POWERING GROWTH PRESERVING VALUES

POWERING GROWTH PRESERVING VALUES 2016 ANNUAL REPORT AND MEETING NOTICE MARCH 23, 2017

NOTICE OF THE ANNUAL MEETING TO THE MEMBERS OF YELLOWSTONE VALLEY ELECTRIC COOPERATIVE The Annual Meeting of the Members of the Yellowstone Valley Electric Cooperative, Inc. will be held at the Billings Radisson Hotel, formerly the Holiday Inn - Montana Convention Center off King Avenue exit in the City of Billings, in Yellowstone County, Montana, beginning at 12:45 pm on Thursday the 23rd of March, 2017 to consider and take action upon the following matters: 1. Report on the number of members present in person in order to determine the existence of a quorum; 2. Reading of the notice of the meeting and proof of the due publication or mailing thereof; 3. Reading of unapproved minutes of previous meetings of the members and the taking of necessary action thereon; 4. Presentation and consideration of reports of officers, trustees and committees; 5. Election of two board members - District 2 - the area north and south of Ballantine and the towns of Ballantine and Worden and District 5 the area west of Billings and Lockwood. Nominations are made from the floor and all members vote on each trustee. 6. Unfinished business; 7. New business DATED AT HUNTLEY, MONTANA THIS 2nd DAY OF March 2017 YELLOWSTONE VALLEY ELECTRIC COOPERATIVE Marlene F. Amen, Secretary/Treasurer CUT AND MAIL # NOTICE TO BUSINESSES, ORGANIZATIONS AND CORPORATIONS Dear Member: Please be advised that we cordially solicit your organization s representative attendance at the Annual Meeting of the Yellowstone Valley Electric Cooperative, Inc. on the 23rd day of March 2017. It is necessary that a delegate be designated by your organization as a voting representative. This written authorization must be received in our Cooperative s office by March 22, 2017 or be delivered to our receptionist during registration at the Annual Meeting and must be signed by the proper officer of your organization, designating that person as your delegate. Marlene F. Amen, Secretary/Treasurer This authorizes as our voting delegate at the 2017 Annual Meeting of the Yellowstone Valley Electric Cooperative, Inc. Signed OFFICER Organization

2017 PRESIDENT S REPORT This year has certainly gone by faster than normal, at least it seems like it! It doesn t seem to have been that long ago that I was trying to think of something to say in my Annual President s Report, and here we are again! This year s Annual Meeting of Yellowstone Valley Electric Cooperative will be held on Thursday, March 23. It will be at the usual place, which is the Montana Convention Center in Billings. Registration begins at 10:00, with the meeting and lunch commencing at 12:00. This year marks our 80th year of operation, and the 79th Annual Meeting. In last year s report, I stated that not too many utilities in the country can say they have gone for five years without a rate increase. This year, I can proudly say that May will make six years without a rate increase, and we are hopeful that we can go the remainder of this year without adjusting rates. We did receive a pretty substantial rate increase on July 1, 2016, but our margins are strong enough that Brandon doesn t feel we will need to change rates on the retail side in the near future. I guess there are no guarantees in life, but that is the way it appears right now. One thing that is helping us hold rates is our location and the strong growth that comes with it. Our crews installed 417 new services this past year, 18 more than in 2016. 49 of those new services were installed in December, which is incredible when you consider the temperatures and amount of snow we had at that time. A big thank you to the crew for a job well done! We are quickly approaching 20,000 meters, which is double the number we had when I first came on the Board (and I don t think I m that old!). Additionally, our crews have begun construction on a 4.5 mile 69 Kv transmission line between Lockwood and 5 corners at Shepherd. This new line will likely be completed by fall 2017 and will give YVEC tremendous flexibility in operating our system and restoring power during large outages. We are closely watching any net-metering bills that will be introduced in the legislature. At the time of this writing, we don t know what will be in the legislative hopper, but by meeting time they will have been introduced and possibly settled. Of major concern is if we are forced to pay retail prices for any excess energy that the systems may produce. If this should come about, then the members that can t afford, or don t want to put in a solar or wind renewable system, will be subsidizing the members that can afford to put in such a system. It would result in a very unfair cross subsidization. You can go to our website at www.yvec.com and click on Solar Array to track the production of the demonstration project that we have installed at our office. You will quickly see that in these winter months it will produce a small amount of electricity in the middle of the day when most people aren t home, and in the morning and evening when energy is needed, the production is zero. It wouldn t be equitable to most members to have to buy that excess power at the time of day when the energy is not needed. While YVEC is a supporter of clean, renewable energy, the true costs (which can be quite high) need to be fully understood before anyone embarks on such a project. The solar panel that we have installed is quite small, as it can supply 60% of the power for an average home for a very few hours a day. The cost of the system was $24,000, with a payback of 44 years. If you would qualify for a 30% tax credit, the payback could be shortened to 26.6 years. Just be sure to fully investigate the total cost of these types of systems. Our Annual Meeting will consist of the usual points: the Auditor s Report, Manager s Report, Luck of the Draw Scholarships, election of two trustees, and, of course, door prizes. I look forward to seeing everyone there. Daniel R. Swartz President

