trust Why our members CoServ

Transcription

1 trust Why our members CoServ

2 CoServ Electric s Vision To be trusted to consistently exceed members expectations for safety value reliability service community support Our vision at CoServ Electric can be summed up in three words: to be trusted. We want to exceed your expectations so you have total confidence in us. After all, you are an owner of this electric company, and we re here to serve you. This annual report highlights some of the ways we earn your trust. Cover: Scott and Kelly Head with their children, Sarah and Lauren, Frisco, CoServ members for 8 years

3 2 Dear CoServ Electric member: Who do you trust? Most of us can count on a handful of family members, friends and co-workers. These people stand out from the rest... They tell you the truth. They re available when you call. They listen to your concerns and try to help. Best of all, you don t have to worry, because they are on your side. We want CoServ Electric to be on the list of those you trust and that s what this annual report is all about. In the next several pages, we hope you will see our effort to exceed your expectations in these areas: Offering you a great value for your membership. Providing electricity with high reliability. Investing in your future through community support. Paying attention to safety in all that we do. Keeping a sharp focus on customer service. In addition, you will read about our energy conservation efforts, as well as operations and financial reports. You ll also learn about the people who make it all happen our employees and board of directors. When you have time, check out our convenient, redesigned Web site, Now you can pay your electric bill online, view your account information, learn how to save energy in your home and more. Stay up-to-date with your rates and other issues pertaining to your membership by reading our news stories. Also, be sure to explore the About CoServ section, where you can see your board representatives, learn about our history as a cooperative, and get your questions answered through our FAQs (frequently asked questions). We encourage you to visit the site and register as a user, so you can take full advantage of what it has to offer. As you may know, the Texas legislature is considering bills to improve or reform electric deregulation in our state. Many lawmakers have expressed their pleasure that cooperatives were not forced to opt in to deregulation. They recognize that our governance model is different. Instead of answering to investors, we answer to you, our members. You can trust your elected board members to keep your interests first. We monitor the deregulated market and will opt in only if we believe it will benefit you. We encourage you to visit the FAQs section of our Web site to learn more. For all of 2006, CoServ s rates averaged the lowest among other retail electric providers in our service area. That equates to potentially thousands of dollars you ve saved by being a CoServ member. On top of that, we paid more than $3 million to our members in the form of capital credit retirements last year. Our customer satisfaction scores steadily increased as well. We look forward to serving you. Jerry Cobb Chairman of the Board Mike Dreyspring CEO contents 2 Letter from Chairman of the Board and CEO 14 Our Employees 3 Who We Are 15 Annual Meeting 6 CoServ s Values 17 CoServ Board of Directors and Service Districts 13 Energy Conservation 19 Operations Update 21 Financials

4 3 CoServ Electric: who we are Reliability. Value. Trust. In this day and age, it s hard to find a company that puts your interests first. Many organizations become distracted by profits, and customers are the last thing on their minds. At CoServ Electric, it s just the opposite. We are a not-for-profit electric cooperative, which means we are owned by the people we serve. Our member-owners want the best possible service at the lowest possible rates and that s what we deliver. Based in Corinth, Texas, we have served the North Texas area since We began as Denton County Electric Cooperative, Inc. with the mission of providing reliable, affordable electric power to rural homes and communities. In 1998, we began doing business as CoServ Electric. CoServ is an abbreviated version of Cooperative Services. While our legal name remains Denton County Electric Cooperative, Inc., we felt that a name change would reflect our growing regional membership and our emphasis on service. Since then, this area s growth has made us the second largest electric cooperative in Texas. Throughout CoServ s development, we have never lost sight of who we work for. It s not profit-driven shareholders or private investors. We work for our members. You own this cooperative, and we are accountable to you. All members can vote for board-of-director representatives, who oversee the operations of the cooperative. Members are also invited to our annual meeting each June, and you have a voice in how your electric company is run. At CoServ, we want to exceed your expectations. Whether it s through our low rates, reliable service or community involvement, your trust is important to us and we intend to keep it. CoServ Electric. Built to Serve. Energizing Life. SM fast facts headquarters: 7701 South Stemmons, Corinth, Texas areas served: Denton, Collin, Tarrant, Cooke, Grayson and Wise counties years in business: 70 years number of members: More than 115,000 residential, commercial and industrial members number of employees: 250 CoServ Electric employees number of meters: More than 132,000 meters

