Tri-State Generation and Transmission Association 2013 Annual Report. Powered by People. Powered. People Colorado, Nebraska, New Mexico and Wyoming.

Transcription

1 Tri-State Generation and Transmission Association 2013 Annual Report Powered by People Powered Tri-State Generation and Transmission Association a wholesale Tri-State Generation and Transmission Association is aiswholesale elecby electric power supplier owned the member systems serve tric power supplier owned byby the 4444 member systems wewe serve inin People Colorado, Nebraska, New Mexico and Wyoming. 3

2 Powered by People Tri-State Generation and Transmission Association is a wholesale electric power supplier owned by the 44 member systems we serve in Colorado, Nebraska, New Mexico and Wyoming. 1

3 Member Distribution Systems BH BIG HORN RURAL ELECTRIC COMPANY Basin, Wyoming CB CARBON POWER & LIGHT Saratoga, Wyoming CN CENTRAL NEW MEXICO ELECTRIC COOPERATIVE Mountainair, New Mexico CR CHIMNEY ROCK PUBLIC POWER DISTRICT Bayard, Nebraska CO COLUMBUS ELECTRIC COOPERATIVE Deming, New Mexico CD CONTINENTAL DIVIDE ELECTRIC COOPERATIVE Grants, New Mexico DM DELTA-MONTROSE ELECTRIC ASSOCIATION Montrose, Colorado EM EMPIRE ELECTRIC ASSOCIATION Cortez, Colorado GL GARLAND LIGHT & POWER COMPANY Powell, Wyoming GC GUNNISON COUNTY ELECTRIC ASSOCIATION Gunnison, Colorado HP HIGH PLAINS POWER Riverton, Wyoming HW HIGH WEST ENERGY Pine Bluffs, Wyoming HL HIGHLINE ELECTRIC ASSOCIATION Holyoke, Colorado JM JÉMEZ MOUNTAINS ELECTRIC COOPERATIVE Española, New Mexico KC K.C. ELECTRIC ASSOCIATION Hugo, Colorado KT KIT CARSON ELECTRIC COOPERATIVE Taos, New Mexico LP LA PLATA ELECTRIC ASSOCIATION Durango, Colorado MW THE MIDWEST ELECTRIC COOPERATIVE CORPORATION Grant, Nebraska MO MORA-SAN MIGUEL ELECTRIC COOPERATIVE Mora, New Mexico MC MORGAN COUNTY RURAL ELECTRIC ASSOCIATION Fort Morgan, Colorado MP MOUNTAIN PARKS ELECTRIC Granby, Colorado MV MOUNTAIN VIEW ELECTRIC ASSOCIATION Limon, Colorado NB NIOBRARA ELECTRIC ASSOCIATION Lusk, Wyoming NR NORTHERN RIO ARRIBA ELECTRIC COOPERATIVE Chama, New Mexico NW NORTHWEST RURAL PUBLIC POWER DISTRICT Hay Springs, Nebraska OC OTERO COUNTY ELECTRIC COOPERATIVE Cloudcroft, New Mexico PH PANHANDLE RURAL ELECTRIC MEMBERSHIP ASSOCIATION Alliance, Nebraska PV POUDRE VALLEY RURAL ELECTRIC ASSOCIATION Fort Collins, Colorado RS ROOSEVELT PUBLIC POWER DISTRICT Mitchell, Nebraska SI SV SAN ISABEL ELECTRIC ASSOCIATION Pueblo West, Colorado SAN LUIS VALLEY RURAL ELECTRIC COOPERATIVE Monte Vista, Colorado SM SAN MIGUEL POWER ASSOCIATION Nucla, Colorado SC SANGRE DE CRISTO ELECTRIC ASSOCIATION Buena Vista, Colorado SR SIERRA ELECTRIC COOPERATIVE Elephant Butte, New Mexico SO SOCORRO ELECTRIC COOPERATIVE Socorro, New Mexico SE SOUTHEAST COLORADO POWER ASSOCIATION La Junta, Colorado SW SOUTHWESTERN ELECTRIC COOPERATIVE Clayton, New Mexico SP SPRINGER ELECTRIC COOPERATIVE Springer, New Mexico UN UNITED POWER Brighton, Colorado WB WHEAT BELT PUBLIC POWER DISTRICT Sidney, Nebraska WL WHEATLAND RURAL ELECTRIC ASSOCIATION Wheatland, Wyoming WR WHITE RIVER ELECTRIC ASSOCIATION Meeker, Colorado WY WYRULEC COMPANY Lingle, Wyoming YW Y-W ELECTRIC ASSOCIATION Akron, Colorado Major Tri-State Resources 1 HEADQUARTERS AND OPERATIONS CENTER Westminster, Colorado 2 CRAIG STATION Craig, Colorado 3 NUCLA STATION Nucla, Colorado 4 BURLINGTON STATION Burlington, Colorado 5 J.M. SHAFER GENERATING STATION Fort Lupton, Colorado 6 LIMON GENERATING STATION Limon, Colorado 7 FRANK R. KNUTSON GENERATING STATION Brighton, Colorado 8 RIFLE GENERATING STATION Rifle, Colorado 9 LARAMIE RIVER STATION Wheatland, Wyoming 10 ESCALANTE GENERATING STATION Prewitt, New Mexico 11 SAN JUAN GENERATING STATION Farmington, New Mexico 12 PYRAMID GENERATING STATION Lordsburg, New Mexico 13 SPRINGERVILLE GENERATING STATION Springerville, Arizona 14 DAVID A. HAMIL DC TIE Stegall, Nebraska 15 CIMARRON SOLAR FACILITY* Springer, New Mexico 16 KIT CARSON WINDPOWER PROJECT* Burlington, Colorado 17 COLORADO HIGHLANDS WIND* Fleming, Colorado *Long-term purchase power arrangements. 2

