annual report 2004
TRANSCRIPT
POTOMAC RIVER
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BY-P
WARRENTON
WEST VIRGINIA
PURCELLVILLE
DUMFRIES
MANASSASPARK
MANASSAS
HERNDON
LEESBURG
FAIRFAX
MARYLAND
CLARKE CO.
LOU
DO
UN
CO
.
FAUQUIER CO.
FAIR
FAX C
O.
Pr.Wm.Wm. CO.
STAFFORD C
O.
Dulles Greenway
Dulles Toll RoadTo
Was
hing
ton
DC
LOUDOUN CO.
FAUQUIE
R CO.
LOUDOUN C
O.
FAIRFAX CO.
Pr.Wm. CO.
STAFFORD CO.
FAUQUIER CO
.Pr.W
m. CO
.
WARRENTON
WEST VIRGINIA
PURCELLVILLE
DUMFRIES
MANASSASPARK
MANASSAS
HERNDON
LEESBURG
FAIRFAX
MARYLAND
CLARKE CO.
LOU
DO
UN
CO
.
FAUQUIER CO.
FAIR
FAX C
O.
Pr. Wm. CO.
STAFFORD C
O.
Dulles Greenway
Dulles Toll RoadTo
Was
hing
ton
DC
LOUDOUN CO.
FAUQUIE
R CO.
LOUDOUN C
O.
FAIRFAX CO.
Pr. Wm. CO.
STAFFORD CO.
FAUQUIER CO
.Pr. W
m. CO
.
NOVEC Office Locations Manassas
Gainesville
Leesburg
Minnieville
Stafford
CENTREVILLECENTREVILLE
3 N O V E C T e r r i t o r y N O V E C A N N U A L R E P O R T 2 0 0 4
OUR TERRITORY
ContentsTerritory Map ..................................3
NOVEC Yesterday & Today ............4
NOVEC In Brief................................5
Executive Summary ......................6
Board of Directors ..........................9
Leadership Team ............................10
Customer Service ..........................12
Financial Statements ......................19
Financials at a Glance ....................25
N O V E C A N N U A L R E P O R T 2 0 0 4 N o v e c T o d a y 4
From a modest beginning with fewer than 1,000 customers, we have grown into one of the nation’s largest electric
cooperatives with more than 120,000 customers in a six-county service territory. Our growth projections indicate thatwe could add more than 10,000 customers in the next twoyears. Although NOVEC has become a substantial business
operation, we remain committed to our roots as an electriccooperative. This quote appeared in NOVEC’s 1966 annual
report when we had about 10,600 customers,
“We are still a not-for-profit, community-service organization, and we have complete confidence that we can meet whatever problems the growth of our
community may bring.”
The statement rings as true today as it did then. With our long tradition of providing quality, reliable service even while facing ever-increasing demands for power, NOVEC
is equipped to meet the challenges of the future.
NOVEC – YESTERDAY & TODAY
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $504.9 million
Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $244.6 million
Net operating margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44.0 million
Equity-to-assets ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 percent
TIER (Times Interest Earned Ratio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.55
DSC (Debt Service Coverage) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $149.03 million
Average debt per meter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,272
Cost of power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $140.7 million
Purchased power cost (percent of cost of service) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 percent
Wholesale average cost per kilowatt-hour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.0521
Average monthly load factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.82 percent
Annual peak demand (August). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 615,410 kilowatts
Kilowatt-hours purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.71 billion
Kilowatt-hours sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.603 billion
Residential average cost per 1,000 kilowatt-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $101.37
Average outage minutes per service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 minutes
Average system reliability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.9817 percent
Total services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,137
Full-time employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
Total service-to-employee ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399:1
Miles of line. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,247
Service density per line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.328
*NOTE: These figures are for NOVEC only and exclude NOVEC’s affiliates.
5 N O V E C i n B r i e f N O V E C A N N U A L R E P O R T 2 0 0 4
NOVEC IN BRIEF*(As of December 31, 2003)
N O V E C A N N U A L R E P O R T 2 0 0 4 E x e c u t i v e S u m m a r y 6
Growth - it’s a fact of life. We track it. We measure it.
