Real People. Real Stewards.Real People. Real Stewards.

2003 Annual Report

Walton Electric Membership Corporation(EMC) is a customer-owned electric utilityfounded in 1936. The company suppliesenergy to more than 105,000 accounts in 10Northeast Georgia counties between Atlantaand Athens. It is one of the largest of almost1,000 electric cooperatives in the country.

Walton EMC is regulated by its customers.A10-person board of directors, elected fromamong the membership, governs the activitiesof the business.

The cooperative owns two subsidiaries. WaltonEMC Natural Gas supplies gas to residential,commercial, and institutional accountsthroughout the state. EMC Security is one ofthe largest suppliers of intrusion and fireprotection systems in the metro Atlantamarket.

The company is headquartered in Monroe,Georgia. Additional customer service officesare in Snellville and Watkinsville, Georgia.

An electron is an electron.

Electricity is generic. But Walton EMC is not.

It’s our intrinsic qualities that set us apart. Our stewardship of thethings that matter to you is the reason we’re not just anotherelectric company.

Being good stewards means providing excellent service to ourcustomer-owners. And providing excellent service is the reason weexist.

We have a long history of stewardship. Our founders—people whohad long desired electric service for their homes, farms andbusinesses—knew how to be good stewards. They had first-handexperience with the Great Depression, a real-life lesson in makingthe most of what you have.

They wanted to be good stewards of what their neighbors, whowere fellow co-op customer-owners, entrusted to them. That’s stillour attitude today and it permeates through every level of ourcooperative.

As Walton EMC employees, we’re fortunate that we get to live,play and raise our families in the same communities where wework. We don’t get direction from offices in some big city high-rise miles away. Our customer-owners give us local directionthrough the board of directors they elect from among theirnumber.

When your power goes out or you need us for some otherreason, we’re close by. You can walk in our offices and talkto us, if you want.

We invite you to turn the page and find out how we strive tobe good stewards of the things that matter: Your trust. Yourenergy. Your money. Your environment. Yourcommunity.

Yes, you can buy the same electron from anyone.But you only get real stewardship from yourelectric cooperative.

Real stewards of your Trust

Johnny Allgood, ChairmanRonnie Lee, CEO

100,000

90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0

Average Number of Members

1960 1970 1980 1990 2000 2003

14,1

23 34,1

53

61,3

52

90,5

63

1800

1600

1400

1200

1000

800

600

400

200

0

Average KWH per Month

1940 1950 1960 1970 1980 1990 2000 2003

31 130 40

6

885

1218 14

04

1669

1661

8,48

4

102,

445

The reliability to our customers exceeded

99.9 percent last year. That means most of our

customers never experienced an outage.

Twenty-four hours a day. Seven days aweek. Rain or shine. Walton EMC

employees stand ready to give our customersexcellent service. From the linemen climbingthe poles to the customer service repre-sentatives answering the phones, their primaryconcern is keeping the lights on for ourmembers. In 2003, the cooperative upgradedand expanded many areas of its system tomaintain the unparalleled service membersknow and expect.

Count on usWhile the electricity infrastructure in some

parts of the country is overloaded and indisrepair, the electric system in Georgia—including Walton EMC—is in excellent shape.The reliability to our 105,000 membersexceeded 99.9 percent last year. That meansmost of our customers never experienced anoutage.

Key to this reliability is Walton EMC’sinvolvement in a partnership that isunmatched anywhere in the country. Fourutilities, including the state’s electriccooperatives as a group, own and maintainGeorgia’s transmission lines and substationsas one system. Over the last four years $400million has been invested to upgrade andmaintain the system.

This forward-thinking investment isreadying us for the future. The cooperativereached the 100,000 account mark in 2003and continues to grow. Membership isexpanding at a rate of four to five percentannually, meaning we add four to fivethousand new accounts a year. This reflectsthe Census Bureau prediction that Georgiawill have 10 million residents—a 25 percentincrease—by 2010. Upgrading our systemnow will protect our excellent transmissionsystem from becoming overburdened in thewake of this population explosion.

Expanding and improvingTo meet growing customer needs, Walton

EMC continues to expand its facilities andservices. In 2003, 150 miles of new lines wereadded and one substation was overhauled toassure that the supply of electricity remainsadequate. Infrastructure, such as the callcenter and engineering facilities, wereenlarged and updated to help us prepare forthe future. The dispatch center was improvedto provide quicker response to large-scalepower outages.

A remodeled Web site (www.waltonemc.com)made its debut. It features on-line electricaccount establishment and a library of energyinformation. Members can use the site to viewtheir account, pay power bills, or report apower outage.

Tapping technologyWalton EMC employs the latest technology

to keep our system up and running. In 2003 the cooperative began participating

in a new lightning detection system, whichprovides lightning strike data free to the co-op.Real-time tracking of lightning strikes allowsco-op personnel to see storms approaching andknow where lightning is occurring in ourservice territory.

Other technological improvementsinclude:

• Digital maps of our service area, whichare used to quickly pinpoint outages anddispatch crews for repair.

• A radar locating system that helps our linecrews quickly pinpoint faults in undergroundprimary electric cable and shows crewsexactly where to dig to find burned or blown-out cable.

• Substation equipment and generatorsoperated by remote control, which meanssome repairs can be made directly from thedispatch center in a matter of moments.

