2013 annual report by working together · pdf file2013 annual report 5 ... lacrosse project...

2013 ANNUAL REPORT

TOGETHERBy working

we can achievegreatness.

TOGETHERooperative leaders joined together in 1941 and created a new cooperative to serve peoplethroughout the region…Dairyland Power Cooperative.

By working together, cooperative pioneers built the foundation of a generation and transmission

cooperative that now provides the wholesale electrical requirements and other services for

25 electric distribution cooperatives and 17 municipal utilities in the Upper Midwest. In turn,

these cooperatives and municipals deliver the electricity to consumers—meeting the energy

needs of more than half a million people.

Dairyland’s generating resources include coal, natural gas, hydro, wind, landfill gas, biomass,

animal waste and solar. Dairyland delivers electricity via nearly 3,200 miles of transmission

lines and 300 substations located throughout the system’s 44,500 square mile service area.

Dairyland, a Touchstone Energy Cooperative, is headquartered in La Crosse, Wis. Its service

area encompasses 62 counties in four states (Wisconsin, Minnesota, Iowa and Illinois).

Please visit www.dairynet.com for more information on Dairyland Power Cooperative.

C

President & CEO/Chairman MessageVision, Mission & Values 2

Together 4

Board of Directors 16

Senior Management Team 18

Management/Auditors’ Reports 19

Financial Statements 20

Notes to ConsolidatedFinancial Statements 24

System Map & Generating Resources 32

Members & Facilities 33

By the Numbers 33

Table ofContents

Our employees, directors andmember cooperatives worktogether diligently and creativelyto find solutions to current

challenges and make long-term plans toaddress future energy needs. This past yearhas been exceptional and we are pleased toshare that 2013 was a year of strongfinancial performance.

A hot summer and cold winter resulted inhigh energy demand this past year.Fortunately, our power plants performedreliably during periods of high prices in theMISO energy market. This created theopportunity for Dairyland to return $2 million cash to our members inDecember 2013 as well as address someknown future expenses in advance. Thisspecial rebate was in addition to the $3.1 million returned to members through

Dairyland’s capital credit program. Evenbetter news is that the 2014 budgetincludes a 1.4 percent overall decrease inDairyland’s wholesale power rate for thecoming year.

PLANNING TOGETHER: In many cases, thesuccess of an organization boils down to thesound execution of strategic plans andinitiatives, whether it is generationavailability, completion of transmissionprojects, meeting financial metrics orfollowing plans to mitigate exposure tomarket price risk. This past year,Dairyland’s Board of Directors completed acomprehensive strategic planning process toprovide guidance to management as we allwork together to develop long-termbusiness plans to prioritize projects, managecosts and achieve operating efficiencies.

Dairyland has been very successful inimplementing these plans and achievingsignificant cost reductions in many areas ofthe cooperative. However, regulatorycompliance and operational expensescontinue to escalate and place upwardpressure on rates. Power suppliers continueto face the challenge of potential carbonlegislation, growing renewable energystandards, tougher environmentalregulations and energy efficiency mandates.

OPERATIONAL IMPACTS: Dairylandcontinues to analyze the cost-effectivenessof its facilities. In doing so, we sometimeshave to make difficult decisions. InOctober, Dairyland announced plans tocease operations at the remaining two unitsof the coal-fired Alma Station in 2014. Thisfacility has served our members reliably fordecades, including this past very cold

TOGETHER

2 D A I R Y L A N D P O W E R C O O P E R A T I V E

’’

Daniel Korn, Chairman

William L. Berg, President and CEO

winter when energy was at a premium inour region. However, the investmentrequired to meet future regulations was notpractical since these were the oldest andsmallest coal units on our system, broughtonline in 1957 and 1960, respectively.

Many factors are considered regarding theoperation of a generation facility. Theseinclude age of the facility, system capacityrequirements, regulatory requirements,projected maintenance needs and costs,fuel supply, overall cost of powerproduction and regional market prices forenergy. This decision also aligned withDairyland’s generation resource plans thatinclude the diversification of its resourcemix, including the continued addition ofrenewable resources.

3

Our Vision,Mission & Values:VISION : To be the cooperative provider of choice forenergy and services to our members.

MISSION : As a cooperative organization responsible to its members, provide reliable and competitively priced energy and services, consistent with the wise use of resources.

We will work to enhance the economic and social well-being of the region, be environmentally responsible and bring value to our members.

VALUES : Our members are the reason for our existence.We will strive to provide services that exceed theirexpectations. Our core values include accountability,integrity, innovation and commitment to community. We will be good stewards of the environment.

Our employees are vital to our success. We will providea safe work environment and will encourage opencommunication and mutual respect.

DEDICATED WORKFORCE:We are makingevery effort to minimize the impacts on the29 employees at the Alma Station, includingoffering a special early retirement program.Also, several vacant positions are being held open to provide some employees otheropportunities within the cooperative.

Members of our workforce have diverseeducation, experience, skills and expertise...but together they share a common goal toreliably serve our members. We thank themfor their contributions to Dairyland’s success.

TOGETHER…we will serve our membersreliably and affordably.

TOGETHER…we can achieve greatness andimprove the quality of life for those we serve.

TOGETHER…we are strong.

‘‘Coming together is abeginning; keeping together

is progress; workingtogether is success.

— HENRY FORD

2 0 1 3 A N N U A L R E P O R T

TOGETHERWE ENERGIZESETTING RECORDS: Dairyland’s coal-firedJohn P. Madgett (JPM) Station in Alma,Wis., set a net daily generation record inJanuary 2014. That same month, the coal-fired Genoa Station #3 (G-3) in Genoa,Wis. set a daily generation record since itbegan utilizing 100 percent Powder RiverBasin coal as its only fuel source. The ElkMound (Wis.) Generating Station (naturalgas and fuel oil) was called on to run for asmuch as 17 uninterrupted hours duringone stretch of severe cold. This is unusualfor a peaking plant such as Elk Mound,which typically comes online for two tothree hours.

Both G-3 and JPM achieved ElectricPower Research Institute World Class Statusfor minimal forced outage rates due toboiler tube leaks in 2013.

RENEWABLE COLLABORATIONS YIELDRESULTS: By planning together with itsmember cooperatives, Dairyland hassteadily added renewable resources formany years. In fact, Dairyland wasidentified as having made the mostprogress in meeting the WisconsinRenewable Portfolio Standard amongutilities in the state, according to a 2012report prepared for and accepted by thePublic Service Commission.

In addition to its Flambeau Hydro Station,Dairyland owns or purchases wind, landfillgas, biomass, animal waste and solarenergy resources. In 2013, over 12 percentof Dairyland’s total Class A member salescame from renewable energy resources.

Two major commercial solar facilities areunder construction in Dairyland’s serviceterritory, with plans to bring the projectsonline in summer 2014. Dairyland hassigned agreements to purchase the renewableenergy produced by both facilities.

LOAD MANAGEMENT PROGRAM HAS VALUE:At times of high demand for electricity—such as cold snaps and heat waves—Dairyland’s Load Management Program isimplemented as a valuable tool for the utilityand membership. The program helpsbalance supply, demand and costs.

For example, by implementing componentsof the Load Management Program duringone particularly cold day in January, loadwas reduced by approximately 75 MW.

Cooperative members volunteer toparticipate in the Load Managementprogram, which can involve such techniquesas interrupting water heaters for shortperiods of time, or cycling air conditioningon and off in the summer.

INVESTING IN AIR QUALITY: Dairyland is inthe midst of installing advanced airemissions control equipment at its G-3 and JPM coal-fired power plants.

Installation of “baghouses” to removeparticulate matter from the exhaust gasstream at G-3 and JPM has resulted inmajor reductions in particulate matter. A Semi-dry Flue Gas Desulfurizationsystem or “scrubber” to remove sulfurdioxide is also in operation at the G-3 plant.

Additional state-of-the-art technologies toreduce sulfur dioxide, nitrogen oxides andmercury emissions are underway at boththe JPM and G-3 facilities. Aftercompletion of these projects at bothpower plants, Dairyland will haveinvested approximately $325 million forair emissions controls.

Plant performance across the board was a testament to thepreparation and dedication of Dairyland employees in allareas related to facility operation and maintenance.

4

Dairyland’s Genoa Site in Genoa, Wis.

D A I R Y L A N D P O W E R C O O P E R A T I V E

Exceptionalperformanceduring extremeweatherWinter 2013-2014 was a memorable one in Dairyland’sservice territory, defined by the “polar vortex” whichproduced temperatures well below zero for long periodsof time. Along with extreme temperatures comes anextreme need for electricity to keep homes andbusinesses safe and comfortable.

5 2 0 1 3 A N N U A L R E P O R T

Fossil87.8%

Biomass6.1% Hydroelectric

1%

Landfill Gas1.8%

Wind3.3%

Renewable12.2%

Renewable Energy Resources

TOGETHERWE BUILD

STRENGTHENING INFRASTRUCTURE:Dairyland completed rebuilding the Genoato LaCrosse (southern) portion of the Q-1transmission line in 2013, which is theprimary supply of electricity for the City ofLa Crosse and the surrounding areas. It wasrebuilt using existing routes and rights ofway and at the same voltage. Moderntechnologies and materials improveefficiency and have increased the deliverycapability of this line by 40 percent.Construction activities on the Genoa toLaCrosse project were completed lastsummer on time and within budget.

Originally constructed circa 1949-1950,the line’s structures needed replacement tomaintain continued safe and reliableelectric service in the area. Wood poleswere replaced by steel poles, which aremuch less prone to deterioration.

BUILDING TOGETHER:Dairyland works withneighboring utilities on joint initiatives toexpand the electric transmission grid inorder to ensure access to generationresources and continued reliable service at areasonable cost.

Dairyland’s Board made the decision toofficially become a member of CapX2020in 2013 and is committed to participate inthe CapX2020 regional Hampton-Rochester-La Crosse 345 kilovolt (kV) line.The project is designed to serve local loadin the area, maintain regional reliability,provide access to generation (includingrenewable resources) and facilitate theability to transfer power across the region.It serves the needs of Dairyland’s membersand is critical to keeping a high level ofsystem reliability.

This project specifically helps Dairylandaddress the development and transmissionof renewable energy. It also addressesDairyland’s need to rebuild the LaCrosse-Alma Q-1 161 kV transmissionline due to the condition of the more than60-year-old line.

PREPARING FOR THE UNEXPECTED:Dairyland conducts annual training and adrill of the Business Continuity Plan whichwould be utilized to restore operations andfacilities in the event of a disaster. About 100 employees participated in this criticalexercise in 2013 and, for the first time, theevent included a transfer of SystemOperations Center control to Dairyland’sBack-up Control Center in Genoa, Wis.

The annual drill addresses regulatorycompliance and provides criticalpreparation. In addition to the annualtraining, the drill focuses on differentweather, accident or malicious intent disasterscenarios. Based on those scenarios, optionsare considered to test and enhance the plan.

In addition to internal training andsimulations, an Emergency Load ReductionPlan drill is also conducting annually withDairyland’s member cooperatives.Coordinated by the System OperationsCenter, staff participate in a real-time drillwhich simulates operations andcommunications for a MISO load reductionevent. Scenarios in which extreme strain onthe grid resulting in a load reduction eventcould include, but are not limited to,extreme weather, cascading power outages or production problems.