5 vision As CoServ members, we have more benefits than any other electric customers we know. It feels good to be part of a cooperative that puts its members first. Mike Figliola and Tracy Mollett, Flower Mound, Members for 9 years

6 value We ve been CoServ members for four decades, and we are constantly impressed with our low rates. We appreciate the way cooperatives like CoServ do business. We ve decided that we will always be members of a co-op. Billy Edd and Loretta Jeter, Aubrey, Members for 40 years

7 6 value In an industry plagued with rising rates, CoServ Electric provides electricity to our members at the lowest price possible. We are proud to offer some of the lowest rates in North Texas and unlike for-profit electric companies, we don t add on unnecessary charges to provide profits to shareholders. Our rates are based on only two things: our wholesale cost of electricity, and the funds needed to run the cooperative and keep it in good financial condition. In fact, we return our profits to you, our members, in the form of capital credits. Providing value is not just about prices, though. CoServ also offers: Online account information and bill-pay options Several payment methods for added convenience Rolling average bank draft and other programs so you can plan your spending Access to local employees Personalized energy audits (upon request) and energy-saving tips on our Web site Advocacy for our members through associations that encourage state legislators to support the low-cost cooperative business model 2006 Report: In 2006, we paid more than $3 million in the form of capital credit retirements to CoServ members. Since 2004, we have returned more than $12 million in capital credits to members. For the 21 months preceding publication of this annual report, CoServ Electric s rates averaged among the lowest of other retail electric providers in our service area. To view our most recent rates compared with other providers, visit Click CoServ Electric Service, then choose About CoServ. Click CoServ vs. the Competition.

8 7 reliability The last thing our members want is a surprise electrical outage. That s why we work hard to ensure you receive highly reliable service. In the case of an unavoidable outage, we use our state-of-the-art technology to resolve it as promptly as possible. In fact, CoServ Electric has one of the best outage response and restoration times among all electric providers in North Texas. Our technology helps you by: Automatically flagging outages, allowing us to rapidly dispatch line crews to the source of the problem often before you have a chance to call; Allowing our personnel to restore power by remote control, in some situations, to get your systems up and running even more quickly. Our outage management tools exceed industry requirements, and we continue to invest in enhancements. Due to the rapid population growth in our service area, CoServ also forecasts the number of members we will serve up to 20 years from now. This helps us prepare for necessary system expansions and equipment purchases, ensuring reliability for years to come Report: The reliability of your electric service in 2006 was exceptional. The few bumps we encountered were addressed quickly to minimize the effect on our members. Here are some examples: While a December 2006 ice storm caused major outages for many North Texas utilities, CoServ experienced only minimal outages because: 1) We regularly inspect all electricity poles in our service area and replace them, if necessary. 2) CoServ s routine tree-trimming plan ensures minimal service interruptions. 3) We design our electric lines to better withstand bad weather. In August 2006, a transformer and backup substation (from Brazos Electric Cooperative, our wholesale power provider) failed in Frisco. Thanks to our well-trained employees and our system improvement plan, we restored service to more than 5,000 members in less than an hour.

9 reliability CoServ line crews work around the clock to make sure members receive reliable service. We realize that electricity is part of their everyday lives, and our goal is to make sure they never go without it. Shea Hassell, CoServ line crew supervisor, Employee for 17 years

10 service I do my part to make sure each experience a member has with CoServ is a positive one. My favorite part of the day is when I can help a member find the answer he or she is looking for. Kellie Jackson, CoServ customer service representative, Employee for 1 year

11 10 service Our tagline says it all. CoServ Electric is built to serve. As a cooperative, our member-owners are first on our priority list. CoServ tracks member satisfaction through quarterly and annual surveys, and we take every comment seriously. These surveys help us recognize what we are doing well and where we can improve. We invest in extensive training for our employees, and we recognize them for providing you with excellent service. We are here to serve our members 24 hours a day, 7 days a week. You can contact us in the way that s most convenient to you through our Web site, or toll-free line. During our business hours (Monday through Friday, 7:30 a.m. to 5:30 p.m.), you may also visit us at our local headquarters in Corinth Report: Throughout the year, our team of customer service representatives received nearly 350,000 calls (more than 1,300 a day), and we kept hold times as brief as possible. Our meter readers read almost 2 million meters (nearly 5,500 a day) with 99.8 percent accuracy. In 2006, CoServ s average customer satisfaction score was 70.5*. This compares to TXU Energy s score of 65.5 and Reliant Energy s score of To view our most recent satisfaction scores compared to TXU and Reliant, visit Click CoServ Electric Service, then choose About CoServ. Click CoServ vs. the Competition. * Established in 1994, the American Customer Satisfaction Index provides a uniform, independent measure of consumer experience with 190 of the leading corporations in America Customer Satisfaction Scores American Customer Satisfaction Index Chart CoServ 70.5 Reliant 67.5 TXU 65.5