We chart it. In the business world, it is critical to the
long-term success of any viable company. NOVEC
currently finds itself in the enviable position of growing at a
pace only slightly less than our historical record, but one that
nevertheless challenges our skills at managing the expansion
while maintaining unsurpassed service levels to our customers.
NOVEC’s relatively compact service area includes portions of
Loudoun County, the fastest growing county in the United States.
Prince William, Fauquier and Stafford counties and the City of
Manassas Park are also experiencing significant residential
growth. This year our customer base will increase by more than
6,000 new homes and businesses. While most growth will be
residential, business expansion will take place at George Mason
University and the Washington Technology Park. By year’s end
we will be closing in on a major milestone – 125,000 customers.
Despite improvements in operating efficiency, our customers
are more energy dependent than ever before, relying on an
increasing array of sophisticated new technologies that
improve the quality of life at home and make businesses
more productive. Even temporary service interruptions affect
computers, business equipment and home appliances. We
have invested in state-of-the art equipment and computer
systems that enable us to more effectively protect our
delivery system and our customers’ plasma TVs.
We continue to raise the bar with regard to electric
service reliability. For the past 6 years, our record is
unsurpassed in the metropolitan Washington, D.C. area.
And nobody does it better than NOVEC when it comes
to restoring service after an outage occurs. Our people
and electric system were challenged in the past
year with severe thunderstorms and windstorms, topped off
by Hurricane Isabel in September. We are pleased to report
that NOVEC more than met the test. Without exception,
NOVEC restored power to our customers faster than the other
regional utilities; not by hours, but in several cases by days.
Our commitment is to remain the best in the metropolitan
area at keeping the lights on for our customers.
To successfully manage growth while maintaining reliability
requires astute planning and periodic re-allocations of
resources. NOVEC develops both short-term (3 years) and
long-term (15 years) system expansion plans linked closely to
growth projections from the counties, cities and towns in
which we serve. We work with the various jurisdictions to
monitor actual growth and modify our work plans accordingly.
Whenever growth outpaces projections, and that does happen
occasionally in Northern Virginia, it is essential to have the
organizational flexibility to accommodate it. This keeps us
”ahead of the curve“ with regard to our plant expansion
rather than just reacting to growth spurts.
How do we pay for our business growth?
Fortunately, NOVEC is in the
strongest financial position
in its history. We supported
the addition of more than
5,000 new customers
during 2003
EXECUTIVE SUMMARY
J. Manley Garber Stan Feuerberg
by investing $24.1 million in our distribution plant. These invest-
ments, as well as general plant expenditures to improve telecom-
munications and information technology resources, helped
propel total assets to over one-half billion dollars ($504.9 million).
Our current three-year plan requires expenditures for physical
plant of more than $90 million. We believe that we are rather
unique within our industry in that we will continue to meet our
financial requirements for growth without borrowing a single
penny. Why is this important? Borrowing money raises interest
expense which, in turn, puts upward pressure on rates. Since 1992
we have reduced interest costs from more than $12 million a
year to $7 million. We intend to keep our interest costs as low as
possible. Our current financial plan avoids additional borrowing
for the foreseeable future.
It is significant to note that we have continued to return record
amounts of capital credits to our customers while supporting
the growth of our system without borrowing any money. For 10
consecutive years, regular capital credit payments totaling $74.5
million have been returned to NOVEC customers. Approximately
$10.7 million was returned in 2003 and another substantial
return is projected for 2004.
In addition, some components of NOVEC’s energy costs
were lower than anticipated in 2003, generating higher than
expected margins. Therefore, NOVEC customers who were on
the system at the end of 2001 and 2002 were recipients of a
special capital credits distribution totaling $10.9 million authorized
by NOVEC’s Board of Directors. Another special distribution,
totaling approximately $6.1 million, was authorized and returned
in March 2004 for current customers who were on the system
at the end of 2002. These rather remarkable achievements were
accomplished WITHOUT an increase in retail rates. In fact, our
rates for distribution service have remained fixed since 1991.
We can say with confidence that you will not find this to be
the case with the cost of service for your local phone company,
cable TV company or water authority service.
Customer service remains a primary focus and rightly so.
While recent customer satisfaction surveys have generally given
us high marks, we will continue to set our expectations even
higher, knowing that it is what you expect and deserve from us.
