MEC Rate Increase - Notice of Filing of Supplemental Direct Testimony and Schedules With Calendar...

8/6/2019 MEC Rate Increase - Notice of Filing of Supplemental Direct Testimony and Schedules With Calendar Year 2010 Data

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BEFORE THE ARIZONA CORPORATIOPCOMMISSIONERSG A R Y P IE R C E , C H A I R M A NB O B S T U M PS A N D R A D . K E N N E D YP A U L N E W M A NB R E N D A B U R N S

Arizona Corporation Commission

MAY 2 7 2011CKETED

IN T H E M A T T E R O F T H E A P P L I C A T I O NDF M O H A V E E L E C T R I C C O O P E R A T IV E ,[ N C O R P O R A T E D , A N E L E C T R I CC O O P E R A T I V E N O N P R O F I TM E M B E R S H I P C O R P O R A T I O N , FO R AD E T E R M I N A T I O N O F T H E F A IR V A L U E3 F IT S P R O P E R T Y F O R R A T E M A K I N GP U R P O SE S , T O F I X A J U S T A N DR E A S O N A BL E R E T U R N T H E R E O N A N DD E V EL O P S U C H R E T U R N .ro APPROVE RATES DESIGNED TO

DO CK ET NO. E-01750A-11-0136NOTICE OF FILINGOF SUPPLEMENTALDIRECT TESTIMONY ANDSCHEDULES WITH CALENDARYEAR 2010 DATA

Moh ave Electric Cooperat ive, Incorporated ("Mohave" or the "Cooperat ive")by and through undersigned counsel, gives notice of the filing of Supplemental DirectTest imony of Michael W. Searcy and support ing Supplem ental Schedules with calendar year2010 data. This supplemental f il ing is being ma de in response to Co mm issio n's Staff requesduring the initial sufficienc y review pe riod. Th e Coope rative is m akin g the filing in an efforto facilitate and expedite the processin g of its App lication for an adjustm ent in rates. Mr.Searcy's Supplemental Direct Test imony and support ing Supplemental Schedules accompanthis Notice as Attachment 4. Attachments 1 through 3 accompanied Moh ave 's in it ia lApplicat ion filed M arch 30, 2011.

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+\R ES P E C TF U LL Y SU BM IT T ED t h i a J day of Ma y, 2011.CU RT I S , G O O D W I N , S U L L I V A N ,U D A L L & SCH WA B, P .L .C.

Will iam P. SullivanMelissa A. Parh am501 Eas t Thom as RoadPhoenix, Arizona 85012-32 05Attorneys for Mohave Elect ricCooperative, Incorporated

P RO O F O F A N D CE RT I F I CA T E O F M A I L I N GI hereby certify that on this>d&y of May, 2011, I caused the foregoinlocument to be served on the Arizona Corporation Commission by delivering the originamd thirteen (13 ) copies of the above to:

locke t Cont ro l4r izona Corporat ion Com miss ion1200 W est W ashing tonhoenix, Arizona 85007

th 2010 data

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ATTACHMENT4


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12 BEFORE THEARIZONA CORPORATION COMMISSION3

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I N TH E MATTER O F THE APPLICATION OFMOHAVE ELECTRIC COOPERATIVE,INCORPORATED FOR A HEARING T O D ETERMINETH E FAIR VALUE OF ITS PROPERTY FORRATEMAKING PURPOSES, T O FIX A JU ST ANDREASONABLE RETURN THEREO N AND T OAPPROVE RATES DESIGNED TO DEVELOP SUCHRETURN

Do c k e t N0.E-01750A-11-0136

6 SUPPLEM ENTAL DIRECT TESTIMONY OF7 MICHAEL W. SEARCY8 ON BEHALF OF9 MOHAVE ELECTRIC COOPERATIVE, INCORPORATED10111213

M a y 27,2011

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Table of ContentsMO HAV E ELECTRIC COOPERATIVE. INCORPORATED .................................................................................... 3SUMMARY OF SUPPLEMENTAL DIRECT TESTIMONY .................................................................................... 3INTRODUCTION ............................................................................................................................................. 4PURPOSE OF TESTIMONY .............................................................................................................................. 4FINANCIAL ADJUSTMENTS ............................................................................................................................ 6RATE BASE ................................................................................................................................................... 12 RATE DESIGN AND IMPACT ON CUSTOMERS .............................................................................................. 1 2 TARIFF CHANGES ......................................................................................................................................... 1 4

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DIRECT TESTI MONY OFMICHAEL W. SEARCY

ON BEHALF OFMOHAVE ELECTRIC COOPERATIVE, IN CORP ORATE D

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SUMMARY OF SUPPL EMENTAL DIRECT TES TIMONYMr. Searcy is a Managing Consultant with C.H. Guernsey & Company. He provides

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foundation for and explains Supplemental Sect ions A through R submit ted to provideca lendar year 2010 data, with some nominal adjustments, in support of Mohave ElectricCooperative, Incorporateds (Mohave o r th e Cooperative) requ est for an adju stm ent inrates and charges. His supplemental direct test imony specifical ly discusses th e calendar

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year 2010 data set forth in the supplemental schedules requested by Commission Staff ,

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1. Mohaves 2010 f inancial income statem ent with only reven ue and pow er costadjustm ents as show n in Supplemental Sect ions A, C, M a n d N;Original Cost and Fair Value Rate Base based on 2010 data as set forth inSupp lemen tal Section B;

3. 2010 Long term debt and monthly Operat ing TIER as set forth inSupplemental Sect ions D a n d E;

4. 2010 customer counts , usage da ta and adjustments as se t for th inSupp lemen tal Section F; an d5. Comparison of exist ing and proposed rates based upon 2010 billingdeter min ants as set forth in Supplem ental Sect ions H, K an d R.

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Mr. Searcy a lso discusses ho w th e 2010 d a ta dem onst ra tes tha t th e adjusted 2009test year is still representat ive of Mohaves current opera t ions and an appropr ia te baseupon which to establish rates an d charges for th e Cooperat ive.

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INTRODUCTIONPlease state your name, your employer and your position.My name isMichael W. Searcy and I am employed by C. H . Guernsey & Com pany. Mycur rent pos i t ion is Managing Consultant. My cons ulting activities include retail rat eand financial analysis on behalf of clients. Information related to my address,educat ional background an d work experience, and a copy of my resu me, is includedin my testim ony related to t he original rate fil ing.On whose behalf are you testifying in this matter?I am app eari ng on behalf of Mohave Electric Cooperative, Incorporated (Mohaveor the Coope ra ive I ).Have you previously submitted testimony in this proceeding?I prepar ed di rect tes t imony in su pp ort of Mohaves Application for an adjus tm ent inra tes based upon a tes t year ending December 31, 2009. That tes t imony andsup por ting schedules accompan ied the Cooperatives rate application filed March30, 2 0 1 1 (the Application or original filing) a s Attac hm ent 3.