12 11 community support CoServ Electric is dedicated to the communities we serve. That s why our employees helped establish the CoServ Charitable Foundation in 2004 to support local organizations that make a difference in others lives. The foundation receives funds from employee contributions, fundraisers and Operation Roundup, a program supported by members who round up their monthly electric bills to the next highest dollar. For each participating member, that s an average of $6 extra per year. That may not sound like much, but donations from many of our members add up quickly. Each year, CoServ also offers: College scholarships for the children of CoServ members Educational trips to Washington, D.C., for students Electric safety programs at local schools Grant writing workshops for not-for-profit organizations 2006 Report: Last year, your CoServ Charitable Foundation contributed more than $514,000 to worthy community causes. Here are just a few of the projects these funds supported: Provided medical care for underprivileged children through PediPlace in Lewisville. Supported a summer academic camp for 250 students through Bridges Outreach of Denton County, located in Flower Mound. Purchased back-to-school clothes for 206 students through the Assistance League of Greater Collin County. Supplied rescue equipment for local fire departments (Argyle, Double Oak, Krum, Lake Cities, Little Elm and Ponder). Paid for day-to-day living expenses for residents in need through Frisco Family Services Center, Community Services, Inc. and Christian Community Action. Since its inception in 2004, the foundation has donated more than $700,000 to our members communities. To find out more about how CoServ helps others, visit Click CoServ Electric Service, then choose the Community tab.

13 12 safety You can rely on us to keep you safe from dangerous electrical situations. CoServ works to exceed all federal and state safety standards. Our field personnel receive weekly training on dealing with high voltage, hazard recognition, defensive driving and other issues. We train all our employees on how to recognize a hazard, secure help, and stay put until a qualified CoServ Electric employee arrives to resolve the situation. CoServ provides electric safety instructions to children in schools, firemen and other emergency personnel. We are experts in electric public safety, and we share that knowledge with others. We also use the Safety section on to show you the best ways to protect yourself from electrical fires, storms, fallen power lines and more. Practicing safety saves you money. By preventing costly mistakes, our costs stay low and we pass the savings directly to you Report: Last year, we had no accidents where an employee was forced to take off work. In fact, we have worked for nearly two years with no lost-time accidents.

14 13 energy conservation at CoServ Electric In the next 30 years, the North Texas population is expected to jump more than 50 percent, to reach 9.1 million. CoServ Electric s membership alone is growing at about 10 percent per year, with no end in sight. All those extra people mean more demand for homes, food, cars and most certainly electricity. One of the most talked-about issues in the news media today is global warming and how Americans increasing energy usage may hurt the environment. CoServ believes in good stewardship of our earth s resources, while at the same time providing you with reliable, low-priced power. That s why we work through our wholesale supplier, Brazos Electric, to generate electricity in a manner that complies with environmental regulations. Brazos currently provides 2 percent renewable energy (which is comparable to other providers), and it has a plant with one of the highest efficiency ratings of all generating plants in Texas. In addition, Brazos is conducting a study to determine the most cost-effective power supply resources and the necessary quantity to meet our future demand. This study, which will be completed in 2007, will analyze the feasibility of including alternative energy sources, such as wind power, in Brazos portfolio. Brazos is also looking into ways to decrease energy demand so less power is used. CoServ conserves energy in our operations, as well. We currently use several hybrid gas/electric vehicles, and we are determining the feasibility of using hybrids for more of our fleet. CoServ recycles much of the paper used in our headquarters, and we are creating an energy conservation plan for our offices. In addition, we are implementing software that determines the optimum driving routes for our field personnel. This will result in fuel and time savings. We encourage you to do your part and use energy wisely. Learn more about energy conservation at where we offer interactive tools, calculators and articles about saving energy. In addition, you may request a free on-site audit of your home s energy efficiency and tips to improve it. 6 Ways to Save Energy in Your Home 1. Try setting your thermostat at 78 degrees in the summer and 68 degrees in the winter. Half of your electric bill is from heating or cooling your home. 2. Change your incandescent light bulbs to compact fluorescent. These bulbs cost more, but they last up to 10 times longer and use two-thirds less energy than standard incandescent bulbs. 3. If you re not using it, shut it off. This includes lights, TVs, radios and ovens. 4. Use appliances with the Energy Star seal. These are much more energy-efficient than other options. 5. Check your home for leaks around windows, doors and ductwork. You may need to add caulking, weather stripping or insulation. 6. Add solar screens or tint your windows to reduce the heat entering through the glass.

