CONTENTS. 2 ON THE COVER: CoServ s safety mascot Mr. Diggs strengthens our community, one selfie at a time. Chairman / CEO Report.

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1 2015 Annual Report

3 Chairman / CEO Report CONTENTS 7 Executive Team 4 CoServ Electric

Electric Operations Financials 6 CoServ Electric Board of Directors

Indicators 6 District Map 15 Capital Credits 2 ON THE COVER: CoServ

2 3 Chairman / CEO Report CONTENTS 7 Executive Team 4 CoServ Electric Year End 8 CoServ Charitable Foundation 5 CoServ Gas Year End 10 Electric Operations Financials 6 CoServ Electric Board of Directors 13 Affiliate Operations Financials 6 General Counsel 14 Electric Key Indicators 6 District Map 15 Capital Credits 2 ON THE COVER: CoServ s safety mascot Mr. Diggs strengthens our community, one selfie at a time.

RELIABILITY, RENEWABLE ENERGY DEFINE COSERV IN 2015 CHAIRMAN / CEO REPORT Last year brought CoServ Members the latest in energy solutions the CoServ Solar Station but it was also a year filled with

CoServ crews responded in a timely manner to safely restore every weather-related service disruption to affected Members.

This means our system average interruption duration was among the shortest statewide. And we are pleased to inform you that CoServ s finances are just as reliable with a Fitch-affirmed AA- rating.

In fact, we extended it far beyond CoServ territory.

3 RELIABILITY, RENEWABLE ENERGY DEFINE COSERV IN 2015 CHAIRMAN / CEO REPORT Last year brought CoServ Members the latest in energy solutions the CoServ Solar Station but it was also a year filled with many challenges began with thundersleet in February, saw 17 inches of rain in May and continued with 19.5 inches of rain in the fall. CoServ crews responded in a timely manner to safely restore every weather-related service disruption to affected Members. Despite the bad weather, CoServ once again topped the list of Texas utilities cooperative and investor-owned in service reliability for This means our system average interruption duration was among the shortest statewide. And we are pleased to inform you that CoServ s finances are just as reliable with a Fitch-affirmed AA- rating. The reliable service and strong financial stability continue even as the population in our territory grows at a historic pace. Last year, we extended this service beyond CoServ territory. In fact, we extended it far beyond CoServ territory. In September we sent three veteran linemen to Haiti through a National Rural Electric Cooperative Association (NRECA) International program that aims to bring electricity to the 1 billion people living without it. Today, Port-à-Piment has electricity to light its once-dark streets thanks to your democratically led Member-owned co-op. Also thanks to you, the CoServ Charitable Foundation (CCF) recently topped 7.5 million in distributed funds. CCF is primarily funded through Operation Roundup, a program in which Members and Customers round their bills to the nearest dollar. CCF works to support education, meet basic human needs and promote community vitality. Employees contribute, too, so it truly is a CoServ Community effort. Another community effort is the community solar farm we launched in September 2015 to expand our renewable energy portfolio. In addition to the residential wind energy rate we first offered in 2009, the CoServ Solar Station allows Members to purchase electricity generated by the Texas sun. Finally, if you see more of CoServ in your community, it s by design. Our new Community Relations team will be visiting more schools with lessons in electricity, gas and safety, sharing energy-saving tips at neighborhood events and distributing funds to community organizations that support local causes. Be proud of what your co-op accomplished in 2015 and be excited for the convenient online tools and services we have planned to make your life easier. For all that CoServ has accomplished, our greatest accomplishment is our relationship with you, our Members, and our strong commitment to serve you. This won t change no matter the year. Thank you for supporting your co-op. Anne Vaden Chairman of the Board Donnie Clary President/CEO 3

81 billion kilowatt hours CoServ s wholesale power supply Energy sources: Natural gas 89.6% Solid fuel 9.3% Renewables 1.

4 COSERV ELECTRIC YEAR IN REVIEW Years in business: 78 Counties served: Collin, Cooke, Dallas, Denton, Grayson, Tarrant and Wise Total active Members: 172,117 Residential 97% Commercial and Industrial 3% 2015 GROWTH New meters added: 10,197 Amount of electricity sold: 4.81 billion kilowatt hours CoServ s wholesale power supply Energy sources: Natural gas 89.6% Solid fuel 9.3% Renewables 1.1% MILES OF ELECTRIC INFRASTRUCTURE OVERHEAD 2,640 TOTAL MILES 9,437 UNDERGROUND 6, REBATES PROGRAM NUMBER OF MEMBERS 3,427 REBATES FUNDED 651,174 NUMBER OF REBATES 4,824 4

sourcing: West Texas Texas Gulf Coast Barnett Shale i One Ccf equals 100 cubic feet.