PURPOSE OF TESTIMONY

What is the purpose of your supplemental direct testimony?In th e cou rse of reviewing Mohaves Application to modify its rates a nd charg es forsufficiency, Commission Staff reque sted supp leme ntal inform ation based upon the2010 calendar year . In order to avoid disputes and faci li ta te the pr om pt andefficient proce ssing of its Application, Mohave agreed to file specific SupplementalSchedules based on Mohaves calendar ye ar 201 0 o peration s, including:

1. The l imited information required by Arizona Administrative Code(A.A.C.) R14-2-103(B)(3) dealing with rate filings of electricdistribution cooperatives (e.g., Supplemental Schedules A, C, D, E and

2. Supplemental Schedules showing the impact of 2010 billingdete rm inan ts (e.g., Supplemental Sections F, H, K an d R), excludingCost of Service sch edu les (e.g., Sectio ns G, I and J), and

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3. Supplemental Schedules showing the impact of 2010 data on thecalculation of base fuel costs and purchased power cost adjustorrev enu es (e.g., Supp lemen tal Sections F and N ) .

My supplem ental direct testimony a nd t he Sup plemental Schedules to which I amtestifying are included with Mohaves Supplemental filing as Attachment 4. AllSupplemental Schedules included in Attachment 4 are numbered based on theoriginal rat e fi ling numbering scheme, but w ith th e word Supplemental precedingthem. This numbering format is followed t o allow the Com mission to mo re readilycompare t he or iginal and 2010 schedules and to avoid confus ion.My supplem ental direct testimony prov ides th e foundation for al l the SupplementalSchedules being submitted by Mohave, discusses the data contained therein, andtha t the 2010 supplementa l da ta s e rves to verify th at the adju sted 2009 t e s t yea r isrepresentative of cu rrent operat ions and is not s tale.Were the schedules contained in Sections A through L and Sections N, 0 and Rincluded in Attachment4 prepared by you or under your supervision?Yes.Who supplied the data used in developing the Sections and schedules you aresponsoring?All data w as supp lied by Mohave.PIease explain where the information required by A.A.C. R14-2-103 can befound in Attachment 4.Th e following table identifies wh er e th e da ta re qui red by A.A.C. R1 4-2-1 03 can belocated in this r ate filing:

Provision DataB.3.a RUS Fo rm 7B.3.a Most Recent (2010) Audit

Location

Supplem ental Sect ion MSupplem ental Sect ion MB.3.c Bill Count Data

B i l l Frequency S umm ary2 0 1 0 Proof of Revenu e - Existing Ra tes

Supplem ental Schedule H-5.0,Supplem ental Schedule F-4.0,



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2010 Proof of Revenue - Propose d RatesDetailed Bill Frequen cy Data

Supplementa l Schedule N-1.0Supplem ental Schedule K - 1 . 0 ,

B.3.d Su mm ary of Change in RevenueBill ing Com paris ons

B.3.e Long -Term Debt2010 Long-Term Debt

Supplem ental Schedule H - 1 . 0Supplementa l Schedules H - 4 . 0

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Supplem ental Schedule D-5.0B.3.f Su mm ary of TIER Su pp lem en tal Sched ule E-2.0

Q. What additional supplemental schedules providing 2010 data are yousponsoring in your supplemental direct testimony?

A. A listing of all Supplemental Schedules is provided in the Table of Contentspreceding th e schedules included in Attachment 4. Those s chedules indicat ing theyare intentionally left blank reflect schedules for which Staff did no t r eques tsupplementa l 2010 da ta.

Q . What is the test year in this proceeding?A. Mohave sub m itted its Applicat ion based upon the test year ending December 31,

2009. All information included in the supplem ental f i ling is based on the ca lendaryear ending December 31, 2010. As discussed in more detai l in my supplem entaldi rec t tes timony, the 2010 d a ta dem onst ra tes tha t the adjusted 2009 tes t year usedby Mohave rem ains repres entat ive of the Cooperatives current o perat ions.

FINANCIAL ADIUSTMENTSQ. Please explain Supplemental ScheduleA-1.0 .A. Supp lemen tal Schedule A-1.0 is the Income Statem ent for the 20 10 calendar year

showing:1. Actual 201 0 Calendar Year (ending Decem ber 31,2 010 ),2. Adjustments to th e 20 10 Calendar Year (Revenue and pow er cost only),3. Adjusted 2010 Calendar Year (Actual Calendar Year Plus Adjus tmen ts),

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4. Requested Revenue Change (based upon propo sed Tariffs set forth in SectionP of Attachme nt 3 to t he Application), a ndAdjusted Calendar Year With Rate Change (Adjusted Calendar Year PlusRequ ested Revenue Change).

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Adjustments descr ibed be low correspond to ad justme nt am oun ts shown in th eAd us tm en ts co1u m n on Supp 1em en a l Sch e du 1e A- 1.0 .Column (a) is information taken directly from Mohaves 2010 Form 7 based uponaudited da ta. The 2010 Form 7 is included in Supp lemen tal Section M of Attachm ent4. The 2009 Form 7 wa s provided in Section M of Attach men t 3 to th e A pplication.Please explain adjustments shown on Supplemental ScheduleA-1.0 .Adjustments a re shown on Supplementa l SchedulesA-4.0an d A-5.0.Operatin? Revenue [supplemental Schedule A-4.01.

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Calculat ion of revenue shown on this schedule is developed on Supplementa lSched ule F-4.0. This sched ule calculates reven ue by app lying existing rat es to 2010bil l ing units. 2010 Customer and kWh bil l ing units are found on SupplementalSchedules F-1.0 through F-2.0.2010 Demand bi ll ing units ar e found in Su pplementalSche dules R-1.0 throug h R-3.1.Base Revenue [Supplemental Schedules F-4.0. F-3.0and F-4.11.One of Mohaves tw o Substat ion Level service custom ers w as bi l led u nd er a specialcont rac t ra te in 2010. The cont rac t has no w ended and will no t be r enewed .Adjusted 2010 b ase reve nue and PPCA revenue for this customer, therefore, havebeen calculated un der th e standa rd LC&I rate as s how n on Supplemen tal ScheduleF-4.0. A s imi lar adjustment was m ade to the 2009 tes t year . (See, Sched ule F-4.0 inAt tachment 3 to t he Application).Consistent with Mohaves Applicat ion, an adjustment to base revenue related tothi rd-par ty sa les (TPS) revenue has been m ade . The na ture of the adju stmen t isexplained in the direct test imo ny of Mr. Stover (Attachment 2 tu t he A pplication). Ass h o w n on Supplemental Schedule F-3.0, 2010 TPS revenue was $1,826,810 ascom pared to $6 30,817 in 2009. (See, Schedule F-3.0 to Attachment 3). The revenuesfo r TP S we re adjusted to $3,698,667, as developed o n Su pplemental Schedule F-4.1.