4 WY BH HP HP HP NB WL WY RS CR CB HW YW MC MP WR DM SM EM LP SV NR KT SP SW MO JM CD CN SO OC CO SR GC SC SI SE MV KC PV UN NW PH MW WB HI GL NE CO NM

5 2013 By the Numbers 18.6m 15.3m TOTAL ENERGY SALES (MwH) ENERGY SALES TO MEMBERS (MwH) 1,870mw 897mw GENERATING CAPACITY, COAL OWNED GENERATING CAPACITY, NATURAL GAS/OIL $1.3b $72.9m TOTAL OPERATING REVENUE NET MARGINS More than numbers Tri-State is NET MARGINS ($ in millions) POWER PRODUCED (megawatt-hours in millions)

6 3.3m 2,666mw 5,348 ENERGY SALES TO NON-MEMBERS (MwH) MEMBER PEAK DEMAND MILES OF TRANSMISSION LINE 853mw 558mw 12.5m RENEWABLE ENERGY RESOURCES CONTRACTED GENERATING CAPACITY POWER PRODUCED (MwH) $4.6b 7.1 1,531 TOTAL ASSETS AVERAGE WHOLESALE RATE TO MEMBERS (per KwH) EMPLOYEES (includes subsidiaries) powered by our hard working people. TOTAL MEGAWATT-HOUR SALES (megawatt-hours in millions) MEMBER COINCIDENT PEAK DEMAND (megawatts) ,447 2,568 2,654 2,798 2,

7 Letter from the Chairman On behalf of the board of directors, I want to thank all of the dedicated employees at Tri-State for the efforts they put forth in On behalf of the board of directors, I want to thank all of the dedicated employees at Tri-State for the efforts they put forth in They work tirelessly on behalf of our membership to steward our shared assets and ensure the association is fulfilling its mission to provide a reliable, cost-based supply of electricity while maintaining a sound financial position. Operationally, financially and in all other aspects of our business, staff continues to perform well for the membership. The cost of wholesale electric power to the membership remains a focus of our board. Despite the cost pressures facing both the association and the electric utility industry in general, Tri-State has successfully controlled its costs over the past five years. Since 2009, operating costs per megawatt-hour have held steady, or decreased, on a real, or inflation adjusted, basis. As we look forward, real operating costs per megawatt hour are forecasted to be flat. However, we can see how regulatory and compliance obligations continue to place pressure on our costs. Ensuring we continue to advance our board strategic goals on regulation mitigation, long-term fuel and resource planning and affordability remain critical to addressing and mitigating these cost pressures. Tri-State remains financially strong, supported by its A financial ratings with stable outlooks from the major rating agencies. As a sign of our financial health and as part of the value of being a cooperative, the board approved the retirement of capital credits of $10 million. The allocation of capital credits and their retirement is an important value in our cooperative business model. In 2013, the association implemented a new rate and a new portfolio of demand response and energy shaping products. These programs were successful and enrolled more than 150 megawatts of load to help manage risks. As a board, we continue to address the intrusion into our self-governance by regulatory bodies in two states, which is not in the best interests of our members. Since Tri-State was founded, the board of directors has determined the rates at which wholesale power is sold to its members. Our system of governance has served the membership well and it will in the future, as we work together in cooperation. Tri-State is a dynamic and complex organization with a great deal of diversity throughout our membership. This has strong operational advantages, but also requires us to work together to resolve our issues. The board of directors will continue to support and preserve our governance, and we begin 2014 with a renewed commitment to the principle of cooperation among cooperatives. I sincerely thank the board for their continued support. It has been an honor to serve another year as president and chairman of the board of directors. RICK GORDON Chairman 6

8 General Manager s Message It s people who are the real power of our association, and I would like to acknowledge the hard work of all our employees and the guidance from our board in 2013 It s people who are the real power of our association, and I would like to acknowledge the hard work of all our employees and the guidance from our board in 2013 as we continued to grow our safety culture, keep the lights on, contain costs and foster an environment for learning, while supporting the board s strategic goals that prepare the association for the future. Safety is and always will be a top priority in all we do at Tri-State. We concluded the year with an excellent record of staying safe on the job at our generating plants, field facilities and our other worksites. Tri-State s key safety metrics in 2013 were much better than industry averages. In production, Tri-State s workforce managed our diverse portfolio of coal-based and natural gas-fired generation, coupled with purchased federal hydropower and other renewable resources, that continued to effectively meet the membership s power requirements during the year. In 2013, Tri-State fully integrated the operations at Colowyo Mine and New Horizon Mine into its operations, and reduced production costs at Colowyo Mine with the addition of a highwall miner. Tri-State s transmission assets performed reliably and achieved a number of notable accomplishments in The association constructed 13 new substations, added 32 miles of line and increased load serving capability and system performance at 27 existing substations. And as our workforce continues to experience transitions from retirements, 11 new journeyman graduated. Several new renewable energy purchase agreements were executed in 2013, including the expansion of the Colorado Highlands Wind farm and the addition of the 150-megawatt Carousel Wind Farm. At year s end, 52 megawatts of member renewable energy projects were constructed or under development. Tri-State persists in analyzing our approach to cost effectively address an expanded Colorado renewable energy mandate passed by the state legislature in 2013, of which the major components become effective in Also in 2013, we had a renewed focus on customer service to our member systems, and instituted an advisory council on demand response and energy shaping products to support the success of these important initiatives. Tri-State continues to be engaged with regulators and policy makers regarding over-regulation of utilities in the environmental, energy policy and reliability sectors, and we continue to take steps to support compliance, reduce liabilities, control costs and create efficiencies in these areas. On behalf of our employees, we remain steadfast in our commitment to our member systems in not only providing safe, reliable and affordable electricity, but also as a willing partner with each of our members to ensure that we are delivering the products and services that bring the most value to the member-owners at the end of the line. KEN ANDERSON Executive Vice President and General Manager 7

