Neal Stephens General Manager

Empire's financial performance for the year ending December 31, 2009, was healthy. In response to a 4.1 percent wholesale rate increase from Tri-State Generation and Transmission Association (Tri-State), and increasing internal expenses, Empire raised its average electric rates 5.0 percent on January 1, 2009. As a consequence, Empire met all minimum mortgage requirements of its federal lenders. Empire ended the year with revenues of $50.5 million compared to $46.9 million the previous year. After expenses, Empire's 2009 operating margin was $1.5 million compared to the 2008 operating margin of $1.3 million. Including Tri-State's capital credit allocations and other miscellaneous income/losses, Empire's net margin in 2009 was $6.2 million compared to $5.8 million in 2008 which demonstrates financial stability.

When Empire's 2010 budget was prepared late in 2009, it reflected that the austerity measures implemented in 2009 were working and that Empire could hold the line on most of the expenses under its control in 2010. The budget also reflected that Tri-State was holding the line on its wholesale rates for 2010. As a consequence, it was determined that rates would not have to be adjusted in 2010. All employees need to be commended for accepting a wage freeze in 2010, including those employees organized under the International Brotherhood of Electrical Workers Local-969. The board members needs to be recognized for their leadership pressing staff to control expenses and in their individual efforts to control their own board expenses. They limited their business travel and continue to be cognizant in how they spend the member's money.

Empire's average outage rate (hours off per customer) in 2009 was 1.19 which is lower than the 2008 rate of 2.20. Considering there are 8,760 hours in a year, Empire's average customer in 2009 had power available for 99.99 percent of the time. By all utility measures 1.19 hours off per customer is an excellent outage rate and reflects that Empire is serious about its mission to provide reliable electricity for its members. Where storms in 2008 caused 55.4 percent of the outage time in 2008, they caused only 3.9 percent in 2009. Planned outages resulted in 16.9 percent of the outages and T-S interruptions caused 0.6 percent. Equipment failure, animals, traffic accidents, and overloaded customer services caused the balance of the outages in 2009.

For comparison, the latest available Colorado cooperative outage rate median is 2.12 hours and for all cooperatives in the U.S, 3.37 hours. Empire's five-year average outage rate is 1.2 hours (72 minutes) off per customer. These rates are very important to your board of directors and staff. They indicate that prudent planning, engineering, operations, maintenance, and outage response practices are being performed on Empire's system and that Empire is indeed providing reliable electric service to the member-owners of the cooperative.

At the end of 2009, 20 customers took advantage of Empire's net-metering tariff, predominately using grid-connected solar photovoltaic systems. Out of the 20 customers, two produced slightly more kilowatt-hours than they consumed over the whole year. One received a check for $183.50 and the other $26.40.

Beginning August 1, 2009, Renewable Energy Credits (RECs or Green Tags) were made available to the 20 net-metered customers and all but two signed up. A total of $4,128 was shared between the 18 net-metered customers for their RECs.

At the end of the year, 147 customers were participating in Empire's voluntary Renewable Energy (Green Power) tariff purchasing 85,000kWh/month. This is a 27 percent increase from the 116 customers who participated at the same time in 2008. This is a reasonable and inexpensive way for customers to purchase bulk renewable energy rather than build their own expensive facilities. Each kWh currently costs an additional $0.004/kWh over and above regular purchases. The rate Empire charges is a pass through of the rate Tri-State charges Empire for procuring these resources. Visit Tri-State's website at www.tristategt.org/greenpower for more information about the renewable resources members can purchase.

A total of 249 refrigerator or freezer units were recycled as a part of Empire's "Don't Plug it in — Turn it in" recycling program. This is a great program to get these energy hogs off of the electric system.

About $48,000 was refunded to Empire customers in Energy Efficient Rebates for upgrading certain appliances, water heaters and HVAC systems to more energy efficient units. Commercial customers also participated in the refund for installing premium efficient motors and HVAC systems.

Several education seminars were offered in 2009 focusing on renewable resources, energy efficiency and conservation concepts. More than 70 members from Colorado and Utah attended these seminars in 2009.

Empire partnered with Durango-based La Plata Electric and Tri-State to host the 2nd annual Four Corners Energy Efficiency Exposition. It was held on the San Juan Area Basin Vocational and Technical College Campus. The first-day events were exclusive for area utilities and municipalities to gather and share information while the next day was open to the public. The event was sparsely attended and will be held one more year in Durango to see if our local area will support this type of event.

Empire provides a rebate for professional energy audits. Fourteen members contracted with local experts to perform audits in 2009, up from three when the program was started in 2007. For those customers who desire to perform their own energy assessment, Empire hosts a web-based audit program on www.eea.coop called the Home Energy Suite. About 24,000 visits to the website and 1,128 home audits wererecorded for this interactive tool in 2009.

Empire partnered with area libraries to provide devices that can record how many kilowatt-hours a particular appliance or electronic device uses over a period of time. They are called Kill-O-Watt meters and the libraries loan them out. Over 53 check-outs were made in the first six months of the program.

In 2009 Empire partnered with the Governor's Energy Office and the City of Cortez to provide rebates for solar thermal domestic hot water installations. Eighteen units were installed through this innovative partnership. The same partnership also provided an Insulate and Seal program with 18 customers participating in that program.

Empire does not generate electricity. Empire distributes electricity purchased from Tri-State Generation and Transmission Association, a not-for-profit cooperative. Empire's contract with Tri-State insures that Empire will have a reliable source of electricity for its member-owners through the year 2050. Tri-State also generates and transmits power for 43 other member cooperatives scattered across the states of Colorado, Nebraska, New Mexico, and Wyoming.

As a group, the 44 member cooperative loads are growing and it is Tri-State's responsibility to plan what types of generation and transmission resources are necessary to meet the member co-op future load requirements. Some co-ops, like Empire, actually added new meters in 2009 but observed several rate classes' overall kWh sales going down from the previous year. For example, Empire added 132 new services in 2009 but the Residential class used 3.6 percent less kWh than in the year 2008. The Small Commercial class was down 2.0 percent and Large Power down 2.5 percent. However, because Empire's Carbon Dioxide rate class used 8.8 percent more kWh, Tri-State had to produce 4.7 percent more kWh for Empire's total load requirements.

Its most recent planning efforts looked at the period from 2009 to 2028. In addition to increased spending on its transmission system it is planning on a 500 MW unit coming on line in 2013, a 100 MW unit in 2016, and a 700 MW unit in 2017. The key issue for Tri-State is assessing risk and uncertainty in an ever-changing environmental and political arena. It takes a decade or more to site and construct generation resources and siting new transmission lines is becoming every bit as lengthy, even when a new transmission line is necessary to connect a renewable generating resource to the grid. Tri-State's new risk department is using all the tools of the trade to assist in Tri-State's load forecasting and estimating the future cost of power.

In every projection, Empire will pay more for the electricity purchased from Tri-State in future years. For every $1 Empire collects from the rate payers, Empire pays Tri-State $0.75 for generating and transmitting the electricity to Empire. That is why an increase in Tri-State's rates puts pressure on Empire to raise its rates to its members, and that is why Empire's customers should expect to see increases in their rates over the next decade or so.

It goes without saying that Empire's member-owners are the foundation of this utility. This is your electric utility and we hope you are proud of it. The board, staff, and employees again want to extend our deep appreciation to the membership for your support of your rural electric cooperative.