“There was a big poweroutage on May 9 in myarea…very widespread.The weather was awfuland we got service backon in less than 45minutes…Walton EMCalways gives goodservice, and I justwanted to say thankyou, thank you, thankyou…”

Virginia DunnBishop

“I want to make sureyou know that yourfield team has providedexceptional customercare. It is rare that asingle, residentialcustomer would receivesuch superior attentionand service. Customerservice is so very poorthese days that onetruly appreciates a jobwell done.Thank you.”

Kimm CarrAthens

A REAL STEWARDCustomer needs are met quickly thanks to the dedicated work of WaltonEMC employees like Line Crew Supervisor David Patrick, a 33-year veteran.

Real stewards of your Energy

100,000.That is about thenumber of phone calls

answered by the 20 customer servicerepresentatives in Walton EMC’s call centerlast year.

Customers call to report power outages,request energy surveys, ask questions abouttheir bills, and more. Oftentimes, the voice onthe phone is the only live, human contact anelectric or natural gas customer will havewith the cooperative.

With membership increases and theaddition of a natural gas company, thenumber of calls being answered swelledsignificantly in the last year. To ensure thateach caller is assisted promptly andprofessionally, the cooperative invested inexpanding and improving its call center.

An existing 9,000-square-foot building onthe Walton EMC campus was remodeled and

expanded to house the call center. Previously,customer service representatives had beenscattered over several buildings and floors,making it difficult to provide accurate,consistent service to callers.

The new facility is allowing customerservice representatives to handle more callswith a smaller staff. Features like a soundabatement system and a floating floorcontribute to this new efficiency. The floor isa system of removable tiles that provide easyaccess to the network of wiring necessary tosupport state-of-the-art communications andcomputer systems. In addition, workstationscan be removed and re-configured as thecenter grows to handle the cooperative’supward growth trends.

How may we help you?

New call centerspeeds Walton EMC's

response to members'requests and problems

5

Walton EMC customer service representatives

provide prompt, professional assistance from a

single call center location.

The “amount due” line on Walton EMC power bills is

consistently among the lowest in the country and lower

than the amount many other Georgians pay for electricity.

Excellent management, concern for costs,sound business decisions, and employees

who are stewards of cooperative resourcescontributed to financial success for WaltonEMC in 2003. Customer-ownerscontinue to enjoy an “amount due”line on power bills that isconsistently among the lowest inthe country and lower than theamount many other Georgians payfor electricity.

Keeping rates steadyWalton EMC hasn’t had a rate

increase in more than a decade.And the last time the cooperative’srates changed, they were lowered.That sets our customer-ownedutility distinctly apart from otherlocal power companies where rates are rising.

Walton EMC has kept rates steady by: • Spending less than projected

on wholesale electricity. Thoughwholesale rates are increasing,cooperative members shouldenjoy unchanged rates for thenext 10 years.

• Accomplishing expansionand improvements withoutsecuring loans. The cooperativehas not borrowed money for twoyears. Growth projects have beenself-funded with employeesdrawing on existing resources tocontain costs.

• Investing in business venturesthat have paid off for customer-owners. Proceeds from ournatural gas subsidiary, WaltonEMC Natural Gas; the Doyle GeneratingPlant; and our residential and commercialsecurity company, EMC Security, added to thebottom line.

Refunding the profitsOver the past 16 years Walton EMC has

returned a whopping $19 million to itscustomer-owners. In 2003, more than 91,000

customers shared in a $3 millionmargin refund, the cooperative’slargest ever.

Residential, institutional, andcommercial consumers receivedrefunds based on the amount ofpower they used. For instance, theGwinnett County Board ofEducation—for which thecooperative provides power to 29schools—received a $64,000refund check. That’s enoughmoney to buy nearly 100computers for classrooms.

Saving you moneyMoney was saved while distributing the

refunds, too. Instead of writingchecks and mailing them,refunds were included as a crediton December electric bills. Thissaved some $30,000 in materials,labor and postage.

While they are making moneyfor the cooperative, Walton EMCNatural Gas and EMC Securityare also saving money forindividual customers. Since itsbeginning, the gas company hasconsistently offered the lowestgas pricing in the Georgiamarket. The security companygot its start because co-opmembers wanted an alternativeto the price-gouging rates that

were commonplace for intrusion and fireprotection systems.

Real stewards of your Money

“Thanks for the refund.It couldn’t have come ata better time.”

Don and Marlene ShetterCovington

“Thank you very muchfor our credit refund!We appreciate theCompany very muchand pray the Lord willcontinue to bless youwith success for yourgood management andintegrity!”

Richard and Martha CanadayStone Mountain

A REAL STEWARDPayroll Specialist Brenda Cown goes the extra mile to assurethat every Walton EMC customer-owner—even those who havemoved away—get the refunds to which they are entitled.

Sources of Revenue in 2003

Residential and Farm

Commercial and Industrial

Public Buildings and Lighting

Other

1.39% 2.92%

23.83%

71.86%

How Electric Revenue wasused in 2003

Cost of Purchased Power

Operations and Maintenance

Depreciation andAmoritization Expense

Margins from Operations

Consumer Accounts,Service and Sale

Interest Expense

Administrative and GeneralExpense

2.84%

3.58%

4.33% 4.66%

4.90%

7.47%

72.22%

Competitivepricing andexceptional service are proving to be a winningcombination for Walton EMC Natural Gas.During its first year of operation, the WaltonEMC subsidiary quickly gained a reputation asGeorgia’s price and customer service leader.

Since its debut the company has offered thelowest gas pricing in the Georgia marketalmost every month. In addition, customers areimpressed with the company’s personal service,something they weren’t accustomed toreceiving before Walton EMC entered thenatural gas business.

