Transitions - Rayburn Electric

1 TransitionsRayburn Country Electric Cooperative, Annual Report2 Electricity is really just organized lightning GEORGE CARLIN 3A message from John KirklandPRESIDENTR ayburn Country Electric Cooperativewas formed in 1979 by seven Electric distribution cooperatives in Northeast Texas. The Member cooperativesunited to gain bargaining power in critical wholesale purchased power the first few years, Ray Raymond, general manager of Kaufman County ElectricCooperative, served as Chairman of the Rayburn Board and managed all adminis-trative and operational functions of Rayburn Country. In 1986, I became the firstemployee of Rayburn , along with Administrative Director Annette Rayburn began seeking additional hydropower and concentrated itsefforts on obtaining more economical and reliable power to serve the 1992, Rayburn began construction on its first Rayburn -owned transmission facilities -- 100 miles of loop 138 kV transmission line stretching from Grand Salineto Overton.

2 These facilities are located in the Southwest Power Pool (SPP). In 1997, Eddy Reece was employed as Vice President of Transmission to coordinateour transmission system with other power suppliers and to build a SCADA year later Jack Hodges, Communications Director, was employed to manageRayburn s communication system. The cooperative manages over 300 miles ofmicrowave and 900 miles of radio communications and has 20 towers located in the 16 counties where its Members provide Electric service for their urban andrural 2009, The Board of Directors implemented a strategic plan to diversify Rayburn spower resources through purchase power agreements and owned assets, thusproviding more control of our energy future. One year later, on December 8, 2010, Rayburn became the owner of a 25% interest in the Freestone Energy Centerowned by Calpine. With the extreme heat experience during August, 2011, theFreestone Energy Center purchase resulted in lower rates for Rayburn s Members.

3 In early 2012, Rayburn extended its power supply contract with Constellation, insuring a dependable source of energy through 2018. Ever cognizant of its need tosecure sustainable and low cost power for its Members, Rayburn continues to evaluate potential generation acquisitions to complement is power supply continues to transition into a highly respected and financially sound cooperative by adding key staff employees. In 2010, Rayburn employed Lynn Midgette as Chief Financial Officer and, the following year, Rayburn employedDavid Naylor, Executive Vice President, and David Braun, Controller, to round outthe Rayburn management team along with the current staff who continue to serveour Member cooperatives in a professional and timely am very proud of the well trained and dedicated employees that work efficientlyand safely to meet current and future demands for Rayburn s Members. 4 BOARD OF DIRECTORSR ayburn s Board of Directors is comprised of 5 Board Members and 5 Alternates from the Member to Right:Jerry Williams, Rayburn Board Member - general manager and CEO of Lamar County Electric CooperativeAssociation; Ray Houston, Alternate Board Member of Grayson-Collin Electric Cooperative, Inc.

4 ; Howard Tillison,Alternate Board Chairman,Trinity Valley Electric Cooperative, Inc.; David McGinnis, Chairman of the Board GeneralManager and CEO of Grayson-Collin Electric Cooperative, Inc.; Jerry Boze, Secretary-Treasurer general manager and CEOof Trinity Valley Electric Cooperative,Inc.; Mark Stubbs,Vice Chairman general manager of Farmers Electric Cooperative,Inc.;Tony Vinson,Alternate Assistant manager of Fannin County Electric Cooperative,Inc.; Ronald G. Odom,Board Member manager of Fannin County Electric Cooperative, Inc.; Martin Allain, Alternate Board Member of Farmers ElectricCooperative,Inc.; Allen Branch,Alternate Board Chairman of Lamar County Electric Cooperative COOPERATIVESS ervice TerritoriesThe five distribution Members of Rayburn Electric serve about 170,000 Electric meters in a service area that stretches from theRed River at the Oklahoma border approximately 150 miles to the Piney Woods area of east Texas.

5 Rayburn Members servethe Dallas suburban areas east and northeast of the Dallas/Fort Worth the recent economic downturn caused growth to slow forour Members, they continue adding meters and load at a moremodest is being driven by the influx of residential and smallcommercial customers to suburban customer mix ofRayburn s Members is 92% residential. For several years, thesuburban cooperatives have maintained growth rates in theupper 5% of cooperatives nationwide,and that trend is forecast-ed to continue or even accelerate in future years. Rayburn sMembers are also seeing significant growth in large powerloads, primarily oil and gas related. These loads are locatingthroughout the service combined Member assets, revenues and sales numbers areillustrated in the chart below:In spite of strong and sustained growth, the cooperatives have managed to achieve economic goals and maintain strongfinancial % OF MWH SALESGCEC26%FARMERS28%TVEC36%LAMAR6%FANN IN4%GROWTH OF ADDITIONAL METERS AND LOAD10 MEMBER ASSETS, REVENUES AND SALESC ombinedMemberProfile$ $ , TOTALASSETSTOTALDEBT $/MWh2011 AVERAGE MARKET PRICENEW TERRITORYF reestone Energy Center7 The minority interest acquisition of the FreestoneEnergy Center in December 2010 was Rayburn sfirst foray into generation asset is a combined cycle unit operated byCalpine.