15 14 our employees: the faces of CoServ Electric At CoServ, we have many reasons for our success as an electric cooperative 115,250, to be exact. Most of those are CoServ Electric s member-owners. The other 250 are the faces behind the scenes our hard-working employees. Each day, our customer service representatives answer members questions about their accounts. Meter readers record your electricity usage to ensure your bill is accurate. Linemen maintain and repair your power lines. Our engineers build distribution systems that are dependable and cost-effective. And, of course, our dispatchers help us respond to outages as quickly as possible. Here s how we manage it all: We never stop learning. Our employees take classes through CoServ University, our companywide training program. Each employee spends an average of 15 hours per year studying topics such as ethics, customer service, industry issues, member data protection and more. In addition, employees prepare for their specific job duties through classes, mentoring or on-the-job training. A B C D E Terry Tutt Meter reading department CoServ employee for 5 ½ years Bina Titus Information technology department CoServ employee for 6 years Tommy Richards Operations department CoServ employee for 29 years Shirlonda Tatum (left) Customer service department CoServ employee for 2 years Betty Riley (right) Customer service department CoServ employee for 3 ½ years Debby Key Accounting department CoServ employee for 8 years CoServ employees know that, to truly put you first, we must give back to your communities. Here are a few of the ways our employees made a difference last year: Many regularly donated to the CoServ Charitable Foundation through payroll deductions. Some even organized fundraisers, such as chili cook-offs and bake sales, to support the foundation. In 2006, employees raised money for breast cancer research through the Susan G. Komen Race for the Cure. Last year, 100 people represented CoServ at the local event. During the winter holidays, employees collected toys and gift cards to help several metroplex charities. In addition, one-third of our employees are members of Rural Friends/ACRE, a non-partisan political action committee that represents the interests of electric co-ops and our memberowners. This group lobbies our stance on current issues. They also raise money for state and national political candidates who support electric cooperatives. living the CoServ brand: We set the bar high at CoServ. We insist that all of our employees focus on safety, reliability, service, value and community support. In 2006, we started a program called Living the CoServ Brand to recognize those employees who go the extra mile to serve members and improve processes. That s why you can trust us because we re committed to exceeding your expectations. A B C D E

16 15 CoServ Electric s annual meeting: let your voice be heard At investor-owned companies, annual meetings are exclusive occasions for shareholders only. Corporate leaders recap the previous year, explain their vision for the future, and answer questions from shareholders. Customers are not allowed to attend unless they are also shareholders. Things are different at CoServ Electric. As a not-for-profit cooperative, we are owned by the people we serve our members like you. That means we invite you to our annual meeting each June to hear our CEO, Mike Dreyspring, talk about the state of your electric company. But you ll experience more than the speech... CoServ s 2007 annual meeting when: Tuesday, June 26 6 p.m. Dinner 7 p.m. Business Meeting where: University of North Texas Coliseum Denton, Texas

17 16 annual meeting Here are the top 5 reasons why you should attend our annual meeting this year: 1. Get your questions answered. Visit the information booth to ask specific questions about your bill or account. 2. Find out the results of the board member election. CoServ s service area is divided into seven districts. Each year, the board members representing two of these districts are up for election. (Every third year, three board members are up for election.) You can vote for board representatives via mail-in ballot, then come to the annual meeting to hear the results. 3. Learn how to save energy. By reducing the amount of electricity you use, you can lower your electric bill and help protect the environment. At the 2007 annual meeting, visit the energy conservation booth to learn how to use less electricity. 4. Talk to CoServ s CEO and the board. After listening to CEO Mike Dreyspring s presentation, ask him a question about anything that s on your mind. We will post all questions and answers on soon after the meeting. (Just click CoServ Electric Service, then choose the Member Info tab and select Annual Meeting Q&A. ) You can also visit with your board-of-director representatives at the meeting. 5. Enjoy being treated like royalty. CoServ exists to serve our members. That s why we make our annual meeting as special as possible for those who attend. Participate in a raffle to win a truck or other door prizes, dine on delicious barbecue, and receive a gift just for attending.

