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A message from John Kirkland
PRESIDENT
Rayburn Country Electric Cooperative was formed in 1979 by seven
electric distribution cooperatives in Northeast Texas. The Member cooperatives
united to gain bargaining power in critical wholesale purchased power negotiations.
For the first few years, Ray Raymond, General Manager of Kaufman County Electric
Cooperative, served as Chairman of the Rayburn Board and managed all adminis-
trative and operational functions of Rayburn Country. In 1986, I became the first
employee of Rayburn, along with Administrative Director Annette Kirkland.
Immediately Rayburn began seeking additional hydropower and concentrated its
efforts on obtaining more economical and reliable power to serve the membership.
In 1992, Rayburn began construction on its first Rayburn-owned transmission
facilities -- 100 miles of loop 138 kV transmission line stretching from Grand Saline
to Overton. These facilities are located in the Southwest Power Pool (SPP).
In 1997, Eddy Reece was employed as Vice President of Transmission to coordinate
our transmission system with other power suppliers and to build a SCADA system.
One year later Jack Hodges, Communications Director, was employed to manage
Rayburn’s communication system. The cooperative manages over 300 miles of
microwave and 900 miles of radio communications and has 20 towers located
in the 16 counties where its Members provide electric service for their urban and
rural consumers.
In 2009, The Board of Directors implemented a strategic plan to diversify Rayburn’s
power resources through purchase power agreements and owned assets, thus
providing more control of our energy future. One year later, on December 8, 2010,
Rayburn became the owner of a 25% interest in the Freestone Energy Center
owned by Calpine. With the extreme heat experience during August, 2011, the
Freestone Energy Center purchase resulted in lower rates for Rayburn’s Members.
In early 2012, Rayburn extended its power supply contract with Constellation,
insuring a dependable source of energy through 2018. Ever cognizant of its need to
secure sustainable and low cost power for its Members, Rayburn continues to
evaluate potential generation acquisitions to complement is power supply mix.
Rayburn continues to transition into a highly respected and financially sound
cooperative by adding key staff employees. In 2010, Rayburn employed
Lynn Midgette as Chief Financial Officer and, the following year, Rayburn employed
David Naylor, Executive Vice President, and David Braun, Controller, to round out
the Rayburn management team along with the current staff who continue to serve
our Member cooperatives in a professional and timely manner.
I am very proud of the well trained and dedicated employees that work efficiently
and safely to meet current and future demands for Rayburn’s Members.
4
B O A R D O F D I R E C T O R S
Rayburn’s Board of Directors is comprised of 5 Board Members and 5 Alternates from the Member systems.
Left to Right: Jerry Williams, Rayburn Board Member - General Manager and CEO of Lamar County Electric CooperativeAssociation; Ray Houston, Alternate – Board Member of Grayson-Collin Electric Cooperative, Inc.; Howard Tillison,Alternate – Board Chairman, Trinity Valley Electric Cooperative, Inc.; David McGinnis, Chairman of the Board – GeneralManager and CEO of Grayson-Collin Electric Cooperative, Inc.; Jerry Boze, Secretary-Treasurer – General Manager and CEOof Trinity Valley Electric Cooperative, Inc.; Mark Stubbs,Vice Chairman – General Manager of Farmers Electric Cooperative, Inc.;Tony Vinson, Alternate – Assistant Manager of Fannin County Electric Cooperative, Inc.; Ronald G. Odom, Board Member –Manager of Fannin County Electric Cooperative, Inc.; Martin Allain, Alternate – Board Member of Farmers ElectricCooperative, Inc.; Allen Branch, Alternate – Board Chairman of Lamar County Electric Cooperative Association.
5
M E M B E R C O O P E R A T I V E S
Service Terr i tor ies
The five distribution Members of Rayburn Electric serve about 170,000 electric meters in a service area that stretches from theRed River at the Oklahoma border approximately 150 miles to the Piney Woods area of east Texas. Rayburn Members servethe Dallas suburban areas east and northeast of the Dallas/Fort Worth Metroplex.