UTILITY PLANT GROWTH 2016 2015 Utility Plant...$82,853,288 $81,789,813 Less: Reserve for Depreciation...27,710,040 27,884,923 YVEC AT A GLANCE YEAR ORGANIZED: 1937 TERRITORY: 10,000 square mile service territory including six counties TOTAL UTILITY PLANT: $82,853,288 ELECTRICITY PURCHASED 2016: 275,325,949 kilowatt hours WHOLESALE POWER COSTS: $18,109,376 or 0.06577/kwh 2016 AVERAGE MONTHLY BILL: All Classes 1,128 kwh Average Bill $142.26 2016 MAXIMUM SYSTEM DEMAND: 65.3 Megawatts July 2016 TRANSMISSION SYSTEM: 142.599 miles of high voltage transmission lines and two substations DISTRIBUTION SYSTEM: 2,593.686 miles of distribution lines POLES REPLACED IN 2016: 187 poles NEW SERVICES ADDED: 417 meters 2016 PROPERTY TAXES: $1,021,644 TOTAL TAXES: $1,597,934 2016 REVENUE: $33,138,830 TOTAL LONG TERM DEBT: $44,125,739 Depreciated Cost of UTILITY PLANT... $55,143,248 $53,904,890 Residential & Farm 75% INCOME Small Commercial 8% Large Commercial 14% Irrigation 3% Operating Margins 6% Interest 6% 2016 A&G 7% Depreciation 9% O&M 14% Consumer Accts. 3% Wholesale Power 55% EXPENSES & MARGINS Yellowstone Valley Electric Cooperative is a non-profit organization. The electric rates are priced to cover operating expenses and loan repayments. If there is any revenue left over after expenses are paid, it is classified as margins. Margins are divided among the members of the cooperative and allocated as patronage capital (capital credits) based upon how much power each member is billed during the year. The Board of Trustees voted to retire capital credits for all of 1992 and 1993. Please take a close look at your March or April billing statement to see the capital credits that have been credited to your account. If the capital credit retirement for inactive accounts is greater than $50.00, a check will be issued and mailed out after the annual meeting. Active members capital credits will be applied to their electric account. Some capital credit funds have been set aside for payment of estates to be processed during the year 2017. Year Connected Miles Gross Meters of line Revenue 1937 17 1950 2,087 841 216,467 1960 2,909 1,170 446,454 1970 3,861 1,419 694,217 1975 5,497 1,607 1,307,113 1980 7,795 1,821 2,910,005 1985 9,698 1,967 6,188,409 1990 9,848 2,010 7,549,105 1995 11,316 2,086 9,219,327 2000 13,027 2,228 12,207,521 2005 15,319 2,378 15,720,947 CAPITAL CREDITS COMPARATIVE STATISTICS Year Connected Miles Meters of line Gross Revenue 2006 15,792 2,413 17,625,614 2007 16,282 2,440 19,517,431 2008 16,579 2,467 21,778,026 2009 16,824 2,485 24,440,886 2010 16,992 2,499 27,391,608 2011 17,148 2,508 30,027,621 2012 17,494 2,523 30,600,731 2013 18,045 2,537 31,820,618 2014 18,467 2,557 32,928,754 2015 18,857 2,576 32,620,972 2016 19,274 2,594 33,138,830 In the 80 years that this Cooperative has been in operation, our members have earned $27,981,698 in Capital Credits; of that amount $9,879,810 has been repaid in cash during the last 60 years.