9 Powered by People SAFETY Tri-State s infrastructure consists of a variety of generating stations, thousands of miles of COMPETENCY transmission line, substations, field offices, computer networks and other facilities spread across DEDICATION a massive service territory. Behind those resources are a board and workforce that carry out EXPERIENCE their activities and responsibilities determined to deliver on the association s goals and mission. FOCUS The power plants generate the electricity and the transmission lines transport it, but Tri-State is COMMITMENT truly powered by people. 8

10 Tri-State lists approximately $4.6 billion of assets on its balance sheet, which includes power plants, transmission assets and a variety of properties, facilities, fleet of vehicles and other investments. What is not immediately accounted for in that inventory is the value of the human capital Tri-State relies on for the successful operation of the association on behalf of its member systems. Tri-State is governed by its board of directors, one from each of the association s 44 member systems, and powered by its 1,500-person workforce, working in tandem with a shared purpose to deliver value to the 44 member systems and their 1.5 million member-owners in communities across the West. The association s board, management and employees share common principles and values, with safety being the highest priority. That commitment is embraced and adhered to throughout the entire organization. Promoting a culture of safety at all of the G&T s facilities is foremost in employees minds and is stressed every day for the well-being of each and every person present at a Tri-State worksite. Safety has and always will be one area where corners won t be cut and shortcuts won t be tolerated. Tri-State is governed by its board of directors, one from each of the association s 44 member systems, and powered by its 1,500-person workforce, working in tandem with a shared purpose to deliver value to the 44 member systems and their 1.5 million member-owners in communities across the West. The association s safety initiatives have been enhanced and fine-tuned over the years. Some of the more recent improvements include adapting the Occupational Safety and Health Administration s (OSHA) Voluntary Protection Program (VPP) elements as the model for our own safety and health program and the recent introduction of the Tri-State Safety Toolbox a collection of 12 key safety tools and practices designed to help employees work safely. The Safety Toolbox has been distributed to employees at generating stations, transmission field facilities and mines. 9

11 Employee engagement in safety and health is evident in a number of ways that have produced tangible dividends. Two of Tri-State s locations currently participate in the prestigious VPP saw Corporate Flight Operations recertified as a VPP Star site facility as Escalante Station continued its participation in the program as a Star site facility. Companies participating in OSHA s VPP establish a cooperative working relationship with OSHA by working together to meet stringent safety criteria. Tri-State also experienced large reductions in lost time accidents and injuries across the entire organization. As a cooperative, the association is anchored by the seven cooperative principles. The fifth principle, education, training and information, is a central element of our culture. Tri-State s employees are encouraged to take advantage of a number of educational and training opportunities made available to increase their knowledge and overall effectiveness. These and other resources are provided for by the board of directors and are aimed at evolving and growing each individual s contribution to the organization. Tri-State s employees are encouraged to take advantage of a number of educational and training opportunities made available to increase their knowledge and overall effectiveness. Tri-State s leadership development programs are also developing the next generation of leaders through learning and development. We believe that leaders are developed not trained. Leadership programs are focused on people, potential, growth, effectiveness, solutions, culture and the future. Through its programs, the association is investing in the human resources that will move the organization forward. 10

12 Tri-State s long-standing ability to reliably and responsibly keep the lights on and deliver value to its member systems through the effective operation of its power supply network is a direct reflection of the competency, experience and capabilities of its workforce. The results are apparent in the G&T s ability to efficiently provide affordable electricity to its member systems, while upholding a reliable and well-maintained transmission system. Those efforts are further enhanced by personnel in energy markets who continuously process energy transactions while ensuring compliance with complex regulations and mitigating cost and regulatory risks. Tri-State s generating fleet of baseload stations, intermediate resources and peaking plants performed well throughout The renewable energy portion of the G&T s energy portfolio continues to grow, with the expansion of the Colorado Highlands Wind project to 91 megawatts in 2013, and the approval by the board of directors to purchase power from the 150-megawatt Carousel Wind Farm, which is expected to be available in Tri-State s board and staff will continue to explore, analyze and pursue renewable energy resources that provide value to the membership and that address the association s requirements under established state renewable portfolio standards. The association has also pursued contracts for power produced at a number of small, local hydro facilities in the region, including the historic 5-megawatt Boulder Canyon project and an 8-megawatt project being developed near Ridgway, Colo. Tri-State s board and staff will continue to explore, analyze and pursue renewable energy resources that provide value to the membership and that address the association s requirements under established state renewable portfolio standards. 11