6 After a year of ownership experience, Rayburn has a new appreciation for the complexi-ties of operating an asset as well as the intricacies ofthe ERCOT market. At the same time, the benefitsof the shaft diversity afforded by Freestone s twopower blocks were exemplified as Rayburn was ableto continue receiving power while the other powerblock was undergoing with Calpine, Rayburn sought for analignment of interests in plant operations. Thisalignment was successfully achieved during 2011 asRayburn utilized Calpine s market and operations expertise to participate in the ERCOT market. On average, the ERCOT market price was approximately $45/MWh for 2011. Rayburn utilized a portion of the Freestone energy to serve its load while selling the excess into the ERCOT market. For 2011, Rayburn was able to pass through a net credit of $ million toits Members through Rayburn s Power Cost Recovery reflected a year of new experiences for Rayburn first year of owning a generation asset, recorddemands due to extreme cold in February and extreme heat during the summer, drought, and falling natural gas prices.

7 While the challenges were significant, 2011 ended well for Rayburn and its of Natural Gas PricesNatural gas prices continued their downward trend during 2011. Future gas prices for 2011 delivery were trading at an average of $ at the beginning of 2008. By the end of 2011, the Henry Hub pricing point was settling at$ additional influx of shale gas along with a mild winter pushed prices lower than were expected even atthe beginning of lower gas prices exerted additional pressure on our Members to compete with neighboring retailelectricity providers,but Rayburn was able to mitigate some of this pressure through the Freestone mitigates some of the natural gas price exposure through its multiple power suppliers and within the respectivepower supply agreements. Rayburn s fuel mix includes a slice of the SWEPCo resources, hydroelectric power fromSouthwestern Power Administration,and natural gas from the Constellation contract and Freestone $/MWhAVERAGE MEMBER RATE2007 2008 2009 2010 2011 100%90%80%70%60%50%40%30%20%10%0%SOURCES OF ENERGY FOR STANDARD SERVICE2007 2008 2009 2010 2011 ConstellationFreestoneSWEP CoSouthwestern Power AdminAEP9 Summer of 2011 WeatherThe summer of 2011 brought record heat along with drought conditions significantly higher average temperatures for Junethrough August and significantly lower average rainfall during those same high heat led to increased energysales for Rayburn and its ,the lack of rain had a significant impact on the generation from Denison from Denison Dam in 2011 was significantly below the 30-year average.

8 Generation from Denison is scheduledby Constellation subject to Corps of Engineer guidelines and directives. Despite the reduced generation, Denison Dam wasutilized during the Rayburn peak load ForwardDuring 2011, Rayburn solicited bids to follow its full requirements power supply contract withConstellation. As a result of the competitive evaluation, the Rayburn Board decided to extend theexisting agreement with Constellation through May 2018. The expectation of natural gas pricesdominated the discussion. After consulting with various experts in the field, and reflecting the beliefthat natural gas prices are more likely to increase inthe next few years, Rayburn hedged a significantportion of its gas needs under this agreement. The agreement was finalized in February the end of 2011, the Rayburn Board expressed adesire for Rayburn to centralize and coordinate aNERC Compliance Program on behalf of Rayburnand its Members.

9 In the first quarter of 2012, Rayburn hired a NERC Compliance Officer and an ITManager to facilitate this program and establish aculture of compliance. The Members formalized thisprogram through a Reliability Services Agreementbetween Rayburn and each Member. Rayburn is currently in the process of establishing its InternalCompliance Program and assisting its Memberswith the necessary training, documentation, andadministrative support provided several challenges for Rayburn and itsMembers. In each case, Rayburn and its Membersworked together to overcome and position the collective group for a bright future proving thecooperative philosophy true. 10 11At its inception, Rayburn was basically a power aggregator for its Member cooperatives. In the 1990 s Rayburn built its firsttransmission lines,and in the 2000 s the Board decided to move the corporation toward owned-generation to fill a portion ofits power the purchase of a 25% interest in the Freestone combined-cycle generating station in December 2010, Rayburn and itsMembers moved into a new era in meeting their wholesale power needs.

10 The purchase and its requisite debt causedRayburn s equity position to plunge from 23% to 6%. Rayburn s Members met the challenge by adopting new rates inNovember 2010,and retaining minimum coverage ratios of TIER and 2011, Freestone outper-formed expectations. Sales from theunit totaled $ million, which offset the operating and fixed costsof the unit. Rayburn also mitigatedits exposure to higher gas locks andprovided some rate relief to itsMembers by buying out some of its higher-priced gas s key financial metrics arestrong, with equity climbing from6% to 11% in 2011. The trend indicates that Rayburn will achieveat least 20% equity by mid the past five years, Rayburn has matured into its role as a full-service Generating and Transmission financial future looks bright, as Board and staff maintain strong partnerships with its power suppliers. Rayburn s leaderships continue to look for opportunities to own assets and control more of its energy REPORT350,000,000300,000,000250,000,0002 00,000,000150,000,000100,000,00050,000,0 00020072008200920102011 EQUITY AND ASSETST otal EquityTotal AssetsSOURCES OF ENERGY FOR STANDARD 2008 2009 2010 2011 KEY FINANCIAL RATIOS350,000,000300,000,000250,000,0002 00,000,000150,000,000100,000,00050,000,0 00020072008200920102011 OPERATING REVENUESO peratingRevenues12 Rayburn COUNTRY Electric COOPERATIVE, , TexasFinancial Statements and Independent Auditors ReportDecember 31, 2011 and 2010 1314151617181920212223242526272829303198 0 Sids RoadRockwall,Texas 75087(469)