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2015 SANGRE DE CRISTO ELECTRIC ASSOCIATION ANNUAL REPORT

Sometimes it seems like we’re losing the local identities that make us unique. Small inde-pendent businesses that give each part of our country individual flavor are disappearing in favor of large chain stores and restaurants. We like the consistency and economy provided by chains, and many chains have names we’ve come to know and trust. But it’s sometimes hard to remember if you’re in Denver or Phoenix or Dallas when you’re in the middle of a large retail area.

One of the business models that retains its individuality is the rural electric coopera-tive industry. Your cooperative, Sangre de Cristo Electric Association, is one of some 900 electric co-ops that provide power to 42 mil-lion consumers in 47 states. While that sounds like neither small nor local industry, each one of those co-ops is a private independent entity that is owned by the members it serves. Each one is governed by a board of directors elected by and from the membership, and each one is established to provide at-cost electric service to its members.

Each co-op is individually operated, but we all work under the following principles that make us different from other types of electric power providers.

CAPITAL CREDITS – Rural electric coopera-tives provide at-cost power to their mem-bers and consumers. Margins, or profits, are allocated back to the members at the end of every fiscal year. At the board’s discretion and when financially feasible, co-ops refund or pay those allocations back to the members. In 2015, Sangre de Cristo Electric paid more than $587,000 back to members who received service in 1994, 1998 and 2014.

RATES – Each co-op acts independently in setting its rates. In the 1980s, the members of all Colorado distribution cooperatives, includ-ing Sangre de Cristo, voted against regulation by the Public Utilities Commission. Instead, our members provide rate regulation through the board of directors. Since each co-op’s service territory is unique, each co-op’s rates will also be unique.

Sangre de Cristo serves primarily residential loads, with limited commercial accounts and no large industrial consumers, resulting in low average sales per consumer. Our density of about seven consumers per mile of power line requires a greater investment in plant per consumer than some other utilities. We serve in fairly rugged mountainous territory with harsh rocky ground that can increase our construction costs. In June 2015, we raised rates 1.78 percent, and we found it neces-sary to implement an additional 6.06 percent increase in April 2016. While we don’t like rate increases any more than our members do, it’s important to keep our company financially sound.

POLITICAL PRESSURE – Local conditions affect our rates, but they are not alone in

determining our operating costs. Sangre de Cristo does not generate any power; we pur-chase all the power we distribute to you. Over 50 cents of every dollar we take in is paid to our power supplier, Tri-State Generation and Transmission Association. We’re not without some control in that situation, since Tri-State is also a cooperative and we have a director on its board.

The specter of “climate change” and the political actions that have been taken to address the issues surrounding it are well known. Will those costly political “remedies” really produce any tangible results other than further driving up electricity costs while risking reliability and affordability? Whether they produce the desired results or not, we do know those actions will be expensive to every electric consumer in the nation. Most of the additional costs of addressing climate change will occur at the power supplier level, since power suppliers are the ones charged with replacing current low-cost generating facilities with more expensive options. That’s a very high-cost undertaking, and those increased costs will be passed on to us.

The increases will ultimately be borne by you, the consumers at the end of the line. Meanwhile, other countries will continue to ramp up their power production as the world’s fleet of coal-fired power plants grows, despite America’s shuttering of its coal plants. These other countries understand that what made America great — access to abundant and low cost energy — will make them competitive in the global marketplace.

REPORT FROM THE PRESIDENT AND CEOBY BOARD PRESIDENT DON KAUFMAN AND CEO PAUL ERICKSON

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Donald L. KaufmanPresident

Paul A. EricksonChief Executive Officer

[continued on page 8]

2015 SANGRE DE CRISTO ELECTRIC ANNUAL REPORT

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COOPERATION AMONG COOPERATIVES – Just as Tri-State is a cooperative, many of the businesses we deal with are cooperatives that were established by the cooperative commu-nity to meet our specific needs. We purchase material from a cooperative supplier. We’re insured by a cooperative insurer. We borrow money from sources established to serve our industry – and yup, they’re cooperatives, too. Our national and state trade associations provide us with lobbying. Any one or two co-ops alone would have no political capital, but when we band together we can make our-selves and the best interests of our members heard on the state and national platforms.