The Board of Directors and management have developed aproactive Strategic Financial Plan to maintain Dairyland’s long-term financial stability. Steps have been taken to reducecosts and increase net margins, and gain access to market-based financing through the adoption of a trust indenture.

6

TRANSMISSION LINESVoltage–kV Miles as Constructed161 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 642.4269 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,548.1934.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.46Total . . . . . . . . . . . . . . . . . . . . . . . . . . 3,191.07

SUBSTATIONSPlant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Transmission . . . . . . . . . . . . . . . . . . . . . . . . 36Distribution . . . . . . . . . . . . . . . . . . . . . . . . 245Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291

D A I R Y L A N D P O W E R C O O P E R A T I V E

Focused onreliablity:Throughout the Dairyland system, nearly 68 miles of transmission lines wereconstructed, rebuilt or upgraded in 2013 inorder to improve service and reliability.Dairyland works closely with landowners,local officials and state departments ofnatural resources to meet their expectationsduring the construction of all projects.

7 2 0 1 3 A N N U A L R E P O R T

COMMON GOALS: By working together,Dairyland and its members are producingeffective messages to connect with consumer-members. Energy use peaks on hot summerdays, which increases the cost for consumers.One campaign encourages the “Summer Shift”and educates consumers on the benefits ofdoing certain household tasks a few hoursearlier or later, during off-peak hours.

Complementing the Touchstone Energyprograms, Dairyland and its members haveproduced a variety of local marketing programstools emphasizing value, safety, energyefficiency and co-op membership.

TOGETHERWE SAVEThe Touchstone Energy® Together We Saveeducational program that has helped ourmembers learn how to save energy and moneywas expanded in 2013. Messages now alsofocus on the Power of Co-op Membership,highlighting how co-ops bring value into thelives of their members every day.


COMMUNICATING POLICY: Together withits members, statewide organizationsand with cooperatives throughout thenation in the National Rural ElectricCooperative Association, Dairylandstrives to maintain two-waycommunication with policymakers andprotect cooperative interests at the U.S.and state capitals. Dairyland evaluatesstate and federal legislative proposals todetermine their impact on theenvironment as well as their impact onsystem reliability and affordability.

Since cooperatives are not partisaninstitutions, Dairyland works regularlywith elected officials in both parties.Legislative and regulatory decisionsregarding Environmental ProtectionAgency rules, renewable energy mandates,infrastructure construction, transportationand the storage of nuclear fuel all cansignificantly affect Dairyland’s operations,reliability and the cost consumers will payfor electricity. Therefore, it is importantthat officials take seriously the complicatedprocesses necessary to produce and deliverelectricity.

SUPPORTING OUR COMMUNITIES:Dairyland and its members enhance thequality of life in the region by supportingcommunity organizations and events.Examples include the Wisconsin statehigh school track meet held locally atUW-La Crosse, community serviceorganizations and schools.

Dairyland and its employees contribute toand participate in many communityorganizations including the SalvationArmy, Rotary, Kiwanis, American RedCross, American Heart Association andthe local symphony. They team up for theannual American Cancer Society Run-Walk, “Steppin’ Out in Pink” (breastcancer awareness), LaCrosse FitnessFestival and the Touchstone Energy-YMCA “Got Energy?” triathlon.Employees staff a night at Rotary Lights,which brightens the holidays and raisesdonations for area food pantries. Dairylandalso coordinates its own Community GiftProgram where employees purchase holidaygifts for neighboring nursing homeresidents as well as food drives. Donationsare made to many other worthyorganizations in the communities whereDairyland has facilities.

Workingby ourCooperativePrinciplesevery day:1. Voluntary and Open Membership2. Democratic Member Control3. Members' Economic Participation4. Autonomy and Independence5. Education, Training and Information6. Cooperation among Cooperatives7. Concern for Community

9 2 0 1 3 A N N U A L R E P O R T

SUPPORTING BUSINESSES: Dairyland has a long record of supporting economicdevelopment efforts in the manycommunities served by membercooperatives. Since 1990, membercooperatives in the Dairyland system haveaccessed 67 loans and grants for businessand community development throughstate and federal programs. The financialassistance, supported by Dairyland, nowtotals about $23 million.

To date, Dairyland has also approved 245 economic development loans totalingalmost $20 million. These loans helpcreate and retain jobs to improve thequality of life in the region. In 2013alone, Dairyland provided about $36,000in matching grants to rural communitiesto promote economic development andsustainable living.

GROWING TOGETHER: Dairyland wasamong the founding regional membersthat brought electric cooperatives fromacross the country together under theTouchstone Energy Cooperatives brand in1998. Touchstone Energy Cooperativeshas now grown to include about 750 co-ops serving 30 million members in 46states and is one of the most recognizedand trusted brands in energy.

Throughout its history the brand hascontinued to evolve to meet the needs ofmembers. Dairyland’s members and co-ops nationwide have more than 50powerful programs that they utilize socooperatives can focus on what they dobest—making their communities strongerwhile delivering safe, reliable andaffordable power.

Setting the pacefor stewardship:Environmental stewardship is a core value at Dairyland, tied to ourcommitment to the well being of the region we serve. Stewardship takesmany forms at Dairyland, from major erosion mitigation and fish habitatrestoration projects, enhancements to parks and hiking trails, andcontinued success with Peregrine falcon nesting sites. Dairyland’s Avian Protection Plan includes the installation of bird andswan diverters on transmission structures to increase line visibility (seephoto above). This year, Dairyland is installing approximately 1,100diverters via helicopter over water crossings or near flyways.


SAFETY FIRST, MIDDLE & LAST: Dairyland is partnering with CAT Safety Services tofurther strengthen the culture of safety atDairyland. A strong commitment to safetyby management and employees providesan excellent foundation for the future.

A Safety Perception Survey, completed byover 95 percent of employees, providedguidance in determining next steps toachieving safety goals.

Fostering a safe work place begins with open communication among all staffmembers. A recently developed SafetySteering Committee will organize andpromote activities and procedures tofacilitate a solid safety culture in all areas ofDairyland. Frontline employees will formContinuous Improvement Teams to targetimprovement opportunities, andimplement grassroots safety plans.

WELL WORKPLACE: For the second year in a row, Dairyland received a silver levelWell Workplace award through the Y’sPioneering Healthier Communitiesinitiative. Dairyland earned the awardthrough its ongoing efforts to improveemployee health and well-being.

Dairyland’s LiveWell program targetsphysical, emotional and financial healthconcerns to support whole-body wellness.Specialized training such as CPR/AEDcertification are held in-house foremployees to review critical life-saving skills

and learn new techniques. Free healthseminars and screenings are also offered, asare no-cost investment and retirementplanning seminars led by industry experts.

Employees who are ready to make positivechanges such as quitting smoking or tryingout a gym are eligible for compensation fornicotine cessation clinics and reducedfitness center membership rates.

PROTECTING CREATURES BIG & SMALL:Dairyland’s focus on environmentalstewardship spans from highly visibleactions—such as the Avian ProtectionPlan—to behind the scenes work to protectthe smallest of creatures.

Dairyland has been a member of theKarner Blue Butterfly HabitatConservation Plan (HCP) for four years.The HCP partnership is a voluntary groupof public and private land managers whowork together for the conservation of thetiny Karner blue butterfly.

Dairyland routinely surveys transmissioncorridors to identify areas where there areKarner butterflies, and note their habitat.As a result, construction and maintenancecriteria have been developed to minimizewildlife impacts.

EDUCATION OPENS DOORS: The cooperativeprinciple, Education, Training andInformation, is a guidepost to ensure thatemployees receive necessary and relevanttraining. Dairyland’s Safety Department

TOGETHERWE IMPROVEProviding a safe work environment and continually improvingsafety practices is the top priority at Dairyland every day ofthe year. In 2013, Dairyland employees participated in a SafetyPerception Survey to help inform senior management on themost effective path to a continued safe workplace.

11 2 0 1 3 A N N U A L R E P O R T

provides new and continuing education forpower plant and transmission personnel ona regular basis. Sessions include hands-onskill building with live-line tools andtechniques in a safe training environment.

Learning opportunities in the office includethe popular Brown Bag Lunch programs,held periodically over the noon hour.Interested employees can “lunch and learn”about a variety of topics such as stewardshipinitiatives, regional power delivery projectsand issues facing local communities.

One popular Brown Bag session was adocumentary film that was repeatedthroughout Dairyland’s facilities. Mysteriesof the Driftless was produced in 2013 tohighlight the geography in our region alongthe Upper Mississippi River. The Driftlessregion was not flattened by glaciers over amillion years ago, and the geologicalfeatures created through that evasion of theice sheath make the area unique. As a resultof employee feedback, Dairyland made asignificant contribution to the MississippiValley Conservancy to support the videoand will provide copies to area middleschools as an educational resource.

Whether attending managementseminars, line superintendent conferences,member service or district meetings,employees and Board directors stay up-to-date on safety protocols, industry newsand current events.

RATE DECREASE FOR 2014: Strong financialperformance allowed to Dairyland to return$2 million cash to its members in December2013 and address some future expenses.This was due to the exceptional year in2013 and in addition to the $3.1 millionreturned to members through Dairyland’scapital credit program. Dairyland’s Board ofDirectors also approved a 2014 budget witha 1.4 percent decrease, which will be givenin the form of a rate credit.

Investing in renewable resources:Dairyland is adding two new commercial solar installations to serveits members. Combined, they could produce enough energy to powernearly 120 homes. The projects are approximately 520 kilowatts eachand both will be operational mid-2014. The solar arrays are locatedadjacent to two Dairyland members: Vernon Electric Cooperative(Westby, Wis.) and People’s Energy Cooperative (Oronoco, Minn.).

A very successful 2013 allowed Dairyland to return moneyto its members. This positioned Dairyland to also announce adecreased wholesale power rate for 2014.

TOGETHERWE SUCCEED

Dairyland also returned $37.6 million toits members for costs previously incurredat the shutdown La Crosse Boiling WaterReactor; one-half was returned in January2013 and the rest will be returned via raterelief through 2021. These funds werecourt-awarded damages based on spentfuel-related costs incurred from 1999-2006. Dairyland is currently pursuingrecovery of additional costs.

SUSTAINING FINANICAL STRENGTH:Moody’sInvestors Service and Standard & Poor’sRatings Services, two major credit ratingagencies, affirmed Dairyland’s “A3” and “A”credit ratings with stable outlooks,respectively. The agencies cited Dairyland’slong-term wholesale power contracts, stableand diverse retail loads, relatively modestexposure to market volatility, improved trendfor financial metrics and adequate liquidity as drivers for their rating decisions.

While financially strong, Dairyland, like othercoal-dependent utilities, does face challengeswith increasing capital expenditures due toenvironmental regulations. Transmissionprojects will also require increased capitalexpenditures in the next few years.

2013 FINANCIAL RESULTS: Overall, energyconsumption was up and market prices weregenerally higher in 2013, especially inDecember, which was extremely cold. Duringthe extreme temperatures, Dairyland’s powerplants had excellent availability, which waspositive financially. Many other efforts were

D A I R Y L A N D P O W E R C O O P E R A T I V E12 D A I R Y L A N D P O W E R C O O P E R A T I V E

77.5%Class ASales

4%Other

9%ClassC-GRE

9.5%ClassD & E

5%Margins

49.5%Fuel &

PurchasedPower

18%Other

7%Salaries &Benefits

20.5%FixedCosts

made to contain costs and a bit of goodfortune was also a factor in that we did notexperience any significant storms thatdamaged infrastructure.