13 Another extremely valuable investment that generates its own kind of power is the association s longstanding commitment to youth and education through a variety of initiatives aimed at empowering the leaders of tomorrow. At the same time, Tri-State continues to support its members in developing local distributed renewable projects in their service territories through financial incentive policies and technical support. By year-end, those joint efforts have resulted in approximately 52 megawatts of projects currently in operation or under development, ranging from landfill gas, wind, solar and hydro. As regulatory forces continue to place upward cost pressure on the electric utility industry, the association s board, management and employees remain focused on cost containment, which is critical for the financial health not only of Tri-State, but also its 44 member systems and their member-owners. Tri-State stewards significant resources for its membership and the G&T remains focused on effective and efficient operations, making the investments necessary to ensure a reliable power supply and managing costs. The commitment of Tri-State s board and activities of its employees stretches beyond maintaining and enhancing the association s power supply network on behalf of its member co-ops. Another extremely valuable investment that generates its own kind of power is the association s longstanding commitment to youth and education through a variety of initiatives aimed at empowering the leaders of tomorrow. The association supports regional competitions, workshops and other events conducted by Future Farmers of America and 4-H, as well as the National Western Stock Show and Rodeo, which provides college and graduate-level scholarships in agriculture and veterinary medicine. Tri-State s dedication to educational outreach and agricultural programs also includes providing classroom materials and instructive resources, as well as promoting and sponsoring teacher development conferences and other learning opportunities. Communication, coordination and collaboration are key tactics employed among the many departments and functional areas that make up Tri-State s workforce. Personnel across the organization rely on each other s experience and share a mutual trust and dependence to accomplish the task at hand. That same trust is extended from the board of directors to management and employees all of whom work in conjunction with each other as stewards of the member systems shared assets to reliably, efficiently and responsibly deliver on the association s ongoing purpose and mission. 12

14 Board of Directors RICK GORDON Chairman Mountain View Electric TONY CASADOS Vice Chairman Northern Rio Arriba Electric JIM SOEHNER Secretary Y-W Electric STUART MORGAN Treasurer Wheat Belt Public Power BILL BIRD Assistant Secretary Otero County Electric MATT BROWN Assistant Secretary High Plains Power MARSHALL COLLINS Executive Committee Delta-Montrose Electric JACK FINNERTY Executive Committee Wheatland Rural Electric JOE WHEELING Executive Committee La Plata Electric ROBERT BLEDSOE K.C. Electric LEO BREKEL Highline Electric JERRY BURNETT High West Energy RICHARD CLIFTON Carbon Power & Light WAYNE CONNELL Central New Mexico Electric LUCAS CORDOVA JR. Jémez Mountains Electric As a wholesale power cooperative, Tri-State is owned and governed by its 44 member distribution systems, with the board of directors comprised of one representative from each of its members. Each director is appointed by his or her local co-op to the Tri-State board, with terms normally running one year. Tri-State s Board officers serve from April to April (coinciding with the association s annual meeting). The Tri-State board, which meets on a monthly basis, also is divided into four committees the Executive Committee (consisting of the six officers of the board along with three at-large positions), the Engineering and Operations Committee, the Finance Committee and the External Affairs/Member Relations Committee. 13

15 Board of Directors GARY FUCHSER Northwest Public Power RON HAGAN Midwest Electric JACK HAMMOND Niobrara Electric RALPH HILYARD Roosevelt Public Power DON KEAIRNS San Isabel Electric HAL KEELER Columbus Electric JULIE KILTY Wyrulec Co. GARY MERRIFIELD Sangre de Cristo Electric THAINE MICHIE Poudre Valley Rural Electric WILLIAM MOLLENKOPF Empire Electric CHRIS MORGAN Gunnison Electric RICHARD NEWMAN United Power DIEGO QUINTANA Mora-San Miguel Electric GARY RINKER Southwestern Electric ART RODARTE Kit Carson Electric Senior Management KEN ANDERSON Executive Vice President/ General Manager JOEL BLADOW Senior Vice President Transmission PAT BRIDGES Senior Vice President Chief Financial Officer JENNIFER GOSS Senior Vice President Member Relations MIKE MCINNES Senior Vice President Production 14

16 CLAUDIO ROMERO Continental Divide Electric DON RUSSELL Big Horn Electric BRIAN SCHLAGEL Morgan County Rural Electric GERALD SEWARD Springer Electric J. H. SHERIDAN White River Electric JUDY SMITH Sierra Electric KEVIN STUART Chimney Rock Public Power JERRY THOMPSON Garland Light & Power CARL TRICK, JR. Mountain Parks Electric MARCUS WILSON San Miguel Power DONALD WOLBERG Socorro Electric SCOTT WOLFE San Luis Valley Electric BILL WRIGHT Southeast Colorado Power PHIL ZOCHOL Panhandle Rural Electric BRAD NEBERGALL Senior Vice President Energy Management KEN REIF Senior Vice President General Counsel JIM SPIERS Senior Vice President Business Strategy/ Chief Technical Officer BARBARA WALZ Senior Vice President Policy and Compliance/ Chief Compliance Officer 15

