ANNUAL REPORT 2015 financial health review
President’s Message Brian Menking
I am once again grateful to be with you for this annual
meeting as a fellow co-op member and President of NEC’s Board of Directors. NEC is a trailblazer in the co-op world and with the acceleration of our technical developments in 2015, our activities continue to position us as a cutting-edge co-op and a leader in our industry. As a member-owned electric cooperative, we come together each year to celebrate our success and to learn about the business and benefits of your investment in the co-op. We work hard at NEC to keep up with technology which helps us bring our members reliable electric service, metering, billing, and member information management. The roll out of our Advanced Metering Infrastructure (AMI) system began in 2015 with a test pilot of approximately 2,000 meters. The pilot took longer than expected, but with the success of that pilot behind us, the implementation will continue through 2016. NEC is extremely grateful to be a part of a nation-wide cooperative network which helps disseminate quality products, supports training, and assists us as we purchase business items at co-op prices. As we’ve improved our technology, NEC has been able to offset rising costs in many areas. However, moving forward, we expect operating costs to continue to rise and challenge us to keep up with industry standards in the field and in the office as we continue to provide the most reliable, cost-effective service possible. These improvements drive us to accomplish strategic
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goals for the Co-op. The Strategic Planning Committee continues to monitor the progress on goals established in 2013. Management and employees do a great job focusing on our five strategic goals. The five goal areas are Safety & Health, Member Satisfaction, Growth & Efficiency, Work Environment, and Key Message Communication. The plan includes 22 key performance measures that drive us to accomplish these goals. In 2015, the Board approved for NEC Retail Electricity to move forward with a new renewable project and signed a 25-year power purchase agreement (PPA) with Clean Energy Collective (CEC). CEC will work exclusively with NEC Retail Electricity to provide members the opportunity to participate in a solar energy initiative. Members who would like to participate in this program may purchase roofless solar panels directly from CEC. These solar panels are housed on a solar array outside of the Orange Grove area and do not take up space on members’ property or rooftops; however, all of the energy generated from owned panel(s) is applied to that member’s bill as an electric bill credit. After the hard work and due diligence to ensure the project would benefit our members, in June of 2016 CEC was able to activate the solar array to begin generating energy for our members that have opted in by purchasing panels. A key point that the Board of Directors and leadership worked to negotiate was to lower the up-front, one-time cost per panel that each NEC Retail Electricity member would pay. As a result, complete with installation of the panel and lifetime maintenance, these panels cost half the price of a professional
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As a fellow member, it is a privilege to be able to return Cooperative margins back to those we serve. We work for you and we keep each and every one of our loyal NEC members in mind with each decision we make. In total, with Capital Credits, the NEC Retail Electricity End-of-Year Credit, bonus credits from the Retail Member Referral Program and the Military Appreciation Credit, your Nueces Electric Board of Directors approved the return of more than $7.3 million back to members in 2015. Last, but certainly not least, the Board of Directors would like to officially welcome our new CEO, Trace McCuan to the Nueces Electric Cooperative family. As our new leader, he shares our goal to be unified with our membership, and supports the necessary initiatives to help this Co-op thrive. He has been with us just shy of a full year, but has already demonstrated his dedication to evaluate, grow and improve this cooperative to its full potential. We are grateful to have Trace onboard and look forward to working with him on the many exciting projects that NEC will undertake. And though our CEO is a key piece to our puzzle, our members are the heart and soul of NEC’s existence. As a democratically run organization, you, as members, have selected the ten member-elected Board of Directors to be representatives of your voice. You have selected us to make the right decisions for you, our fellow member-owners of the co-op as well as our neighbors, friends, and community. As a cooperative, NEC is stronger than ever and the Board of Directors and your Co-op leadership will continue to serve you with our continued passion and integrity. We want to make you proud, bring you reliable, cost-effective service and truly illustrate the difference that you are a part of as members of a cooperative.