By the end of 2003, Walton EMC NaturalGas commanded about two percent of thederegulated gas market in Georgia. Thatamounts to more than 31,000 Georgiaconsumers choosing the new company todeliver natural gas to their homes andbusinesses.

The company’s service area extends south toValdosta and north to the Tennessee border.Some 60 percent of its accounts are drawnfrom customers who are not Walton EMCcustomer-owners.

Businesses and institutions are the biggestusers of the service. Several North Georgiaschool systems as well as retail giants likeHome Depot and Lowe’s are among thoseusing Walton EMC Natural Gas.

The growth trend is expected to continue in2004. An average 2,000 to 3,000 customersapply for service every month.

Taking the market by storm

Walton EMC Natural Gas grabs

chunk of market inits first year

7

Commercial customers such as popular

restaurant chain Johnny Carino's choose

Walton EMC Natural Gas.

In 2003 the cooperative excelled in environmental stewardship,

launching both a landmark program that recycles waste from landfills

and revving up internal reclamation efforts.

Whether it’s the paper wrapper discardedfrom a fast-food burger or scrap

materials from building a new electricitydistribution system, the world is full of trash.It’s what you do with it that counts, so goes thephilosophy at Walton EMC. In 2003 thecooperative launched a landmark program thatrecycles waste from landfills and revved upinternal reclamation efforts—all in an effort tobetter the environment and preserve the Earth’snatural resources.

Going greenAt 12:20 a.m. on Oct. 1, 2003, Walton EMC

and a group of 15 other customer-ownedGeorgia cooperatives became environmentalheroes. The group, collectivelyknown as Green Power EMC,delivered the state’s first electricityfrom renewable resources. The newpower source is the decaying trashfound in abundance in Georgialandfills.

Two landfill gas-to-electricitygeneration sites were launched duringthe fourth quarter of the year. TheTaylor County landfill, the site ofGeorgia's first renewable energyfacility, and the Roberts Road landfillfacility in Fayette County generate acombined 5 megawatts of renewableenergy annually. Additional sites areset to open in 2004, increasing the total poweroutput to 9 megawatts annually.

By signing up for green power, our membersare on the leading edge in preserving naturalresources. They are decreasing landfill gasemissions, reducing local ozone levels andsmog formation, diminishing explosion threatsand unpleasant odors created by landfills, andimproving the state’s overall wastemanagement.

Waste notWalton EMC accumulates trash just like any

other business. However, instead of “wasting”the materials, the cooperative reuses andrecycles whenever possible.

Cooperative employees recycle paper,cardboard, aluminum cans, motor oil, used oilfilters, antifreeze, and tires. Scrap wire andtransformers that can’t be repaired also getrecycled. The materials are collected bycertified recyclers and, when needed, sent to alicensed recycling center for processing.

Hardware materials remaining from electricsystem upgrades are stored for use in buildingnew systems or for future repairs. Linetechnicians collect all scrap aluminum, copper

and steel wire for recycling. Even thereels on which the wire was rolled geta new life when they are refurbishedand then reused.

Replaced line hardware that can nolonger be used by the co-op is recycledthrough the International Program withthe National Rural ElectricCooperative Association. Thehardware is shipped to third worldcountries. In one instance, WaltonEMC provided enough materials toprovide an entire substation for acountry.

Even the cooperative’s used servicevehicles get a second life. The

cooperative gives away one of its retired trucksas a door prize at the annual meeting each year.

The environment’s friendThe cooperative is also dedicated to

protecting wildlife, another valuable naturalresource. Wildlife protection devices, such assimple, plastic squirrel guards, are added totransformers to keep wildlife from coming intocontact with live lines. This keeps both wildlifeand electric systems safe from harm.

Real stewards of your Environment"You deservecongratulations andgreat acknowledgementfor Green Power. You'reahead of the curve andrepresent the future ofenergy. I'm proud of allof you for taking thelead, and I look forwardto sharing GreenPower's initiative withCongress as anexemplary prototype."

U.S. Rep. Jack Kingston

"We applaud yourvision and commitmentto renewable energy."

Dennis CreechSouthface Energy Institute

A REAL STEWARDWarehouse Supervisor Jere Rowe continually searchesfor new ways to save materials, money, and the environment.

Plastic squirrel guardshelp protect wildlife.

It’sa classic case of turning trash intotreasure. Those mountains of garbage

dotting the landfill landscape are the source ofthe most abundant and economical renewableresource in Georgia. It’s called landfill gas.And it means power. Green power.

Georgia electric cooperatives are putting thenaturally occurring gas to good use. In 2003,Walton EMC members were among the first touse this cleaner energy source to turn on thelights and keep manufacturing lines moving.Every kilowatt-hour generated using landfillmethane is one kilowatt-hour that isn'tgenerated using traditional fuels such as coal.

Members enrolled in the Green Powerprogram pay an additional $2.95 per 150kilowatt-hour block to use the environmentallyresponsible energy alternative.

Georgia landfill sites currently generateenough power to meet the needs of 5,600homes. This has the same environmentalbenefit as taking 84,000 cars off the road,planting 114,000 acres of forest, reducing theuse of 1,890 railroad cars of coal, oreliminating 900,000 barrels of oil each year.

Green power doesn’t stop at the top of thetrash heap. Research and developmentcontinues to find ways to bring to market otherrenewable resources such as wind, solar power,and low-impact hydroelectric generation tosupply the powerneeds of futuregreen generations.