17 Financial Highlights & Five-Year Financial Summary Tri-State had an excellent year from a financial perspective and continued to take actions that will keep it financially strong well into the future. Tri-State s $72.9 million margin in 2013 provided a debt service coverage well in excess of the requirement in its Master First Mortgage Indenture and helped grow the association s equity as a percentage of total capitalization to 23.6 percent. Tri-State s liquidity remains strong. As of December 31, 2013, Tri-State had $193 million in cash, $75 million of unused committed lines of credit and a secured revolving credit facility with a total unused commitment of $322 million. True to the cooperative business model, Tri-State s board of directors declared a $10 million patronage capital refund to its members during 2013, which makes this the 25th consecutive year that the association has returned capital credits. The association maintained its A rating from the three major rating agencies, which is a strong testament to the financial planning and business decisions made by the Tri-State board of directors and staff. Tri-State continues to invest in its infrastructure through capital improvements and system upgrades in order to serve the growing needs of its member distribution systems. Electric plant in service increased $108.9 million from December 31, 2012 to $5.0 billion as of December 31, The association provides power to its member systems and also sells power to other utilities in the region under long-term contracts and market sale arrangements. Member electric sales for 2013 were 15,313,487 megawatt-hours which was a decrease of 403,981 megawatt-hours from Despite the decrease in megawatt-hours, member electric sales revenue increased $24.0 million, or 2.3 percent, to $1.1 billion due to a 4.9 percent rate increase effective January 1, The 2013 non-member electric sales increased 306,173 megawatt-hours to 3,316,487 megawatt-hours primarily due to increased 2013 firm contractual sales out of Springerville Generating Station Unit 3 after having reduced sales in 2012 as a result of a threemonth outage to repair a damaged turbine at the unit. The increase in sales resulted in non-member electric sales revenue increasing $9.4 million, or 5.8 percent, to $172.1 million in Other operating income increased $13.8 million, or 50.6 percent, to $41.0 million in 2013 primarily due to increased lease revenues resulting from the resumption of gas tolling arrangements at our Knutson and Limon generating stations on May 1, Purchased power expense increased $11.8 million, or 3.8 percent, to $322.1 million in This increase was due to a 10.7 percent increase in the average cost of purchased power resulting from higher market prices for electricity, offset by a 7.6 percent decrease in megawatt-hours purchased. The decrease in purchases resulted from an increase in power generated at our generating stations primarily due to the increased generation in 2013 from Springerville Generating Station Unit 3. Fuel and production expenses increased $14.5 and $9.4 million, respectively, due to the increased generation at our coal-fired generating stations in 2013 primarily due to the increased megawatt-hours generated at Springerville Generating Station Unit 3. Generation maintenance expense decreased $13.2 million, or 12.6 percent, due to the reduction in 2013 scheduled and unscheduled maintenance outages at our coal generating stations. Tri-State s strong financial position and creditworthiness provide the association with the continued ability to meet the future needs of the member distribution systems and their member-owners. TOTAL OPERATING REVENUE ($ in millions) PATRONAGE CAPITAL RETIREMENTS ($ in millions) 1,164 1,212 1,176 1,257 1,

18 (Thousands) Operating revenues Member electric sales $ 1,091,103 $ 1,067,085 $ 1,007,993 $ 981,126 $ 926,428 Non-member electric sales 172, , , , ,126 Other 40,994 27,217 15,381 22,933 28,342 Operating expenses Power costs (819,522) (797,136) (727,185) (728,735) (669,590) Lease expense (5,276) (6,714) (19,365) (22,711) (71,115) Transmission (138,684) (136,853) (136,825) (121,786) (115,128) General and administrative (24,325) (22,810) (18,930) (18,694) (16,514) Depreciation and amortization (118,776) (115,958) (105,793) (131,739) (104,973) Income taxes 10 9,738 (7,615) Operating margins 197, , , , ,961 Other income 29,855 31,094 64,164 32,297 28,739 Other deductions Interest expense (147,989) (150,248) (154,291) (147,243) (97,560) Other expenses (8,803) (8,618) (11,844) (11,138) (5,476) Net margins including noncontrolling interest $ 70,679 $ 49,753 $ 66,121 $ 72,405 $ 104,664 Net loss attributable to noncontrolling interest 2,233 3,042 3,813 4, Net margins attributable to the Association $ 72,912 $ 52,795 $ 69,934 $ 77,144 $ 104,874 Plant in service (net) $ 2,941,860 $ 2,926,700 $ 2,819,499 $ 2,696,137 $ 2,661,633 Construction work in progress 231, , , , ,111 Total plant 3,173,234 3,079,055 3,002,677 2,897,148 2,794,744 Investments in other associations 128, , , , ,368 Restricted cash and investments 30,381 35,881 Investment in securities pledged as collateral 16,728 25,971 35,145 Goodwill and intangible assets 133, , ,221 Other assets 562, , , , ,906 Total other assets 871, , , , ,274 Cash and cash equivalents 193,057 81, , , ,585 Restricted cash and investments 48,390 27,143 Investment in securities pledged as collateral 9,242 9,175 9,648 Accounts receivable 126, , , , ,243 Inventories 119, , ,214 94, ,586 Other current assets 22,569 19,193 17,985 17,098 16,323 Total current assets 518, , , , ,737 Total assets $ 4,563,778 $ 4,302,567 $ 4,190,973 $ 3,794,155 $ 3,688,755 Long-term debt $ 2,940,412 $ 2,790,368 $ 2,712,152 $ 2,491,538 $ 2,509,129 Current liabilities 437, , , , ,135 Deferred credits and APBO 206, , , , ,203 Total liabilities 3,584,324 3,383,658 3,311,518 2,960,365 2,906,467 Patronage capital equity 868, , , , ,613 Noncontrolling interest 110, , , , ,675 Total equity 979, , , , ,288 Total equity and liabilities $ 4,563,778 $ 4,302,567 $ 4,190,973 $ 3,794,155 $ 3,688,755 Other data: Megawatt-hours sold member 15,313,487 15,717,468 15,421,227 15,026,510 14,245,565 non-member 3,316,487 3,010,314 3,976,884 3,836,646 4,311,891 System coincident peak demand megawatts 2,666 2,798 2,654 2,568 2,447 Average member mills/kwh sales Average member mills/kwh capital refunds Plant additions (cash) $ 230,532 $ 195,895 $ 145,446 $ 232,805 $ 298,791 Capital credit allocations received 10,922 7,845 7,167 6,162 12,712 Tri-State patronage capital retirements 10,000 10,000 20,000 20,000 10,000 Long-term debt repaid 196, , , , ,141 Weighted average long-term debt interest rate 5.1% 5.2% 5.7% 5.7% 5.9% Equity as a % of total capitalization 23.6% 23.5% 23.3% 24.0% 22.9% 17