Dairyland’s total net generation andpurchased power increased to 6.7 billionkilowatt-hours (kWh) in 2013 from 5.8 billion kWh in 2012. Class Amembers alone also showed an increase to4.7 billion kWh from about 4.5 billionkWh in 2012. Total operating revenues for2013 increased to $443.1 million, ascompared to $420.1 million in 2012.

The largest contributing costs are associated with planned environmentalimprovements, local and regionaltransmission improvements/projects, thecost of fuel and transportation, purchasedpower and transmission costs from others.

Dairyland’s year-end results were positivewith an increase in margins, strengtheningDairyland’s overall financial position. For2013, margins increased to $22 million,from 2012 margins of $20.2 million.

Fuel to operate its generating facilitiescontinues to be Dairyland’s largest annualexpense, with barge and rail transportationof coal constituting a significant portion ofthat cost. Dairyland is addressing issueswith its rail service providers due to theinconsistent delivery of coal which haslimited generation unit output.

In 2013, Dairyland’s plants used nearly 3 million tons of coal, including its 30 percent share of the Weston 4 powerplant. This was higher than last year dueto the increased use of Dairyland’sgenerating units to meet the higherdemand for energy by consumers.

132013 Revenue Dollar 2013 Expense Dollar

STEWARDSHIP: A second Peregrine falconwas added to Dairyland’s exhibit at theMyrick-Hixon EcoPark.

LACBWR/ISFSI: Final decommissioningof Dairyland’s shut-down nuclear facilitycontinues after used fuel transferred todry cask storage.

A POLAR FREEZE: The “polar vortex” wasno match for Dairyland line crews, whokept the lights on in -20 temperatures.

TREE GIVEAWAY: Celebrating EarthDay with a Colorado Blue Sprucetree giveaway for employees.


Together, Dairyland employees meet the cooperativemission to enhance the economic and social well being ofthe region, be environmentally responsible and bring valueto the membership.

TOGETHER INOUR COMMUNITY

BIKE AWARD: Dairyland earned a 2013Golden Helmet award from the DriftlessRegion Bicycle Coalition for “getting morepeople on bikes more often.”

RECYCLING DRIVE: Over five tons of items were collected duringDairyland’s recycling drive.

GREEN FLEET: Dairyland will be purchasing morelow-emissions vehicles for its cooperative fleet,like this Ford C-MAX plug-in hybrid.

15 2 0 1 3 A N N U A L R E P O R T

ALMA STATION: Retiring Alma Stationcoal-fired power plant after 55 yearsof generating reliable electricity.

PACESETTER: Together, Dairyland and its employees raiseda total of $111,751 for area United Way campaigns.

CONTRIBUTIONS: Dairyland's donation to the Vernon CountySherriff's Department will support emergency services andequipment purchases.

Member control of Dairyland is vested in its Board ofDirectors, consisting of representatives from each Class Amember distribution cooperative, plus one Class B director.Elected by their local members, directors represent a broadspectrum of interests, including their members, the businessinterests of their local cooperative and, perhaps the mostchallenging of all, the affairs of a power supply systemproviding energy to more than a half-million people.

TOGETHERWE REPRESENT

DANIEL KORN

ChairmanVernon Electric Cooperative

ROGER TJARKS

Vice ChairmanHeartland Power Cooperative

JEFF REDALEN

TreasurerTri-County Electric Cooperative

GREG SACIA

Secretary Riverland Energy Cooperative

MARLYN BOTTOLFSON

Member-at-LargePolk-Burnett

Electric Cooperative

RON CHURCHILL

Member-at-LargeOakdale Electric Cooperative

LYNN PETERSON

Member-at-LargeBarron Electric Cooperative

DAVID STUTE

Member-at-LargeScenic Rivers Energy Cooperative

NILES BERMAN

General CounselWheeler, Van Sickle & Anderson

LAURIE ENGEN

Assistant SecretaryDairyland Power Cooperative

Executive Committee


RONDA PARKER

Jump River Electric Cooperative

JOHN PETSKA

Chippewa Valley ElectricCooperative

GARY WOODS

Jackson ElectricCooperative

BARRY RADLOFF

Bayfield ElectricCooperative

CHRIS STADEL

Jo-Carroll Energy

BURT MAGNUSON

Freeborn-MowerCooperative Services

RONALD McLAUGHLIN

Price ElectricCooperative

KENDAL NICHOLS

Class B Members

EUGENE MILLER

People's EnergyCooperative

JUDY MURPHY

Richland ElectricCooperative

DEAN FISHER

Hawkeye REC

BARBARA HEFFERNAN

Dunn EnergyCooperative

LARRY LAMBORN

Allamakee-Clayton ElectricCooperative

FRANCIS KLATT

St. Croix ElectricCooperative

BRIAN KULAS

Taylor ElectricCooperative

CHARLES BENA

Clark ElectricCooperative

CLARENCE BOETTCHER

Eau Claire EnergyCooperative

DAN FISCHER

Pierce Pepin ElectricCooperative

Board of Directors

17 2 0 1 3 A N N U A L R E P O R T

SENIOR MANAGEMENT TEAM

CHUCK S. CALLIES

Vice President, Power DeliveryResponsible for system operations and energy

delivery, including transmission lines,substations, telecommunications and real

estate/right-of-way. Also business continuity,compliance and information technology.

William L. Berg

President and CEOWith the guidance of Dairyland’s Board

of Directors, responsible for directing Dairyland’s overall strategicdirection, building relationships with other key leaders, as well asmaintaining strong relationships with members and employees.

JOHN P. CARR

Vice President, Strategic PlanningResponsible for corporate business

planning activities, power supply planning,business development, fuel procurementand delivery, energy marketing andtrading, including MISO operations.

MARY L. LUND

Vice President, Human ResourcesResponsible for human resourcesincluding employment, employee

compensation/benefits, labor relations,safety training, corporate safety/security

and business ethics.

PHILLIP M. MOILIEN

Vice President and CFO Responsible for accounting, finance,enterprise risk management, corporatebudget and supply chain. Also oversees

financial activities of subsidiaryorganizations.

ROBERT M. PALMBERG

Vice President, Generation Responsible for power productionincluding operations of Dairyland’straditional and renewable generationfacilities and environmental affairs.

BRIAN D. RUDE

Vice President, External andMember Relations

Responsible for state and federalgovernment relations, energy efficiency

and conservation programs, corporate andmember relations, publication services

and administrative services.


TOGETHERWE LEAD

Financial Report

1 919 2 0 1 3 A N N U A L R E P O R T

Report of Management Responsibility:

Management is responsible for the preparation and integrity of the financial statements and representations in the annual report.Management uses its best judgment and resources to ensure that such statements present fairly the financial positions, results ofoperations and cash flow of Dairyland Power Cooperative.

Dairyland maintains a system of internal controls which is designed to provide reasonable assurance that transactions are recorded inaccordance with management’s authorization, that financial statements are prepared in conformity with generally accepted accountingprinciples applied on a consistent basis and that assets are safeguarded.

The Board of Directors, through its Audit and Risk Management Committee, has responsibility for determining that managementfulfills its responsibilities for preparation of financial statements and financial control of operations. The Committee meets regularly withmanagement and the cooperative’s independent auditors to discuss internal control, financial reporting and auditing matters.

March 27, 2014 • La Crosse, Wisconsin • Dairyland Power Cooperative

Independent Auditors’ ReportTo the Board of Directors of Dairyland Power Cooperative:

We have audited the accompanying consolidated financial statements of Dairyland Power Cooperative and subsidiary (the“Cooperative”), which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidatedstatements of revenues, expenses, and comprehensive income, member and patron equities, and cash flows for the years thenended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements:Management is responsible for the preparation and fairpresentation of these consolidated financial statements in accordance with accounting principles generally accepted in the UnitedStates of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation andfair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility: Our responsibility is to express an opinion on these consolidated financial statements based on ouraudits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financialstatements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financialstatements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of materialmisstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, theauditor considers internal control relevant to the Cooperative’s preparation and fair presentation of the consolidated financialstatements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Cooperative’s internal control. Accordingly, we express no such opinion. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion: In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financialposition of the Cooperative as of December 31, 2013 and 2012, and the results of their operations and their cash flows for theyears then ended in accordance with accounting principles generally accepted in the United States of America.

March 27, 2014 • Minneapolis, Minnesota • Deloitte & Touche LLP

Electric Plant: 2013 2012Plant and equipment—at original cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,544,037 $ 1,499,195Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (547,584) (516,241)

Net plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 996,453 982,954Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,593 67,898

Total electric plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,089,046 1,050,852

Other Assets:Nuclear decommissioning funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,398 112,867Investments under debt agreements—marketable securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,774 3,769Other property and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,217 10,420Investments in capital term certificates of National Rural UtilitiesCooperative Finance Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,176 9,176

Regulatory assets (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,462 18,811Investment for deferred compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,481 1,431Deferred charges (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,785 7,895

Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191,293 164,369

Current Assets:Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,318 31,213Accounts receivable:Energy sales—net of allowance for doubtful accounts of $10for 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,122 38,263Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,428 2,484

Inventories:Fossil fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,425 54,635Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,166 19,516

Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,326 5,146Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,785 151,257

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,423,124 $ 1,366,478

As of December 31, 2013 & 2012 (All dollar amounts in thousands)

Consolidated Balance Sheets - Assets

See notes to the consolidated financial statements.


Capitalization: 2013 2012Member and patron equities:Membership fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15 $ 15Patronage capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,742 192,856Accumulated other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,098 (1,576)

Total member and patron equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,855 191,295Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 826,114 790,992

Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,040,969 982,287

Other Liabilities:Estimated decommissioning liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,468 76,471Asset retirement obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,297 4,264Postretirement health insurance obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,613 7,830Accrued benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,145 1,728Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,481 1,431Obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,035 771Other deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,906 8,920

Total other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,945 101,415

Commitments and Contingencies (Note 10)

Current Liabilities:Current maturities of long-term obligations and obligations under capital leases. . . . . . . . . . . 44,596 39,506Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,000 186,800Advances from member cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,416 9,421Advances from Great River Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,972 8,805Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,269 26,709Accrued expenses:Payroll, vacation, and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,701 7,413Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 487Property and other taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,903 2,575Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,955 1,060

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267,210 282,776

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,423,124 $ 1,366,478


As of December 31, 2013 & 2012 (All dollar amounts in thousands)

Consolidated Balance Sheets - Capitalization & Liabilities

1 921 2 0 1 3 A N N U A L R E P O R T

Membership Accumulated Other Patronage Total Member &Fees Comprehensive Income (Loss) Capital Patron Equities

Balance—December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . $ 15 $ (2,488) $ 175,507 $ 173,034Net margin and earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 20,210 20,210Postretirement health insurance obligation adjustments. . . . - 912 - 912Retirement of capital credits. . . . . . . . . . . . . . . . . . . . . . . . . - - (2,861) (2,861)Total comprehensive income 2012. . . . . . . . . . . . . . . . . .

Balance—December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . $ 15 $ (1,576) $ 192,856 $ 191,295Net margin and earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 22,016 22,016Postretirement health insurance obligation adjustments. . . . - 4,674 - 4,674Retirement of capital credits. . . . . . . . . . . . . . . . . . . . . . . . . - - (3,130) (3,130)Total comprehensive income 2013. . . . . . . . . . . . . . . . . .

