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President’s Report

Burk Bullington President

The year 2016 marks the 78th anniversary of Harmon Electric Association. Your annual meeting will be held on Friday, April 1, 2016 at the Hollis Civic Center in Hollis, OK. Your board of trustees and management encourage you to attend and take an active part in your association.

Financially, 2015 was another good year for Harmon Electric. We generated $9 million in revenue and $232,655 in margins. We met all RUS and CFC requirements and ratios in 2015, which means your cooperative remains strong and in good financial condition. The positive margins were generated without an increase in kilowatt hours sold compared to 2014 sales. This is the third year in a row that sales have remained flat. Due to the mild temperatures, our residential sales were down slightly. We are certainly not going to complain about all the rain we received in 2015, but because of the wet year, the irrigation class had a big decrease in sales. Fortunately, sales were up in our commercial and industrial class which helped stabilize overall sales.

The weather has always played a huge role in farming. If we are blessed with rain at the right time, we can have bumper crops. On the other hand, things can be going just right and one hail storm can wipe out all your effort and hard work in just a few minutes. Just like the farmer, Harmon Electric faces much of the same obstacles. Being a small cooperative our success also depends much on the weather. For the cooperative though, a very cold winter and a hot dry summer means a lot of kilowatt sales. To have positive margins the cooperative has to have good sales. To achieve this requires cooperation from the weather. On the other hand, one ice storm like 2010’s can devastate the entire electrical distribution system. This one event changed the course of Harmon Electric for the past six years and for years to come.

Up until 2015 we have had some very hot dry summers but not enough water for irrigation. This has had a negative impact on sales the past several years. Now that the aquifers have been replenished, with the cooperation of the weather, we should see irrigation sales increase.

In the course of doing business, your cooperative does its best to plan for the future. We have long range forecasts, 10 year work plans, cash flow analysis, and key ratio trend analysis. All of these tools are at our disposal and used in the process of planning for the future and also keeping track to make sure we continue to head in the right direction. Harmon Electric also uses consultants for our engineering, financial requirements, rate designs, power quality issues, work order inspections, and various other issues. In the last several years we have also had contractors doing FEMA work on the system. Although we have a small staff, we have experts we can turn to for any need that may arise.

Our duty is to represent our members in each of our districts and to ensure your cooperative remains strong and continues to serve you for years to come. Being locally owned and controlled is just one thing that makes cooperatives different. As a board, we use all the tools available to make sure we continue to provide safe, reliable electricity at an affordable cost while maintaining excellent service. We can plan, work hard, and do our best, but just like farming we are still at the mercy of the weather. We know that you the member are the reason for our existence.

We urge you to attend your annual meeting on Friday, April 1, 2016 and take an active role in your cooperative.

Manager’s Report

I am proud to present to you Harmon Electric Association’s 2015 Annual Report. This report contains the current status of your cooperative. You the member are part owner, so please take an active part and plan to attend the Annual Meeting.

As noted in the President’s report, your FRRSHUDWLYH UHPDLQV ¿QDQFLDOO\ VWURQJ ,¶P also very proud to report that by the time

Charles Paxton General Manager

annual meeting day rolls around, the rebuilding process due to the 2010 ice storm should be complete.

As mentioned in the Presidents Report, this one event drastically changed the course for Harmon Electric for the past six years and will impact how we do business for years to come.

The size and scope of work that has been done is enormous. As of the end of 2015, Harmon Electric had 1,940 miles of energized lines. Of these miles, 981 have been replaced or rebuilt since 2010. That’s approximately 50% of Harmon Electric’s energized lines being rebuilt in the past 6 years that originally took 72 years to build.

As I have discussed in the past, this is not something we wanted to do. This is something your board and management felt we absolutely had to do in order to provide any kind of quality service at all. Plus by doing it now, FEMA covers 75% of the expense of the rebuild instead of you the member paying for 100% of the expense over a much longer time of rebuilding the distribution system.

As this project comes to a close we are left with a much improved system.

With this improved system, even with FEMA’s contribution we are still left with additional debt that has to be paid over time.

There are only a few ways to cover additional debt. One is through increased sales, another is through rate adjustments, and a third is through cutting costs.

Since there isn’t a lot of growth in SW Oklahoma and N Texas, we can’t depend on any large loads coming to our area bringing with them kilowatt sales. As discussed in the president’s report, if the weather cooperated, kilowatt hour sales wouldn’t be a problem. But there again, we can’t depend on the weather. That leaves us with rate adjustments and cutting costs. Last year in my manager’s report I discussed the need and plan to build a

QHZ RI¿FH IDFLOLW\ 7KH QHHG KDV QRW FKDQJHG EXW WKH SODQ KDV <RXU ERDUG and management realize the burden and the impact of any rate adjustment. One way to mitigate the adjustment is by cutting costs. This has been something we have always been conscious of and will continue to be mindful of how it affects each member. Although some rate adjustment will have to be made, your cooperative is doing all we can to cut expenses to minimize the adjustment.

One decision that was made months ago was to postpone the building of a new facility I mentioned earlier. Another decision is to operate with fewer employees. In 2016 we have two less employees than in 2015. This may not sound like many but with a cooperative our size it’s 10% of our work force. :H DUH DOVR WU\LQJ WR H[WHQG WKH OLIH RI RXU ÀHHW We will continue to look at every area and cut where we can. The problem LV ZH GLGQ¶W KDYH D ORW RI IDW WR FXW ,Q


cooperative reduced expenses by $600,000. The following year we had the ice storm. Since then it has been challenging to say the least. Your board and management realize it will continue to be a challenge. It is a challenge we enjoy because it’s for you the member/owner of Harmon Electric. We are excited about the upcoming Annual Meeting. It gives you an opportunity to visit with your board member and the employees of your cooperative. You will also be brought up to date on the activities of your cooperative. We will be serving a burger lunch again this year. When you register you will receive a ticket for the lunch. The employees will be cooking and as always will do a great job. $OVR DV QRWHG LQ WKH DQQXDO UHSRUW ZH ZLOO EH JLYLQJ DZD\ D ÀDW VFUHHQ

TV for the grand prize. We will once again be giving away $50 for some lucky winner in each district plus there will be other numerous prizes given away during the meeting. Make plans to join us Friday, April 1, 2016. We look forward to seeing


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