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The same level of adjusted TPS revenues was reflected in the adjusted 2009 testyea r as developed on Schedule F-4.1 in At tachment 3 to th e Application.Adjus tments f rom al l causes to base 2010 calendar year revenue resul t in anincr ease of $2,423,662 , as sh ow n on S upple men tal Schedules F-4.0, A-1.0 an d A-4.0.In contras t , the Cooperat ive had adjus ted base tes t year 2009 revenue by$3,655,648 as shown on Schedules F-4.0, A-1.0 and A-4.0 in Attachment 3 t o t heApplication. The $1,231,986 reduction in th e amo unt of base revenue inc rease isprimarily due to the $1,195,993 increase in actual TPS base revenue in calendaryear 2010 over the 2009 test year TPS base revenu e.

Mohave did not show mater ia l growth in cus tomers during 2009 or 2010.Therefore , no adjus tmen t to e i ther the 2010 calendar year or 2009 tes t year datawa s ma de to year-end cus tomers . Consis tent wi th the adjus tm ents mad e to the2009 test yea r (as described at page 1 0 , l ines 1-17 of my direct test imon y includedin At tachment 3 to th e Application) , cus tomer coun ts were normal ized as show n onSupp lemen tal Schedule F-1.2 and to TPS usage, as described above, and as sh ow n o nSupp lemen tal Schedule F-7.1.

and F-5.01.A revenue adju s tment was made to res ta te PPCA revenue based o n adjus ted 2010power cost (Supplemental Schedule F-5.0). Total adjusted 2010 power costexcluding TPS was used for the calculations along with total ad justed 201 0 kWhsales excluding TPS and lighting customers. As discussed at page 10, l ines 22-25 ofmy direct tes t imony (At tachment 3 of the Application) lighting customers kWhusage is not individually metered and historically Mohave has not collected PPCArev en ue from this class of custom er. On a going for wa rd basis, Mohave will recov erPPCA rev enu e from lighting custom ers based up on im puted kWh usage for the typeof lighting involved.The restatement of PPCA revenue decreases 2010 PPCA revenue by $677,317, incon trast to a $3,639,180 decrea se of 2 009 t est yea r PPCA revenue. In 20 10, Mohaverecord ed Over/Under Revenue of ($3,946,026). This was zeroed ou t as a pa rt ofPPCA recalculation. The total adjustment related to 2010 calendar year PPCA

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reve nue results in an increase of $3,268,709 ($3,946,026 - $677 ,317) a s shown onSu pple me ntal Schedules F-4.0, A-1.0 an d A-4.0. The total adju stm en t related to2 0 0 9 test year PPCA rev enue resulted in an increase of $2,828,653 ($6,467,833 -$3,639,180) as shown on Schedules F-4.0, A-1.0 and A-4.0 in Attachment 3 t o t he

6 Other Revenue fsupplemental Schedule C-4.0).78910111213141516

2010 Other revenue was reduced by $142,170, as sh own on Supplementa lSchedule C-4.0. Consistent with the adjustm ents m ade to t he 2 009 te st year, thre ei tems w er e el iminated: Power Displacement Agreement R evenue (Acct 451), DeviceRental R evenue (Acct 454) and Other E lectric Revenues (Acct 456). A s explained inmy di rec t tes t imony a t page 11, l ines 5-9, these i tems are related to servicesprovided by the Coopera tive to th i rd par t ies under cont rac ts tha t have te rminated.Account 454 - Pole Attachment Rental wa s increased to annualize revenu e du e to anincrease in the pole at tachment revenue paid to Mohave. The total adjustmentrelated to 2009 te st year Other revenue w as a reduction of $118,189, as show n onSch edu les C-4.0, A-4.0 an d A-1.0 in Attach m ent 3 to th e A pplicat ion.

171819202 12223 pow er costs discussed next.

The to ta l adjustment to revenue based on 2010 bi l l ing units, is an increase of$5,550,201, as shown on Supplemental Schedules F-4.0, A-1.0 and A-4.0. Thiscompares to an increase in revenue of $6,366,112 in the original f i l ing based on2009 bi l l ing units. The 1.2 mil l ion dollar reduction in the revenue adjustmentbetween the 2009 and 2010 is substantial ly offset by the reduction in purchased

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The ne t increase to 2010 power cost is $5,508,614, as shown on Supplementa lSchedules F-7.2, A-1.0 and A-5.0. This compares to an increase of $6,190,975 to2009 test year power costs set forth in Schedules F-7.2, A-1.0 and A-5.0 inAt tachment 3 of the Application. Adjusted 2010 purchased power expense wasdeveloped on Supplemental Schedules F-7.0 through F-7.2 and summarized onSchedule A-5.0. TPS power cost was adjusted to match est imated sales andprojected TPS unit power cost as developed in the Application at Schedules F-7.0through F-7.2 of Attachment 3. For th e rem aind er of the system, wholesale rates for

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20 11 we re app lied to adjusted 2010 bil ling units . Adjusted w holesale fuel cost usedin the calculation was developed by taking the actual m onthly 2010 wholesale fuelfactors and correcting them based on the fuel cost rebasing included in the powersuppliers most rec ent rate fil ing.Consistent with the Application, Mohave prop oses developmen t of a property taxadju stm ent (PTA) to reflect changes, up or down, in th e overall pr ope rty taxes i t ispaying to governm ental bodies, as compared to the level of pro per ty taxes includedin the adjusted 2009 test year. Supplemen tal Schedule N-2.2 shows th at the am oun tof change between the prop erty tax included in the adjusted 20 09 tes t year and theactual 2010 prop erty tax was only $3,314. This was not con sidered to b e a materialamount , and no adjus tment to revenue was made as a par t of t h i s 2010supple men tal analysis.No adjus tments w ere m ade to th e 2010 Calendar Year Income Statement other thanthose to rev enue and p ower co st as discussed above.Are the adjustments to 2010 revenue and power cost related to activities thatare known, measurable and of a continuing nature?Yes.What is the overall impact of the adjustments made to 2010?The overall impact of the revenue and expense adjus tments is to increase 2010ope ratin g margins by $41,587, as reflected in column (b) of Sup plem ental ScheduleA-1.0.As sho wn on Schedule A-1.0 Attachment 3 to the Application, the ad justed 2009 te styear gross income (revenue - power cost) is $14,276,228 ($78,740,725 -$64,464,497). As a part of this review of 2010 data, the adjusted 2010 gross incomeis $14,265,329 ($76,068,006 - $61,802,677) - a reduction of gross revenue fromadjusted 200 9 test year to adjusted 2 010 calendar year of just $10,899.The adju sted 2010 O perating TIER is 0.21, th e RU S OTIER is 0.23 and th e CFC D S C is0.83. As reflected on Schedule A-1.0 in Attachment 3 to the Application, the ad justed2009 test year Operating TIER is 0.56, the RUS OTIER is 0.57 and the C F C DSC is1.06.

