2017 ANNUAL REPORT IT S THE WATER... POWERING OUR COMMUNITIES UMATILLA ELECTRIC

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1 2017 ANNUAL REPORT IT S THE WATER... POWERING OUR COMMUNITIES UMATILLA ELECTRIC C O O P E R A T I V E

CELEBRATING ANOTHER YEAR OF GROWTH A Message From UEC s Board President and General Manager/CEO. We are grateful to report that 2017 was another productive and positive year for UEC.

Total revenues rose to $118 million, up from $104 million the previous year.

costs. Among our system improvements, we completed work on our Hermiston East Substation and finished multiple upgrades throughout our service territory.

2 CELEBRATING ANOTHER YEAR OF GROWTH A Message From UEC s Board President and General Manager/CEO. We are grateful to report that 2017 was another productive and positive year for UEC. We had another record year of growth, in both revenue and kilowatt-hours sold, during Our power sales rose 19 percent from the previous year, to 2.1 billion kilowatt hours. Total revenues rose to $118 million, up from $104 million the previous year. A direct reflection of the thriving economy in Umatilla and Morrow counties, our growth has helped us hold the line on the rates we charge our members, despite an increase in our wholesale power costs. Among our system improvements, we completed work on our Hermiston East Substation and finished multiple upgrades throughout our service territory. Our solar array near McNary produced 2 million kilowatt-hours of energy in its first full year of operation. As a corporate citizen and a business owned solely by our members, we believe in making meaningful investments in our home communities. During 2017, we contributed to about 100 local organizations serving all ages and interests. Youth livestock shows, food banks, fairs and festivals and many other groups and Welcome to Umatilla Electric Cooperative s 2018 Annual Meeting and Membership Dinner! Thank you for helping us celebrate 81 years of service to our community. activities were among the recipients. We awarded $35,000 in college scholarships and again sent a pair to high school juniors to represent us at a national youth tour in Washington, D.C. We continued to support business development with our Revolving Loan Fund and assisted in plans to expand access to Columbia River water. In June 2017, we marked our 80th anniversary in business, having formed in 1937 as one of FDR s original wave of rural electric cooperatives. As a not-for-profit corporation, we returned about $5.4 million during the year to our cooperative membership as part of our Capital Credits program. We have been returning money to our members annually since 1960 totaling more than $66 million through Most importantly, we finished the year with no lost-time injuries among our 79 employees. Looking forward in 2018, we expect more of the same -- accommodating our expanding economy, and upgrading our existing system to continue providing safe and reliable service to our members. Without a doubt, with the bright economic prospects of our communities, 2018 will be another eventful year for UEC! Robert MacPherson Board President Robert Echenrode General Manager & CEO Page 2

3 President Robert MacPherson Stanfield, District 4 UMATILLA ELECTRIC COOPERATIVE 2017 ANNUAL MEETING MINUTES The 80th Annual Meeting of the members of the Umatilla Electric Cooperative was held at the Hermiston Community Center at 415 S. Highway 395, Hermiston, Oregon, on April 22, President Bob MacPherson presided, and UEC Attorney Tom Grim confirmed that a quorum was present as required by the UEC Bylaws. Vice President Jeff Wenholz Irrigon, District 2 Secretary - Treasurer Bryan Wolfe Hermiston, District 3 Steve Platt Pendleton, District 6 Lee Docken Boardman, District 1 Glenn Rohde Echo, District 5 ATTENDANCE Directors present were: Jeff Wenholz, Glenn Rohde, Lee Docken, Robert MacPherson, RoseEtta Ansotegui, and John Otis. Director Bryan Wolfe was not in attendance due to a conflict with the NRECA Board Meeting. General Manager and CEO Robert Echenrode, UEC Attorney Tom Grim, and UEC Auditor Julie Desimone were also in attendance. MINUTES A motion was made, seconded and carried to dispense with the reading of the Minutes of the Annual meeting held April 17, 2016, and approving the same as written. NOMINATIONS Board of Director candidates from Districts 5, 6 and 7 were introduced. A call for casting of ballots from Districts 5, 6 and 7 was made, after which casting of the ballots was closed. PRESIDENT S REPORT President MacPherson welcomed attendees to the 2017 UEC Annual Meeting. The past 80 years has brought notable change through the electric cooperative. Back in the 1930 s, less than 10% of rural households were electrified. In our community, 300 of our citizens pitched in $5 each to help create UEC. UEC is now Oregon s fourth largest electric utility, serving a diverse and rapidly growing area. The needs of the membership are still paramount in the way UEC does business. One of our Directors, Bryan Wolfe, sits on the NRECA Board and we are represented at the State level as well by President MacPherson. Legislation that would adversely affect our membership is monitored and when needed, lobbied against, for the benefit of our members. UEC is fortunate to award scholarships to local students and donations to community projects and efforts that benefit the quality of life for our membership. President MacPherson thanked the membership for the privilege to do this important work. AUDIT REPORT Auditor Julie Desimone presented UEC s 2016 audit report; financial highlights were provided. Auditor Desimone advised that UEC was found to be in compliance with applicable accounting standards, which resulted in a clean audit. Business process and internal control advice was given to management and the Board. GENERAL MANAGER S REPORT General Manager & CEO Robert Echenrode reviewed the strengths and growth that UEC is experiencing. In a time when many cooperatives are experiencing declining or flat loads, UEC is has seen a tremendous increase in sales, more than doubling the sales in UEC has addressed the challenges of the growth to continue to provide reliable, efficient and low-cost electricity. The solar array near McNary was energized just over a year ago, producing over 2 million kilowatt hours of energy and construction of the newest substation in northeast Hermiston has begun. Improvements are also underway in irrigated areas of our service territory, another area seeing growth. The UEC Board remains committed to minimizing impact of growth on members and has heard from the members that they do not want growth in one sector of the membership to unfavorably impact the other sectors. This remains a guiding principle in how we do business. Technology, such as the already utilized automated metering system, provide benefits to the membership. Automated meters also make a new Pre-Pay Program an account management option. UEC also implemented a fully electronic mapping system with online outage reporting capability. A video was shown on how to report an outage via the Smart Hub app on a smart phone. Attendees who could show they had the app on their smart phone, or asked for assistance to download it, were given $5 cash. Other milestones and accomplishments for the year were reviewed. UEC scored an 84 on the American Customer Satisfaction Index, a positive reflection on the quality of products and services that are provided to the membership. UEC provides high-quality reliable service at the best value. A chart was shared showing that UEC provides this quality service at the lowest rates among Oregon electric cooperatives. ELECTION RESULTS Tom Grim, UEC Attorney, announced the election results: Glenn Rohde was re-elected as Director for District No. 5, RoseEtta Ansotegui was re-elected as Director for District No. 6 and John Otis was re-elected as Director for District 7. NEW OR OLD BUSINESS President McPherson announced the floor was open to discuss any new or old business. There was no old or new business. ADJOURNMENT There being no further business before the membership, the meeting was adjourned at 5:33 p.m. John Otis Hermiston, District 7 UEC UMATILLA ELECTRIC COOPERATIVE Page 3