Turning trash into treasure

Pollution-to-poweralternative making

Georgia a betterplace to live

9

GreenPower

Walton EMC's Green Power program is

turning Georgia's trash into an

environmentally responsible energy treasure.

Some 30,000 Walton EMC members contributed

more than $160,000 through Operation Round Up

to support local families and organizations in 2003.

Time and again, Walton EMC has set thestandard for customer service in Georgia.

As a cooperative, we believe in extendingservice excellence beyond our businessboundaries to better the communities in whichour customer-owners live, work, and play.Through both customer-funded programs andemployee volunteerism, Walton EMC ismaking a positive impact.

Caring for communityNo other Walton EMC program directly

affects communities more than OperationRound Up. In eight years the program hasfunneled more than $692,000 toindividuals in dire circumstances aswell as organizations doing goodworks. In 2003, some 30,000Walton EMC members contributedmore than $160,000 by allowingthe cooperative to round up theirpower bills to the nearest dollareach month.

Member patriotism was reflectedin Walton EMC’s funding of polesthat fly the United States flag andother U.S. military flags at theVeteran’s Commemorative Park inWinder.

The development of youth isanother area of cooperativeinvestment. We fund collegescholarships and annually sponsorevents like the Washington YouthTour, FFA Electrification CareerDevelopment Event and YouthCooperative Camp. The co-op alsosponsors 88 Georgia High SchoolAssociation championship events rangingfrom athletics to public speaking.

Walton EMC’s community service efforts—in conjunction with its daily leadership incustomer service—have not gone unnoticed.Accolades received in 2003 include being the

first recipient of the Samaritan Business EthicAward given by the Gwinnett Chamber ofCommerce and the Business of the YearAward presented by the Walton Chamber ofCommerce. For the sixth consecutive year, thecooperative also received the Readers’ ChoiceAward for Best Electric Company presentedby The Walton Tribune.

Above and beyondOur employees also practice the principals

of giving back to the communities in whichwe live, work, and serve our customers. Wesupport dozens of local charities, civic causes,

and churches on our own time. And,just like the excellence displayed inour “day jobs,” Walton employeesshine as community volunteers.

The March of DimesWalkAmerica is one of the causesthat benefit from the efforts ofWalton employees. In 2003, morethan $17,000 was collected, makingthe Walton EMC employee team thetop fundraiser for the fifthconsecutive year.

The American Cancer Societypresented Walton EMC with itscoveted Three Star Partner Award inappreciation of employees’contributions. Employee-run yardsales, fundraising lunches, rafflesand the Power of Hope motorcycleride raised $9,000 for the charity’s2003 Relay For Life. Thecontribution earned the team the toplarge business fundraiser award.

Our special brand of employeeoutreach continued during the holidays.Instead of giving gifts to each other,employees opted to team with Faith inServing Humanity to provide food and gifts tosix Monroe area families.

Real stewards of your Community“. . .There are no wordsto express myappreciation. It’s good tosee that there are greatpeople like you to helppeople out at a time likethis. . .Again, thank youfor answering myprayers.”

Amanda (mother of a familyWalton EMC sponsored forChristmas)Monroe

“. . .thank you for yourwonderful and generouscontribution to thefundraiser for ExtraSpecial People (ESP). . .ESPis successful because ithas community support,such as yours, behind it.We are truly grateful toyou for giving and sharingfrom your heart.”

Martha, ESPWatkinsville

A REAL STEWARDCustomer Service Representative Boots Hendricks led the Walton EMCRelay For Life team in raising $9,000 to fund cancer research.

Walton EMC is the firstrecipient of the SamaritanBusiness Ethics Award.

Fiftycents. That’s the averagemonthly amount a participating

customer-owner gives to Walton EMC’sOperation Round Up. That 50 cents—which issmall change to most—combined with asimilar contribution from thousands of otherWalton EMC members allows the co-op tomake a big difference in the communities itserves.

Round Up dollars have funded constructionprojects, fed the hungry, and enhanced safetyand security for entire communities. Singlemothers, the disabled, people who have losttheir jobs, and especially children havebenefited from the generosity of Walton EMCmembers. Here are just a few of thedifferences members’ spare change made in2003:

• Expansion of the Dream House, aGwinnett facility that caters to the specialneeds of medically fragile children.

• Building a Habitat for Humanity house fora low-income family.

• Helping a Gwinnett County widow andmother with household expenses while sherenews her teacher’s certification.

• Providing new communications equipmentfor the Walton County Fire DepartmentStation 9.

• Sponsoring a required certificationprogram for Georgia Special Olympicscoaches.

• Stocking the food pantry at the Asian-American Resource Foundation.

• Providing one book each month tounderprivileged preschoolers through theImagination Library Program.

Small change makes big difference

Walton EMCcustomer-owners

contribute theirpennies for good

causes

11

Operation Round Up contributions

provided new communications equipment for

the Walton County Fire Department.