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In both 2010 and 2009, the coverage rat ios are insufficient and addit ional revenue isneeded to improve th e coverage rat ios.Would using the adjusted 2010 calendar year discussed above justify a greateror lesser increase in revenues than use of the adjusted 2009 test year?The low er coverage rat ios in 2010 would justify a greater increase in revenu es thanrequ ested by Mohaves Application.Is Mohave requesting a greater increase to reflect the reduced financialcoverage based upon the 2010 calendar year data?No. Th e Coop erative is requesting the sam e ra tes as proposed in its Application.What is the impact on the income statement of applying the proposed rates to2010 billing units?Supplemental Schedule A-1.0 shows in column (e) the impact on revenue ofapplying the proposed rates to 2010 bi ll ing units. There is an increase in reven ue of$2,994,231. As reflected on Schedule A-1.0 of Attachment 3 of the Application, theamount of revenue change result ing from applying the proposed rates to 2009bill ing units w as $2,980,757. The difference in rate change betwee n th e 2009 testyear and calendar year 2010 ($13,474) is minimal.Supplemental Schedules N-1.0, N-2.1, and N-3.0 show development of proposedrevenue applied on 2010 billing units. A summary of proposed revenue applied on201 0 billing units is show n on Supplemental Schedule H-1.0.The adjusted 2010 O perat ing TIER with t he proposed rate change is 1.59, the R U SOTIER is 1.61 and th e CFC D S C is 1.62. These coverage rat ios are less than th e rat iosfor the adjusted 2009 test year with prop osed r ate change as reflected o n ScheduleA-1.0 of Attachment 3 to th e Application (Adjusted Operating TIER with ne w ra tesof 1.92, RUS OTIER of 1.94 and C F C DSC of l .85), bu t in each case they exceed th eminimum require me nts of Mohaves lenders.

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RATE BASEWh a t i s t h e F a i r V al ue Ra t e Base d e v e lo p e d i n t h e a d j u s t e d 2010 a l e n d a ry e a r ?The ad jus ted calendar year 2010 or iginal cos t ra te base of $48 ,083,871 as ofDecemb er 3 1,2 01 0, reflected o n Sup plemental Schedule B-1.0, is th e Fair Value RateBase (FVRB) for rate ma kin g purpo ses. As wa s the case in the application basedupon a tes t year ending 12/31/200 9, this amou nt includes subs tant ia l reduct ionsfor consum er depos i ts , consumer cons truct ion advances and consum er energyprepa ym ents. Cash working capital has also been removed.

COST OF SERVICE STUDYIs M o h a v e p r o v id i n g s u p p l e m e n t a l c a l e n d a r y e a r 2010 a t a r e l a t e d t o t h e C o stof Serv ice S tudy i t f i l ed wi th the Appl ica t ion as Schedule G a n d s u p p o r t i n gs c he du l e s ?No. Mohave a nd t he Comm ission Staff agr eed t ha t the originally filed co st of services tudy based upon the 2009 test year data will be utilized for processing MohavesApplication, subject any necessary ad justmen ts.

RATE DESIGN AND IMPACT ON CUSTOMERSIs M o h a v e p r o p o s i n g a n y r e v i s io n s t o t h e rates a n d r a t e d e s i g n s r e f l e c te d i n itsA ppl i c a t i on a s a r e s u l t of t he s upp l e m e n t a l 2010 a t a ?No. The calcula t ions developed for the ra te chang e adjus tment to t he 2010 calendaryea r s imply apply the ra tes and charges proposed in th e Applicat ion to 2010 bil lingunits.W h a t a r e t h e p r o p o s e d r e v e n u e c h a n g e s f o r e a c h c l a s s u s i n g 2010 bill ingun i t s ?

The revenue change result ing from Mohaves proposed rates for each rate classun de r 20 10 bil ling units is sho wn on Supplem ental Schedule H-1.0. Proposed PPCAbase cost used in the calculation of the proposed PPCA-revenue is shown onSupp lemen tal Schedules N-2.0 and 2.1. Note, the base cost of pow er p er kWhincluded in rates (Authorized Base Cost) is the base cos t developed on theadjus ted 20 09 tes t year of $0.091183.

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Q. Why do some of the Time-of-Use rate classes in particular show differentpercentage increases based on 2010 usage as compared to the 2009 test year?

A. Mohaves small commercial and large com mercial and industrial rate t ime-of-userate classes have very few customers. In 2009, there were four customers in thesm all com me rcial TOU class an d on ly one in th e seco nd ary LC&I TOU cla ss. In 2010,there were eight customers in the small commercial TOU class and three in theseconda ry LC&I class. Customers ar e free to move t o an d from th e TOU ra te classes.While the changes in dollar amount difference of the 2009 and 2010 increase arerelat ively small , on a percentage basis, th e changes app ear t o be high.In add ition, as discussed in th e Mohaves Application in m y direct testim on y at page27, l ine 2 6 through page 28, line 8, existing time-of-use rate s for all de m an d billedt ime-of-use rate classes include only a single dema nd charge, based o n usage duringthe on -peak window. While the majori ty of the d eman d cost included in the demandcharge is related to purchased pow er capacity cost , the Cooperative should recoverat least a port ion of its ow n capacity-related cost of providing service through thedemand charge. An unintended result of the exist ing rate design is to al lowcustomers who can shift usage out of the on-peak period to avoid, not onlypurchased power capacity cost , but also the Cooperat ives recovery of its ow ncapacity-related wir es cost.In th e propos ed rate designs, Mohave sepa rates its t ime-of-use dem and charge intoan on-peak demand charge to recover purchased power capacity cost , which thecustomer can avoid by shift ing usage outside of the on-peak windows; and amonthly non-coincident peak (NCP) demand charge to recover a port ion of theCooperat ives own wires cost of providing service and measured in the samema n n e r a s t h e d e man d is applied to the sta nda rd irr igat ion customers.

Q. Why is the percentage increase for lighting less than originally proposed?A. As I alrea dy indicated, the lighting class has historically no t been billed PPCA d ue to

a lack of billed kWh units. On a going for wa rd basis, Mohave pro po ses to imp ute astand ard kWh based upon the l ighting fixture involved an d to bil l lighting custom ersa monthly PPCA under proposed rates. Since there is a small reduction in theadjusted 201 0 PPCA factor as compare d to th e 2009 adjusted tes t year, includingcollection of PPCA in the propo sed r ate s resu lts in a smaller perc entag e increase.