COMPARATIVE STATEMENT OF REVENUE & EXPENSES OPERATING REVENUE AND PATRONAGE REVENUE: 2016 2015 Electric Energy Sales...$ 32,903,074 99.29% $ 32,359,111 99.20% Other Electric Revenue... 235,756 0.71% 261,861 0.80% TOTAL OPERATING REVENUE...$ 33,138,830 100.00% $ 32,620,972 100.00% OPERATING EXPENSES: Cost of Power...$ 18,109,376 54.65% $ 19,547,632 59.92% Operations Expense...2,949,049 8.90% 3,113,073 0.00% Maintenance Expense...1,675,088 5.05% 1,196,845 3.67% Consumer Accounts...672,994 2.03% 776,686 2.38% Sales Expense...235,816 0.71% 248,411 0.76% Administrative and General Expense...2,321,882 7.01% 2,127,238 6.52% Depreciation...3,056,074 9.22% 3,047,073 9.34% *Taxes...897 0.00% 1,594 0.00% Interest... 1,850,990 5.59% 1,979,373 6.07% TOTAL OPERATING EXPENSE AND INTEREST...$ 30,872,167 93.16% $ 32,037,924 88.66% Net Operating Margins...$ 2,266,663 6.84% $ 583,048 1.79% Net Non-Operating Margins... 470,026 1.42% 258,683 0.79% TOTAL PATRONAGE CAPITAL...$ 2,736,689 8.26% $ 841,731 2.58% Generation and Transmission Capital Credits... 645,884 1.95% 643,967 1.97% NET MARGINS FOR PERIOD... $ 3,382,572 10.21% $ 1,485,698 4.55% *Due to accounting changes recommended by RUS, $1,449,431 of payroll and $1,021,644 of property taxes are no longer a line item, but are spread into operations, maintenance and general administrative expense accounts. ASSETS UTILITY PLANT: Electric Plan t in Service...$ 80,534,052 Construction Work in Progress... 2,319,236 Total Utility Plant... 82,853,288 Less Accumulated Provisions for Depreciation... 27,710,040 Net Utility Plant...$55,143,248 OTHER PROPERTY AND INVESTMENT: Non-Utility Property...$ 166,891 Investments in Associated Organizations... 3,306,181 Total Other Property & Investments...$ 3,473,072 CURRENT AND ACCRUED ASSETS: Cash - General...$ 290,486 Cash - RUS Loan Fund... 9,891 Temporary Investments... 1,524,895 Accounts Receivable - Sales of Energy... 2,178,089 Accounts Receivable - Other... 119,275 Materials and Supplies... 701,749 Prepaid Benefits... 123,232 Total Current & Accrued Assets...$ 4,947,617 DEFERRED DEBITS: Regulatory Assets...$ 1,960,784 Other Special Funds... 890,767 Total Deferred Debits...$ 2,851,551 TOTAL ASSETS & OTHER DEBITS... $ 66,415,488 BALANCE SHEET December 31, 2016 LIABILITIES AND CREDITS EQUITIES AND MARGINS: Memberships...$ 160,630 Patronage Capital... 15,215,047 G&T Capital Credits... 2,066,631 Total Equities & Margins...$ 17,442,308 LONG-TERM DEBT: RUS - FFB Notes Payable...$ 18,390,579 NRUCFC Notes Payable... 5,296,219 CoBank Notes Payable... 20,438,941 Total Long-Term Debt...$ 44,125,739 CURRENT AND ACCRUED LIABILITIES: Accounts Payable...$ 3,215,025 Consumers Deposits... 263,679 Taxes and Interest Accrued... 551,092 Leases... 0 Accrued Vacations, Sick Pay, Insurance... 612,797 Short Term CoBank, CFC... 0 Total Current & Accrued Liabilities...$ 4,642,593 DEFERRED CREDITS: Consumer Energy Prepayments...$ 204,848 Other Deferred Credits... 0 Total Deferred Debits...$ 204,848 TOTAL LIABILITIES & OTHER CREDITS...$ 66,415,488 Marlene F. Amen, Secretary/Treasurer