12

Balance SheetsASSETS 2003 2002

Utility PlantElectric Plant in Service – At Cost $238,279,107 $227,505,045Construction Work in Progress 3,066,476 373,161

241,345,583 227,878,206 Accumulated Provision for Depreciation (64,658,584) (59,324,786)

176,686,999 168,553,420

Other Property and InvestmentsNonutility Property (Net of Depreciation, $11,884 in 2003) 89,981 -0-Investments in Associated Organizations 48,084,265 45,889,722Other Investments 347,887 479,773

48,522,133 46,369,495

Long-Term Note Receivable – Capital Lease 106,242,571 112,121,973

Current AssetsCash and Cash Equivalents 9,015,399 6,939,464Interest Receivable 20,002 20,501Accounts Receivable – Net of Accumulated Provision for

Uncollectibles ($117,482 in 2003 and $17,952 in 2002) 13,314,851 12,493,715Current Portion of Note Receivable – Capital Lease 5,879,402 5,537,840Materials and Supplies 1,849,585 1,051,686Prepayments 76,464 63,248

30,155,703 26,106,454

Deferred Debits 452,948 275,168

Total Assets $362,060,354 $353,426,510

EQUITIES AND LIABILITIES 2003 2002

EquitiesMembership Fees $ 1,276,048 $ 1,303,854Patronage Capital 116,651,557 105,028,984Other (1,454,158) (1,793,190)

116,473,447 104,539,648

Long-Term Debt 190,604,578 199,534,779

Accumulated Provision for Post retirement Medical Benefits 8,520,857 8,308,615

Current LiabilitiesCurrent Maturities of Mortgage Notes 8,650,000 8,000,000Accounts Payable 12,765,660 11,099,444Consumer Deposits 3,603,121 3,246,820Accrued and Withheld Taxes 1,825,505 1,781,105Accrued Interest 2,166,417 2,452,205Other 2,163,041 2,711,050

31,173,744 29,290,624

Deferred Credits 15,287,728 11,752,844

Commitments and Contingencies

Total Equities and Liabilities $362,060,354 $353,426,510

13

Statement of Operations2003 2002

Operating Revenues and Patronage Capital $155,416,043 $143,095,409

Operating ExpensesCost of Power 110,180,453 98,810,857Distribution Operations 5,793,365 6,033,497Distribution Maintenance 5,341,168 5,132,522Consumer Accounts 5,444,159 5,101,344Consumer Service and Information 984,909 1,121,917Sales 284,137 297,521Administrative and General 4,151,230 3,714,921Depreciation 7,411,266 7,048,404Franchise Requirements 350,871 -Other 53,348 32,978

139,994,906 127,293,961

Operating Margins Before Interest Expense 15,421,137 15,801,448

Interest Expense 5,084,032 5,858,646

Operating Margins (Losses) After Interest Expense 10,337,105 9,942,802

Nonoperating Margins (Losses) 846,164 (6,948,365)

Generation and Transmission Cooperative Capital Credits 1,913,182 1,912,399

Other Capital Credits and Patronage Capital Allocations 1,505,912 1,913,238

Net Margins $14,602,363 $ 6,820,074

STATEMENTS OF MEMBERS’ EQUITYTotal Membership Patronage Other

Equities Fees Capital Equities

Balance, June 30, 2001 $ 86,674,538 $1,335,679 $100,263,116 $(14,924,257)

Net Margins 6,820,074 6,197,368 622,706Patronage Capital Retirements (1,431,500) (1,431,500)Membership Fees (31,825) (31,825)Other Equities 12,508,361 12,508,361

Balance, June 30, 2002 104,539,648 1,303,854 105,028,984 (1,793,190)

Net Margins 14,602,363 14,140,815 461,548Patronage Capital Retirements (2,518,242) (2,518,242)Membership Fees (27,806) (27,806) Other Equities – Doyle I, LLC (122,516) (122,516)

Balance, June 30, 2003 $116,473,447 $1,276,048 $116,651,557 $(1,454,158)

2003 2002

Cash Flows from Operating ActivitiesNet Margins $ 14,602,363 $ 6,820,074Adjustments to Reconcile Net Margins to Net Cash

Provided by Operating ActivitiesDepreciation 8,081,098 7,660,116Patronage Capital from Associated Organizations (3,690,022) (3,825,637)Postretirement Benefits 212,242 204,383

Change InAccounts Receivable (821,136) (3,134,077)Other Current Assets (354,280) 1,447Accounts Payable 1,666,216 1,861,327Accrued and Withheld Taxes 44,400 203,305Other Current and Accrued Liabilities (833,796) 564,276

18,907,085 10,355,214

2003 2002

Cash Flows from Investing ActivitiesExtension and Replacement of Plant (18,137,124) (15,283,568)Return of Equity from Associated Organizations 1,383,184 1,225,062Deferred Credits 3,534,884 3,372,993ERC and Other Loans 98,378 (95,452)Plant Removal Costs (655,242) (727,791)Sale of Scrap 19,309 19,258Deferred Debits (177,780) (133,956)Material Returned to Stock from Retirements 56,569 103,299Materials and Supplies (797,899) (19,518)Nonutility Property (89,981) -Other Investments 145,803 384,088

(14,619,899) (11,155,585)

Cash Flows from Financing ActivitiesMemberships (27,806) (31,825)Contributions in Aid of Construction 2,501,811 2,485,365Principal Payments on Long-Term Debt (8,280,201) (7,677,518)Retirement of Patronage Capital (2,518,242) (1,431,500)Customer Deposits 356,301 215,057Doyle I, LLC Transaction 5,756,886 11,248,756

(2,211,251) 4,808,335

Net Increase (Decrease) in Cash and Cash Equivalents 2,075,935 4,007,964

Cash and Cash Equivalents – Beginning 6,939,464 2,931,500

Cash and Cash Equivalents – Ending $9,015,399 $ 6,939,464

Notes to Financial Statements1. Summary of Significant Accounting PoliciesAccounting policies of the Corporation reflect practices appropriate to the electric utility industry. The following describes the more significant of those policies.