TURNOVER – Sangre de Cristo has tradi-tionally benefited from long-term service of directors and employees, and this holds true at many of the other electric co-ops through-

out the nation. As an industry, we’re seeing major changes in our board and employee ranks as baby boomers retire and younger people start filling those positions.

In 2015, Sangre de Cristo saw two retire-ments and one employee resignation, repre-senting some 60 years of co-op experience. Four new employees were hired — about 10 percent of our workforce! On the board side, new director Charlie Abel was seated by member vote in June. We lost At-Large direc-tor Wes Duran who passed away in November, and Joe Redetzke was appointed by the board in January 2016 to replace him.

With new faces come new ideas and fresh eyes on the way we do things, but we also lose company stability, knowledge and history as our workforce turns over. During strategic planning, our board cited culture as an im-

portant issue and made it a goal to retain our corporate culture even as the faces change.

FINANCIALS – Cooperative accounting is a little different from that of most other indus-tries. We provided detailed information about your cooperative’s finances in the financial section of this annual report. Mild weather in the first part of 2015 kept our revenues below budget, but the number of new services installed during the year exceeded 2013 and 2014 numbers by 50 percent. Please take time to look through our financial report.

We hope to see you all at our annual meet-ing in Westcliffe on June 10. You, our members, are what really make Sangre de Cristo Electric special, and we greatly appreciate the honor of providing you with electric service.

Fremont CountyHoward Eggleston, unopposed incumbent• Sangre de Cristo director since 1977• Former board treasurer• Past Sangre de Cristo representative on the board of Western United Electric Supply Corporation• Fremont County native and rancher• Served on Fremont County School Board and is a member of the Fremont County Cattlemen’s Association; served on

Fremont County Cattlemen’s board of directors and Fremont County Fair board

Custer CountyDonald L. Kaufman, unopposedCurrent At-Large director Donald L. Kaufman submitted a nomination petition for the open Custer County director seat that will be vacated by director Arlie Riggs’ decision not to run for an additional term. If Kaufman is successful in his bid for the Custer County seat, he will resign his At-Large seat. The board of directors would then fill the At-Large position by appointment in accordance with established board policy.• Served in the USAF for 33 years as a fighter pilot, staff officer and commander• Sangre de Cristo director since 1996; current board president• Past president, vice president and treasurer of Sangre de Cristo’s board

• Serves as Sangre de Cristo’s representative on the board of directors of power supplier, Tri-State Generation and Transmission Association• Past representative on the board of directors and past vice president of Colorado Rural Electric Association (CREA), the statewide organization for

electric cooperatives; past officer and member of CREA’s executive committee• Serves on the resolutions committee of the National Rural Electric Cooperative Association (NRECA), the national organization for electric coop-

eratives• Holds a bachelor’s degree in mechanical engineering and a master’s degree in business administration• Serves as an officer on Custer County volunteer community organizations

A LOOK AT DIRECTOR CANDIDATES

Report from the President and CEO[continued from page 7]

Directors of rural electric cooperatives face complex issues in an ever-changing industry. To provide directors with the skills needed to perform their jobs, NRECA offers three certification levels of business training tailored to the challenges and evolving needs of rural electric cooperatives. Directors Eggleston and Kaufman have both achieved the highest level of certification from NRECA.