NEC 2015 Margins Returned to Members As a not-for-profit cooperative, your Board of Directors are proud to return our margins to our members. Each year, the Board is diligent to maintain a healthy financial balance while ensuring members profit from their equity investment. In 2015, $7.3 million averaged out to $165 per consumer* via Capital Credits or End-of-Year Credits. It is our duty to work for you, the member-owners of the Co-op.
$8 million $7.6 million Year
T
or home installation. It was also a priority to make sure that this project would not be subsidized by any members who choose to not participate. We are proud to have launched this program with what we believe is a good opportunity for the members who are interested in renewable energy. In 2015, an agreement involving our generation and transmission supplier, South Texas Electric Cooperative (STEC), San Miguel Electric Cooperative and Brazos Electric Power Cooperative was reached. In this agreement, STEC was assigned the rights formerly held by Brazos in the San Miguel lignite plant and mine in Atascosa County to give STEC full rights to the power supply resource. As the supplier of NEC Retail’s power, the addition of this resource, to STEC’s generation resource portfolio is valuable to ensure reliable power at a stable price for NEC members. Today STEC’s portfolio by fuel source is: 78.7% natural gas, 15.1% coal, and 6.2% renewable energy. NEC and STEC continue to monitor the federally mandated Clean Power Plan. We continue to remain unsure of the impact this plan will have on electricity rates across the nation, due in large part to the fact that there are parts of our nation who do not have alternate power resources available today if coal plants close. Since 1997, Nueces Electric Charities has distributed more than $1 million in charitable giving to local community organizations in need you, our members, make this excellent community resource possible. Last year, $101,900 was distributed to 25 area non-profits in support of our mission to improve members’ quality of life. This includes an annual $24,000 donation to our signature project, HALO-Flight. Nueces Electric Charities is funded when we as members agree to round up our electric bills to the next dollar. Thank you to all of the members who support Nueces Electric Charities through Operation Round-Up.
$9.4 million $7.3 million
*Individual returns vary and are based on longevity with the co-op and overall usage. Longer membership and usage yield higher individual returns.
Total Returned Margins
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C.E.O. Message Trace McCuan
I was fortunate enough to join the NEC family in
November of 2015 as Chief Executive Officer. I have received a very warm welcome and serving the members of NEC is a tremendous honor. I have taken this first year to study NEC’s historical movements and involve myself thoroughly in every aspect of the Cooperative. NEC has proven itself a strong, progressive electric cooperative. There are still opportunities to improve our service to our members including many member care, technological and efficiency improvements. I am committed to continue making this a successful, member-driven Co-op. Thank you to all of the members and employees that help make this Co-op great, year after year. Our Co-op had a strong 2015. Leadership and your Board of Directors should be commended for their diligence in implementing processes to strengthen the cooperative’s foundation this year and for years to come. My first year here has been a year of learning, a year of sharing, and a year of developing what we need to do for you, our members, and for the future of our Co-op. I was not here for much of 2015 but I can report that it was a year of action. Whether it was installing drive-through, self-service kiosks for member payments or investing in alternative energies with the addition of a roofless solar farm in the Orange Grove area, our accomplishments in 2015 will make a difference for us for years to come. NEC does all of these things because we are a cooperativeowned by our members to serve their electricity needs.
tinued to have a very low injury and accident rate with zero lost time. 2016 has proven more challenging with more safety incidents, but we continue to focus on safety for our employees and community as our top priority. Last year we implemented the new V-Watch Personal Voltage Detectors which aids our operations employees when they enter the proximity of energized high voltage equipment. This is especially helpful after dark and assists our lineworkers with their troubleshooting skills to make sure that power is restored as quickly and safely as possible. NEC’s dedication to safety extends beyond our walls at the co-op into the community. In 2015, we conducted a community training for first responders from multiple cities and counties to educate them on best practices on the job. The focus was on solar power and how to handle situations safely when solar panels or potential live wires are present, on vehicle-pole accidents, pole or transformer fires, or downed power lines. The Co-op also launched its I-SEE program and hosted nearly 100 students from Noonan Elementary in Alice to learn about the safety measures that our operations and lineworkers take each day on the job, electrical safety tips they can practice at home, and an educational piece on wind and solar energy.