Balance—December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . $ 15 $ 3,098 $ 211,742 $ 214,855

Utility Operations: 2013 2012Operating revenues:Sales of electric energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 425,981 $ 402,889Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,114 17,252

Total operating revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443,095 420,141

Operating expenses:Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,024 119,093Purchased and interchanged power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,945 73,768Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,545 85,214Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,580 41,879Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,361 34,932Property and other taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,053 7,796

Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383,508 362,682Operating margin before interest and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,587 57,459

Interest and other:Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,714 41,068Allowance for funds used in construction—equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,187) (583)Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 794 133

Total interest and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,321 40,618

Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,266 16,841

Non-operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,750 3,369

Net Margin and Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,016 20,210

Other Comprehensive IncomePostretirement health insurance obligation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,674 912

Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,690 $ 21,122

For the years ended December 31, 2013 & 2012 (All dollar amounts in thousands)

Consolidated Statements of Revenues, Expenses & Comprehensive Income


Consolidated Statements of Member & Patron Equities



Cash Flows from Operating Activities: 2013 2012Net margin and earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,016 $ 20,210Adjustments to reconcile net margin and earnings to net cash provided by operating activities:Depreciation and amortization:Charged to operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,580 41,879Charged through other operating elements such as fuel expense . . . . . . . . . . . . . . . . . . . . 1,854 2,058Allowance for funds used in construction—equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,187) (583)Changes in operating elements:Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 2,497Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,109 1,334Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,661) (1,592)Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52) 6,912Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 961 (14,373)Deferred charges and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,647 (963)Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,448 37,169Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,464 57,379

Cash Flows from Investing Activities:Electric plant additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80,345) (66,597)Advances to nuclear decommissioning funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,581) (160)Purchase of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (211,221) (264,022)Proceeds from sale of investments and economic development loans. . . . . . . . . . . . . . . . . . . . 211,344 264,959

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (81,803) (65,820)

Cash Flows from Financing Activities:Borrowings under line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,000 100,440Repayments under line of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (143,800) (52,840)Borrowings under long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,640 22,529Repayments of long-term obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (89,428) (64,314)Retirement of capital credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,130) (2,861)Borrowings of advances from member cooperatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256,905 238,241Repayments of advances from member cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (251,743) (244,187)

Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,444 (2,992)

Net Decrease in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (895) (11,433)

Cash and Cash Equivalents—Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,213 42,646

Cash and Cash Equivalents—End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,318 $ 31,213

Supplemental Cash Flow Information:Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,514 $ 52,188Electric plant additions funded through accounts payable and accrued expenses. . . . . . . . . . . $ 6,629 $ 6,241


Consolidated Statements of Cash Flows


1 923 2 0 1 3 A N N U A L R E P O R T

1. NATURE OF BUSINESS AND ORGANIZATIONBusiness:Dairyland Power Cooperative and subsidiary (“Dairyland” orthe “Cooperative”) is an electric generation and transmissioncooperative organized under the laws of the states of Wisconsin andMinnesota. The Cooperative, whose principal offices are located inWisconsin, provides wholesale electric service to class A membersengaged in the retail sale of electricity to member consumers located inWisconsin, Minnesota, Iowa, and Illinois, and provides electric andother services to class C, D, and E members.

Principles of Consolidation: The consolidated financial statementsinclude the accounts of Dairyland and Dairyland’s wholly ownedsubsidiary, Genoa FuelTech, Inc. All significant intercompany balancesand transactions have been eliminated in consolidation.

Accounting System and Reporting:The accounting records of theCooperative are maintained in accordance with the uniform system ofaccounts prescribed by the Federal Energy Regulatory Commission asadopted by the Rural Utilities Service (RUS), the Cooperative’sprincipal regulatory agency.

Electric Plant: The cost of renewals and betterments of units of property(as distinguished from minor items of property) includes contractwork, direct labor and materials, allocable overhead, and allowance forfunds used during construction, and is charged to electric plantaccounts. Included in accumulated depreciation are nonlegal ornoncontractual costs of removal components. As a result, the cost ofunits of property retired, sold, or otherwise disposed of, plus removalcosts, less salvage, is charged to accumulated depreciation and no profitor loss is recognized in connection with ordinary retirements ofproperty units. A provision for these nonlegal or noncontractual costsof removal components is recognized based on depreciation ratesdetermined by a third-party depreciation study completed in July 2011and approved by RUS in 2012. The Cooperative is unable to obtain theinformation to separate the cumulative removal costs as of December 31,2013 and 2012. Maintenance and repair costs and replacement andrenewal of minor items of property are charged to operations.

Depreciation: Depreciation, which is based on the straight-line methodat rates that are designed to amortize the original cost of properties overtheir estimated useful lives, includes a provision for the cost ofremoving and decommissioning the properties. The provision fordepreciation averaged 2.9% and 3% of depreciable plant balances for2013 and 2012, respectively.

Allowance for Funds Used during Construction: Allowance for funds usedduring construction (AFUDC) represents the cost of external andinternal funds used for construction purposes, and is capitalized as acomponent of electric plant by applying a rate (3.04% in 2013 and3.06% in 2012) to certain electric plant additions under construction.The amount of such allowance was $2,116 in 2013 and $1,188 in2012. The borrowed funds component of AFUDC for 2013 and 2012,was $929 and $605, respectively (representing 1.33% and 1.53% in2013 and 2012, respectively). The equity component of AFUDC for2013 and 2012 was $1,187 and $583, respectively, (representing1.71% and 1.54% in 2013 and 2012, respectively). The borrowedfunds components were included as a reduction of interest expense inthe consolidated statements of revenues and expenses.

Deferred Charges: Deferred charges represent future revenue to theCooperative associated with costs that will be recovered from customersthrough the rate-making process. As of December 31, 2013, theCooperative’s deferred charges are being reflected in rates charged tocustomers. If all or a separable portion of the Cooperative’s operationsbecome no longer subject to the provisions of regulatory accounting, a write-off of deferred charges would be required, unless some form of transition recovery (refund) continues through rates established and collected for the Cooperative’s remaining regulated operations. In addition, the Cooperative would be required to determine anyimpairment to the carrying costs of deregulated plant and inventory assets. The noncurrent portion of deferred charges as ofDecember 31, 2013 and 2012, include the following:

2013 2012Premiums on debt refinancing. . . . . . . . . . . . . . . . . . . . . . . . . . $ 675 $ 876Renewable energy power purchase agreements. . . . . . . . . . . . 1,069 1,260Deferred billings and collections . . . . . . . . . . . . . . . . . . . . . . . . 212 773Environmental mitigation projects . . . . . . . . . . . . . . . . . . . . . . . - 4,500Pension prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,519 -Deferred litigation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,282 434Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 52Total deferred charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,785 $ 7,895

Premiums on debt refinancing are being amortized over approximately20 years (the remaining life of related original debt). Renewable energypower purchase agreements are being amortized over the 20 year termof the agreements. Deferred billings and collections include projectcosts to be billed to others during or upon completion of the projects,and noncurrent receivables. The deferred charges for environmentalmitigation projects required under the consent decree referenced inNote 10 were expensed during 2013. As discussed in Note 11, theCooperative made a voluntary prepayment in 2013 to itsmultiemployer defined-benefit pension plan to reduce future fundingamounts. This prepayment will be amortized to benefits expense overten years beginning in 2013 as prescribed by RUS. Litigation expensesfrom the second nuclear contract damages claim with the United Statesgovernment and the U.S. Department of Energy (DOE), as discussedin Note 15, are being deferred pending the outcome of that litigation.

Investments: Investments in marketable debt and equity securitiesclassified as available for sale are reported at fair value, with the interest,dividend income, and realized gains reported in nonoperating margin.The Cooperative continually monitors the difference between cost andestimated fair value of its investments. If any of the Cooperative’sinvestments experience a decline in value that the Cooperative believes isother than temporary, the Cooperative will realize the loss as a reductionin investment income on decommissioning funds. In 2013 and 2012, theCooperative realized $1,614 and $1,115, respectively, of losses on theseinvestments as a result of other-than-temporary impairment (OTTI).

Regulatory Assets and Liabilities:The Cooperative’s accounting policiesand the consolidated financial statements conform to accountingprinciples generally accepted in the United States of America applicableto electric cooperatives. During 2013, nuclear-related regulatory assetscreated from 2008 through 2012 were written-off against a regulatoryliability of $37,659 created when the Cooperative received payment forthe nuclear damage claim award described in Note 15. The remainderof that regulatory liability of $18,848 was refunded to class A membersin 2013. Also in 2013, the Cooperative established a regulatory asset of$16,700 for increased estimated costs in the nuclear decommissioning

As of and for the years ended December 31, 2013 & 2012 (All dollar amounts in thousands)

Notes to Consolidated Financial Statements


methodology. The amortization of this regulatory asset will be deferredpending the outcome of the second nuclear contract damages claimwith the U.S. government and DOE as described in Note 15. Inaddition, during 2013, the Cooperative created a regulatory asset relatedto the estimated costs of a special early retirement plan to be offered tocertain age-eligible employees at specific Cooperative locations in 2014as discussed in Note 11. This regulatory asset will be amortized throughrates over 10 years beginning in 2014 with the expected 2014 portionincluded in other current assets.

The regulatory assets as of December 31, 2013 and 2012, include thefollowing:

2013 2012Nuclear decommissioning trust mark-to-market losses-2008 . . $ - $ 5,398Nuclear fuel storage transfer project costs-2011. . . . . . . . . . . . - 5,175Nuclear fuel storage site decommissioning-2011 . . . . . . . . . . . - 1,440Nuclear fuel storage transfer project costs-2012. . . . . . . . . . . . - 6,798Nuclear decommissioning methodology change-2013 . . . . . . . 16,700 -Special Early Retirement Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 3,762 -Total regulatory assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,462 $ 18,811

Cash and Cash Equivalents: Cash equivalents include all highly liquidinvestments with original maturities of three months or less. Cashequivalents consist primarily of commercial paper, stated at cost, whichapproximates market.

Fossil Fuels and Materials and Supplies: Coal inventories as well asmaterials and supplies inventories are stated at the lower of average cost ormarket prices.

Recoverability of Long-Lived Assets:The Cooperative accounts for theimpairment or disposal of long-lived assets, such as property andequipment, whenever events or changes in circumstances indicate thecarrying value of an asset may not be recoverable. An impairment loss isrecognized when estimated undiscounted cash flows expected to resultfrom the use of the asset, plus net proceeds expected from disposition ofthe asset (if any) are less than the carrying value of the asset. When animpairment loss is recognized, the carrying amount of the asset is reducedto its estimated fair value based on quoted market prices or other valuationtechniques. To date, management has determined that no impairment ofthese assets exists.

Nitrogen Oxide Emission Allowances: Beginning in 2009, the U.S.Environmental Protection Agency (EPA) requires power plants to holdsufficient allowances to cover emissions of nitrogen oxide. Under theserequirements, the Cooperative is required to surrender one emissionallowance per ton of nitrogen oxide emitted. Actual emissions exceeded theallocation amounts, thereby requiring the Cooperative to purchaseadditional allowances. As of December 31, 2013 and 2012, they arerecorded in inventory at lower of average cost or market prices at a totalcost of $40 and $0, respectively. The obligation to EPA to meet 2013 and2012 emissions are $40 and $0, respectively, and have been charged toplant expense. The transfer to EPA of the 2012 seasonal allowancesoccurred February 4, 2013, and the transfer to EPA for the 2013 annualallowances is expected to occur in May 2014. The remaining allowances ininventory as of December 31, 2013 will be surrendered to EPA under theterms of the consent decree described in Note 10.