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2015 SANGRE DE CRISTO ELECTRIC ANNUAL REPORT

The 75th annual meeting of members of Sangre de Cristo Electric Association, Inc., was called to order by President Donald Kaufman at 7:02 p.m. on Tuesday, June 16, 2015, at the Chaffee County Fairgrounds, Salida, Colorado. Pastor Tony Games gave an invocation. The Pledge of Allegiance was recited. Kristina Tanner sang the National Anthem.n QUORUM – Quorum requirements are

50 members registered in person; 117 members registered. Kaufman declared a quorum present. A list of members in attendance and an Affidavit of Secretary are attached to the permanent record.

n CLOSE REGISTRATION – Kaufman closed registration at 7:07 p.m.

n ANNUAL MEETING NOTICE, CERTIFI-CATE OF MAILING – Attorney Jack Wolfe presented the annual meeting notice and certificate of mailing. Wolfe reported the meeting notice was mailed to all consum-ers of record addressed according to in-formation on file, as of the date of record of April 17, 2015. He presented the 2014 annual report, noting it was distributed in the June issue of the Colorado Country Life magazine.

n ELECTION OF DIRECTORS – Motion carried to elect unopposed At-Large incumbent Kaufman to a three-year term. Wolfe reported Gary Merrifield (incumbent) and candidate Charles Abel II were running for the Rural Chaffee/Lake County seat. He stated election results for the contested seat and proposed amendments to the Restated Certificate of Incorporation should be available toward the end of the meeting.

n MINUTES – Motion carried to dispense with reading the minutes of the 74th annual meeting and approve them as written.

n INTRODUCE GUESTS – Kaufman intro-duced guests. State Representative Jim Wilson and State Senator Larry Crowder addressed the meeting. The family of recently deceased former director Gene Coleman also addressed the meeting. CEO Paul Erickson presented a video about the electric cooperative story.

n PRESIDENT’S REPORT – Kaufman intro-duced the board and attorney. He noted a question and answer session will be held at the end of the meeting and ad-dressed net metering, unclaimed capital credits, and Operation Roundup.

n CEO’S REPORT – Erickson reported on director and employee involvement in local communities and the co-op indus-try. He talked about system characteris-tics, including the relatively high number of consumers per employee, lack of large loads, and high number of seasonal consumers.

n TREASURER’S REPORT – Treasurer Wesley Duran presented the treasurer’s report and addressed 2014 financial data included in the annual report. Duran expressed thanks to recently retired CFO Nancy Miles and welcomed new CFO Donald Schell.

n POWER SUPPLY REPORT – Tri-State Executive Vice President and General Manager Mike McInnes reported electric-ity should be cost-based not profit-based and explained that Tri-State’s debt is

structured so that current consumers don’t pay for infrastructure that will be used by future consumers.

n COLORADO RURAL ELECTRIC ASSOCI-ATION REPORT – CREA Director of Gov-ernment Relations Geoff Hier presented SDCEA with a print commemorating the 75th anniversary. He reported on CREA’s legislative, safety, and education roles and encouraged members to be involved in the legislative process.

n OLD, UNFINISHED OR NEW BUSINESS None

n ELECTION RESULTS 9,907 eligible voters Restated Articles of Incorporation

• Proposed amendment #1: 1,475 in favor; 57 against

• Proposed amendment #2: 1,460 in favor; 71 against

• Proposed amendment #3: 1,460 in favor; 71 against

Rural Chaffee/Lake County contest• Merrifield — 619 votes• Abel — 933 votes• Charles Abel is elected to a three-year

term.n A door prize drawing was held. Questions

about electric production, sustainability, and renewable energy were addressed.

n Meeting adjourned at 9:00 p.m.

Respectfully submitted:Suzanne Kelly, Secretary

Donald Kaufman, President

CONDENSED MINUTES OF THE 75TH SDCEA ANNUAL MEETING

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SDCEA BOARD OF DIRECTORS

Donald L. KaufmanPresident

Phillip R. DeLucaVice President

Charles A. Abel IITreasurer

Suzanne KellySecretary

Howard EgglestonDirector

Joseph RedetzkeDirector

Arlie R. RiggsDirector

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2015 SANGRE DE CRISTO ELECTRIC ANNUAL REPORT