4 Energy Program Savings (KWh saved) 10,291,000 KWh 19,951,000 KWh 17,759,000 KWh 23,746,000 KWh 18,016,000 KWh 15,755,000 KWh Trees Trimmed/ Removed 2017 Financial Statements RURAL SERVICES COMPANY (RSC) CONSOLIDATED BALANCE SHEET ASSETS NET NON-UTILITY PLANT $4,136,785 $4,246,453 INVESTMENTS - At Cost Investments in Associated Organizations 100, ,150 Other Investments 5,762,871 4,036,562 TOTAL INVESTMENTS 5,863,118 4,174,712 CURRENT ASSETS Cash and Cash Equivalents 595, ,221 Accounts/Contracts Receivable 673, ,490 Materials and Supplies 181, ,467 Other Current and Accrued Assets 123, ,406 TOTAL CURRENT ASSETS 1,574,377 1,337,584 OTHER ASSETS 101, ,707 TOTAL ASSETS $11,676,212 $10,238, , ,824 Power Sources 2% Other 7% Nuclear 79% Large Hydro 12% Market Sources LIABILITIES AND MEMBERS EQUITY MEMBERS AND STOCKHOLDERS EQUITY Capital Stock $3,500,171 $3,500,171 Retained Earnings 1,406,543 (774,409) TOTAL MEMBERS AND STOCKHOLDERS EQUITY 4,906,714 2,725,762 MINORITY INTEREST 5,857 1,475 LONG-TERM DEBT, LESS CURRENT MATURITIES 3,378,790 3,875,217 DEFERRED TAX LIABILITY 1,861,137 1,991,809 CURRENT LIABILITIES Accounts Payable 180,133 82,994 Other Current and Accrued Liabilities 887, ,199 Current Maturities of Long-Term Debt 455, ,000 TOTAL CURRENT LIABILITIES 1,523,714 1,644,193 TOTAL LIABILITIES AND EQUITY $11,676,212 $10,238,456 RSC CONSOLIDATED STATEMENT OF REVENUE AND RETAINED EARNINGS MARGINS (LOSSES) FROM SUBSIDIARY OPERATIONS Revenue (expense) - net - from RSC activity ($66,949) ($93,086) Revenue (expense) - net - from EOT's operations 441, ,433 Revenue (expense) - net - from NEON s operations 11,682 3,561 Minority interest in net margins (70,795) (14,846) 315,831 9,062 Interest Income 11,352 14,346 Gain on Equity Investments in LightSpeed Networks 1,723, ,771 Net Margins Before Income Taxes 2,050, ,179 Provision for Deferred Income Taxes 130,672 (2,166,809) Net Margins for the Year 2,180,952 (1,459,630) Accumulated Deficit at Beginning of the Year (774,409) 685,221 ACCUMULATED DEFICIT AT END OF THE YEAR $1,406,543 ($774,409) Page 4