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Q. Have all of the rate designs been revised to reflect proposed base power costin the wholesale power cost adjustment?Yes. Each proposed retail rate design reflects the proposed wholesale power costadjustment calculated using the base power cost of $0.091183 per kWh sold, assho wn on Supplemental Schedules N-2.0 an d N-2.1. Since the a djusted 20 10 cost ofpower a t $0 .089333 per kWh is slightly less than th e 200 9 adjusted test year powercost pe r kWh, the PPCA factor und er pro posed rates t o apply to 20 10 bil ling units is($0.00185) p er kWh. As stated earl ier, the re is no proposed ch ange to the base cos tof po w er used to calculate PPCA as prop ose d in th e Application.Does Mohave propose changes to its service charges or fees?Yes. Th ese cha nge s ar e reflected in th e Application. Supp lemen tal Schedule N-3.0shows proposed changes to exist ing service charges or fees, also called otherrevenue. Th e 2010 occurrences of these charges or fees we re used t o calculate theadjus ted 2010 other revenue.Total addi t ional revenue proposed from oth er revenue is $256,647 based upon2010 da ta as compared t o $274,546 of addit ional oth er revenu e based u pon the2009 t e s t ye a r - a reduct ion of $17,899 in 2 010 a s compared to th e 2 009 tes t year .

A.

Q.A.

TARIFF CHANGESQ. After reviewing the supplemental 2010 data, does Mohave propose changes toits rate tariffs beyond those originally reflected in the Application?A. No. Mohave unders tands that its proposed ra tes would not have produced the level

of revenues it is requesting during 201 0 du e to a decrease in kWhs sold. However,by im plem enting a rate design th at m ore closely reflects cost incurrence, the bulk ofth e lost sales are set off by reduced p ow er costs .

SUMMARY OF IMPACT OF 2010 DATAQ. Please summarize the differences between the 2009 test year used by Mohave

in its Application and the adjusted 2010 calendar year data.A. A s indicated above, the 2010 calendar year data as adjus ted for the n ew wholesale