Sales of Electric Energy: Revenues from sales of electric energy arerecognized when energy is delivered. The class A wholesale rates approvedby the Cooperative’s board of directors (the “Board of Directors”) have apower cost adjustment that allows for increases or decreases in class Amember power billings based upon actual power costs compared to plan.

For 2013 and 2012, the power cost adjustment to the class A membersresulted in charges to sales billed of $926 and $1,020, respectively. Theseamounts are recorded in sales of electric energy in operating revenues on theconsolidated statements of revenues, expenses, and comprehensive income.

Other Operating Revenue:Other operating revenue primarily includesrevenue received from transmission service and is recorded as services areprovided.

Accounting for Energy Contracts: Contracts that did not meet theaccounting definition of a derivative are accounted for at historical cost.The Cooperative’s energy contracts that qualify as derivatives continue tobe accounted for at fair value, unless those contracts meet the requirementsof and have been designated as “normal purchase/normal sale.” TheCooperative does not have any energy contracts that are required to beaccounted for at fair value as of December 31, 2013 and 2012.

Nonoperating Margin:The nonoperating margin for the years endedDecember 31, 2013 and 2012, includes the following:

2013 2012Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,555 $ 1,467Investment income on nuclear decommissioning funds:Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,074 1,029Realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,280 6,366Realized losses and losses due to OTTI . . . . . . . . . . . . . . . . . . (6,163) (4,296)Provision—recorded as estimated decommissioning liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,191) (3,098)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,195 1,901Non-operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,750 $ 3,369

Use of Estimates:The preparation of consolidated financial statements inconformity with accounting principles generally accepted in the UnitedStates of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities, andthe disclosure of contingent assets and liabilities at the date of theconsolidated financial statements, and the reported amounts of revenueand expenses during the reporting period. Significant estimates in theconsolidated financial statements relate to inventory reserve,postretirement benefit obligations, asset retirement obligation liabilities,fixed-asset depreciable lives, and litigation and contingencies. Actual resultscould differ from those estimates.

Accumulated Other Comprehensive Income (Loss): Accumulated othercomprehensive income (loss) is comprised solely of a postretirementhealth insurance obligation. See additional information in Note 11.The components for the years ended December 31, 2013 and 2012 are as follows:

2013 2012Balance—beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,576) $ (2,488)Recognition in expense:Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . (223) 39Amortization of unrecognized actuarial loss . . . . . . . . . . . . . . 175 106Actuarial assumption changes. . . . . . . . . . . . . . . . . . . . . . . . . . 5,540 (953)Plan changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (818) 1,720

Net other comprehensive income. . . . . . . . . . . . . . . . . . 4,674 912Balance—end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,098 $ (1,576)

Concentration of Risk: During fiscal years 2013 and 2012, theCooperative derived 9% of its revenue from a single customer.

Approximately 45% of the labor force for the Cooperative is under acollective bargaining agreement that expires January 31, 2017.

Notes

1 925 2 0 1 3 A N N U A L R E P O R T

Subsequent Events:The Cooperative considered events for recognitionor disclosure in the consolidated financial statements that occurredsubsequent to December 31, 2013, through March 27, 2014, the datethe consolidated financial statements were available to be issued. Allmaterial subsequent events have been disclosed in these consolidatedfinancial statements.

2. RECENTLY ISSUED ACCOUNTING STANDARDS UPDATESIn February 2013, the Financial Accounting Standards Board (FASB)issued an update to Accounting Standards Codification (ASC) 220,Comprehensive Income, to improve the reporting of reclassifications out ofaccumulated other comprehensive income by requiring an entity toprovide information about the amounts reclassified out of accumulatedother comprehensive income by component. In general, an entity isrequired to present, either on the face of the statement where net incomeis presented or in the notes, significant amounts reclassified out ofaccumulated other comprehensive income by the respective line items ofnet income. The amendments are effective prospectively for reportingperiods beginning after December 15, 2013. Early adoption is permitted.Management does not expect adoption of the required amendments tohave a significant impact on the Cooperative’s consolidated financialposition or results of operations.

In July 2013, the FASB issued an update to ASC 740, Income Taxes, toprovide guidance for consistent financial statement presentation of anunrecognized tax benefit when a net operating loss carryforward, asimilar tax loss, or a tax credit carryforward exists. The amendments inthis update are effective for nonpublic entities for fiscal years beginningafter December 15, 2014. Early adoption is permitted. Managementdoes not expect adoption of the required amendments to have anyimpact on the Cooperative’s consolidated financial position or results ofoperations as the Cooperative is tax exempt as discussed in Note 3.

3. INCOME TAXESThe Internal Revenue Service has determined that Dairyland is exemptfrom federal income taxes under Section 501(c)(12) of the InternalRevenue Code. Accordingly, the Cooperative’s utility operations aregenerally exempt from federal and state income taxes, and, no provisionfor such taxes is recorded in the consolidated financial statements.

4. AVAILABLE-FOR-SALE INVESTMENTSInvestments in the nuclear decommissioning trust (NDT), under debtagreements and other holdings are classified as available-for-sale,recorded at fair value, and include the following as of December 31,2013 and 2012:

Fair Value2013 Debt

NDT Agreements Other TotalCash and cash equivalents . . . . . . $ 2,860 $ 3,774 $ 28,220 $ 34,854

U.S. government securities . . . . . . 34,431 - - 34,431

Corporate bonds . . . . . . . . . . . . . . 15,555 - - 15,555

Common stocks. . . . . . . . . . . . . . . 35,213 - - 35,213

Foreign obligations. . . . . . . . . . . . . 3,339 - - 3,339

$ 91,398 $ 3,774 $ 28,220 $ 123,392

2012 DebtNDT Agreements Other Total

Cash and cash equivalents . . . . . . $ 31,438 $ 3,769 $ - $35,207

U.S. government securities . . . . . . 41,623 - - 41,623

Corporate bonds . . . . . . . . . . . . . . 6,878 - - 6,878

Common stocks. . . . . . . . . . . . . . . 31,301 - - 31,301

Foreign obligations. . . . . . . . . . . . . 1,627 - - 1,627

$ 112,867 $ 3,769 $ - $ 116,636

Investments under debt agreements represent amounts arising from thesale of assets that are encumbered by mortgages and restricted by the RUSfor use on future generation and transmission construction projects.

The contractual maturities of marketable debt securities, which includeU.S. government securities, foreign obligations, and corporate bonds, asof December 31, 2013, are as follows:

Fair Value CostDue within 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250 $ 250Due after 1 year through 5 years. . . . . . . . . . . . . . . . . . . . . . . . 17,363 17,410Due after 5 years through 10 years . . . . . . . . . . . . . . . . . . . . . . 9,714 10,031Due after 10 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,998 27,180

$ 53,325 $ 54,871

Information regarding the sale of available-for-sale marketable securities,including nuclear decommissioning trusts, for the years ended December 31, 2013 and 2012, is as follows:

2013 2012Proceeds from sale of securities . . . . . . . . . . . . . . . . . . . . . . . . $ 210,300 $ 261,966Realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,731 3,187

For the purposes of determining realized gains and losses, the cost ofsecurities sold is based upon specific identification.

Securities in the portfolio are reviewed to determine whether they havebeen other-than-temporarily impaired. The Cooperative has recordedimpairment write-downs of its investments of $1,614 and $1,115 in2013 and 2012, respectively, as the Cooperative cannot represent that ithas the intent and ability to hold securities until they recover in value,since that decision is outside of its sole control. In accordance withrestrictions enacted by the Nuclear Regulatory Commission, theCooperative does not control the day-to-day management of nucleardecommissioning trust fund investments. The nuclear decommissioningtrust of the Cooperative is managed by independent investment managerswith discretion to buy, sell, and invest to achieve the broad investmentobjectives set forth by the Cooperative.

Investment income included in nonoperating margin on the consolidatedstatements of revenues, expenses and comprehensive income is net ofinvestment fees of approximately $432 and $398 for the years endedDecember 31, 2013 and 2012, respectively.

5. LINES OF CREDITTo provide interim financing capabilities, the Cooperative has arrangedcommitted lines of credit with availability aggregating approximately$300,000. On November 18, 2011, a syndicated credit facility wasexecuted with CoBank acting as lead arranger. This facility has a five-yearterm and provides funds both for short-term working capitalrequirements and for capital projects until permanent financing can beobtained through RUS. Some capital projects will last longer than oneyear, but the intent is to pay down the line of credit as permanentfunding is received. Compensating balance requirements and fees relatingto the lines of credit were not significant in 2013 and 2012. Informationregarding line of credit balances and activity for the years endedDecember 31, 2013 and 2012, is as follows:

2013 2012Interest rate at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.11% 1.16%Total committed availability at year-end . . . . . . . . . . . . . . . . . . $ 300,000 $ 300,000Total borrowings outstanding at year-end . . . . . . . . . . . . . . . . . $ 159,000 $ 186,800Average borrowings outstanding during year . . . . . . . . . . . . . . $ 128,277 $ 167,265


The Cooperative also allows member cooperatives to prepay theirpower bills and pays interest on these prepayments based on currentshort-term borrowing rates. Advances from member cooperativestotaled $11,416 and $9,421 at December 31, 2013 and 2012,respectively. Interest expense on member cooperative advances were$96 and $105 during 2013 and 2012, respectively. These amountshave been included in interest expense in the consolidated statementsof revenues, expenses, and comprehensive income.

6. LONG-TERM OBLIGATIONSLong-term obligations as of December 31, 2013 and 2012, consist ofthe following:

2013 2012Federal Financing Bank obligations, 1.93% to 4.46% . . . . . . . . $ 273,076 $ 298,663Federal Financing Bank obligations, 4.52% to 6.80% . . . . . . . . 425,273 473,389

Total Federal Financing Bank . . . . . . . . . . . . . . . . . . . . . 698,349 772,052RUS obligations, 4.125% and grant funds . . . . . . . . . . . . . . . . . 5,982 6,331CoBank notes, 2.6%, 2.9%, 4.3%, 6.2%, and 7.4% . . . . . . . . . 68,263 51,657Private bonds placement obligations, 3.42%. . . . . . . . . . . . . . . 97,500 -

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 870,094 830,040Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (43,980) (39,048)Total long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 826,114 $ 790,992

Quarterly principal and interest payments on the long-term obligations tothe Federal Financing Bank extend through 2040. Long-term obligationsto the RUS are payable in equal monthly principal and interestinstallments through 2024. Payments on the CoBank 2.6%, 2.9%, 4.3%,6.2%, and 7.4% notes are due monthly or quarterly through 2023. InMarch 2013, the Cooperative completed a $100,000 private bondplacement with ten investors. The private bond placement is anamortizing 30 year term loan at an interest rate of 3.42%. Quarterlyprincipal and interest payments on this obligation extend through 2043.

The Cooperative executed, filed, and recorded an indenture of mortgage,security agreement, and financing statement, dated as of September 13,2011 (the “Indenture”), between the Cooperative, as grantor, and U.S.Bank National Association, as trustee. The perfected lien of the Indentureon substantially all of the Cooperative’s assets secured equally and ratablyall of the Cooperative’s long-term debt with the exception of unsecurednotes to CoBank (balances of $41,354 and $19,997 at December 31,2013 and 2012, respectively). The Cooperative is required to maintain andhas maintained certain financial ratios related to earnings in accordancewith the covenants of its loan agreements as of December 31, 2013.