5 UEC CONSOLIDATED BALANCE SHEET ASSETS UTILITY PLANT Electric Plant in Service $186,593,464 $173,976,119 Construction Work in Progress 10,377,987 12,019,957 Retirement Work in Progress 123, ,053 Electric Plant Acquisition Adjustment 109, ,028 TOTAL UTILITY PLANT 197,203, ,314,157 Less Accumulated Depreciation 62,752,808 60,954,196 NET UTILITY PLANT 134,451, ,359,961 NON UTILITY PLANT 11,115,829 10,511,257 Less Accumulated Depreciation 6,525,037 5,794,157 NET NON-UTILITY PLANT 4,590,792 4,717,100 INVESTMENTS Investments in Associated Organizations 7,680,964 7,168,612 Other Investments 6,310,130 4,634,326 TOTAL INVESTMENTS 13,991,094 11,802,938 CURRENT ASSETS Cash and Cash Equivalents 32,738,542 3,554,022 Accounts Receivable 14,269,364 12,741,944 Materials and Supplies 5,425,807 4,377,585 Other Current and Accrued Assets 5,896, ,823 TOTAL CURRENT ASSETS 58,330,106 21,559,374 OTHER ASSETS Contracts Receivable 1,851,239 2,882,907 Deferred Debits 1,501,724 2,106,948 Receivable from EOH Minority Interest 48, ,303 TOTAL OTHER ASSETS 3,401,851 5,105,158 TOTAL ASSETS $214,764,878 $168,544,531 UEC REVENUE AND PATRONAGE REVENUES Industrial $72,945, % $61,807, % Irrigation 14,838, % 14,958, % Residential 14,163, % 12,573, % Commercial 13,011, % 12,656, % Seasonal/Domestic 1,352, % 1,234, % Other Income 1,017, % 965, % Patronage Capital 679, % 706, % Interest Income 544, % 276, % Service Charges 188, % 171, % Street Lights 58, % 55, % TOTAL REVENUES $118,799,031 $105,405,390 EXPENSES Purchase Power PNGC $77,655, % $67,474, % Operations and Maintenance 7,275, % 6,395, % Depreciation 5,726, % 4,922, % General Administration 5,470, % 5,312, % Interest and Other Expenses 3,179, % 3,415, % Billing and Member Services 2,987, % 3,170, % Taxes 1,965, % 1,797, % Power Production 6, % 8, % TOTAL EXPENSES $104,268,236 $92,496,064 Commercial 11% Other/Street Lights 3.3% LIABILITIES & MEMBERS EQUITY MEMBERS EQUITY Membership Fees $50,595 $50,165 Member Capital Credits 75,859,318 63,928,840 Other Equities 12,168,862 12,945,352 TOTAL EQUITIES AND MARGINS 88,078,775 76,924,357 MINORITY INTEREST 5,857 1,475 LONG-TERM DEBT, LESS CURRENT MATURITIES RUS Mortgage Loans 44,587,559 55,676,120 CoBank Mortgage Loans 20,126,224 0 CFC Mortgage Loans 9,501,449 10,210,982 Other Notes Payable 2,904,577 3,352,707 TOTAL LONG-TERM DEBT 77,119,809 69,239,809 OTHER NON CURRENT LIABILITIES Deferred Tax Liability 1,861,137 1,991,809 Post Retirement Obligation 2,155,699 1,056,224 TOTAL OTHER NON CURRENT LIABILITIES 4,016,836 3,048,033 CURRENT LIABILITIES Accounts Payable 10,645,951 8,548,757 State Revenue Tax Payable 1,596,504 1,477,930 Accrued Interest 520, ,231 Other Current and Accrued Liabilities 3,879,029 3,973,689 Current Maturities of Long-Term Debt 3,867,463 2,832,189 TOTAL CURRENT LIABILITIES 20,509,253 17,198,796 DEFERRED CREDITS 25,034,348 2,132,061 TOTAL LIABILITIES AND MEMBER EQUITY $214,764,878 $168,544,531 Residential 11.9% Irrigation 12.4% Interest/Other 3% Administration 5.2% Depreciation 5.5% Operations 7% Where it Came From Billing 2.9% Taxes 1.9% How it Was Used Industrial 61.4% Purchasing Power from PNGC 74.5% Page 5

ABOUT US Incorporated in 1937 through the Rural

and industrial sectors, providing a base for ongoing

OUR MISSION Umatilla Electric Cooperative is a member-owned

services to improve the quality of life in our communities.

6 ABOUT US Incorporated in 1937 through the Rural Electrification Act, Umatilla Electric serves portions of Umatilla, Morrow and Union counties. Over 70 percent of the co-op s power serves the commercial and industrial sectors, providing a base for ongoing economic development and community improvement. OUR MISSION Umatilla Electric Cooperative is a member-owned business that sells energy and invests in and supports other services to improve the quality of life in our communities. Hermiston Office: 750 W. Elm, Boardman Office: 400 N.E. Eldrige Drive,

Photo courtesy of Umatilla County Historical Society

Umatilla Electric Cooperative Photo courtesy of Umatilla County Historical Society History was made in July 1938 when UEC energized its first substation north of Hermiston. Roy Penney, in light clothes