pow er rate, ne w wholesale bil ling units , and th e accom panying changes on PPCArevenue result in total gross income (revenue less power cos t ) that is extremely

~~~ ~Direct Tes timo ny: Michael W. Searcy Page 14


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similar to the gross income shown in the adjusted 2009 test year upon whichMohaves App lication is based.As sho wn on Supplemental Schedule A-1.0, 2010 op erating exp enses excluding costof power were $15,974,336 ($75,456,285 + $2,320,728 - $61,80 2,677). Actual 2 009test year operating expe nses excluding cost of powe r as sho wn on Schedule A-1.0 inth e original filing we re $15,594,333 ($71,532,793 + $2,335,062 - $58,273,522). Thisdifference of $380,003 is only 0.5% different from the actual 2009 total operatingexpense level of $73,867,855 ($71,532,793 + 2,335,062). In the 2009 test year, theoperat ing margin was ($1,493,242). Calendar year 2010 showed an operat ingmargin of ($1,750,594).Does the adjusted 2010 calendar year data serve to validate thereasonablenessof Mohaves use of a 2009 test year?Yes. The similarities in usage, gross income and expenses indicate that the 2009adjusted test year expense levels used to determ ine the revenue re quirem ent in theCooperatives Application continue to be representative of expense levels theCooperative should recover through its rates and gross income. Calendar year 20 09continues to represent data that can be confidently used to develop adjusted testyear expense levels ( including power cost) , adjusted and proposed test yearrevenue levels, a sound cost of service study and rate d esigns.We prepared Supplemental Schedule A-1.1 comparing the 2009 test year withrevenues from Mohaves proposed rates to the adjusted 2010 calendar year withreven ues from Mohaves propose d rates. The bottom line is tha t the supplementa l2010 data tends to support a somewhat greater revenue increase than Mohave isproposing. However, the level of increase does not w arra nt the t ime and costassociated with development of an entirely new tes t year.Does this conclude your testimony?Yes, it does.

~Direct Testimony : Michael W. Searcy Page 15


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I

MOHAVE ELECTRIC COOPERATIVE, INC.

Lyn R. OpaJohn B. Ne

kassen

Chester MorelandCarlos A . TejedaJack ChristyGordon EnnesJoe AndersonMichael BarteltJohn Elkins

OFFICERS, BOARD OF DIRECTORS AND CEO

Office

President

Vice-presidentSecretaryTreasurerD i rectorD i rectorD rectorD i rectorDirector

Address

Bullhead City, AZ

Wikieup, AZBullhead City, AZBullhead City, AZBullhead City, AZBullhead City, AZBullhead City, AZBullhead City, AZBullhead City, AZ

J. Tyler Carlson CEO Bullhead City, AZ


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1

INDEPENDENT AUDITORS REPORT

The Board of DirectorsMohave E l e c t r i c Cooperative, Inc.Bul lhead Ci ty , .=

We have aud i ed the accompanying ba Iance sheet of Mohave E ec t r ic Cooperat iv e, Inc .as of December 31, 2010, and the r e la te d statements of revenue and patronage c a p i t a land cash flows f o r the year then ended. These fi na nc ia l statements ar e th ere sp on si bi l i ty o f the Cooperat ives management. Our r es po ns ib i l i t y i s t o express anopi nio n on these fin an cia l statements based on our au di t. The fina nc ia l statementso f Mohave E l e c t r i c Cooperative , Inc. f o r the year ended December 31, 2009 wereaudited by other auditors, whose report dated June 20, 2010 expressed an unqualifiedopinion on those statements.We conducted our au dit i n accordance w i t h audit ing standards generally accepted inth e Un it ed States o f America and the Government Au di ti ng Standards issued by theCom ptrol ler General o f the Unite d Sta tes . Those standards re qu ir e th at we pl an andperform the au di t t o obt ain reasonable assurance about whether the f i na nc ia lstatements are fr ee of mate ria l misstatement. An au di t incl udes examining, on at e s t basis , evidence supporting th e amounts and discl osure s i n the f in an ci alstatements. An au dit als o i ncludes assessing the accounting p ri nc ip le s used ands i g n i f i c a n t estimates made by management, as wel l as ev al ua ti ng the o ve ra llf in anc ial presentat ion. We believ e th at our aud it provides a reasonable basis fo rour opinion.In our opin ion the f ina ncia l s tatements referred t o above present fa i r l y , in a l lmateria l respects, the f ina nci al po si t i on o f Mohave El ec tr ic Cooperative, Inc. as ofDecember 31, 2010, and the re su lt s of i t s operat ions and cash f lows fo r the yearthen ended, in conformity wi th accounting prin cip les gene ral ly accepted i n theUnited States of America.In accordance with Government Auditing Standards, we have al so issued a re po rt datedMay 17, 2011, on our consid eratio n o f Mohave El e ct ri c Cooperative, In c. s in ter na lcontro l over f inanc ia l repor t in g and our t ests of i t s compliance wi th ce r ta inpro vis ion s o f laws, re gul atio ns, con trac ts and grant s. The purpose o f tha t repo rti s t o describe the scope o f our tes t in g o f in terna l cont ro l over f inanc ia l repor t ingand compliance and the r e s u l t o f th at te st in g, and no t t o provide an opin ion on theinternal contro l over f inancia l repor t ing or on compliance. That re po rt i s anin te gr al p a r t of an aud it performed i n accordance wi th Government Au di tin g Standardsand should be considered i n assessing the re su lt s o f our au di t.


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The Board of DirectorsMohave E l e c tr i c Cooperative, Inc.Bullhead C i t y , AZ

Our a u d i t was conducted f o r t he purpose o f forming an opini on on the basic f in an ci alsta tements taken as a whole. The accompanying schedule o f fede ral awards i spresented fo r purposes of ad dit io na l a nal ysis as required by U .S . Of f i ce o fManagement and Budget Circular A - 1 3 3 , Audits of States, Local Governments, and Non-P r o f i t Organizat ions, and i s not a requi red par t of th e basic f in an ci al statements.Such information has been subjected t o the au di t in g procedures app lied i n the a ud itof t he basic f i na nc ia l statements and, i n our o pi ni on , i s f a i r l y st at ed , i n a l lmat eri al respects, in rel at io n t o the basic f ina nc ial statements taken as whole.

May 17, 2011


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MOHAVE ELECTRIC COOPERATIVE, INC.BALANCE SHEETS

December 31, 2010 and 2009

ASSETS

UTILITY PLANTElectric plant in serviceConstruction work in progressLess: accumulated depreciationTotal Utility Plant

INVESTMENTSSubordinated certificatesInvestments in associated organizationsNon-utility propertyOther investmentsTotal Investments

$ 88,890,934 $ 88,368,5443.02 .375 438.82791,912,309 88,797,3710 33.642.088)56,203,994 55. 155,2832,802,850 2,810,71830,024,396 26,468,823150,000 150,000

2.751.898 1 .754.40035.729.144 31,183.941

CURRENT ASSETSCash and cash equivalents 20,370,432 19,924,396Note receivable - current portion 127,374 111,823Accounts receivable (less allowance fordoubtful accounts of $197,000 in 2010and $212,000 in 2009) 5,405,118 5,360,120Materials and supplies 2,115,226 2,132,276Other current assets 607.51 505.483Total Current Assets 28.625.665 28,034.098

DEFERRED CHARGES 14 , 79 ,221 16,042.019

TOTAL ASSETS $135.038.024 $

The accompanying notes to the financial statementsare an integral part of this statement


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MEMBERS EQUITY AND LIABILITIES

MEMBERS EQUITYPatronage cap taOther equitiesTotal Members Equity

LONG-TERM DEBTMortgage notesLess: current maturitiesTotal Long-Term Debt

CURRENT LIABILITIESCurrent maturities of long-term debtAccounts payableAccrued interest payableAccrued taxesOther current liabilitiesTotal Current Liabilities

DEFERRED CRED

TOTAL MEMBERS

TS

EQUITY AND LIABILITIES

$ 67,565,118 $ 65,446,4652.237. 13 2.180.753

69.002.531 67.627.2 1 8

39,140,805 40,765,556( 1.695. 00 ( 1.623.627

37.445.805 39,141.934

1 ,695,000 1 ,623,6225,659,565 4,443,44672,983 55,321838,113 878,7923.351 .607 3 878.42111,617.268 9 ,879.602

16: 172.420 13 766 ,587


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MOHAVE ELE CT RIC COOPERATIVE, IN C.STATEMENTS OF REVENUE AND PATRONAGE CAPITAL

FOR THE YEARS ENDED DECEMBER 31

OPERATING REVENUESale of electricityOther operating revenue $ 69,768,736 $ 71,654,111749.068 720.503Total Operating Revenue 70.517 ,804 72.374 ,61 4