Scheduled maturities of the Cooperative’s long-term obligations as ofDecember 31, 2013, were as follows:

Years Ending December 312014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,9802015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,7702016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,1852017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,1962018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,849

Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661,114Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 870,094

7. LEASESOperating Leases: The Cooperative has entered into lease agreementsunder which it is the lessee on an operating lease for a Caterpillar coaldozer, six rail cars, and fleet vehicles. These transactions are covered inthe master lease agreement and have lease terms ranging from four to15 years. At the end of the leases, the Cooperative can either purchase

the equipment at fair market value, continue to lease the assets, orreturn the equipment to the lessor. Rent expense was $820 and $570 in2013 and 2012, respectively. The schedule of future minimum leasepayments as of December 31, 2013, is as follows:

Years Ending December 312014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7322015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5112016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3342017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1052018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,773

Capital Leases:The Cooperative has entered into several capital leaseagreements for work equipment and computer equipment. Thetransactions are covered in the master lease agreement with lease terms offour, five, or nine years. At the end of the lease, the Cooperative canpurchase the equipment for a bargain purchase price. The gross amountof the leases was $1,120 and $740 as of December 31, 2013 and 2012,respectively. The accumulated amortization of the capital leases was $659and $365 as of December 31, 2013 and 2012, respectively. The principaland interest payments were $691 and $495 in 2013 and 2012,respectively. The schedule of future minimum lease payments as ofDecember 31, 2013, is as follows:

Years Ending December 312014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6292015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3892016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3192017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1542018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1462019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Total minimum lease payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,756

Amounts representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (105)Present value of minimum lease payments. . . . . . . . . . . . . . . . . . . . . . . . 1,651

Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (616)Long-term capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,035

8. FINANCIAL INSTRUMENTSThe fair value of the Cooperative’s financial instruments other thanmarketable securities and short-term borrowings, based on the rates forsimilar securities and present value models using current rates available as ofDecember 31, 2013 and 2012, is estimated to be as follows:

2013 2012Recorded Fair Recorded FairValue Value Value Value

Assets:Other property and investments . . . $ 38,217 $ 38,217 $ 10,420 $ 10,420Investments in capital termcertificates of NRUCFC . . . . . . . . . 9,176 9,176 9,176 9,176

Liabilities—long-term obligations . . . . 870,094 1,025,101 830,040 1,059,836

Assets and Liabilities Measured at Fair Value: Accounting principlesgenerally accepted in the United States of America establish aframework for measuring fair value by creating a hierarchy forobservable independent market inputs and unobservable marketassumptions and provides for required disclosures about fair valuemeasurements. Considerable judgment may be required in interpretingmarket data used to develop the estimates of fair value. Accordingly, theestimates presented herein are not necessarily indicative of the amountsthat could be realized in a current market exchange.

Notes

1 927 2 0 1 3 A N N U A L R E P O R T

A description of the inputs used in the valuation of assets and liabilitiesare as follows:

Level 1 inputs utilize observable market data in active markets foridentical assets or liabilities. Level 2 inputs consist of observable marketdata, other than that included in Level 1, that are either directly orindirectly observable. Level 3 inputs consist of unobservable market data,which are typically based on an entity’s own assumptions of what amarket participant would use in pricing an asset or liability as there islittle, if any, related market activity. In instances where the determinationof the fair value measurement is based on inputs from different levels ofthe fair value hierarchy, the level in the fair value hierarchy within whichthe entire fair value measurement falls is based on the lowest-level inputthat is significant to the fair value measurement in its entirety. TheCooperative’s assessment of the significance of a particular input to thefair value measurement in its entirety requires judgment and considersfactors specific to the asset or liability.

There were no significant transfers between Levels 1, 2, and 3 in 2013.The following table summarizes the Cooperative’s assets and liabilitiesmeasured at fair value on a recurring basis as of December 31, 2013and 2012, aggregated by the level in the fair value hierarchy withinwhich those measurements fall:

Quoted Prices Significantin Active Markets Other Significantfor Identical Observable Unobservable

Assets and Liabilities Inputs Inputs

2013 Fair Value (Level 1) (Level 2) (Level 3)Assets—investments:Nuclear decommissioning funds . . . . . . . $ 91,398 $ 91,398 $ - $ -Investments under debt agreements- marketable securities . . . . . . . . . . . . . . 3,774 - 3,774 -Other property and investments . . . . . . . . 38,217 29,495 - 8,722Investments in capital term certificatesof National Rural Utilities FinanceCorporation . . . . . . . . . . . . . . . . . . . . . . . 9,176 - - 9,176Investment for deferred compensation . . . 1,615 - 1,615 -

$ 144,180 $ 120,893 $ 5,389 $ 17,898

Fair Value Measurements Using:Quoted Prices Significantin Active Markets Other Significantfor Identical Observable Unobservable

Assets and Liabilities Inputs Inputs

2012 Fair Value (Level 1) (Level 2) (Level 3)Assets—investments:Nuclear decommissioning funds . . . . . . . $112,867 $112,867 $ - $ -Investments under debt agreements- marketable securities . . . . . . . . . . . . . . 3,769 - 3,769 -Other property and investments . . . . . . . . 10,420 1,348 - 9,072Investments in capital term certificatesof National Rural Utilities FinanceCorporation . . . . . . . . . . . . . . . . . . . . . . . 9,176 - - 9,176Investment for deferred compensation . . . 1,431 - 1,431 -

$ 137,663 $ 114,215 $ 5,200 $ 18,248

The changes in Level 3 recurring fair value measurements usingsignificant unobservable inputs for the years ended December 31, 2013and 2012, are as follows:

2013 2012Other property and investments:Balance—beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,072 $ 10,211New investment and loans made . . . . . . . . . . . . . . . . . . . . . 350 1,163Loan repayments received and current maturities. . . . . . . . . (321) (212)Patronage capital allocations. . . . . . . . . . . . . . . . . . . . . . . . . 246 523Refunds of deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (625) (2,613)

Balance—end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,722 $ 9,072

The valuation of these assets involved management’s judgment afterconsideration of market factors and the absence of market transparency,market liquidity, and observable inputs. Interest income on economicdevelopment loans included above was $32 and $46 during 2013 and2012, respectively. Those amounts and the patronage capital allocationshave been recognized in nonoperating margin in the consolidatedstatements of revenues, expenses, and comprehensive income. None ofthe changes in values impact accumulated other comprehensive income.

9. RETIREMENT OF CAPITAL CREDITS The Cooperative’s Board of Directors has adopted a policy of retiringcapital credits allocated to members on a first-in, first-out basis. As part ofan equity development strategy adopted in 2003, patronage capital retiredwill be limited to no greater than 2% of the total assigned patronagecapital balance as of December 31 of the prior year. Accordingly, $3,130and $2,861 were retired in 2013 and 2012, respectively. This policy issubject to annual review and approval by the Board of Directors and theRUS, and no cash retirements are to be made which would impair thefinancial condition of the Cooperative or violate any terms of itsagreements. Since 2003, the amount of nonoperating margins assigned tomembers each year is at the discretion of the Board of Directors. Anyunassigned nonoperating margins will become unallocated reserves andpart of permanent equity. Patronage capital as of December 31, 2013,includes 2013 margins assignable of $17,079 and unallocated reserves of$4,937. Patronage capital as of December 31, 2012, includes 2012margins assignable of $16,258 and unallocated reserves of $3,952.

10. COMMITMENTS AND CONTINGENCIESThe Cooperative’s estimated 2014 construction program expenditures,including Weston 4, are $140,027 with financing expected to beprovided by borrowings and internally generated funds.

The Cooperative is a party to a number of generation, transmission, anddistribution agreements, under which costs and/or revenues arerecognized currently based upon the Cooperative’s interpretations of theprovisions of the related agreements. Differences between the estimatesused in the consolidated financial statements and the final settlements arerecorded in the year of settlement.

The Cooperative has entered into various coal purchase contracts withone- to four-year terms. The estimated commitments under thesecontracts as of December 31, 2013, were $94,872 in 2014, $90,726 in2015, $8,043 in 2016, and $975 in 2017.

On August 27, 2012, a consent decree (CD) between the Cooperative,the EPA, and the Sierra Club was entered by the U.S. District Courtconcluding litigation regarding alleged violations of New Source Reviewand other provisions of the Clean Air Act. Under the CD, theCooperative will install new and operate existing pollution controlequipment at its coal generation stations or cease burning coal at certainfacilities, and achieve required reductions in sulfur dioxide, nitrogenoxide, and particulate emissions. The CD requires the Cooperative to paya civil penalty of $950 to EPA and to spend $5,000 on environmentalmitigation projects within five years of EPA’s April 2013 approval of theprojects which will include participation in major solar projects. During2012, the Cooperative paid the civil penalty in full and spent $500 of thefunds required for environmental mitigation projects. During 2013, the$4,500 cost of the remaining environmental mitigation projects indeferred charges was charged to expense. Also during 2013, the $4,500obligation in deferred credits for the remaining environmental mitigationprojects was reduced by $84 spent on approved projects and for theestimated $816 cost of 2014 solar and other projects participation


included in accrued expenses. In addition, the Cooperative announcedplans to indefinitely suspend operations at its Alma #4 and #5 coalstations by February 2015. On March 10, 2014, the EPA agreed toextend by eight months the time for the Cooperative to comply with theCD’s 30-day rolling average sulfur dioxide emission rate for one of theunits at the Alma/J.P. Madgett plant if the Cooperative offsets additionalemissions caused by the delay by reducing overall pollution from theAlma/J.P. Madgett plant beyond the levels required by the original CD.As part of the proposed CD modification, the Cooperative will ceaseburning coal in the Alma#4 and #5 boilers by December 31, 2014.Approval of the CD modifications is required by the U.S. District Courtand is expected in early 2014.

The Cooperative has been named as a defendant in various lawsuits andclaims arising in the normal course of business. Although the outcome ofthese matters cannot be determined at the present time, managementand legal counsel believe these actions can be successfully defended orresolved without a material effect on the consolidated financial position,results of operations, or cash flows of the Cooperative.

11. EMPLOYEE BENEFITSMultiemployer Defined-Benefit Pension Plan: Pension benefits forsubstantially all employees are provided through participation in theNational Rural Electric Cooperative Association (NRECA) RetirementSecurity Plan (“RS Plan”). This is a defined benefit pension plan qualifiedunder Section 401 and tax-exempt under Section 501(a) of the InternalRevenue Code. Pension benefits are funded in accordance with theprovisions of the RS Plan and are based on salaries, as defined, of eachparticipant. The Employee Retirement Income Security Act of 1974, asamended by the Multiemployer Pension Plan Amendment Act of 1980,imposes certain liabilities on employers who are contributors tomultiemployer plans in the event of a plan termination or an employer’swithdrawal. These plans have not been terminated, nor has theCooperative undertaken any plans to withdraw from participation. Sincethe RS Plan is a multiemployer plan for accounting purposes, all planassets are available to pay benefits of any plan participant. Separate assetaccounts are not maintained for participating employers. This means thatassets contributed by one employer may be used to provide benefits toemployees of other participating employers. The Cooperative may becontingently liable for its share of the RS Plans’ unfunded vested liabilities.