18 17 board director bios At CoServ Electric, our board of directors represents you, our member-owners. Unlike investor-owned companies, where the board speaks for shareholders, our board represents the people we serve. That adds a level of accountability that you can t find anywhere but a cooperative. Since you elect the board representatives, you have a voice in how your electric company is run. Each month, the seven-member board meets to discuss business operations, industry issues and other topics that affect CoServ s members. Seats on our board are designated by geographic district, ensuring that members from all parts of our service area are represented. Each board member serves for a 3-year term, and several seats are up for re-election each year. You can vote for these candidates via mail-in ballot, and the results are announced at our annual meeting in June District 1 Director: Vaughn Andrus, Secretary/Treasurer, was first elected to the board in A resident of Krum for 32 years, Andrus is a retired chairman and CEO of First United Bank. Andrus has served for the Krum Chamber of Commerce, is a board member of North Central Texas College Foundation Board and is a member of Krum Lions Club. District 2 Director: Leon Pelzel joined the board in A lifetime resident of Pilot Point, Pelzel has managed a farm business since Pelzel is a member of St. Thomas Aquinas Church, where he is involved in various ministries. District 3 Director: Clyde Geer, a McKinney native, has served on the board since Geer has been on the board as president, vice president and secretary/treasurer. Geer has been a self-employed real estate broker for 27 years. He is involved in numerous community-sponsored programs, including the McKinney Chamber of Commerce. He is also an active member of First Baptist Church of McKinney. District 4 Director: Jerry Cobb, Chairman, was first elected to the board in With 26 years of residence in Frisco, Cobb has been involved in ranching and family investments. Cobb was past chairperson of the Budget and Finance Committee of First Baptist Church of Frisco. He is also a member of the Citizen s Bond Committee in Frisco ISD. District 5 Director: Anne Vaden joined the board in Vaden has 21 years of experience in insurance and 11 years in management consulting, information technology, operational improvements and accounting. She has served as an officer of several community associations and the advisory board of North Central Texas College. She enjoys golf, as well as assisting the elderly and sheltered children. District 6 Director: Mark Glover, Vice Chairman, was first elected to the board in Residing in Flower Mound for 15 years, Glover has been an independent businessman for 22 years and involved in commercial real estate, construction and energy-efficient technologies. Glover participates in a variety of community programs, including being a member of the Lewisville Chamber of Commerce, Flower Mound Rotary Club and a board director of the Southwest Diabetic Foundation. District 7 Director: Curtis Tally joined the board in A resident of Justin for 70 years, Tally established and managed Justin Seed Company for 39 years. He has served on several boards and committees throughout his career, including being a former president of Texas Seed Trade Association, current chairman of the board of Justin State Bank and a volunteer for Meals on Wheels for 10 years.

19 service district map

20 19 CoServ Electric s operations: serving you better every day As a member of CoServ Electric, you trust us to run the day-to-day business of your cooperative. We take that responsibility very seriously. That s why we re always looking for ways to be more efficient in our operations, while still providing you with reliable power. We believe in using every dollar wisely. Here s some of what we did in 2006 to serve you better and be even more cost-effective: Launched the enhanced CoServ Web site. In addition to creating a more user-friendly format on we added a variety of convenient features: You can now manage your account online, learn how to lower your electric bill with our interactive energy calculators, report street light outages and more. You can also stay informed through CoServ news stories, Q&A about capital credits and frequently asked questions about CoServ. We will continue to improve the Web site using your feedback, so visit the site often. Upgraded our handheld meter reading devices. The new weatherproof systems are higher-quality and hold more data. They load faster, which saves time. We can even customize an address by including special instructions, such as a gate code, location of the meter or contact name. Added computers in our service trucks so linemen can view up-to-date maps of our service area and more easily locate equipment. This saves time when restoring power or working on equipment. Linemen (in the field) now refer to the same screen our dispatchers (at our headquarters) see when they respond to outage reports or maintenance requests. Automated some of our distribution equipment. Now we can control the equipment from our headquarters. This keeps power costs down, reduces outage time and helps us operate even more safely. Over the next two years, we plan to automate more of our distribution equipment. Implemented new financial and project management software. Our accounting employees can now prepare reports and financial statements more quickly. In addition, our engineering group has a more efficient system for tracking progress on projects. Switched employees from fully insured medical coverage to a self-insured plan, where costs are based only on what we use. We expect this move to save the cooperative money while still providing dependable health care for our employees.