OPERATING EXPENSECost of powerTransmission expenseDistribution - operationsDistribution - maintenanceConsumer accountsCustomer service and informationAdministrative and generalDepreciation and amortizationInterest on long-term debtInterest expense - other

56,294,063169,4002,773,7011,194,6582,227,247292,4784,756,4562,239,6672,161,308

142.396

58,273,523374,3672,407,2161 ,397,2972,332,076270,5314,301,2302,176,5502,208,733118.932

Total Operating Expense 72.251 .374 73.860,455NET OPERATING MARGIN (LOSS) 1 1,733.570) 0ON-OPERATING MARGINInterest incomeOther non-operating income 41 0,049 499,86861.039 107.2.28Total Non-Operating Margin 471.088 607,096CAP ITAL CRED I TS 3.617.656 6.498.576

NET MARGINS FOR PERIOD 2,355,174 5 ,61 9,831PATRONAGE CAPITAL - BEGINNING OF YEAR 65.446.465 60.267.905Retirement of capital credits 67,801,639 65,887,7361 236.521) [ 441 .271)

PATRONAGE CAPITAL - END OF YEAR $ $_65946965The accompanying notes to the financial statementsare an integral part of this statement


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MOHAVE ELECTRIC COOPERATIVE, INC.STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31

CASH FLOWS FROM OPERATING ACTIVITIES:Cash received from customersInterest and dividends receivedCash paid to suppliers and employeesInterest paid

$ 72,939,678 $ 72,373,870410,049 499,868(64,598,611 (63,134,063)( 2.286.043) ( 2.324.197)Net Cash Provided (Used) By Operating Activities 6 , 65.074 7.415.478

CASH FLOWS FROM INVESTING ACTIVITIES:Investment in plantMaterials and suppliesPatronage capital recoveryOther investing activities

( 3,288,378) ( 888,851)17,050 347,21869,951 31,303( 1 . 013.049) ( 1.924.871)Net Cash Provided (Used) By Investing Activities ( 4,214,426) ( 2,435.201)

CASH FLOWS FROM FINANCING ACTIVITIES:Loan funds receivedRetirement of long-term debtRetirement o f capital creditsOther financing activities

-0- 1,106,000( 1,624,751) ( 1,555,703)( 236,521) ( 441,271)56.660 1 1 0.485Net Cash Provided (Used) By Financing Activities ( 1.804.612) ( 780 , 89)

NET INCREASE IN CASH AND CASH EQUIVALENTS 446 036 4,1 99 788Cash and cash equivalents - Beginning of year 19.924.396 15.724.608

CASH AND CASH EQUIVALENTS - END OF YEAR $ 2 0 3 7 0 . 4 3 2 $19.924.396The accompanying notes to financial statementsare an integral part of this statement


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MOHAVE ELECTRIC COOPERATIVE, INC.NOTES TO FINANCIAL STATEMENTSDecember 31, 2010 and 2009

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe Cooperative is a Rural Electric Cooperative whose principal business is thedistribution of electrical power to residences and businesses located in threecounties in northwest Arizona. As a regulated enterprise with a member-electedboard of directors, the Cooperative accounts for such regulation underprofessional accounting standards ASC 980, Regulated Industries. The accountingpolicies followed by the Cooperative are in conformity with generally acceptedaccounting principles as they apply to a regulated electric utility. The ratesare regulated by the Arizona Corporation Commission (ACC) and are designed torecover the cost of providing electric distribution to the members of theCooperative.The Cooperative employs the Uniform System of Accounts prescribed by the RuralUtilities Service (RUS). As a result, the application of generally acceptedaccounting principles by the Cooperative differs in certain respects from suchapplication by non-regulated enterprises. These differences primarily concernthe timing of the recognition of certain revenue and expense items.Depreciation is recorded on the composite basis for transmission and distributionplant, and the unit basis (straight-line basis) for general plant, and is chargedto capital and operating accounts at rates adopted by the Board o f Directors inconformity with guidelines provided by RUS and the ACC. Depreciation provisionsare computed on additions beginning the month after they are placed in service.When units of property are retired, their average cost (specific unit cost forsubstantially all of the general plant) is removed from utility plant and thecost, less net salvage, is removed from allowances for depreciation.Expenditures for normal repairs and maintenance are charged to operations, asincurred.Continuing property records are maintained on a current basis. These provide theaverage installed cost of the plant in service.The Cooperative has determined that it does not have any long-l ived assetswhich it has a contractual or legal obligation to remove in the future.Investments in associated organizations are carried at face value of equcertificates. Other amounts included in investments are generally carriedcost or fair value depending upon the classification of the securities.

or

tYat

The Cooperative carries its accounts receivable at cost less an allowance fordoubtful accounts. On a periodic basis, the Cooperative evaluates its electricaccounts receivable and establishes an allowance for doubtful accounts, based onpast history of bad debt write-offs, collections, and current credit conditions.Electric accounts receivable are generally considered past due if the Cooperative


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MOHAVE ELECTRIC COOPERATIVE, INC.NOTES TO FINANCIAL STATEMENTS

December 3 1 , 2 0 1 0 and 2009

CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIESThe preparat ion of f ina nci al statements i n conformity wi th gen eral ly acceptedaccount ing pr inc ip I es requ i re s management t o make estima tes and assumpt ions thataf fe ct ce rt ai n reported amounts and disclosures. Accordingly, actual res ult scould dif fer f rom those est imates.Two members accounted f o r 8% of the elect r ic revenues reported for both the yearsended December 31, 2010 and 2 0 0 9 , and the loss o f any one co ul d have an adversee f f e c t on the Cooperative. However, management does no t expect t h a t the bus inessrelat ionship with either of these members w i l l be lost.The Cooperatives co ll ec ti ve b arga ining agreement expires i n the near-term.Management does not expect any work stoppage.Concentrat ions of credi t r isk ar ises f rom the Cooperat ives grant ing of credi t toi t s member customers, uninsured funds deposited i n fe de ra ll y insured fina nc ia li n s ti tu ti o n s which may be in excess of the insurance l i m it s a t variou s timesdur ing th e year, and other uninsure d cash funds of $18,100,000 a t December 3 1 ,2009 .

ASSETS PLEDGEDSubstan t ia l ly a l l assets are pledged as secur i ty fo r long- term debt t o RUS, andth e Federal Fina ncin g Bank (FFB), and concurrent mortgage note s t o th e Nation alRural U t i l i t i e s Cooperative Finance Corp orati on (CFC) and CoBank.

UTILITY PLANTA summary o f the u t i l i t y pl an t and accumulated depreciat ion fol low s:

December 312010 2009Intangib le p lantTransmission plantD i s t r i b u t i o n p l a ntGeneral plant

$ 579 $ 5791 1 ,2 0 0 ,1 5 2 1 1 ,1 8 2 ,8 7 06 8 , 6 1 2 , 9 7 0 6 8 , 0 7 3 , 1 6 89 , 0 7 7 . 2 3 3 9 . 1 1 1 . 9 2 7To tal E le c t r i c Plant 88,890,934 88,368,544Cons tructio n work i n progress 3 .0 2 1 . 3 7 5 4 2 8 .8 2 7

91.912,309 88.797.371


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SUBORDINATED CERTIFICATES (Continued)The capital term certificates yield 5.00%, the loan term certificates yield3.00%, and the zero term certificates have no yield. All of the certificateshave various maturity dates through the year 2080.The member capital securities have an interest rate of 7.50%, with a first caldate of.August 26, 2014, and a maturity date of December 23, 2044.

INVESTMENTS IN ASSOCIATED ORGANIZATIONSThis category consists mainly o f patronagewhich the Cooperative i s a member.

Patronage capital - CFCPatronage capital - Arizona Electric PowerCooperat ve I ncPatronage capital - Southwest TransmissionCooperat ve, IncPatronage capital - NRTCPatronage capital - CoBankPatronage capital-Federated Rural Insurance

Other investments in associated organizationsExchange

Tota

OTHER INVESTMENTS

Note receivable - sale of DirecTV rightsNotes receivable-renewable energy projectsNote receivable - employeeMarketable securitiesLess current port ionTota

capital due from organizations ofDecember 31

z2l.Q ax29$ 345,457 $ 322,05026,350,787 22,850,4732,347,466 2,337,712659,608 671,156130 073 124,111109,280 89,30281.725 74.019

$30.024.396 $26.468.823

December 312010 2009

$ 1,664,400 $ 1,776,223375,000 -0-80,000 90,000759.872 - -2,879,272 1 ,866,223f 127.374 ( 111.823)