The Cooperative’s contributions to the RS Plan in 2013 and 2012represented less than 5% of the total contributions made to the plan byall participating employers. In 2013, the Cooperative made a voluntaryprepayment of $26,899 to this plan to reduce future contributionamounts. Expense for this pension plan was $10,970 in 2013 and$10,367 in 2012. The 2013 expense includes contributions to the planof $8,280 and $2,690 of prepayment amortization. The 2012 expenseincludes only contributions to the plan.

In the RS Plan, a “zone status” determination is not required, andtherefore not determined, under the Pension Protection Act (PPA) of2006. In addition, the accumulated benefit obligations and plan assetsare not determined or allocated separately by individual employer. Intotal, the RS Plan was over 80% funded on January 1, 2013, andbetween 65% and 80% funded on January 1, 2012, based on the PPAfunding target and PPA actuarial value of assets on those dates.

Because the provisions of the PPA do not apply to the RS Plan, fundingimprovement plans and surcharges are not applicable. Future contributionrequirements are determined each year as part of the actuarial valuation ofthe plan and may change as a result of plan experience.

Postretirement Health Insurance Obligation: Certain employees of theCooperative retiring at or after age 55 are eligible to participate in apostretirement health care plan through age 65. Eligible dependents ofthe retired Cooperative employees are also eligible to participate in thisplan through age 65. Retirees pay 100% of the premium amount for thiscoverage. The premium is based upon the combined medical claimsexperiences of all active employees and retirees. If premiums weredetermined based upon the medical claims experience of retirees only, theresulting premium for retirees would be higher. The difference betweenthe premium paid by retirees and the potential actual premium amount isthe basis for the postretirement benefit obligation.

The Cooperative uses a December 31 measurement date for its plan. Thepostretirement health care plan is unfunded. During 2013, a plan changeincluded the addition of a lower cost high-deductible health plan as anoption of available plans to union employees effective for 2014. During2012, a plan change included the addition of a lower cost high-deductible health plan as an option of available plans to administrativeemployees effective for 2013.

The accumulated postretirement benefit obligation (APBO) and theamounts recognized in the consolidated financial statements as of and forthe years ended December 31, 2013 and 2012, are as follows:

2013 2012Amount recognized in the consolidated balance sheets:Total accrued qualified and nonqualified benefit obligation. . . . . $ 3,779 $ 8,077Less current portion included in accrued expenses—other . . . . (166) (247)Long-term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,613 $ 7,830

Change in benefit obligation:APBO—beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,077 $ 8,314Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413 400Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 328Plan changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 818 (1,720)Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,540) 953Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (247) (198)APBO—end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,779 $ 8,077

Funded status of plan—December 31 . . . . . . . . . . . . . . . . . . . $ (3,779) $ (8,077)

Accrued postretirement health insurance obligationsrecorded at year-end. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,779 $ 8,077

Change in plan assets: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets—beginning of year. . . . . . . . . . . . . . $ - $ - Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 198Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (247) (198)Fair value of plan assets—end of year . . . . . . . . . . . . . . . . . . . $ - $ -

Change in accumulated other comprehensive (loss):Net loss at prior measurement date . . . . . . . . . . . . . . . . . . . . $ (1,576) $ (2,488)Plan changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (818) 1,720Actuarial assumption changes. . . . . . . . . . . . . . . . . . . . . . . . . 5,540 (953)Recognition in expense:Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . (223) 39Amortization of unrecognized actuarial loss. . . . . . . . . . . . . . $ 175 $ 106

Accumulated other comprehensive income (loss) . . . . . . . . . . . $3,098 $ (1,576)

Components of net periodic postretirement benefit cost:Service cost—benefits attributed to service during the year . . . $ 413 $ 400Interest cost on accrued postretirement health insurance obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 328Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . (223) 39Amortization of unrecognized actuarial loss. . . . . . . . . . . . . . . 175 106Net periodic postretirement benefit expense . . . . . . . . . . . . . . . $ 623 $ 873

Notes

1 929 2 0 1 3 A N N U A L R E P O R T

Employer cash contributions expected to be made to the plan during thefiscal year ending December 31, 2014, is $166. The amount ofaccumulated other comprehensive income expected to be recognizedduring the fiscal year ending December 31, 2014, is an actuarial gain of$183 and amortization of prior service cost of $102.

For measurement purposes, a 3.25% and 3.99% discount rate wasassumed for 2013 and 2012, respectively, to determine net periodicbenefit cost. The 2013 and 2012 annual health care cost increaseassumed is 8.10% and 8.60%, respectively, decreasing gradually to4.50% for 2030 and thereafter. A one percentage point increase in theassumed health care cost trend rates would increase the total of serviceand interest cost components by $106 and the end-of-year APBO by$378. A one percentage point decrease in the assumed health care costtrend rates would decrease the total of service and interest costcomponents by $88 and the end-of-year APBO by $329.

Estimated future benefit payments from the plan as of December 31,2013, are as follows:

Years Ending December 312014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 2019-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,615

Defined-Contribution Plan:Dairyland has a qualified tax-deferred savingsplan for eligible employees. Eligible participants may make pretaxcontributions, as defined, with the Cooperative matching up to 2.5% ofthe participants’ annual compensation. Contributions to this plan by theCooperative were $1,071 and $1,091 for 2013 and 2012, respectively.

Accrued Sick Leave Benefit: Certain employees are eligible to receiveamounts at the time of retirement related to a discontinued sick leavepolicy. Eligible employees will be paid for a fixed number of sick leavehours at the wage rate in effect at retirement. The total liability was$1,590 and $1,941 as of December 31, 2013 and 2012, respectively. Thecost for this sick leave benefit was $23 in 2013 and $561 in 2012.

Other Plans:The Cooperative offers key employees deferredcompensation plans available through NRECA. The plans permitqualifying employees to defer a portion of their salary until future years.The accumulated deferred compensation balance is not available toemployees until termination, retirement, or death.

All amounts of compensation deferred under the plans and all incomeattributable to those amounts (until paid or made available to theemployee or other beneficiary) are solely the property and rights of theCooperative (not restricted to the payment of benefits under the plan),subject only to the claim of general creditors. Participants’ rights underthe plans are equal to those of general creditors of the Cooperative in anamount equal to the fair market value of the deferred account for eachparticipant. The related assets and liabilities, totaling $1,615 and $1,431as of December 31, 2013 and 2012, respectively, are reported at contractvalue, which approximates fair value.

The Cooperative also provides employees with medical insurancecoverage, short-term and long-term disability, and life insurance, whichare funded by employer and employee contributions. The Cooperative’scosts related to these benefits were $8,687 and $9,452 for 2013 and2012, respectively.

The Cooperative announced a special early retirement plan to be offered tocertain age-eligible employees at specific Cooperative locations. Participationin this plan will be effective June 2014. Provisions of the plan include waivingthe discount that is otherwise applied to pension benefits for employeeselecting retirement between ages 55 and 62, as well as a supplementalmonthly payment to the employees for a minimum of 18 months or throughage 65. The estimated cost of this plan is $3,960. As discussed in Note 1, theexpense of the plan is included in regulatory assets. The obligation for theplan is included in accrued benefits in Other Liabilities.

12. RELATED-PARTY TRANSACTIONSThe Cooperative provides electric and other services to its class A members.The Cooperative received revenue of $343,327 and $334,176 in 2013 and2012, respectively, for these services. The Cooperative has accountsreceivable from its class A members of $33,008 and $32,174 as ofDecember 31, 2013 and 2012, respectively.

The Cooperative has advances from class A members of $11,416 and$9,421 as of December 31, 2013 and 2012, respectively, related to theprepayment program. Class A members have the option of paying theirelectric bill in advance, and in turn, the Cooperative pays the members’interest income. The Cooperative’s interest expense related to theprepayment program was $96 and $105 in 2013 and 2012, respectively.

The Cooperative has interest-bearing loan receivables from class Amembers of $797 and $852 as of December 31, 2013 and 2012,respectively. These loan receivables, which are recorded as part of otherassets, are related to the economic development program, wherein class Amembers can borrow funds from the Cooperative, which the members, inturn, loan to economic development projects in their service territories.These loans are typically repaid to the Cooperative over 10 years. TheCooperative recorded interest income related to the economic developmentprogram of $30 and $38 in 2013 and 2012, respectively.

13. LONG-TERM POWER AGREEMENTSThe Cooperative has a power agreement with Great River Energy (GRE) toshare costs and benefits of a 345-megawatt coal-fired generating unit(“Genoa Station #3”) located in Genoa, Wisconsin. Under the agreement,GRE will pay for 50% of the costs of operating the plant and GRE isentitled to take 50% of the output of the plant. This agreement remains ineffect until the retirement of the unit from service or until the payment infull of all obligations arising from the construction of the unit, whichever islater. The Cooperative provided substantially all the financing for theconstruction of the unit and GRE does not guarantee any portion of anydebt of the Cooperative. As a result, the Cooperative records the assets,debts, and operating costs of Genoa 3 on the consolidated financialstatements. Energy charges to GRE under the agreement were $41,381 and$37,576 during 2013 and 2012, respectively. As of December 31, 2013,GRE had $11,972 on deposit with the Cooperative for its share of the 2013estimated operating coal inventory at Genoa 3.

The Cooperative and GRE have entered arbitration over three contractissues. The first two issues involve the application of contract provisionsrelated to transmission costs and unit scheduling once the Cooperativebecame a member of the regional transmission organization in 2010.Arbitration of these two issues is scheduled during 2014. The third issueinvolves exit and termination rights. Arbitration on the third issue isscheduled to occur subsequent to the arbitration of the first two issues.Although the outcome of the arbitration cannot be determined at thepresent time, management and legal counsel believe it can be resolvedwithout a material effect on the consolidated financial position, results ofoperations, or cash flows of the Cooperative.


14. ASSET RETIREMENT OBLIGATIONSAn asset retirement obligation (ARO) is the result of legal or contractualobligations associated with the retirement of a tangible long-lived assetthat results from the acquisition, construction, or development and/or thenormal operation of a long-lived asset. The Cooperative determines theseobligations based on an estimated asset retirement cost adjusted forinflation and projected to the estimated settlement dates and discountedusing a credit-adjusted risk-free interest rate. Upon initial recognition of aliability for ARO, the Cooperative capitalizes the asset retirement cost byincreasing the carrying amount of the related long-lived asset by the sameamount as the liability. The Cooperative allocates that asset retirementcost to expense using the straight-line method over the remaining usefullife of the related long-lived asset. The accretion of the obligation isrecognized over time up to the settlement date. Any future change inestimate will be recognized as an increase or a decrease in the carryingamount of the liability for an ARO and the related asset retirement costcapitalized as part of the carrying amount of the related long-lived asset.

The Cooperative determined that it has AROs related to future removaland disposal of asbestos at its power plants. The Cooperative recorded noadditional liability to its discounted liability in 2013 and 2012 related tothis obligation. There are no assets legally restricted for purpose of settlingthe ARO related to future removal and disposal of asbestos. This ARO isrecorded in other noncurrent liabilities in the consolidated balance sheets.