21 20 senior staff members From left to right: Curtis Trivitt: Senior VP - Energy Services Jody Forman: Senior VP - Corporate Relations Donnie Clary: Senior VP and CFO Stacia Sims: Senior VP - Information Services Jim Chism: Senior VP Administrative Services CoServ Electric and the Energy Policy Act of 2005 In 2005, Congress passed the Energy Policy Act, which addresses some of the challenges faced by the power industry. The act requires all large utilities, such as CoServ Electric, to consider processes for: Smart metering: Where a special meter automatically records electricity usage and other data without a person reading the meter. This data would be electronically transmitted to CoServ, thus saving time and money. Net metering: A way to measure electricity usage for members who already supply some of their own power requirements through the use of wind turbines, solar panels or other recognized cogeneration methods. Distributed generation: When a back-up generator is at or near a home or business. For safety reasons, it s very important that CoServ knows where these are located. Fuel efficiency: To keep prices down, our wholesale power provider (Brazos Electric) will explore ways to convert resources (such as natural gas, coal and wind) to electric power more efficiently. Fuel diversity: To keep prices as low as possible, Brazos must use a variety of power resources, such as natural gas, coal and wind. Our compliance with the Energy Policy Act is just one way you can trust CoServ to put your interests first. In December 2006, CoServ s board of directors held a public hearing at our headquarters to discuss the issues. This summer, we expect our board to adopt standards in compliance with the Energy Policy Act snapshot number of new meters added: 11,477 percentage growth: 9.79% amount of electricity used by members: 3,040,724,683 kwh (kilowatt hours) number of new residential neighborhood projects in our service area: 72 number of new large commercial projects in our service area: 14

22 financials Balance Sheet ASSETS CURRENT AND OTHER ASSETS Cash and Temporary Investments $ 27,613,478 Accounts Receivable - net of allowance for uncollectibles 13,924,793 Other Current Assets 17,292,239 Investments in Affiliates 57,009,729 Investments in Associated Organizations 25,102,929 Other Assets 946,416 Total Current and Other Assets $ 141,889,584 PROPERTY, PLANT AND EQUIPMENT - NET OF DEPRECIATION $ 427,698,105 TOTAL ASSETS $ 569,587,689 EQUITY AND LIABILITIES EQUITY Patronage Capital $ 96,406,197 Memberships 1,620,985 Other Equity 52,978,454 Total Equity $ 151,005,636 LIABILITIES Accounts Payable $ 27,302,492 Customer Deposits 4,793,704 Other Current Liabilities 18,024,746 Notes Payable 361,072,283 Other Liabilities 7,388,828 Total Liabilities $ 418,582,053 TOTAL EQUITY AND LIABILITIES $ 569,587,689 Statement of Income and Expenses OPERATING REVENUES Operating Revenues $ 348,079,009 Less: Cost of Purchased Power (253,282,242) Gross Margin $ 94,796,767 OPERATING EXPENSES $ 78,470,954 OPERATING MARGINS $ 16,325,813 NON-OPERATING MARGINS Interest and Other Income $ 1,085,604 Income from Affiliates 2,058,889 Capital Credits Received from Associated Organizations $ 4,233,021 Total Non-Operating Margins $ 7,377,514 NET MARGINS $ 23,703,327 Peak Demand Billed Service Accounts in megawatts ,811 95, , , ,667

23 auditor s letter INDEPENDENT AUDITORS REPORT To the Members Denton County Electric Cooperative, Inc. d/b/a CoServ Electric Corinth, Texas We have audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet of Denton County Electric Cooperative, Inc., d/b/a CoServ Electric as of December 31, 2006, and the related statements of income and patronage capital, and cash flows for the year then ended (not presented herein); and in our report dated April 17, 2007, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed financial statements are fairly stated in all material respects in relation to the financial statements from which it was derived. The complete audit report as described above is on file at the headquarters office. BOLINGER, SEGARS, GILBERT & MOSS, L.L.P. Certified Public Accountants Lubbock, Texas April 17, 2007 Billed Service Accounts Added Kilowatt Hour Sales ,557 9,827 10,491 11,061 11, in billions

24 7701 South Stemmons Corinth, Texas