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OTHER INVESTMENTS (Continued)The gain on the sale of DirecTV rights is being deferred and recognized over theinstallment period noted below. Principal payments of $111,823 and $106,534 werereceived for the year ended December 31, 2010 and 2009, respectively. The noteis carried at cost, is current at both December 31, 2010 and 2009, is unsecured,and management believes it is collectible. It matures in 2021.The other notes receivable are carried at cost, are current at both December 31,2010 and 2009, and are unsecured. Management believes they will be collected.The note receivable-employee is repaid through payroll deduction.The Cooperative determines the appropriate classification of its investmentsecurities (debt an d equity securities) at the time of purchase and reevaluatessuch determinations at each balance sheet date. Investments are classified asheld-to-maturity when the Cooperative has the positive intent and ability to holdthe securities to maturity. For those not classified as held-to-maturity, theyare classified as available for sale since the Cooperative does not intend tosell them in the near-term. The investments classified as held-to-maturity arestated at cost and those classified as available for sale are stated at fairvalue, as determined by quoted market prices.As of December 31, 2010, marketable securities consisted of the following:

UnrealizedFair Ga nsa2S.x l!ahe CLossesl

Available for sale securities 635.ooo 631.492 /3.508)Held-to-maturity securities $1 28,558 $1 28,380 $( 178)Tota $759.872

The Cooperative did not sell any of its marketable securities during the yearended December 31, 2010, and recorded the unreal ized l oss in the financialstatements. A l l of the securities are classified as non-current.

NON-UTILITY PROPERTY December 32QI.D 2009'Real estate $150.000


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MOHAVE ELE CTR IC COOPERATIVE, IN C.NOTES TO FINANCIAL STATEMENTSDecember 31, 2010 and 2009

OTHER CURRENT ASSETS

Prepaid insuranceInterest receivablePrepaid duesPrepaid purchased powerPrepaid right of way rentUndistributed warehouse expenseOther prepaid expensesTota

$112,143 $1 22,47645,766 48,930184,898 34,029178,394 225,39156,622 35,686305 -0-29.387 38.971$607.515 $505.483

DEFERRED CHARGESDecember 312!2l.!2 m

Past service pension costConstruction advancesPreliminary survey and investigationWork plansUndistributed transportation expenseOther deferred chargesTota

$ 607,941 $ 655,82213,705,566 15,294, 6947,082 86,910127,410 13,583575 -0-[ 9.353) I 8.765)$14.479.221 S1s.042.019

Past service pension cost is amortized on the straight-line basis over futureperiods as allowed for under the Statement of Financial Accounting Standards No.71 (SFAS 71), which is codified at FASB ASC 980, Regulated Enterprises.Amortization amounted to $47,881 for both the years ended December 31, 2010 and2009.The construction advances made on transmission projects will be recovered overfuture periods through credits on purchased power from the Cooperatives powersuppliers as per the contractual agreements.


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MEMBERS EQUITYPatronage Patronage Otherap ta Cap taCred ts Unallocated Eautties Total.

Balance December 31, 2008 $ 52,116,114 $ 8,151,791 $ 2,070,268 $ 62,338,173Net margin, year 2009 -0- 5,619,831 -0- 5,619,831Capital credits retired ( 441,271) -0- 111,159 ( 330,112)2008 allocation 8,151,796

(8,151,796) -0- -0-Other changes - - - - ( 674) 4 674Balance December 31, 2009 59,826,639 5,619,826 2,180,753 67,627,218

-0- 2,355,174 -0- 2,355,174et margin, year 2010Capital credits retired ( 236,521 -0- 78,750 ( 157,771Other changes ( 387.675) 387.6 5 J 22.090) ( 22.090Balance December 31, 2010 $69.202.443 $ $ $-6-9-33l

Under the provisions of the RUS mortgage agreement, unti the equities andmargins equal or exceed thirty percent of the total assets of the Cooperative,the retirement of capital credits is generally limited to twenty-five percent o fthe patronage capital or margins from the prior calendar year. The CFC andCoBank mortgage agreement provisions differ slightly. This limitation does notusually apply to capital credit retirements made exclusively to estates.The total equities of the Cooperative are approximately 52% of the total assetsas of both December 31, 2010 and 2009. Other equities consist of memberships,donated capital and retired capital credits gain.

LONG-TERM DEBTLong-term debt consists of mortgage notes payable to RUS and CFC with variousmaturities through 2039.


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MOHAVE ELE CTR IC COOPERATIVE, IN C.NOTES TO FINANCIAL STATEMENTSDecember 3 1 , 2010 and 2009

LONG-TERM DEBT (Continued)The following is a summary of these notes:

RUS mortgage notesCFC mortgage notesFFB mortgage notesCoBank mortgage notes

Less: current maturitiesTotal Long-Term Debt

December 31281[) m

$ 1 4 ,8 1 6 ,6 1 8 $ 1 5 ,7 7 0 ,9 9 25 , 5 7 3 , 4 5 5 5 , 9 3 2 , 0 8 2

1 7 ,0 9 3 ,7 3 6 1 7 ,3 7 3 ,8 6 31.656.996 1.688.619

3 9 ,1 4 0 ,8 0 5 4 0 ,7 6 5 ,5 5 61 . 6 9 5 . 0 0 0 ) 0

37.445.805 $39.141.934

The RUS notes have fixed interest rates that ranged between 2 .0 0 % and 5 . 2 5 % as ofboth December 3 1 , 2010 and 2009 .The CFC notes have fixed interest rates that ranged between 5 . 7 5 % and 8 . 7 5 % as o fboth December 3 1 , 2010 and 2009 .The FFB notes have fixed interest rates that ranged between 4 .0 0 6 % and 5 .0 5 3 % aso f both December 31 , 2010 and 2009 .The CoBank note has a fixed interest rate of 7 .2 5 % as of both December 3 1 , 2010and 2009 .Based on current obligations, principal payments toward the above long-term debtfor the next five years will require approximately:

20 11201 2 201 3 201 4 201 5

$ 1 ,6 9 5 ,0 0 0$ 1 ,7 3 5 ,0 0 0$ 1 ,8 1 0 ,0 0 0$1 ,8 4 5 ,0 0 0$1 ,925 ,000


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DEFERRED CREDITS (Continued)The Cooperatives tariffs for electric service, as approved by the ACC, include apower cost recovery factor under which any differences between the revenuegenerated from the power cost included in base rates and actual power cost aredeferred and are either charged o r credited to customers monthly billings infuture periods. As of both December 31, 2010 and 2009, the Cooperative hadaccumulated net over-recovery of $9,145,832and $5,199,806, espectively.,

FAIR VALUE OF FINANCIAL INSTRUMENTSThe estimated fair value amounts have been determined by the Corporation usingavailable market information and other appropriate valuation methods.The following methods and assumptions were used to estimate the fair value ofeach class of financial instruments, for which it is practicable to estimate thevalue set forth in Statement of Accounting Standards No. 107 (SFAS 107), which iscodified at FASB ASC 820, Fair Value Measurements and Disclosures.Cash and cash equivalents - The carrying amount approximates the fair value.Fixed-rate debt - The fair value is determined based on the discounted cash flowsusing current interest rates available to the Corporation forsimilar debt.

December 31. 2010Carry ina Amount Est mated Fa r AmountAssets:Cash and cash equivalentsInvestmentsSubordinated certificatesOther associations

Liabilities:Long-term debt

$20,370,432 $20,370,432$ 2,751,898 ( 1 )$ 2,802,850 ( 1 )$30,024,396 ( 1 1

$39,140 805 $42,873,949


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FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)December 31. 3009Car v na Amount Estimated Fa r Amount

AssetsCash and cash equivalentsInvestmentsSubordinated certificatesOther associations

Liabilities:Long-term debt

$19,924,396 $19,924,396$ 1,754,400 (1$ 2,810,718 ( 1 1$26,468,823 (1

$40,765,556 $44,362,244

(1) Management was not able to estimate the fair value of these instruments,since they are not marketable.

CASH FLOWS INFORMATION Decemb r 31m 2009Cash and cash equivalents:

Genera fundsUninsured cash investmentsTota

$ 1,651,369 $ 1,824,39618.719.063 18.100. OOQ$20.370.432 $

PENSION PLANSubstantially all employees o f the Cooperative participate in the NRECARet rement and Secur ty Program, a defined benef t pension p an qua i f ed underthe Internal Revenue Code. The Cooperative makes annual contributions to theProgram equal to amounts accrued for pension expense. In this multi-employerplan the accumulated benefits and plan assets are not determined o r allocatedseparately by individual employer. Pension expense incurred during the yearsending December 31, 2010 and 2009 consisted of the following:


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