19 REPORT OF INDEPENDENT AUDITORS The Board of Directors of Tri-State Generation and Transmission Association, Inc. Report on the Financial Statements We have audited the accompanying consolidated financial statements of Tri-State Generation and Transmission Association, Inc. (the Association), which comprise the consolidated statements of financial position as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2013, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tri-State Generation and Transmission Association, Inc. at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 21, 2014 on our consideration of the Association s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Tri-State Generation and Transmission Association, Inc. s internal control over financial reporting compliance. February 21,

20 CONSOlIDATED STATEmENTS of FINANCIAl POSITION As of December 31, (Thousands) ASSETS Electric plant In service $ 4,965,495 $ 4,856,572 Construction work in progress 231, ,355 Total electric plant 5,196,869 5,008,927 Less allowances for depreciation and amortization (2,023,635) (1,929,872) Net electric plant 3,173,234 3,079,055 Other assets and investments Investments in other associations 128, ,938 Investments in coal mines 176, ,949 Restricted cash and investments 30,381 35,881 Investment in securities pledged as collateral 16,728 25,971 Deferred equity note 7,693 7,796 Goodwill and intangible assets 133, ,403 Other noncurrent assets 11,223 11,159 Total other assets and investments 504, ,097 Current assets Cash and cash equivalents 193,057 81,492 Restricted cash and investments 48,390 27,143 Investment in securities pledged as collateral 9,242 9,175 Deposits and advances 22,569 19,193 Accounts receivable members 93,590 86,651 Other accounts receivable 32,818 46,750 Coal inventory 43,730 61,254 Materials and supplies 75,477 71,358 Total current assets 518, ,016 Deferred charges 367, ,399 Total assets $ 4,563,778 $ 4,302,567 EQUITY AND LIABILITIES Capitalization Patronage capital equity $ 868,714 $ 805,882 Noncontrolling interest 110, ,027 Total patronage capital equity and noncontrolling interest 979, ,909 Long-term debt 2,940,412 2,790,368 Total capitalization 3,919,866 3,709,277 Current liabilities Member advances 12,348 14,477 Accounts payable 109,807 93,969 Accrued expenses 78,941 84,308 Current maturities of long-term debt 236, ,053 Total current liabilities 437, ,807 Deferred credits and other liabilities 202, ,304 Accumulated postretirement benefit and postemployment obligations 3,248 3,179 Total equity and liabilities $ 4,563,778 $ 4,302,567 The accompanying notes are an integral part of these consolidated statements. 19

21 CONSOlIDATED STATEmENTS of OPERATIONS For the years ended December 31, (Thousands) Operating revenues Member electric sales $ 1,091,103 $ 1,067,085 $ 1,007,993 Non-member electric sales 172, , ,806 Other 40,994 27,217 15,381 1,304,199 1,256,996 1,176,180 Operating expenses Purchased power 322, , ,287 Fuel 287, , ,917 Production 118, , ,593 Lease expense 5,276 6,714 19,365 Transmission 114, , ,795 General and administrative 24,325 22,810 18,930 Generation maintenance 91, ,749 82,388 Transmission maintenance 23,917 24,847 25,030 Depreciation and amortization 118, , ,793 Income taxes (10) 1,106,583 1,079,471 1,008,088 Operating margins 197, , ,092 Other income Interest income 16,996 23,662 27,065 Capital credits from cooperatives 10,922 7,845 7,167 Other income (loss) 1,937 (413) 29,932 29,855 31,094 64,164 Interest and other deductions Interest expense, net of amounts capitalized 147, , ,291 Other deductions 8,803 8,618 11, , , ,135 Net margins including noncontrolling interest 70,679 49,753 66,121 Net loss attributable to noncontrolling interest 2,233 3,042 3,813 Net margins attributable to the Association $ 72,912 $ 52,795 $ 69,934 The accompanying notes are an integral part of these consolidated statements. 20