5 COSERV GAS YEAR IN REVIEW Years in business: 17 Counties served: Collin, Denton and Kaufman Total active Customers: 96,803 Residential 98% Commercial 2% 2015 GROWTH New meters added: 6,607 Amount of gas sold in 2015: 79,211,449 Ccf i Natural gas sourcing: West Texas Texas Gulf Coast Barnett Shale i One Ccf equals 100 cubic feet. MILES DRIVEN IN 2015 ELECTRIC & GAS 1,745, ,468 2,597,919 ELECTRIC GAS TOTAL MILES PIPES 4 OR LESS 1,091 TOTAL MILES 1,617 MILES OF GAS MAINS PIPES 4 OR MORE 526 5

BOARD OF DIRECTORS ANNE VADEN DISTRICT 5 (CHAIRMAN) RICHARD MUIR DISTRICT 1 (VICE CHAIRMAN)

3 CLINT BEDSOLE DISTRICT 44 CURTIS TALLY DISTRICT 77 DISTRICTS The CoServ Electric service

One Member from each district is elected to the CoServ Board of Directors by the people who

And, once elected, they represent the best interests of all CoServ Members to ensure that

This level of accountability is one more example of the cooperative difference that

6 BOARD OF DIRECTORS ANNE VADEN DISTRICT 5 (CHAIRMAN) RICHARD MUIR DISTRICT 1 (VICE CHAIRMAN) BILL RAGSDALE DISTRICT 6 (SECRETARY/TREASURER) LEON PELZEL DISTRICT 2 CHRIS MCCRAW DISTRICT 3 CLINT BEDSOLE DISTRICT 44 CURTIS TALLY DISTRICT 77 DISTRICTS The CoServ Electric service area is divided into seven districts. One Member from each district is elected to the CoServ Board of Directors by the people who matter most their fellow Members. And, once elected, they represent the best interests of all CoServ Members to ensure that all geographic regions within CoServ s service territory are represented not just those who live in their districts. The democratic process ensures that you ll always have representation and a voice in how your power company is run. While investorowned utilities focus on profits, CoServ Directors focus on you. This level of accountability is one more example of the cooperative difference that distinguishes CoServ from other energy providers. For more about your Directors and the Board s role, please visit CoServ.com. This map shows the boundaries of the seven districts, but the most important boundary is the outer line that surrounds the entire service territory, which defines a community of growth and progress. GENERAL COUNSEL KEVIN HANEY Miller & Haney, LLP 6

EXECUTIVE TEAM PRESIDENT/ CEO DONNIE CLARY Our Mission is to deliver excellent service to our Members and Customers by providing safe and reliable energy solutions.

These leaders practice CoServ s Core Values of Respect, Accountability, Integrity, Service, Excellence and Safety on a daily basis and strive to create a collaborative, solutions-driven environment

7 EXECUTIVE TEAM PRESIDENT/ CEO DONNIE CLARY Our Mission is to deliver excellent service to our Members and Customers by providing safe and reliable energy solutions. Your CoServ Executive Leadership Team members help fulfill this mission by holding themselves and their colleagues to the highest standards. These leaders practice CoServ s Core Values of Respect, Accountability, Integrity, Service, Excellence and Safety on a daily basis and strive to create a collaborative, solutions-driven environment that transforms our product and services. We re not just your energy provider we re your neighbors who care about you and your communities. Leading in this manner gives CoServ the best chance to aspire to and achieve our Vision of being a respected leader dedicated to implementing innovative ideas that fulfill the needs of those we serve. FRONT ROW (LEFT TO RIGHT): GREG WARD Senior Vice President Field Operations BRENT BISHOP Senior Vice President and Chief Financial Officer BACK ROW (LEFT TO RIGHT): JODY FORMAN Senior Vice President Corporate Relations STACIA SIMS Senior Vice President Information Services DENISE SMITHERS Senior Vice President Employee Relations CURTIS TRIVITT Senior Vice President Energy Services ELECTRIC-ONLY MEMBERS 31,179 GAS-ONLY CUSTOMERS 4, NEW MEMBERS AND CUSTOMERS ELECTRIC MEMBERS WITH GAS SERVICE 10,819 7