Consolidation The consolidated financial statements include the accounts and results of operations of the Corporation and its wholly-owned subsidiaries, Doyle I, LLC andWalton Energy, Inc.

Nature of Operations The Walton Electric Membership Corporation is a not-for-profit corporation whose purpose is to provide electric service to its members.TheCorporation operates as a cooperative whereby all monies in excess of cost of providing electric service are capital, at the moment of receipt, and are credited to eachmember’s capital account.

Doyle I, LLC, a wholly-owned subsidiary of The Walton Electric Membership Corporation, is a generation facility whose purpose is to provide Oglethorpe Power Corporationwith all of the facility output, pursuant to a power purchase and sale agreement. (Note 4)

Walton Energy, Inc. d/b/a Walton EMC Natural Gas, a wholly-owned subsidiary of The Walton Electric Membership Corporation, is a natural gas affiliate whose purpose is toprovide natural gas service to its customers.The Corporation operates as a for-profit corporation pursuant to the provision of the Georgia Corporation Code.

Use of Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financialstatements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Long-Lived Assets The Corporation evaluates long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of such assets maynot be recoverable. The determination of whether an impairment has occurred is based on either a specific regulatory disallowance or an estimate of undiscounted futurecash flows attributable to the assets, as compared with the carrying value of the assets. If an impairment has occurred, the amount of the impairment recognized is determinedby estimating the fair value of the assets and recording a provision for loss if the carrying value is greater than the fair value. For the assets identified as held for sale, thecarrying value is compared to the estimated fair value less the cost to sell in order to determine if an impairment provision is required. Until the assets are disposed of, theirestimated fair value is reevaluated when circumstances or events change. Accounting standards require the present value of the ultimate cost for an asset’s future retirementbe recorded in the period in which the liability is incurred. The cost should be capitalized as part of the related long-lived asset and depreciated over the asset’s useful life.The Corporation has no legal retirement obligations related to its distribution facilities; therefore, a liability for the removal of these assets will not be recorded. Managementbelieves the actual cost of removal, even though not a legal obligation, will be recovered through rates over the life of the distribution assets.

Utility Plant Utility plant is capitalized at cost less related contributions in aid of construction. In general, utility plant is capitalized at the time it becomes part of an operatingunit and has been energized. However, certain items of plant referred to as special equipment items (meters, transformers, oil circuit reclosers, etc.) are capitalized at the timeof purchase along with related estimated cost of installation

Depreciation and Maintenance Depreciation of the capitalized cost is provided using composite straight-line rates. When property subject to depreciation is retired orotherwise disposed of in the normal course of business, its capitalized cost and its cost of removal less salvage are charged to the accumulated provision for depreciation.

Provision has been made for depreciation of distribution plant at a straight-line composite rate of 3.2 percent per annum.

Depreciation of general plant is provided on a straight-line basis over the estimated useful lives of the various assets.The rates range from 2.0 to 14.3 percent per annum.

The costs of maintenance, repairs and replacements of minor items of property are charged to maintenance expense accounts.

14

Statement of Cash Flows

Materials and Supplies Materials and supplies are stated at lower of cost or market. Cost is determined by the moving average method of inventory valuation.

Equities and Margins The Corporation is organized and operates under the cooperative form of organization. As such, patronage capital or margins are allocated to patronson the basis of patronage. Under provisions of the long-term debt agreements, until the total equities and margins equal or exceed 20 percent of the total assets of theCorporation, the return to patrons of capital contributed by them is limited.

Operating Revenues and Patronage Operating revenues which include patronage capital are billed monthly to consumers on a cycle basis. Electricity which had been used bythe members of the Corporation but had not been billed to the members was not recorded.This unbilled electric revenue totaled approximately $7,265,000 and $7,200,000for the years ended June 30, 2003 and 2002, respectively.

Cost of Purchased Power Cost of power is expensed as consumed.

Generation and Transmission Cooperative Capital Credits Generation and transmission cooperative capital credits represent the annual capital furnished generation andtransmission cooperatives through payment of power bills. The capital is recorded in the year provided, even though notification of the capital allocation is not received untillater.

Cash Equivalents Cash equivalents include time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

Fair Value of Financial Instruments Financial instruments include cash, other investments and long-term debt. Investments in associated organizations are not considered afinancial instrument because they represent nontransferable interests in associated organizations.

The carrying value of cash and other investments approximates fair value because of the short maturity of those instruments.The carrying value of long-term debtapproximates fair value based on the current rates offered to the Corporation for debt of the same remaining maturities.

Income Taxes The Corporation operates under the Internal Revenue Code Section 501(c)(12) as a tax-exempt cooperative. Accordingly, no provision for income taxes hasbeen made in the consolidated financial statements.

Walton Energy, Inc. operates under the Georgia Corporation Code as a for-profit corporation. However, no provision for income taxes has been made in the consolidatedfinancial statements due to current year net operating loss.