22 CONSOlIDATED STATEmENTS of ComPREhENSIve INCOme For the years ended December 31, (Thousands) Net margins including noncontrolling interest $ 70,679 $ 49,753 $ 66,121 Other comprehensive income: Unrealized gain (loss) on securities available for sale (48) Less: Reclassification adjustment for actuarial gain on postretirement benefit obligation included in net income (358) (358) (358) Income tax expense related to components of other comprehensive income Other comprehensive income (80) (248) (406) Comprehensive income including noncontrolling interest 70,599 49,505 65,715 Net comprehensive loss attributable to noncontrolling interest 2,233 3,042 3,813 Comprehensive income attributable to the Association $ 72,832 $ 52,547 $ 69,528 The accompanying notes are an integral part of these consolidated financial statements. CONSOlIDATED STATEmENTS of EqUITy For the years ended December 31, (Thousands) Patronage capital equity at beginning of year $ 805,882 $ 763,335 $ 713,807 Net margins attributable to the Association 72,912 52,795 69,934 Other comprehensive income (80) (248) (406) Retirements (10,000) (10,000) (20,000) Patronage capital equity at end of year 868, , ,335 Noncontrolling interest at beginning of year $ 113,027 $ 116,120 $ 119,983 Net loss attributable to noncontrolling interest (2,233) (3,042) (3,813) Equity distribution to noncontrolling interest (54) (51) (50) Noncontrolling interest at end of year 110, , ,120 Total patronage capital equity and noncontrolling interest at end of year $ 979,454 $ 918,909 $ 879,455 The accompanying notes are an integral part of these consolidated statements. 21

23 CONSOlIDATED STATEmENTS of CASh Flows For the years ended December 31, (Thousands) Operating activities Net margins including noncontrolling interest $ 70,679 $ 49,753 $ 66,121 Adjustments to reconcile net margins to net cash provided by operating activities: Depreciation and amortization 118, , ,793 Capital credit allocations from cooperatives and income from coal mines over refund distributions (7,053) (11,217) (5,404) RS Plan prepayment (71,160) Recognition of deferred revenue (10,000) (10,000) Deferred revenue 55,000 Change in restricted cash and investments (390) (30,380) Changes in operating assets and liabilities: Accounts receivable 7,000 (12,868) 4,397 Coal inventory 17,524 (6,941) (4,156) Materials and supplies (4,119) (6,457) (551) Accounts payable and accrued expenses 11,840 (3,181) 862 Other 6,446 10,018 (2,968) Net cash provided by operating activities 149,543 94, ,094 Investing activities Purchases of plant, net of retirements (230,532) (195,895) (145,446) Acquisition of Thermo Cogeneration Partnership (204,260) Acquisition of Colowyo Coal (108,069) Changes in deferred charges 15,980 6,391 (79) Changes in other noncurrent assets 3,721 2,707 1,301 Net cash used in investing activities (210,831) (186,797) (456,553) Financing activities Member advances (2,129) (1,385) 7,563 Payments of long-term debt (196,490) (416,780) (142,767) Decrease in advance payments to RUS and funds on deposit with trustees 130, ,115 84,115 Retirement of patronage capital (10,711) (14,869) (14,779) Proceeds from issuance of debt 258, , ,175 Securities pledged as collateral defeasance of Colowyo Bonds (44,793) Proceeds from investment in securities pledged as collateral 8,410 8,483 Change in restricted cash and investments (15,357) (32,644) Net cash provided by financing activities 172,853 56, ,514 Net increase (decrease) in cash and cash equivalents 111,565 (36,015) (87,945) Cash and cash equivalents beginning 81, , ,452 Cash and cash equivalents ending $ 193,057 $ 81,492 $ 117,507 Supplemental information: Cash paid for interest $ 124,703 $ 142,375 $ 130,335 The accompanying notes are an integral part of these consolidated statements. 22

24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Organization Tri-State Generation and Transmission Association, Inc. (the Association ) is a wholesale power supply cooperative. During 2013, it provided power to 44 member distribution systems that serve major parts of Colorado, Nebraska, New Mexico and Wyoming. The Association also sells a portion of its power to other utilities in the region under long-term contracts (see Note 12 Commitments and Contingencies) and market sale arrangements. In 2013, 2012 and 2011, total megawatt-hours sold were 18.6, 18.7 and 19.4 million, respectively, of which 82, 84 and 79 percent, respectively, were sold to members. Total revenue from electric sales was $1.3 billion for 2013 and $1.2 billion for each of the years 2012 and 2011 of which 86, 87 and 87 percent, respectively, were from member sales. Energy resources were provided by generation and purchased power, of which 64, 62 and 65 percent were from generation for 2013, 2012 and 2011, respectively. The Association has wholesale power contracts with 42 of its members through the year 2050 and with two of its members through the year 2040 whereby each member is obligated to purchase at least 95 percent of its requirements from the Association and can elect to provide up to 5 percent of its requirements from generation owned or controlled by the member. Twelve members have made such an election. Power is provided to members at rates determined by the Board of Directors. Rates are designed to recover all costs and provide margins to increase members equity. Undivided interests in the jointly owned facilities of the Yampa Project, the Missouri Basin Power Project ( MBPP ), and the San Juan Project ( San Juan ) are owned by the Association. Each participant in these facilities provides its own financing. The Association receives a portion of the total output of the generating stations, which approximates its percentage ownership. The operating agent for each of these projects allocates to the Association its share of fuel and other operating costs. The Association, including its subsidiaries, employs 1,531 people, of which 351 are subject to collective bargaining agreements. None of these agreements expire within one year. Note 2 Summary of Significant Accounting Policies Basis of Consolidation: The consolidated financial statements include the accounts of the Association and its 99 percent interest in Western Fuels-Colorado, a limited liability company organized for the purpose of acquiring coal reserves and supplying coal to the Association. The consolidated financial statements also include, on a pro rata basis, the Association s undivided interests in jointly owned facilities (see Note 1 Organization), entities acquired by the Association in acquisitions that are accounted for as business combinations (see Note 3 Acquisitions) and the Association s acquisition of the Springerville Unit 3 Partnership assets through the acquisition of a 51 percent equity interest in the Springerville Partnership (see Note 9 Leases). The net losses and equity attributable to the 49 percent noncontrolling equity interest in the Springerville Partnership are reflected on the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated statements have been prepared in accordance with U.S. generally accepted accounting principles ( GAAP ) as applied to regulated enterprises and as prescribed by the Rural Utilities Service ( RUS ). Business Combinations: The Association accounts for business acquisitions by applying the accounting standard related to business combinations (see Note 3 Acquisitions). In accordance with this method, the identifiable assets acquired, the liabilities assumed and any noncontrolling interests in the acquired entities are required to be recognized at their acquisition date fair values. The Association typically engages an independent valuation firm to determine the acquisition date fair values of most of the acquired assets and assumed liabilities. The excess of total consideration transferred over the net assets acquired is recognized as goodwill. Acquisition related costs such as legal fees, accounting services fees and valuation fees, are expensed as incurred. The Association is required to consolidate these acquired entities. If an acquisition does not result in acquiring a business, the transaction is accounted for as an acquisition of assets. This method requires measurement and recognition of the acquired net assets based upon the amount of cash transferred and the amount paid for acquisition-related costs. There is no goodwill recognized in an acquisition of assets. Use of Estimates: The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. 23