The Cooperative has established a decommissioning trust to accumulatethe estimated amounts necessary to decommission a nuclear power plantthat the Cooperative formerly operated and the related IndependentSpent Fuel Storage Installation (ISFSI). The assets of this trust in theamount of $91,398 as of December 31, 2013, and $84,330 as ofDecember 31, 2012, are outside the Cooperative’s administrative controland are available solely to satisfy the future costs of decommissioning.The assets of a second fund, a supplemental reserve of $0 as of December 31, 2013, and $28,537 as of December 31, 2012, aredesignated to be used for such decommissioning efforts or for removaland temporary storage for the spent nuclear fuel pending permanentstorage by the DOE. These amounts are recorded as other noncurrentassets in the consolidated balance sheets. The assets in the supplementalreserve were released to general funds in 2013 to repay fuel removalproject costs incurred out of general funds for that project which wascompleted in 2012. The nuclear decommissioning obligation is recordedin the consolidated balance sheets in other noncurrent liabilities.

A reconciliation of the beginning and ending aggregate carrying amountof the obligations as of December 31, 2013 and 2012, is as follows:

2013 2012Balance—beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,735 $ 84,079Accretion in ARO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 64Incurred costs on decommissioning projects. . . . . . . . . . . . . . . (5,880) (13,881)Provision recorded as decommissioning liabilities. . . . . . . . . . . 19,877 10,473Balance—end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 94,764 $ 80,735

The Cooperative did not record a conditional ARO related to thedismantlement of the dam and drainage reservoir for the hydrogeneration plant at Flambeau, the restoration of land to preexistingcondition at Genoa Station #3 site related to the land rights permit, andthe removal of transmission lines in various corridors, because theCooperative does not have sufficient information to estimate the fairvalue of the ARO.

15. NUCLEAR REACTOR The La Crosse Boiling Water Nuclear Reactor (LACBWR) wasvoluntarily removed from service by the Cooperative effective April 30,1987. The intent was to terminate operation of the reactor, and apossession-only license was obtained from the Nuclear RegulatoryCommission in August 1987.

Under the Nuclear Waste Policy Act of 1982, the DOE is responsible forthe storage and disposal of spent nuclear fuel removed from nuclearreactors. LACBWR will remain in safe storage status (SAFSTOR) untilthe final stage of decommissioning of LACBWR, involvingdismantlement and decontamination, can be completed. By statute, theDOE was to have begun accepting spent fuel in January 1998, but hasnot yet licensed and established a repository. The Cooperative filed aninitial breach of contract damages claim against the United Statesgovernment in the United States Court of Federal Claims to recover itscosts generally incurred after 1998 through 2006 related to spent fuelremaining at LACBWR. The Cooperative filed a second contractdamages claim in December 2012 to recover its costs generally incurredfrom 2007 through 2012. The trial for the second claim is expected to bescheduled in 2014. Subsequent suits will be brought to recover thecontinuing costs arising from the presence of the spent fuel. The initialclaim was tried in July 2008 and resulted in a damages award inDecember 2009. That award decision was appealed by the government.All appeals efforts concluded during 2012. In January 2013, theCooperative received payment of $37,659 from the government for thedamage award. For 2013, as discussed in Note 1, a regulatory liability forthis amount was created to reflect the obligation to the class A memberswho had paid these costs as part of their rates during 1999-2006. For2012, none of the award damages are reflected in the consolidatedbalance sheets or consolidated statements of revenues, expenses, andcomprehensive income.

The Cooperative completed the temporary dry storage facility projectlocated on the LACBWR site and completed the move of the spent fuelto this ISFSI facility in September 2012. Dismantlement of nonessentialLACBWR plant systems is proceeding on an ongoing basis. TheLACBWR decommissioning plan calls for completion ofdecommissioning no later than 2025. The estimated costs ofdecommissioning the nuclear generating facility are based on adecommissioning cost study. Annual SAFSTOR costs incurred throughthe September 2012 fuel transfer were incorporated into the annualbudget and rate making process. Annual ISFSI costs are recorded on anas incurred basis and incorporated into the annual budget and ratemaking process. Costs incurred for decommissioning projects are chargedagainst the decommissioning liability. The Cooperative’s policy is toprovide additional funding of the nuclear decommissioning trust, asnecessary, through rates or through transfers from the supplementalreserve, and with future earnings, to ensure that the trust will besufficient to cover final decommissioning expenses. The annualdecommissioning expense, SAFSTOR, and ISFSI costs are recoveredfrom the class A members. Earnings on the nuclear decommissioningfunds and the equivalent provision for nuclear decommissioning costs arerecorded as nonoperating margins, since the plant is no longer in service.

Notes

1 931 2 0 1 3 A N N U A L R E P O R T

Name Plate Capacity(Rounded to Nearest MW)

Biomass (wood waste):Stoneman* . . . . . . . . . . . . . . . . . . . . 40 MW

Coal:Alma 4-5. . . . . . . . . . . . . . . . . . . . . 136 MWJohn P. Madgett Station . . . . . . . . . 387 MWGenoa Station No. 3. . . . . . . . . . . . 345 MWWeston 4 (Dairyland’s share) . . . . . 162 MW

Combustion Turbine:Elk Mound 1-2. . . . . . . . . . . . . . . . . 74 MW

Diesel:Municipals* . . . . . . . . . . . . . . . . . . 143 MW


Hydro:Flambeau 1-3 . . . . . . . . . . . . . . . . . . 18 MW

Landfill Gas:Seven Mile Creek . . . . . . . . . . . . . . . . 4 MWTimberline*. . . . . . . . . . . . . . . . . . . . . 5 MWCentral Disposal* . . . . . . . . . . . . . . . . 5 MW

Manure Digesters:Five Star, Wild Rose, Norswiss . . . . . . 3 MWBach, Norm-E-Lane* . . . . . . . . . . . . . 1 MW


Wind:McNeilus*. . . . . . . . . . . . . . . . . . . . . 17 MWPrairie Star* . . . . . . . . . . . . . . . . . . . . . 5 MWWinnebago* . . . . . . . . . . . . . . . . . . . 20 MWBuffalo Center Wind*. . . . . . . . . . . . . 2 MWSmall Wind. . . . . . . . . . . . . . . . . . . . . 3 MW

Other Renewables:Small Solar/Digesters*. . . . . . . . . . . . . 2 MW

Total . . . . . . . . . . . . . . . . . . . . . . . . . 1,372 MW

*Under Contract

32

35

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ILLINOIS

MINNESOTA

IOWA

WISCONSIN

ELK MOUNDSTATION

SEVENMILE CREEK

McNEILUSWIND FARM

FLAMBEAUHYDRO STATION

GENOA SITE

DPCHEADQUARTERS

90

ALMA SITE

WINNEBAGO WIND PROJECT

STONEMANSTATION

39

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k

Dairyland Power Cooperative

Members &System Map

Facilities : Generating Resources

CLASS B MEMBERSAdams-Columbia Electric Cooperative/

Friendship, Wis.

Central Wisconsin Electric Cooperative/

Iola,Wis.

Oconto Electric Cooperative/Oconto Falls,Wis.

Rock Energy Cooperative/Janesville, Wis.

CLASS C MEMBERSGreat River Energy/Maple Grove, Minn.

Minnkota Power Cooperative/

Grand Forks, N.D.

CLASS D MEMBERSa. City of Arcadia, Wis.

b. Village of Argyle, Wis.

c. Village of Cashton, Wis.

d. City of Cumberland, Wis.

e. City of Elroy, Wis.

f. City of Fennimore, Wis.

g. City of Forest City, Iowa

h. Village of La Farge, Wis.

i. City of Lake Mills, Iowa

j. City of Lanesboro, Minn.

k. McGregor Municipal Utilities, Iowa

l. Village of Merrillan, Wis.

m. City of New Lisbon, Wis.

n. Osage Municipal Utilities, Iowa

o. City of St. Charles, Minn.

p. City of Strawberry Point, Iowa

q. Village of Viola, Wis.

CLASS E & SPECIAL SERVICES MEMBERSAlliant Energy/Madison, Wis.

City of Independence, Iowa

City of Rushford, Minn.

Northwestern Wisconsin Electric Co./Frederic,Wis.

Southern Minnesota Municipal Power Agency/

Rochester, Minn.

Xcel Energy/Denver, Colo.

FACILITIES ON MAP:Headquarters/La Crosse, Wis.

Alma Generating Site/Alma, Wis.

Elk Mound Generating Station/Elk Mound, Wis.

Stoneman Station (biomass)/Cassville, Wis.*

Flambeau Hydro Station/Ladysmith, Wis.

Genoa Generating Site/Genoa, Wis.

McNeilus Wind Farm/Adams, Minn.

Seven Mile Creek Landfill Station/Eau Claire, Wis.

Winnebago Wind Power Project/Thompson, Iowa

FACILITIES NOT SHOWN:Central Disposal Landfill/Lake Mills, Iowa**

Timberline Trail Landfill/Weyerhaeuser, Wis.**

Five Star Dairy/ Elk Mound, Wis.

Norswiss Dairy/Rice Lake, Wis.

Wild Rose Dairy/La Farge, Wis.

*DTE Energy Services Facility

**Waste Management, Inc., Facilities

CLASS A MEMBERSWisconsin1. Barron Electric Cooperative/Barron

2. Bayfield Electric Cooperative/Iron River

3. Chippewa Valley Electric Cooperative/Cornell

4. Clark Electric Cooperative/Greenwood

5. Dunn Energy Cooperative/Menomonie

6. Eau Claire Energy Cooperative/Fall Creek

7. Jackson Electric Cooperative/Black River Falls

8. Jump River Electric Cooperative/Ladysmith

9. Oakdale Electric Cooperative/Oakdale

10. Pierce Pepin Cooperative Services/Ellsworth

11. Polk-Burnett Electric Cooperative/Centuria

12. Price Electric Cooperative/Phillips

13. Richland Electric Cooperative/Richland Center

14. Riverland Energy Cooperative/Arcadia

15. St. Croix Electric Cooperative/Hammond

16. Scenic Rivers Energy Cooperative/Lancaster

17. Taylor Electric Cooperative/Medford

18. Vernon Electric Cooperative/Westby

Iowa19. Allamakee-Clayton Electric Cooperative/

Postville

20. Hawkeye REC/Cresco

21. Heartland Power Cooperative/

Thompson & St. Ansgar

Minnesota22. Freeborn-Mower Cooperative Services/

Albert Lea

23. People’s Energy Cooperative/Oronoco

24. Tri-County Electric Cooperative/Rushford

Illinois25. Jo-Carroll Energy/Elizabeth

Dairyland Power Cooperative Members

By the numbers

25 . . . . . . . . . . . . Member Cooperative Systems

256,059 . . . . . . . Total Consumer-members

17 . . . . . . . . . . . . Municipal Utilities (1/1/14 Under Contract)

600,000 . . . . . . . Population Served (Approximate)

566 . . . . . . . . . . . Employees

6.7 . . . . . . . . . . . Billion kWh Power Sales (Generation & Purchased)

$443.1 . . . . . . . . Million in Total Operating Revenue

$22 . . . . . . . . . . . Million in Margins

$1.42 . . . . . . . . . Billion in Total Assets

1,056 MW . . . . . . Peak Demand on 8/26/13 (Reported to MISO)

1,061 MW . . . . . . All-time Peak on 7/6/12

TOGETHER

3200 East Avenue South • P.O. Box 817 • La Crosse, WI 54602-0817

As part of our effort to preserve the environment, this reportwas printed by Dairyland Power’s Publication ServicesDepartment on recycled paper.

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