Growth
6
While the recent economic downturn caused growth to slow forour Members, they continue adding meters and load at a moremodest rate.
Growth is being driven by the influx of residential and smallcommercial customers to suburban Dallas. The customer mix ofRayburn’s Members is 92% residential. For several years, thesuburban cooperatives have maintained growth rates in theupper 5% of cooperatives nationwide, and that trend is forecast-ed to continue or even accelerate in future years. Rayburn’sMembers are also seeing significant growth in large powerloads, primarily oil and gas related. These loads are locatingthroughout the service territory.
The combined Member assets, revenues and sales numbers areillustrated in the chart below:
In spite of strong and sustained growth, the cooperatives have managed to achieve economic goals and maintain strongfinancial ratios.
MEMBERS % OF MWH SALES
GCEC26%
FARMERS28%
TVEC36%
LAMAR6%
FANNIN4%
GROWTH OF ADDITIONAL METERS AND LOAD
10 YearAverageGrowth
Rate
3.1% 4.3% 4.8%
METERS ENERGY PEAK
COMBINED MEMBER ASSETS, REVENUES AND SALES
CombinedMember
Profile
$377.3million
$807.3million
3,381.2MWH
1020.4MW
REVENUE ASSETS SALES PEAK
FINANCIAL RATIOS
CompositeMember
Ratios37.0% 5.1X 2.1X
EQUITYTO TOTALASSETS
TOTALDEBT TOEBITDA
DSC
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
Jan Feb Mar AprMay Jun
JulAug
Sep Oct NovDec
$/M
Wh
2011 AVERAGE MARKET PRICE
N E W T E R R I T O R Y
Freestone Energy Center
7
The minority interest acquisition of the FreestoneEnergy Center in December 2010 was Rayburn’sfirst foray into generation asset ownership.Freestone is a combined cycle unit operated byCalpine. After a year of ownership experience,Rayburn has a new appreciation for the complexi-ties of operating an asset as well as the intricacies ofthe ERCOT market. At the same time, the benefitsof the shaft diversity afforded by Freestone’s twopower blocks were exemplified as Rayburn was ableto continue receiving power while the other powerblock was undergoing maintenance.
Partnering with Calpine, Rayburn sought for analignment of interests in plant operations. Thisalignment was successfully achieved during 2011 asRayburn utilized Calpine’s market and operations’ expertise to participate in the ERCOT market. On average, the ERCOTmarket price was approximately $45/MWh for 2011. Rayburn utilized a portion of the Freestone energy to serve its load while selling the excess into the ERCOT market. For 2011, Rayburn was able to pass through a net credit of $29.5 million toits Members through Rayburn’s Power Cost Recovery Factor.
2011 reflected a year of new experiences for Rayburn – first year of owning a generation asset, record
demands due to extreme cold in February and extreme heat during the summer, drought, and falling
natural gas prices. While the challenges were significant, 2011 ended well for Rayburn and its Members.
8
Impact of Natural Gas Prices
Natural gas prices continued their downward trend during 2011. Future gas prices for 2011 delivery were trading at an average of $8.58/MMBtu at the beginning of 2008. By the end of 2011, the Henry Hub pricing point was settling at$3.18/MMBtu. The additional influx of shale gas along with a mild winter pushed prices lower than were expected even atthe beginning of 2011.These lower gas prices exerted additional pressure on our Members to compete with neighboring retailelectricity providers, but Rayburn was able to mitigate some of this pressure through the Freestone credits.
Rayburn mitigates some of the natural gas price exposure through its multiple power suppliers and within the respectivepower supply agreements. Rayburn’s fuel mix includes a slice of the SWEPCo resources, hydroelectric power fromSouthwestern Power Administration, and natural gas from the Constellation contract and Freestone resource.