8 COSERV CHARITABLE FOUNDATION 8 MEMBER PARTICIPATION 71% GRANTS FROM UNRESTRICTED FUNDS 8% ABOUT CCF GRANTS FUNDED BY OPERATION ROUNDUP 92% OPERATION ROUNDUP 877,016 TOTAL FUNDS 960, CCF FUNDS DISTRIBUTED UNRESTRICTED FUNDS 83,915

COSERV SUPPORTS COMMUNITIES THROUGH CCF More than 7.

CCF is focused on providing donations where we can do the most good for the communities we serve.

support for those in greatest need Meet Basic Human Needs Providing assistance in accessing food, warmth and basic medical and social needs, as well as issues related to children and those issues

9 COSERV SUPPORTS COMMUNITIES THROUGH CCF More than 7.5 million in grants have supported education, nonprofits, civic organizations and first responders since the CoServ Charitable Foundation (CCF) was created in CCF is focused on providing donations where we can do the most good for the communities we serve. The funds are distributed to organizations that Support Education Supporting education initiatives, particularly those related to science, technology, engineering, math and trades, while emphasizing support for those in greatest need Meet Basic Human Needs Providing assistance in accessing food, warmth and basic medical and social needs, as well as issues related to children and those issues that arise from disasters Promote Community Vitality Supporting programs, projects and organizations that are important contributors to quality of life, while emphasizing public safety and self-sufficiency; providing support to veterans and troops Funds come through Operation Roundup a program in which Members and Customers round up their monthly electric and gas bills to the nearest dollar. All administrative costs are absorbed by CoServ so that every cent is distributed in grants across the CoServ service area. CCF also distributes grants to organizations outside CoServ s service territory. These grants are funded by donations from Employee payroll deductions, an annual golf tournament and other fundraisers. CCF continues to expand its role in supporting education through funding teacher resources and student scholarships via education foundations that support 17 area school districts. It s just one piece of the puzzle but at CoServ we believe that the greatest impact we can make on the future is supporting tomorrow s leaders today. For more information, please visit CoServ.com. OPERATION ROUNDUP 884,755 TOTAL FUNDS 1,025, CCF FUNDS RAISED UNRESTRICTED FUNDS 141,023 GRANTS AWARDED 93 COMMUNITIES SERVED CCF FACTS ORGANIZATIONS BENEFITING 74 9

10 THREE-YEAR SUMMARY OF FINANCIAL DATA ELECTRIC OPERATIONS INCOME STATEMENT DATA Operating Revenues 413,464, ,555, ,776,799 Less: Cost of Purchased Power (286,409,564) (357,072,141) (319,876,881) Gross Margin 127,055, ,483, ,899,918 Operating Expenses 95,510,426 99,047, ,221,283 Operating Margins 31,544,602 30,435,674 30,678,635 Other Income (Expense) (1,830,434) 677, ,506 Income from Affiliates 5,079,956 5,054,408 6,008,631 Capital Credits Allocated from Associated Organizations 19,746,046 25,450,255 16,724,494 Total Non-Operating Margins 22,995,568 31,181,836 23,474,631 Discontinued Operations 147,771 Net Margins 54,687,941 61,617,510 54,153,266 Net Margins for Three Consecutive Years 60 million 55 million 50 million 45 million 40 million 54,687,941 61,617,510 54,153,

