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a day in the life…

c u s t o m e r s e r v i c e • p r o g r a m s • s e r v i c e s • r e p o r t s • i n s p e c t i o n s • r e g u l a t i o n s • p r o c e d u r e s • i n t e g r i t y

2011 Annual Report

Printed on recycled paper containing 10% post-consumer fiber, using vegetable-based inks.

Table of contents

Overview .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..4

President’s Message .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..6

General Manager’s Message .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..8

Administrative Services .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 10

Engineering and Operations.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 12

Member Services .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 14

Cash Flow .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 16

Financial Statements .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 18

Conservation Programs . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 20

Other Programs . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 22

Statistical Information . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 24

Board of Directors. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 26

Overview

4

earing many hats is common at most electric cooperatives and a standard at Salem Electric. In 1981 Salem Electric had 40 employees and 11,954 members. In 1982 the Conservation Department was created adding three more employees. Move ahead 30 years to 2011 and there are 49 employees and 18,446 members. A growth in members of 54 percent obviously adds more work through additional

meters to be read, bills to be mailed and processed, calls to be answered, lines to be constructed … the list goes on and on. These are obvious tasks associated with growth.

What may not be so obvious are the numerous reports, inspections, etc. required by local, state and federal agencies which didn’t even exist a few years ago. This requires constant training just to keep up with the new rules and regulations.

Having a flexible and dedicated

staff is key to managing this added workload. Throughout this report you will see examples of typical situations faced by Salem Electric staff. While juggling a variety of responsibilities there is always a focus on customer service.

Balancing all these duties doesn’t prevent staff members from investigating new programs, procedures and services that can simplify projects and improve service.

W

SAlem electRIc 2011 Annual Report

the Salem electric line crew and the line superintendent.

“We take a lot of pridein what we do.”

President’s message

6

his year marks our 70th year as a consumer-owned electric cooperative. Seventy years of looking forward and building progress. Harry Read, our founder, energized the cooperative in 1941 and began to build a consumer-owned utility that would provide affordable access to the inexpensive federal power being generated by the Bonneville Power Administration. This challenge to conventional

thinking led to a competition between Salem Electric and Portland General Electric where both companies were serving customers on the same streets and at times, serving every other household or business. In 1968 this arrangement was finally changed to the current service area we know today.

I have always been fascinated by this businessman who owned Salem radio station KSLM and had

the courage and foresight to start such an endeavor. The challenges that Harry Read faced were many and he had to finance the cooperative from traditional bank loans while many rural co-ops were able to get favorable financing from the federal government.

The struggles of the early years of Salem Electric have honed five guiding principles that our cooperative lives by today:

T


The struggles of the early years of Salem Electrichave honed five guiding principles…

Reliable Service, Financial Integrity, Good Customer Relations, Good Employee Relations and Low Rates.

I have had the honor of serving the members of the cooperative since 1985 and can attest that these goals have served us well. Today we can be proud of a system that is reliable and affordable. Salem Electric rates are 30% lower than our investor-owned utility

next door. As we look to the future, new

and emerging opportunities will challenge us as never before. Our cooperative is well positioned for that future.

As Salem Electric begins its next seventy years, I look back with understanding and appreciation for the contributions made by Harry Read and all the staff and board members over that time who

have contributed to building the cooperative we see today.

Looking forward and building progress is what Salem Electric is about … your member-owned cooperative.

Jeff AndersonPresident

General ManaGer’s MessaGe

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or seventy years, Salem Electric has provided its members with reliable, affordable electricity with a focus on customer service and financial integrity while providing safe and fairly compensated employment for dozens of individuals. At the same time, Salem Electric has been an active member of the communities it serves, encouraging the involvement of its employees in charitable, business and community organizations and by making a financial commitment to numerous worthwhile organizations.

This volunteerism and community involvement is made possible by boards of directors which have created policies supporting these activities and contributions. You will find among your current seven board members, seven active community volunteers. They are active in local charities, service organizations, libraries, schools and many other things. A great part of what makes a cooperative special is that it is not only owned by those it serves, but it is governed by individuals elected from those owners. Not

only does a cooperative serve communities within its service territory, it is an integral part of those communities with a financial commitment to them and with employees and board members committed to voluntary service all aimed at improving their community.

This year’s annual report takes a look at the actual work performed by employees of your electric cooperative. I urge you to take a few minutes to read through the report in order to better understand

FSAlem electRIc 2011 Annual Report

…we will continue to strive to provide you with reliable service at an affordable cost.

what it takes to bring you the service that allows you to walk into your house, flip a switch and go about your business without even having to think about where that light came from. We’ve been going through old records from some of the state’s other electric cooperatives lately in preparation for the celebration of our statewide organization’s 70th anniversary later this year. These 17 rural cooperatives and others like them across the nation were the entities that brought electricity

for the first time to America’s farms and other rural customers. Their histories are filled with dramatic stories of families experiencing rooms filled with light at night for the very first time, of electric stoves allowing them to avoid uncomfortably hot kitchens in the summer and the many other amenities electricity brings us.