2. Utility PlantListed below are the major classes of the electric utility plant as of June 30: 2003 2002Distribution Plant $217,897,907 $208,249,087 General Plant 20,381,200 19,255,958 Electric Plant in Service 238,279,107 227,505,045 Construction Work in Progress 3,066,476 373,161

$241,345,583 $227,878,206

3. Investments in Associated Organizations 2003 2002National Rural Utilities Cooperative Finance CorporationMembership Fee $ 1,000 $ 1,000Capital Term Certificates 4,720,792 4,833,087Capital Credits 2,016,819 1,614,269Capital Stock 100 100

Oglethorpe Power CorporationCapital Credits 32,925,831 31,646,508

Georgia Transmission CorporationContributed Capital 3,743,638 3,743,638Capital Credits 2,812,744 2,180,036

Georgia Systems Operations CorporationCapital Credits 7,546 6,395

GRESCO Utility Supply, Inc.Capital Credits 260,705 263,205

Southeastern Data Cooperative, Inc.Capital Credits 158,540 156,295

Georgia Electric Membership CorporationWorkers’ Compensation FundCapital Credits 98,409 86,992

Data ComLink, Inc.Contributed Capital 60,000 60,000

Smarr EMCContributed Capital 970,375 970,375Capital Credits 247,648 275,784

Federated Rural Electric Insurance ExchangeCapital Credits 55,108 47,028

Other 5,010 5,010

$ 48,084,265 $ 45,889,722

15

Notes to Financial Statements

4. Note Receivable-Capital LeaseIn 2000, Doyle I, LLC entered into a power purchase and sale agreement with Oglethorpe Power Corporation. Oglethorpe Power Corporation committed to purchase all ofthe output of the generation facility for a period covering 15 years. At the end of the 15-year term, Oglethorpe Power Corporation has the option to purchase Doyle I, LLCfor $10,000,000, which is considered to be the bargain purchase price.Therefore, the power purchase and sale agreement is shown as a note receivable-capital lease on theconsolidated financial statements.

Future minimum lease payments to be received as of June 30, 2003 are as follows:Total Future Minimum Lease Payments $ 161,435,872 Amount Representing Interest (49,313,899) Present Value of Minimum Lease Payments 112,121,973 Current Portion of Note Receivable – Capital Lease (5,879,402) Long-Term Note Receivable – Capital Lease $ 106,242,571

Future minimum lease payments to be received for the ensuing five years and thereafter are as follows:Year Amount2004 $ 5,879,402 2005 6,242,032 2006 6,627,025 2007 7,035,766 2008 7,469,716

Thereafter 78,868,032 $ 112,121,973

5. Patronage Capital 2003 2002Assignable $ 9,501,427 $ 13,355,827 Assigned 131,780,739 113,785,524

141,282,166 127,141,351 Retired (24,630,609) (22,112,367)

$116,651,557 $105,028,984

6. Long-Term DebtLong-term debt consists of mortgage notes payable to the National Rural Utilities Cooperative Finance Corporation (NRUCFC). The notes are secured by a mortgageagreement between the Corporation and NRUCFC. Substantially all the assets of the Corporation are pledged as security for long-term debt of the Corporation.The noteshave maturity periods varying from October 10, 2002 to January 1, 2036 and are payable on an installment basis.

On December 29, 1999, a loan agreement was established between The Walton Electric Membership Corporation and Doyle I, LLC.The terms of this agreement state that agenerating facility is to be designed, constructed, operated, maintained and owned by Doyle I, LLC. Doyle I, LLC is required to make quarterly principal and interest paymentsfor a term of fifteen years from the last day of construction.The interest payable shall bear a stated interest rate equal to the current rate payable under the Corporation’sloan to NRUCFC. Walton owned 50 percent of Doyle I, LLC until the Corporation purchased the remaining 50 percent on November 12, 2001.

Holder of Note Interest Rate 2003 2002

NRUCFC 3.05% to 8.25% $ 89,373,146 $ 92,350,351NRUCFC (Related to Doyle I, LLC) 5.25% to 7.35% 109,881,432 115,184,428

199,254,578 207,534,779

Maturities Due Within One Year (8,650,000) (8,000,000)

$190,604,578 $199,534,779

The estimated principal maturities of long-term debt are approximately $8,650,000 for each of the ensuing five years. In addition, the Corporation has a $24,000,000 line-of-credit with NRUCFC with no balance outstanding as of June 30, 2003. However, $1,500,000 is pledged as collateral for a line-of-credit for Cooperative Choice, LLC.

Total interest cost was $12,805,735 and $13,732,839, of which $7,180,326 and $7,590,578, the amounts related to Doyle I, LLC, are reflected as a reduction in interestexpense for 2003 and 2002, respectively.

Interest payments for 2003 totaled $12,966,034 and $13,967,865 for 2003 and 2002, respectively.

7. Pension PlanThe employees of the Corporation participate in the National Rural Electric Cooperative Association (NRECA) Retirement and Security Program. The Corporation makesannual contributions to the plan equal to the amounts accrued for pension expense. In this master multi-employer plan, which is available to all member cooperatives ofNRECA, the accumulated benefits and plan assets are not determined or allocated separately by individual employer. Pension costs relating to this program wereapproximately $1,102,700 and $982,900 for the years ended June 30, 2003 and 2002, respectively.

The employees of the Corporation also participate in the NRECA SelectRe 401(k) Program. In this defined contribution plan, the Corporation makes contributions to theplan equal to the amounts accrued for pension expense. Pension expense relating to the plan was approximately $417,400 in 2003 and $384,500 in 2002.

8. Post retirement Medical Benefits Other Than PensionsThe Corporation provides medical benefits for retirees with ten or more years of service after age fifty-five.

