceselectric.org 1.800.NEC.WATT

2014 Annual Meeting

Youth Tour

Scholarships

Youth Tour is a trip of a life time. Two delegates are selected to represent Nueces Electric. They will receive an all-expensepaid trip plus spending money and clothes. You will travel in June with 125 other Texas delegates to Washington D.C., where you will tour our nations capitol and speak with legislators about NRECA priorities.

Named after a former NEC Board of Director, and education professional,. the Ramiro De La Paz Memorial Scholarship Fund has awarded almost $150,000 in scholarships to the children of 51 Nueces Electric Cooperative members.

Scholarships are based on GPA, test scores and community involvement.

10th & 11th Grade Youth Leadership Program

Apply at: www.nueceselectric.org Deadline: January 30, 2015 Throughout a week of rediscovering our nations roots in a new light, I was humbled and thankful for those of your who made this trip possible for me. I was so incredibly honored to represent the best Co-op in the nation. You have provided me with my first step towards my future and allowed me to uncover my passion for government and my desire for change.”

-Rebecca Lancaster, 2014 Delegate “The trip was truly amazing! I had a blast!”

-Victoria Wahlen, 2014 Delegate

The Ramiro De La Paz Memorial Scholarship Fund

Apply at: www.nueceselectric.org Deadline: February 13, 2015 2014 Scholarship Recipients: $4,000 Recipients: Alexis Wahlen of Calallen High School Rachel Johnson of Riviera - Kaufer High School Alternates Receiving $1,000: Caroline Alsop of Riviera - Kaufer High School Jake Leber of Banquette High School Aaron Clark of Flour Bluff High School

“I had no idea the magnitude of this trip. I want to tell everybody, don’t hesitate, just apply now. You won’t regret it!”

- Hunter Meyer, 2013 Delegate

Victoria Wahlen

Rebecca Lancaster

Alexis Wahlen

Rachel Johnson

1.800.NEC.WATT www.nueceselectric.org

Nueces Electric Cooperative

Mission Statement The mission of Nueces Electric Cooperative, Inc, a member-owned cooperative, is to help our members continually improve their quality of life by providing reliable and cost effective electric service.

Created by the late Andrew â&#x20AC;&#x153;Drewâ&#x20AC;? McLay on October 30, 1950, Willie Wiredhand is the longtime lovable mascot and spokesplug of consumerowned electric cooperatives. The friendly and inspirational figure has come to symbolize dependable, local, consumer-owned electricity all over the world and can be found on every type of cooperative promotional item over the years such as signage for buildings and substations, T-shirts, ball caps, golf balls, Christmas ornaments, beach towels, night lights and much more.