2016-2017 SCHOLARSHIP & ESSAY WINNERS Yellowstone Valley Electric Cooperative awarded eighteen $1,000 academic scholarships and twelve $500 Luck of the Draw Scholarships. These scholarships are from the funds of the unclaimed capital credits that are generated annually. The winners this past year were the following: $1,000 YVEC ACADEMIC SCHOLARSHIPS: Alex Linse Laurel High School Jessica Keller Billings West High School Jake Michels Shepherd High School Alicia Reichert Billings Central High School Trey Nansel Billings West High School Madison Hinkle Shepherd High School Elizabeth French Huntley Project High School Janie McRae Shepherd High School Hope Welhaven Billings Central High School Jessica Raty Billings Senior High School Anastasia Cybulski Custer High School McKenzie Smidt Huntley Project High School Sara Schaff Billings West High School $1,000 RAY MICHELS MEMORIAL SCHOLARSHIP: Andrew Stene Shepherd High School Casey Sainsbury Broadview High School Seth Christensen Park City High School Beau Bromenshenk Billings West High School Hannah Kraft Laurel High School $500 LUCK OF THE DRAW SCHOLARSHIPS: Janie McRae Shepherd High School Sarah Popp Billings West High School Maria Guzman Skyview High School Brittney Hutchinson Billings West High School Rachael Hahn Laurel High School Matthew Holman Billings West High School Amy Sexton Home School Emily Millard Shepherd High School Jessica Raty Billings Senior High School Ellen Wolf Skyview High School Hope Welhaven Billings Central High School Lindsay Tebay Park City High School $1,000 BASIN ELECTRIC POWER COOPERATIVE: Laura Strobel Billings Senior High School Mariah Wittman Billings Central High School 2016 YOUTH TO WASHINGTON DC WINNER: Kelsey Kraft Laurel High School

EMPLOYEES AND YEARS OF SERVICE Seven COOPERATIVE PRINCIPLES 1 Voluntary and Open Membership 2 Democratic Member Control 3 Members Economic Participation 4 Autonomy and Independence 5 Education, Training and Information 6 Cooperation Among Cooperatives 7 Concern for Community Bob Bolin... 27 years John Chatwood... 11 years Braden DeVries... 6 years Jerry Ellis... 27 years Cameron Erb... 2 years Steve Erb... 31 years Justin Grantham... 15 years Sarah Gunn...1 year Jared Haworth... 13 years Heath Heigis... 18 years Jake Hould... 5 years Jordan Hould... 2 years Cody Houska... 11 years Eva Jones... 2 years Jeannie Jones... 18 years Daniel Swartz President Larry Kaufman Vice President Marlene Amen Secretary/Treasurer Dave Kelsey Assistant Secretary/Treasurer Roger Kelsey... 26 years Brent Koch... 13 years Carol Kramer... 41 years Jay Krug... 32 years Darlene Laferriere... 17 years Ty Lamb... 21 years Ronda Laurie... 25 years Stuart Lawson... 19 years Kyle Lonsbery...1 year Andy Macks... 11 years Toni McCann... 9 years Nick Ostrem... 12 years Vicki Petrik... 12 years Greg Pope... 33 years Christopher Reynolds... 3 years J. William Keller Trustee Scott Hofferber Trustee Richard Weldon Trustee Brandon Wittman CEO/General Manager THURSDAY, MARCH 23, 2017 10:00 am - 12:45 pm Registration at the Billings Radisson Hotel - Montana Convention Center 10:00 am - noon Health Fair & Displays Kelly Richard... 23 years Gary Saling...1 year Penny Seader... 13 years Dan Shaules... 17 years Rhonda Shaules... 35 years Wendy Shaw... 6 years Mike Stookey... 26 years Mike Teter... 19 years Wes Thatcher... 27 years Dakota Wahl... 6 years Jerry Wandler... 13 years Jim Webber... 14 years Monti Wetsch... 16 years Brandon Wittman... 23 years BOARD OF TRUSTEES AND MANAGER Eric Nord Legal Counsel to the Board Richard Matusiak Auditor Summers, McNea and Company, P.C. ANNUAL MEETING SCHEDULE 12:00 noon sharp Free Sit Down Luncheon for Members and Guests 12:45 pm 79th Annual Meeting of the members of YVEC Luck of the Draw twelve College Scholarship Drawings Dan Swartz, President of the Board of Trustees, presiding Drawing for two $100.00 and two $50.00 CASH PRIZES