Nearly 430 individuals have served Salem Electric’s members as employees and board members since our lights were first turned

on in April 1941. Countless other businesses and local organizations have had mutually beneficial and long relationships with the cooperative. As we head toward the next milestone of service, we will continue to strive to provide you with reliable service at an affordable cost. We will keep your cooperative financially strong, treat your employees with fairness and our members with the respect and friendliness you have come to expect from Salem Electric.

Bob SpeckmanGeneral Manager

ADMINISTRATIVE SERVICES

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onsidering we have around 800 people come into our office weekly along with 1,500 phone calls, you can see how

multi-tasking is important. A day in the life of Jenny not only includes assisting many of the members, either walking in or through phone calls, with payments, connects, disconnects, patronage issues and billing questions, but also all the sorting, processing and filing that goes along with these daily tasks.

During a visit to the Salem Electric front office it’s likely that you’ll be

assisted by Jenny, Terri or Marcos, our three customer service representatives, with a goal to do it without delay. This same dedication applies to phone calls and it is our goal to answer your phone call before the third ring. Your call will be answered by a person, not an automated system, and it’s likely that person will be able to personally assist you. If not, they will transfer you to someone who will help.

Jenny, the other customer service reps and various front office staff work together to make sure you receive the good customer service you expect.

A lot of people like to go for a walk to get some exercise. Chris does that every day as a meter reader. You’ll see him in his Salem Electric uniform; a reflective “meter reader” vest and cargo shorts on hot summer days and in rain gear with the hood up on a cold winter day when it may be a little more difficult to recognize him. What you can count on is his accuracy; Chris has gone months without a meter reading error!

Salem Electric has two full-time and two occasional part-time meter readers who read 18,000 meters every month

CSAlem electRIc 2011 Annual Report

in all types of weather. It’s a rare occasion that Chris and the other meter readers can’t get their job done due to weather. He realizes that a delay in the reading schedule will lengthen the reading cycle which adds usage and possibly a financial burden for members.

Chris also fills in to help with credit, connects and disconnects, but you’ll likely see him walking briskly from meter to meter with his electronic reading device in hand … rain or shine.

Some tools used by the meter readers. A four-legged friend borrowing chris’ handheld meter reading device. telephone and pen … still a reliable method of communication.

“ Neither snow nor rain nor heat nor threat of canine keeps thesemeter readers from the swift completion of their appointed routes.”

Chrissince 2008

Jennysince 2003

“ Salem Electric, this iscustomer service,

how may we help you?”

Engineering & Operations

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eing an engineer at Salem Electric requires a balance of knowledge and experience. As a small utility we are faced with many of the same issues that a large utility faces, we just aren’t as specialized. Tony has varied responsibilities from SCADA (Supervisory Control and Data Acquisition) and radio issues, member requests, distribution

system design and the ever present regulatory matters.

A day in Tony’s life could start off with a trip to a member’s property to plan the optimum route to provide new service. That would result in a work order and a detailed drawing for the line crew. That leads to a meeting with the crew to discuss the best solution to the construction project challenges.

Mix in a steady stream of phone calls from vendors, contractors and members and you have a fairly full schedule. Then there are the endless reports to verify our compliance with a variety of government agencies that read more like alphabet soup … NERC, FERC, WECC, BPA, ODOE … etc, etc. The days, and many evenings, are busy but the work gets done by Tony and the entire engineering team.

B


“At Salem Electricyou get to do it all.”

Tonysince 2007

Se engineers inspecting a member’s net metering installation. A transformer at Read substation, one of the five substation transformers on Se’s service. Self-supporting steel structure for river crossing. A protective feed pad mount switch which allows isolation of underground failures.

MEMBER SERVICES

14

eet Willie, one of our energy usage experts. On a typical day you will find Willie performing a detailed energy audit on the home of a member leading to a report of cost-effective energy saving measures. The day may also include a review of bids with a member to determine the cost of weatherizing their home.

When the weatherization contractor begins the project Willie will do an in-progress inspection to verify everything is in order. Then, after the

work is done, a final inspection is completed to assure compliance with Salem Electric’s strict installation standards. On average, Willie assists five members a week through worry-free weatherization projects, making their homes more comfortable and less-costly to heat and cool.