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
$/M
Wh
AVERAGE MEMBER RATE
2007 2008 2009 2010 2011
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
SOURCES OF ENERGY FOR STANDARD SERVICE
2007 2008 2009 2010 2011
ConstellationFreestoneSWEP CoSouthwestern Power AdminAEP
9
Summer of 2011 Weather
The summer of 2011 brought record heat along with drought conditions – significantly higher average temperatures for Junethrough August and significantly lower average rainfall during those same months. The high heat led to increased energysales for Rayburn and its Members. However, the lack of rain had a significant impact on the generation from Denison Dam.Generation from Denison Dam in 2011 was significantly below the 30-year average. Generation from Denison is scheduledby Constellation subject to Corps of Engineer guidelines and directives. Despite the reduced generation, Denison Dam wasutilized during the Rayburn peak load hours.
Looking ForwardDuring 2011, Rayburn solicited bids to follow its
full requirements power supply contract with
Constellation. As a result of the competitive
evaluation, the Rayburn Board decided to extend the
existing agreement with Constellation through
May 2018. The expectation of natural gas prices
dominated the discussion. After consulting with
various experts in the field, and reflecting the belief
that natural gas prices are more likely to increase in
the next few years, Rayburn hedged a significant
portion of its gas needs under this agreement.
The agreement was finalized in February 2012.
At the end of 2011, the Rayburn Board expressed a
desire for Rayburn to centralize and coordinate a
NERC Compliance Program on behalf of Rayburn
and its Members. In the first quarter of 2012,
Rayburn hired a NERC Compliance Officer and an IT
Manager to facilitate this program and establish a
culture of compliance. The Members formalized this
program through a Reliability Services Agreement
between Rayburn and each Member. Rayburn is
currently in the process of establishing its Internal
Compliance Program and assisting its Members
with the necessary training, documentation, and
administrative support necessary.
2011 provided several challenges for Rayburn and its
Members. In each case, Rayburn and its Members
worked together to overcome and position the
collective group for a bright future – proving the
cooperative philosophy true.
10
11
At its inception, Rayburn was basically a power aggregator for its Member cooperatives. In the 1990’s Rayburn built its firsttransmission lines, and in the 2000’s the Board decided to move the corporation toward owned-generation to fill a portion ofits power requirements.
With the purchase of a 25% interest in the Freestone combined-cycle generating station in December 2010, Rayburn and itsMembers moved into a new era in meeting their wholesale power needs. The purchase and its requisite debt causedRayburn’s equity position to plunge from 23% to 6%. Rayburn’s Members met the challenge by adopting new rates inNovember 2010, and retaining minimum coverage ratios of 1.7 TIER and 1.5 DSC.
During 2011, Freestone outper-formed expectations. Sales from theunit totaled $66.7 million, which offset the operating and fixed costsof the unit. Rayburn also mitigatedits exposure to higher gas locks andprovided some rate relief to itsMembers by buying out some of its higher-priced gas contracts.
Rayburn’s key financial metrics arestrong, with equity climbing from6% to 11% in 2011. The trend indicates that Rayburn will achieveat least 20% equity by mid 2013.
Over the past five years, Rayburn has matured into its role as a full-service Generating and Transmission cooperative.Its financial future looks bright, as Board and staff maintain strong partnerships with its power suppliers. Rayburn’s leaderships continue to look for opportunities to own assets and control more of its energy future.
F I N A N C I A L R E P O R T
350,000,000
300,000,000
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
0
20072008
20092010
2011
EQUITY AND ASSETS
Total Equity
Total Assets
SOURCES OF ENERGY FOR STANDARD SERVICE
2.50
2.00
1.50
1.00
0.50
0
TIER
DSC
2007 2008 2009 2010 2011
KEY FINANCIAL RATIOS
350,000,000
300,000,000
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
0
20072008
20092010
2011
OPERATING REVENUES
OperatingRevenues
12
RAYBURN COUNTRY ELECTRIC COOPERATIVE, INC.Rockwall, Texas
Financial Statements and Independent Auditors’ ReportDecember 31, 2011 and 2010