NEC’s Retail Division
NEC Retail Electricity, the co-op’s competitive retail electricity affiliate, had a successful year in 2015. NEC Retail Electricity experienced a healthy 2.8% growth in accounts and sold more than 898 million kilowatt-hours Our mission is to continually improve the quality of life (kWh) to member homes and businesses. The Retail Divifor all of our members by providing reliable and cost effective electric service. We are able to work toward that sion also had record high enrollment numbers for new electric accounts that joined via telephone and online mission to benefit our more than 33,000 NEC members, every day. Across our service area in 2015, an average of applications. 77 employees worked a total of 163,853 hours and drove As a division of the Cooperative, NEC Retail Electricity is over 869,558 miles. We maintained 23,567 services and a not-for-profit electricity provider and passes through 3,215 miles of power lines to deliver the most efficient the electric charges at-cost. We were pleased to pass and reliable service possible. Spring of 2015 brought along the savings to all NEC Retail Electricity members severe storms to our delivery area. It was a challenging as rates decreased by roughly one cent in 2015 from the time for the co-op. The Driscoll and Petronilla areas were year before. Unfortunately, with market changes and hit especially hard by tornadoes around that time which an increase in natural gas costs, service costs have risen destroyed dozens of NEC poles. The average outage time slightly in 2016. It continues to be a primary goal of mine throughout the system for NEC delivery service members to find ways to better manage the costs of the cooperain 2015 was 3 hours and 31 minutes. This is down 5.8% tive which are ultimately reflected in our members’ bills. over 2014. Throughout the year, there are many opportunities for We are constantly learning and adapting as technology members to experience the benefits of being an NEC rapidly grows and redefines our industry every five years Retail Electricity member. Participation in our Military or so. With safety as a top priority, we held 43 weekly Appreciation Credit grew to more than 2,500 members operations safety meetings and all employees attended for a total of nearly $64,000 back to members in honor of eight safety trainings. Through the year 2015, we contheir service in 2015. Additionally, last year 2,675 mem-
Living the Mission
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“Our mission is to continually improve the quality of life for all of our members by providing reliable and cost effective electric service.” bers took advantage of the Member Referral Program credits which totaled $160,500 back to those members. Thank you for spreading the good word to your friends and family throughout the state of Texas. Your endorsement is the best form of advertising. Through the support of NEC Retail Electricity members who donate to the Member-To-Member assistance program, NEC Retail Electricity was able to distribute more than $10,000 to area agencies in 2015 to help members pay their electric bills. In 2015, NEC Retail Electricity gave back $7.1 million in Capital Credits and End of Year Credits. Many consider capital credit refunds a gift back to the members, but it is not. These credits are your equity in the cooperative. Similarly, at the end of 2015, there was a credit returned on your December bill. This is also money that is paid back to you if it is not used to help offset unseasonably high rates during the hot summer months. These benefits are what being a member-owner of your electric cooperative is all about: it is the cooperative difference. While for-profit companies pocket these extra margins, as a cooperative, we return them to you. NEC Retail Electricity has chosen to display an all-in-one rate that does not misguide consumers. While competitors mislead consumers through impossibly low rates they soon raise and other gimmicks, NEC is dedicated to never misleading its members. The current business model has been successful and I am optimistic that NEC Retail Electricity can continue to compete in the high stakes retail electricity market while we continue to maintain our integrity and build relationships with the member-owners.