Add another two heat pump projects per week and numerous energy usage questions from members calling or dropping by and you have the beginning of a very busy schedule. Dozens of members visit our Member

Services Department weekly with questions ranging from “How much does it cost to operate an outdoor water feature?” to “Should I turn the thermostat down when I leave for work?”

Even with his busy schedule Willie still keeps up on new technology and the latest in energy-saving ideas.

Stop by the Member Services Department and Jeff, Debbie or Willie will help you with your energy usage questions.

M


An attic is being prepared for insulation by a weatherization contractor. Insulation ready to be installed. typical products used to save energy. Access to inspect an attic.

“It’s what we do.”

Williesince 1987

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Cash flow General Service Sales 37% ($8,565,643)

Interest <1% ($9,004*)

Street lighting 1% ($312,568)

cost of Power 41% ($9,589,441)

miscellaneous 1% ($209,685)

taxes 5% ($1,275,910)

Residential Sales 61% ($14,164,933)

Operating expenses 34% ($7,812,933)

Available for Plant Improvements 20% ($4,565,541)

* Interest on member deposits held by Salem Electric


WheRe It cAme fROm hOW It WAS uSed

5-year growth highlights 2011 2010 2009 2008 2007

Electric Plant in Service—Depreciated $28,878,452 $28,398,655 $27,527,701 $27,113,199 $26,164,619

Maximum System Peak Demand in MWs* Summer 63.32 61.10 70.27 69.59 64.17

Winter 67.46 64.13 76.97 78.44 74.36

kWhs Sold 315,983,674 310,222,820 322,922,168 335,244,829 326,776,315

Gross Revenue $23,252,829 $22,381,853 $23,539,574 $25,266,058 $24,700,974

Net Margin $3,127,665 $2,580,241 $3,116,498 $4,319,971 $4,452,891

Taxes $1,275,910 $1,257,402 $1,286,996 $1,288,559 $1,193,096

Number of Accounts Billed 18,545 18,516 18,544 18,487 18,338

Number of Employees 48 48 48 48 47

Payroll Cost per Dollar of Revenue 17¢ 18¢ 17¢ 14¢ 14¢

Capital Reserve Refunds $1,458,607 $1,666,544 $1,143,246 $1,246,618 $1,312,808

* 91.07 MWs historic peak was set 12/23/98

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Financial statements

Balance Sheet

Assets 2011 2010

Distribution Plant in Service — Depreciated $24,644,942 $24,983,517

General Plant in Service — Depreciated 3,233,510 3,415,138

Construction Work in Progress 14,020 19,165

Cash and Temporary Investments 17,260,089 17,279,191

Receivables (Net) 1,971,837 1,913,464

Materials and Supplies 770,635 752,171

Prepayments 448,364 451,643

Other Assets 192,270 197,629

Total Assets $49,535,667 $49,011,918

Liabilities and Equities 2011 2010

Long Term Debt $0 $0

Accounts Payable — BPA 1,278,301 2,354,305

Other Accounts Payable 81,666 86,099

Consumer Deposits 288,814 298,734

Accrued Expenses 2,258,693 2,116,769

Other Liabilities 8,107,313 7,728,390

Member Equity 33,375,371 32,521,631

Capital Credits Retired 3,093,116 2,915,094

Capital Credits Payable 1,052,393 990,896

Total Liabilities and Equities $49,535,667 $49,011,918


Statement of Income and expenses

Income 2011 2010

Residential $14,164,933 $13,550,282

General Service 8,565,643 8,317,288

Miscellaneous 209,685 211,726

Street Lighting 312,568 302,557

Total Income $23,252,829 $22,381,853

Expenses 2011 2010

Cost of Power $9,589,441 $9,728,745

Operating Expenses 7,812,933 7,400,119

Depreciation and Amortization 1,437,876 1,405,694

Taxes 1,275,910 1,257,402

Interest 9,004 9,652

Total Expenses $20,125,164 $19,801,612

NET MARgIN $3,127,665 $2,580,241

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Compact Fluorescent LightsIncludes “Simple Steps Smart Savings” retail program.

Lights Sold/Installed/Distributed 6,913

Annual kWh Savings 46,520

LED Decorative LightsStrings Sold 139

Annual kWh Savings 695

Weatherization29 of the homes weatherized were low-income households.

Homes Weatherized 257


Conservation programs

Residential

Heat PumpsStandard and Ductless

Units Installed 107


High-Efficiency AppliancesRefrigerators 227

Freezers 28

Dishwashers 32

Clothes Washers 147

Water Heaters 25

Heat Pump Water Heaters 3

Total Units 462



Solar Water HeatingThere were no solar water heating systems installed in 2011, but there were several inquiries.

Loan ProgramIn partnership with a local bank; 5 percent interest loans were available for the Weatherization, Heat Pump and Solar Water Heating programs.