25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Electric Plant and Depreciation: Electric plant is stated at cost. The cost of internally constructed assets includes payroll, overhead costs and interest charged during construction. Interest rates charged during construction of 4.8, 5.4 and 5.4 percent were used for 2013, 2012 and 2011, respectively. The amount of interest capitalized during construction was $13.0, $15.2 and $13.6 million during 2013, 2012 and 2011, respectively. At the time that units of electric plant are retired, original cost and cost of removal, net of the salvage value, are charged to the allowance for depreciation. Replacements of electric plant that involve less than a designated unit value are charged to maintenance expense when incurred. Electric plant is depreciated based upon estimated depreciation rates and useful lives that are periodically re-evaluated. Leases: The accounting for lease transactions in conformity with GAAP requires management to make various assumptions, including the discount rate, the fair market value of the leased assets and the estimated useful life, in order to determine whether a lease should be classified as operating or capital. The Association has certain power sales arrangements that are required to be accounted for as operating leases since the arrangements are in substance leases because they convey the right to use power generating equipment for a stated period of time. The contracts under which sales are made to Public Service Company of Colorado ( PSCO ) out of the Association s Knutson and Limon generating stations are such arrangements. Under these contracts, PSCO directs the use of both of the two Knutson generating units and one of the two Limon generating units over the terms of the contracts under tolling arrangements whereby PSCO provides its own natural gas for generation of electricity. The arrangements are therefore accounted for as operating leases. The Limon contract was suspended for a four-year period beginning May 2009 through April 2013 and the Knutson contract was suspended for a threeyear period beginning May 2010 through April 2013 to allow the Association to utilize the output of the turbines. Both turbine contracts resumed with PSCO under the original tolling arrangements on May 1, 2013 and are in effect through April 30, The Association also has a similar tolling arrangement with Shell Energy North America through September 30, 2014 involving one of the four 40-megawatt units at the Association s Pyramid Generating Station. On December 2, 2011, the Association acquired Thermo Cogeneration Partnership in a business combination (see Note 3 Acquisitions) and thereby acquired the J.M. Shafer Generating Station from which PSCO is purchasing power under a tolling arrangement that is similar to the above arrangements and is therefore also accounted for as an operating lease by the Association. The revenues from these operating leases of $25.8, $13.2 and $1.8 million for 2013, 2012 and 2011, respectively, are accounted for as lease revenue and are reflected in other operating revenue on the consolidated statements of operations. The generating units used in these gas tolling arrangements have a total cost and accumulated depreciation of $229 and $105 million, respectively, as of December 31, 2013 and of $228 and $100 million, respectively, as of December 31, The minimum future lease revenues under these gas tolling arrangements at December 31, 2013 are as follows (thousands): 2014 $ 32, , , , ,812 Thereafter 5,408 $108,988 The Association has entered into power purchase arrangements that are required to be accounted for as operating leases since the arrangements are in substance leases because they convey to the Association the right to use power generating equipment for a stated period of time. Under these agreements, the Association directs the use of the contracted generating equipment over the terms of the contracts under tolling arrangements whereby the Association provides its own natural gas for generation of electricity. One such agreement for the use of 72 megawatts at the Brush Generating Station began October 1, 2009 and is for 10 years. Another agreement for the use of generating equipment at the Rawhide Generating Station began in June 2008 and ended May 31, Additionally, the Association had a 10-year agreement beginning July 1, 2009 with Thermo Cogeneration Partnership for the use of generating equipment at the J.M. Shafer Generating Station. On December 2, 2011, the Association acquired Thermo Cogeneration Partnership in a business combination which thereby resulted in the elimination of the J.M. Shafer Generating Station agreement as of this date (see Note 3 Acquisitions). These tolling arrangements are discussed further in Note 9 Leases. 24