NEC saw a 4.3% increase in total assets and debits. Of the $164.3 million, utility plant investments totaled $107.5 million --up 2.1% due to increases in technology; property and investments totaled $46.1 million -- up 9.7% following the purchase of additional treasury strips representing members’ equity. Of note, our accounts receivables decreased by 37% due to our implementation of a new third party vendor to collect past debts. Managing costs for NEC is an increasing challenge. New technology, rising costs of materials and supplies, regulatory pressures, a more mature competitive retail market, and keeping up with the competitive pay and benefits requirements in a competitive labor market, all contribute to our rising cost of doing business. The Co-op experienced a 4.6% increase in consumer accounts, operations and maintenance, and administrative and general expenses over those in 2014. Total Operation and Maintenance expenses increased by 7.5% over 2014. Despite these cost pressures, our Operating Margins in 2015 totaled $8.9 million and Non-Operating Margins totaled $1.5 million. In 2015, it became clear that the NEC Retail Division subsidizes the wires operations of the Co-op. The Co-op plans to adjust rates between the two business groups beginning in Decemeber. Members who use only our retail services, or who use both our wires and retail services, will not see a bill increase as a result of this adjustment. However, the NEC Retail Electricity has subsidized members who use NEC wires services with another retail provider and it’s important that the Co-op remove this subsidy. Wires services members will receive notices within the month regarding this adjustment.
Financially Strong
The Privilege of Co-op Membership
The largest expense for the cooperative as a whole was our purchased power and generation cost, which across the US, increased in 2015. We experienced an increase of 8.25% in our cost of purchased power over 2014. Our power agreement with STEC guarantees NEC members a reliable source of generated power. In total, NEC purchased 956,458,633 kWh and sold 898,597,516 kWh. This 2015 sales figure represents a 23% increase over 2014 largely due to the addition of NET Mexico Pipeline Partners, an affiliate of NET Midstream, that completed the construction of a natural gas transmission pipeline and ramped up operations in 2015. Total revenue for the Co-op was up in 2015 by 5.81%. The average use of residential members was 1,241 kWh per month which is a 5% decrease in usage compared to 2014. A big thank you to all of our members for your efforts to conserve.
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As we approach the end of 2016, I would like to thank the membership for believing in your electric cooperative. In the past 78 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, where we are consuming more electricity. NEC is proud to continue to rise to the challenge to meet your needs. You can be sure that Nueces Electric Cooperative is not only surviving, we are thriving. NEC is leading the way for future electric cooperative development and we are grateful to have such a supportive membership to guide us through that task.
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Financial
Report
Number of Accounts 48,971
Total Power Sold
Members on Operation Round-up 15,022
683,905,308
Members using NEC / Halo Flight Guardian Program 1,245
667,331,621 Year
Number of Members 33,683
730,684,221 898,597,516 Million kwh
Number of Facilities 6 Total Miles of Line 3,215 Number of Poles 84,402
NEC Retail 2015 Power Resources Total Power Purchase = 898,597,516
Open Market 24.3%
SMEC 31.0%
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Renewables 3.3% STEC 8.2%
Calpine 33.2%
Number of Transformers 16,160 Number of Employees 77 Executive 6 Business Office: 21 Operations: 26 IT / Metering: 8 Engineering: 8 Compliance: 3 Retail: 3 Facilities: 2 Annual Miles Driven 869,558 Competitive Retailers in the NEC Territory 22
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Balance Sheet
Operating Statistics
Assets: What We Own
Revenues: What We Took In
Net Utility Plant
$107,559,937
Operating Revenue
$81,375,138
Cash in Bank
$231,900
Miscellaneous Electric Revenue
$1,020,174
Investments
$46,139,273
Nonoperating Revenue
$1,545,925
Accounts Receivables
$1,871,682
G&T Capital Credits
$3,429,991
Materials and Supplies
$2,304,519
TOTAL REVENUES
$87,371,228
Prepayments
$290,816
Other Current & Accrued Assets
$4,192,761
Expenses: What We Paid Out
Deferred Charges and Other Assets
$1,782,944
TOTAL ASSETS
$164,384,185
Purchased Power
$54,692,208