2011 Loans Granted 3

Amount Loaned $20,637

Commercial and Industrial

In 2011, Salem Electric members saved 1,870,869 kWhs —enough to serve 164 homes for one year.

Energy Smart DesignProjects Completed 20


Energy Savings PlanProjects Completed 1


22

Member Assistance ProgramsHeating Bill AssistanceResidential members who heat with electricity and meet income guidelines are eligible for assistance with their winter electric bill through the Salem Electric Member Assistance Program.This unique program has been available to our members since 1986.

Other Programs

Community Assistance

Non-Senior 2011 Seniors Disabled Non-Disabled TOTALParticipants .. .. .. 181 .. .. .. . 346 .. .. .. .. ..685 .. .. .. ..1,212Amount. .. .. $32,514 .. . $58,574 .. .. $116,484 .. .. $207,572

Habitat Improvement ProgramThe Habitat Improvement Program allows Salem Electric members to make automatic monthly contributions through their electric bill to improve local native fish and wildlife habitats. Pledges can be canceled at any time.

Contributions are forwarded to the Mid-Willamette Watershed Alliance, a 501c3 organization. Donations collected in Polk County were assigned to habitat improvements in the Glenn/Gibson Creek Watershed and donations from Marion County funded Claggett Creek projects.

Donors 45

Funds Donated $2,837


Dollar Check-OffOver $14,000 was collected from members through our voluntary Dollar Check-Off Program which is forwarded to The Salvation Army for distribution to our members throughout the year.

CommunitySalem Electric strives to be a responsible, supportive member of the communities it serves. Our employees are actively involved in dozens of business, civic and community organizations.

Through donations Salem Electric contributed approximately $50,000 to over 65 organizations in 2011.

A college scholarship program is available for individuals residing in Salem Electric’s service area. Ten $1,000 scholarships were awarded in 2011.

Whether it’s sponsoring youth activities, supporting our local schools, volunteering at or sponsoring family-oriented community events, your electric cooperative is involved.

Renewable EnergyRenewable energy is produced by resources such as solar, wind, geothermal and water.

Salem Electric buys all its power from the Bonneville Power Administration (BPA). According to BPA, approximately 80 percent of their power comes from dams and other renewable resources. The remaining 20 percent is generated by other means including some non-renewable resources (gas and nuclear). From late 1998 through 2003 Salem Electric evaluated other renewable resource options and signed an agreement with BPA in October 2006 to purchase 1.8 MWs of renewable energy. That was increased to 2.34 MWs in June 2009 which replaced approximately 6.2 percent of the non-renewable resources from BPA. That contract expired in October 2011 but Salem Electric continues to investigate affordable renewable energy options.

In addition, there were five new net metering projects installed by members in 2011 totalling 53.14 kW of capacity.

24

Statistical information

Accounts Billed

2011 18,545

2010 18,516

2009 18,544

2008 18,487

2007 18,338

2006 18,492

2005 17,951

2004 17,462

2003 17,099

2002 16,812

kWhs Sold

2011 315,983,674

2010 310,222,820

2009 322,922,168

2008 335,244,829

2007 326,776,315

2006 327,033,051

2005 322,985,153

2004 380,435,828

2003 379,061,811

2002 390,673,186


Capital Reserve Refunds

2011 1,458,607

2010 1,666,544

2009 1,143,246

2008 1,246,618

2007 1,312,808

2006 967,571

2005 1,078,613

2004 1,082,821

2003 1,075,908

2002 1,104,854

Wholesale Power Cost

2011 9,589,441

2010 9,728,745

2009 10,177,135

2008 11,378,734

2007 11,114,732

2006 11,952,032

2005 11,848,698

2004 13,422,109

2003 13,779,721

2002 13,715,603

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Board of directors

Officers

Jeff AndersonPresident

Jim DyerVice-President

Carl BeachSecretary/Treasurer

While juggling a variety of responsibilities there is always a focus on customer service.


directors

Robert J. Speckman General Manager

Terry M. Kelly Assistant General Manager

Jack N. Belleque Administrative Services Manager

Roger O. Kuhlman Engineering and Operations Manager

Michele S. Adkins Administrative Assistant

management Staff

Jerry Berger Alicia Bonesteele Paul Ennor

Joe Van Meter Peter AndersonLeadership Youth Representative

633 Seventh Street NWPO Box 5588Salem, OR 97304-0055phone: 503 362-3601fax: 503 371-2956 email: [email protected]: salemelectric.com

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c u s t o m e r s e r v i c e • p r o g r a m s • s e r v i c e s • r e p o r t s • i n s p e c t i o n s • r e g u l a t i o n s • p r o c e d u r e s • i n t e g r i t y

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