The plan's funded status is comprised of the following as of June 30:

2003 2002Accumulated Post retirement Benefit ObligationRetirees and Dependents $3,663,969 $ 3,572,705Fully Eligible Active Plan Participants 1,704,171 1,661,721Other Active Plan Participants 3,152,717 3,074,189

8,520,857 8,308,615Plan Assets at Fair Value – –Accumulated Post retirement Benefit Obligation in Excess of Plan Assets $ 8,520,857 $ 8,308,615

16

Notes to Financial Statements

8. Post retirement Medical Benefits Other Than Pensions cont:

Net periodic Post retirement benefit cost included the following:2003 2002

Service Cost $ 145,800 $ 145,800Interest Cost 464,700 464,700

$ 610,500 $ 610,500

For measurement purposes, a 7.0 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2003.The rate was assumed todecrease gradually to 6 percent by the year 2005 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amountsreported. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as ofJune 30, 2003 by $222,300 and the aggregate of the service and interest cost components of postretirement expense for the year then ended by $24,200.

The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.5 percent.

9. Deferred DebitsDeferred debits are comprised of the following as of June 30:

2003 2002Clearing Accounts $ 256,430 $ 275,168 Miscellaneous Deferred Debits 196,518 -

$ 452,948 $ 275,168

10. Deferred CreditsDeferred credits are comprised of the following as of June 30:

2003 2002Unclaimed Retired Capital Credits $ 2,564,013 $ 2,194,563 Deferred Gain on Early Extinguishment of Debt 2,073,917 2,552,514 Power Cost Revenue Deferral 10,649,798 7,005,767

$15,287,728 $11,752,844

The gain on early extinguishment of debt represents the discount recognized by the Corporation as a result of the prepayment of Rural Utilities Service (RUS) mortgagenotes. Management has elected to defer recognition of this gain in accordance with Financial Accounting Statement Number 71. The gain will be recognized as a reduction ofinterest expense on a straight-line basis over the life of the replacement debt.

Plan transactions were as follows:2003 2002

Gain from Debt Extinguishment $ 5,717,033 $ 5,717,033 Accumulated Amortization, Beginning (3,164,519) (2,685,922) Current Year Amortization (478,597) (478,597)

Remaining Balance $ 2,073,917 $ 2,552,514

Beginning January 1, 2001, a power cost revenue deferral was established. The power cost revenue deferral represents revenues which are being recognized to reduce theimpact of power cost on the Corporation’s rate structure.This revenue deferral is in compliance with Financial Accounting Statements Number 71.

Plan transactions were as follows: 2003 2002Beginning Balance $ 7,005,767 $ 3,366,564Current Year Deferral 3,644,031 3,639,203Utilized to Offset Power Cost Increases – –

Ending Balance $10,649,798 $ 7,005,767

11. Nonoperating Margins 2003 2002Interest Income $ 333,341 $ 324,864 Expense from Merchandise 23,781 (2,082) Equity in Earnings of Subsidiary 461,548 622,706Other 27,494 (7,893,853)

$ 846,164 $(6,948,365)

12. CommitmentsThe Corporation has an amended and restated wholesale power contract dated August 1, 1996 with Oglethorpe Power Corporation (OPC) through December 31, 2025.Under the terms of the contract, the Corporation is responsible for 8.6783 percent of OPC’s annual fixed costs. The Corporation’s portion of these fixed costs, which totaledapproximately $46,000,000 for the year ended June 30, 2003, are expected to be at the same level for future years. The Corporation has a liability for a pro rata share of allresources covered under this agreement.

Effective January 24, 2001, the Corporation entered into a power supply and energy call agreement. The agreement commenced on June 1, 2001 and will continue throughDecember 31, 2015. Under the terms of the agreement, the Corporation is required to maintain a modified debt service coverage ratio equal to or greater than 1.35 and adebt to equity ratio less than 2.5:1. In the event these conditions are not met, the Corporation will be required to provide the supplier with acceptable credit support in anamount equal to $40 million. Once conditions are again met by the Corporation, the remaining amount of credit support will be returned. Also under the terms of theagreement, the supplier will supply 100 percent of regulation, spinning reserves and supplemental reserves and 50 percent of planning reserve capacity until December 31,2004 and thereafter 100 percent of all reserve requirements.

13. ReclassificationsCertain reclassifications have been made in the 2002 consolidated financial statements to conform with the 2003 presentation.

AUDITOR’S REPORTTo the Board of Directors of the Walton Electric Membership Corporation:

Our report on our audits of the basic consolidated financial statements of The Walton Electric Membership Corporation and Subsidiaries for 2003 and 2002 appears on page1. Those audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The accompanying information onpages 17 through 29 is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information, except for thatportion marked “unaudited,” on which we express no opinion, has been subjected to the auditing procedures applied in the audits of the basic consolidated financialstatements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

McNair, McLemore, Middlebrooks & Co., LLP Macon, GeorgiaAugust 11, 2003

17

Notes to Financial Statements

Ronnie LeePresident and CEO

Warren FewDistrict 2, Rutledge/Bostwick/Apalachee

Bud WileyDistrict 3, Farmington

Jim WhitleyDistrict 4, Eastville

Doyle MitchellDistrict 5, Gratis

Tommy AdcockDistrict 6, Good Hope

Bobby WilliamsDistrict 7, Mountain Park

Sam SimontonDistrict 8, Bold Springs

Mary Ann HartmanDistrict 9, Five Forks/North Snellville

Dan ChelkoDistrict 10, Centerville/South Snellville

Johnny AllgoodDistrict 11, Southwest Walton

Roy LambertAttorney

Joe ReitmanAttorney

Board of Directors

P.O. Box 260, Monroe, Georgia 30655770.267.2505

www.waltonemc.com