Operations and Maintenance
$4,770,553
Consumers Account Expenses
$4,236,528
Administrative and General Expenses
$5,145,691
Liabilities: What We Owe
Depreciation
$3,458,143
Interest
$2,757,985
Membership Fees & Consumer Deposits $2,421,051
Tax Expense
$1,298,821
Long-Term Debt
$59,136,329
Other Deductions
$594,369
Current and Accrued Liabilities
$21,744,454
Nonoperating Expenses
$84,564
Patronage Capital and Equities
$73,641,161
TOTAL EXPENSES
$76,954,298
Deferred Credits
$7,441,190
TOTAL LIABILITIES
$164,384,185
Margins: What We Had Left
How Your Dollar Was Spent in 2015 71¢: Cost of Purchased Power
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Operating Margins
$8,871,004
Nonoperating Margins
$1,461,361
TOTAL MARGINS
$10,332,365
6¢: Member Services & 4¢: Information 7¢: Net Interest 6¢: Distribution 4¢: Admin & 2¢: Operations & Depreciation Taxes General Maintenance
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MINUTES OF THE 2015 ANNUAL MEETING October 9, 2014
Call to Order
President & CEO Reports
Member Voting
The 76th annual meeting of the members of Nueces Electric Cooperative, Inc., was held on Thursday, October 8, 2015, at the Richard M. Borchard Regional Fairgrounds in Robstown, Texas. The number of members present was 1,167 with 472 ballots issued at the meeting. There were 6,190 represented by mail-in ballot, for a total of 6,662 voting members (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 Texas A & M Kingsville Jazz Combo led the audience in the National Anthem. Pastor Jason Fry, Grace United Methodist Church, delivered the invocation.
President Menking and CEO John L. Sims delivered joint reports through a pre-recorded video message to members which followed the information distributed to members in the printed President and CEO Reports provided in the October 2015 issue of the Texas Co-op Power Magazine, as well as the Annual Meeting Program booklet. In 2014, NEC settled into the new Calallen office, celebrated the grand opening of the Orange Grove Service center. This service center was the last of the building expansion efforts which started in 2007. The report noted that NEC now has three service centers with the Calallen office acting as the hub. Safety is a top priority at NEC as the Co-op held 49 weekly operations safety meetings and eight all-employee safety trainings. The Co-op provided a Photovoltaic training to 140 Texas First Responders as it geared up for solar technology. The report emphasized that NEC has an obligation to protect not only our employees but the general public as well. The Co-op entered into an agreement with a pipeline called Net Mexico which was a huge undertaking for both NEC & STEC. As a result of the partnership, new infrastructure was built and amount of NEC Retail purchased power increased by 9%. In 2014, the Co-op saw a 6% increase in total operating and maintenance expenses as compared to 2013 and a 7% increase in the cost of purchased power. NEC Retail experienced a healthy 3% growth, sold 713 million kilowatt hours, and supported events in donations. Along with the NEC Retail Military Appreciation Credit, Member Referral Program Credit and the Merry Christmas credits the Co-op gave over $9.4 million back the members in 2014. Nueces Charities, now called Nueces Electric Charities, reached $1 million in giving in 2014 and$135 thousand dollars was distributed to 30 area charitable organizations to improve members’ quality of life. NEC moved forward to partner with Clean Energy Collective who will work with NEC Retail to provide “roofless solar” to members as NEC’s next natural step in building its hydo and wind powered renewable energy portfolio. NEC membership gave NEC an 83% approval rating, which is 6 points above the nation co-op average of 77%, and 11 points above the investor owned rating of 72%. In 2014, Nueces Electric Cooperative was voted the #1 Best of the Best electric provider, in Corpus Christi.
Survey and Ballot Systems (SBS) supervised the collection and counting of the ballots. Upon completion of the counting of the ballots, the following results certified by Ryan Smith, a representative of SBS, and Board Asst. Secretary/Treasurer Tommy Ermis announced the results:
Recognition of Board Members, Committee Members, Special Guests, Youth Tour Delegates, Ramiro De La Pas Scholarship winners & NEC Employees President Menking introduced the Cooperative’s Board of Directors and members of the Community Involvement Committee. Recognition was given to special guests in attendance, youth tour delegates, Ramiro De La Pas scholarship winners and employees of the Cooperative.