COMPARATIVE BALANCE SHEETASSETS 12/31/2014 12/31/2015Total utility plant $56,660,221 $59,300,936Accumulated provision for depreciation (16,717,869) (17,772,801)Net utility plant $39,942,352 $41,528,135 Total other property and investments 10,561,984 10,788,067 Cash-general funds 822,388 1,001,482 Cash-special construction funds 1 1 Investments 842,800 1,592,800 Accounts receivable 1,745,259 1,836,960 Material and supplies 773,253 772,904 Prepayments 8,280 7,523 Other current and accrued assets 8,730 8,672 Deferred debits 1,680,364 1,526,739 TOTAL ASSETS AND OTHER DEBITS $56,385,411 $59,063,283

LIABILITIESEquities $1,602,083 $1,940,445 Patronage capital 17,384,682 17,611,640 Long-term debt 32,506,469 34,268,799 Notes and accounts payable 1,070,024 1,547,944 Consumer deposits 264,389 278,102 Current maturities-long term debt 1,347,800 1,630,000 Other current and accrued liabilities 723,915 753,983 Deferred credits 1,486,049 1,032,370 TOTAL LIABILITIES AND OTHER CREDITS $56,385,411 $59,063,283

COMPARATIVE STATISTICS2005 2014 2015

kWh purchased 105,136,991 120,390,237 121,210,171kWh sold 94,892,818 109,186,529 110,294,322Number of consumers 10,710 11,758 11,908Miles of energized line 1,650 1,724 1,733Consumers/mile of line 6.49 6.82 6.87Average monthly kWh used per residential consumer, excluding seasonals 630 658 657

Average monthly kWh used per residential consumer, including seasonals 547 591 594

TRIBUTE TO RETIRING DIRECTOR ARLIE RIGGS

In December 2015, director Arlie Riggs made the decision that this term on Sangre de Cristo Electric Association’s board would be her last. Arlie served as a Custer County direc-tor since 1993. She held the offices of board secretary and vice president and also served as Sangre de Cristo’s alternate director on the board of material supplier Western United Electric Supply Corporation. She attained both the Credentialed Cooperative Director and

the Board Leadership certifications through our national organization, the National Rural Electric Cooperative Association.

Arlie has been a resident of Custer County since 1952. She is a former school teacher and served as the deputy treasurer of Custer County and as the Custer County Social Services director. Her community activities include the Colorado Mountain Bank board, the Habitat partnership program, the Exten-

sion Council, the Wet Mountain Community Foundation, the Rehab Housing Committee, and serving as treasurer of the Custer County Cattlewomen’s Association.

Arlie is active in the Custer County commu-nity and brought deep knowledge of the area’s consumers and issues to the Sangre board.

Many thanks, Arlie, for your years of dedica-tion to Sangre de Cristo Electric.

FINANCIALS OPERATING REVENUE AND EXPENDITURESOPERATING REVENUE 2014 % 2015 %Residential $12,229,937 70.35 $12,541,224 71.43Irrigation 111,769 0.64 108,446 0.62Small commercial 3,979,969 22.90 3,870,619 22.04Large commercial 699,881 4.03 725,141 4.13Street lighting 63,111 0.36 64,283 0.37Other electric revenue 298,837 1.72 248,431 1.41SUB-TOTAL $17,383,504 100.00 $17,558,144 100.00Revenue deferral out 0 0 Revenue deferral in 80,000 340,000 TOTAL OPERATING REVENUE $17,463,504 $17,898,144

EXPENDITURESCost of power $8,780,364 51.69 $8,838,714 50.56Operations and maintenance 3,479,450 20.48 3,652,008 20.89Administrative and general 1,959,534 11.54 2,090,977 11.96Depreciation and amortization 1,421,537 8.37 1,504,075 8.60Taxes, interest and other deductions 1,345,929 7.92 1,396,978 7.99TOTAL COST OF ELECTRIC SERVICE $16,986,814 100.00 $17,482,752 100.00

Operating margins $476,690 $415,392Non-operating margins 73,863 87,524G&T capital credits 513,624 422,085Other capital credits 181,698 171,486NET MARGINS or PATRONAGE CAPITAL $1,245,875 $1,096,487

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