11 THREE-YEAR SUMMARY OF FINANCIAL DATA ELECTRIC OPERATIONS BALANCE SHEET DATA Cash and Temporary Investments 63,622,349 53,585,121 66,120,250 Accounts Receivable net of allowance for uncollectibles 25,662,482 34,399,007 17,466,304 Other Current Assets 25,626,224 20,062,544 18,651,937 Investments in Affiliates 73,694,788 79,334,975 85,324,727 Investments in Associated Organizations 110,766, ,009, ,491,269 Other Assets 128,358, ,213, ,143,916 Total Current and Other Assets 427,730, ,603, ,198,403 Property, Plant and Equipment Net of Depreciation 586,990, ,958, ,439,850 Total Assets 1,014,720,704 1,074,562,423 1,123,638,253 Patronage Capital 229,147, ,443, ,780,418 Memberships 2,295,843 2,429,855 2,565,485 Other Equity 143,263, ,054, ,255,927 Total Equity 374,706, ,927, ,601,830 Accounts Payable 42,390,653 34,934,715 36,827,875 Customer Deposits 6,704,642 7,685,380 8,355,338 Other Current Liabilities 44,680,181 45,506,797 44,811,553 Notes Payable 533,180, ,505, ,285,000 Other Liabilities 13,058,909 15,003,199 14,756,657 Total Liabilities 640,014, ,635, ,036,423 Total Equity and Liabilities 1,014,720,704 1,074,562,423 1,123,638,253 Total Assets for Three Consecutive Years 1.1 billion 880 million 660 million 440 million 220 million 1,014,720,704 1,074,562,423 1,123,638,

12 THREE-YEAR SUMMARY OF FINANCIAL DATA ELECTRIC OPERATIONS OTHER INFORMATION Electric At Year End Equity as a % of Assets 36.93% 39.36% 41.44% Service Accounts Billed 176, , ,498 Sales in kilowatt hours 4,432,591,987 4,572,801,170 4,812,181,579 For The Year Cash Patronage Distributions to Members 9,934,388 12,078,129 12,165,103 Kilowatt Hour Sales (in billions)

13 THREE-YEAR SUMMARY OF FINANCIAL DATA AFFILIATE OPERATIONS INCOME STATEMENT DATA Earnings from Natural Gas Distribution 8,175,744 8,226,180 8,046,693 Other Expense (112,939) (246,196) (223,005) Margins before Income Tax 8,062,805 7,979,984 7,823,688 Income Tax Expense (2,982,849) (2,925,576) (1,815,057) Net Margins before Discontinued Operations 5,079,956 5,054,408 6,008,631 Discontinued Operations 147,771 Net Margins 5,227,727 5,054,408 6,008,631 OTHER INFORMATION Natural Gas Distribution Affiliates At Year End Total Revenues 53,460,427 71,944,172 59,101,206 Total Assets 125,192, ,201, ,954,486 Service Accounts Billed 83,959 90,196 96,803 MCF Sold 6,955,159 8,397,823 7,921, MCF Sold (in millions)

ELECTRIC KEY INDICATORS Peak Demand (in megawatts) 2015 1,370.25 2014 1,256.63 2013 1,256.71 2012 1,275.85 2011 1,300.06 1,080.00 1,160.00 1,240.00 1,320.00 1,400.

14 ELECTRIC KEY INDICATORS Peak Demand (in megawatts) , , , , , , , , , , Total Accounts , , , , , , , , , ,000 Accounts Added (net) , , , , ,944 3,700 5,400 7,100 8,800 10,500 14

CAPITAL CREDITS 84 MILLION RETURNED TO COSERV MEMBERS In 2015, the CoServ Electric Board of Directors voted to retire 12 million in Capital Credits.

15 CAPITAL CREDITS 84 MILLION RETURNED TO COSERV MEMBERS In 2015, the CoServ Electric Board of Directors voted to retire 12 million in Capital Credits. This means that since 2003, 84 million has been returned to CoServ Members. Capital Credits represent Members allocated share of CoServ Electric s margins (or profits) during the period of Members active account status. Each year s margins are allocated to Members based on the amount billed per Member for electric purchases and the associated gross margin during that year. Capital Credits the most tangible benefit of cooperative membership are annually allocated to each Member s Capital Credit account. In the second half of each year, Members receive notice of their Capital Credit Allocation for the previous year. After Allocation Notices are mailed out, the CoServ Electric Board of Directors votes on whether to retire (pay) Capital Credits, and if so, how much. Starting in December 2015, credits of and below were applied to Members accounts. Retirements in amounts over 200 were mailed via the U.S. Postal Service. Capital Credits set the cooperative model apart from investorowned utilities. Instead of returning money to shareholders, we return money to you, our Members. For more information, visit CoServ.com. 84 million in Capital Credits since million million 48 million 32 million 16 million

16 7701 S Stemmons, Corinth, TX (940) contact@coserv.com

Artist 1937 Rendition

Artist 1937 Rendition Annual Report Artist Rendition 1937 CoServ s electric and natural gas infrastructure expands with population growth. Significant meter density in the fastest-growing parts of the counties served appear