Reading of Notice of Meeting & Proof of Mailing of Notice Cooperative Attorney David Garrison read the “Proof of Mailing of the Notice of the Annual Meeting.” After the reading, the document was submitted to Executive Secretary, Liane Padilla for attachment to the official minutes of the meeting.
Minutes of 2014 Annual Meeting President Menking stated that the minutes of the 2014 annual meeting had been provided in the October 2015 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 2014 Annual Membership Meeting be adopted as published.
Treasurer’s Report President Menking stated the Treasurer’s Report had been provided in the October 2015 issue of the Texas Co-op Power Magazine and the Annual Report booklet. A Motion was made, seconded, and duly carried to approve the report as printed.
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District 3 Director: David Rosse 6,312 Votes District 5 Director: Maxine Stewart 6,246 Votes District 9 Director: Johnny Alvarado 6,325 Votes It was declared that those elected as Directors for Districts 3, 5 and 9 are: David Rosse District #3; Maxine Stewart District #5; and Johnny Alvarado District #9, all for three-year terms.
CEO Farewell Message A brief farewell video for John Sims was presented, in tribute to his 41-year career with electric cooperatives. Tommy Ermis Asst. Secretary/Treasurer made a gift presentation on behalf of the Board and the Co-op as it was John Sims’ last membership meeting.
NEC Retail Member Referral Program Winners and Prize Drawings NEC Retail Manager, Frank Wilson, announced the Referral Program winners who received $500 electric bill credit for first place and the runner up received a $250 electric bill credit and held the prize drawings.
Adjournment There being no further business, the meeting was adjourned at 8:07 p.m.
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Employees In 2015, 77 NEC employees worked a total of 163,853 business hours plus 16,067 hours of overtime. Total wages equaled $5.4 million.
HILDA AYALA ROXANE FLORES VICKY GARCIA LIANE PADILLA ROXANNE PINA CYNTHIA GARZA SYLVIA GARZA RICHARD PADILLA JESUS OLIVAREZ CHRIS CARRION JOSE HUERTA ANGELA RODRIGUEZ BENNY TORRES MICHELE MATHIS * KENNETH KRUEGER* ISABEL RODRIGUEZ ERIC HERMAN BEATRICE REYES* CRISSY TAMEZ ROBERT HOLLOWAY CHRISTINE GRISSOM VELMA VASQUEZ* JOE LOCKHART NICK WEBER GUS GONZALEZ VLADIMIR LOBANOV BILL GUNN JOHN GUZMAN
9 8 8 8 7 7 7 7 7 6 6 6 6 5 5 4 4 3 3 3 3 3 2 2 2 2 2 2
DOM CORTEZ 1 TAYLOR BENNETT 1 ALAN SANDERS 1 TATE PRIEST 1 MARK KOSIER 1 BRENT WOLKERSDORFER 1 LARRY RAHMES 1 ROLAND RAMIREZ 1 MATT RIVERA 1 TRACE MCCUAN 1 SUSAN BRIDGES 1 DAVID TIVIS COY ERWIN JASON SIMS MADELINE CHALK TYLER BUNCH JULIE SALDANA JONATHAN WENTE JOANNA PRADO* *NEC Retail Employee
Success
ROSIE AVALOS 41 WARREN HOELSCHER 41 MARY PAVELKA 37 LARAE MARTIN 34 AL PENA 33 CHRIS KNETIG 31 TYRON HEFLIN 28 ALBERT PENA 27 PETE RAMIREZ 27 MANUEL MAYORGA 26 FRANK WILSON* 23 ALBERT GOMEZ 21 SARAH FISHER 19 ROBERT BRIONES 18 ADRIANA PENA 18 ROLAND TREVINO 16 RHONDA BELL 15 JOE RIVERA 14 AVAN IRANI 13 JASON RAMIREZ 13 RAYMUND PINA 13 CASSY HILL 11 PAULA SHADLE 11 DOUG WILSON 10 SERGEY SERYOGIN 10 MANUEL PINA 9 CLAY DENNIS 9 SONIA STOUT 9
=
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