No matter how rapidly we grow and how large we become, we
intend to remain accessible to our customers. NOVEC customers
can talk directly to a board member or an employee – including
corporate executives – about a concern. That won’t change!
Cultural diversity is a growing force and strength within our
service area and a new customer service challenge. We welcome
those who have come to America in search of freedom and
opportunity and we are working to overcome communication
barriers. Our customer service center is equipped to speak with
customers in more than 150 languages. Much of our basic
7 E x e c u t i v e S u m m a r y N O V E C A N N U A L R E P O R T 2 0 0 4
“For 10 consecutive years, regular capital creditpayments totaling $74.5 million have been
returned to NOVEC customers.”
N O V E C A N N U A L R E P O R T 2 0 0 4 E x e c u t i v e S u m m a r y 8
information is now available in Spanish and we will continue
to expand our efforts to better serve all of our customers.
The power of electricity warms our homes, but it is the power
of community that warms our hearts. NOVEC’s presence and
commitment in the communities we serve remains strong.
We will continue to expand the use of “cause-based marketing”
with our media partners supporting programs that enrich our
communities, i.e. “Keeping Kids Connected,” a partnership
with NOVEC, WTOP and WGMS radio stations and Inova Fairfax
Hospital for Children that keeps parents informed about proper
home safety; “Buddy Check 9” with W*USA-TV that promotes
the importance of early detection in preventing breast cancer;
or “Everyday Heroes” with WJLA-TV that recognizes people in
our communities who make a difference in the lives of us all.
Meeting the challenges of system growth while making
extensive preparations for retail competition has required a
considerable effort from our employees. The major challenges
of deregulation still lie ahead of us. Despite a powerful and unique
coalition of consumer protection groups, energy-intensive
industrial and commercial customers, as well as other electric
cooperatives, we were unsuccessful in our efforts to convince
legislators to suspend deregulation in Virginia. Instead, they
chose to extend existing rate caps to 2010, an action we don’t
believe to be in the best interest of consumers. We used every
opportunity to reinforce our position with legislators that any
competition created by deregulation must provide an opportunity
for all customers to benefit. There are few real success stories
in states that have attempted deregulation. Many have tried
it and chosen to return to a regulated environment.
NOVEC’s operating efficiency improved during 2003. The
possibility of future competition provided a sense of urgency to
implement organization and work process changes. Unlike some of
our competitors, we are proud that this has been achieved without
employee layoffs. We are providing a higher level of service with
fewer employees to nearly 60 percent more customers than we
had 10 years ago. No small feat!
Service areas can experience growth, production inventories
can rise and fall and new technologies can alter our industry
almost overnight, but NOVEC’s customers can rest assured that
their electric cooperative is well prepared for any change. Our
leadership and ownership are all locally based, so decisions are
well founded in factual knowledge of the impact those decisions
will have on our community. Our decisions are not made to benefit
distant shareholders or other outside big business interests, but
to benefit the only stakeholders NOVEC answers to – YOU –
the actual users of the product and service we provide.
“The power of electricity warms our homes, but it is the power of community that
warms our hearts.”
Stan FeuerbergPresident/CEO
J. Manley GarberChairman of the Board
9 B o a r d o f D i r e c t o r s N O V E C A N N U A L R E P O R T 2 0 0 4
BOARD OF DIRECTORS
Walter Grove Treasurer, District 8 - Fauquier /Stafford counties
Wade House Secretary, District 5 - Haymarket /Nokesville/Bull Run Mountain
Manley GarberChairmanDistrict 7 - Woodbridge/Dale City /Montclair
Don Middleton Vice Chairman District 2 - Loudoun County -except South Riding
Cynthia Gilbride District 9 - Fairfax County - north of Route 66/LoudounCounty - South Riding
Malcolm Ames At-Large Director
Michael Ragan District 6 - Lake Jackson/Buckhall/Bristow/Manassas Park- east ofRoute 28
John Bonfadini District 4 - Manassas/Gainesville /Manassas Park-west of Route 28
James Chesley District 3 - Fairfax County - south of Route 66
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N O V E C A N N U A L R E P O R T 2 0 0 4 L e a d e r s h i p T e a m 10
LEADERSHIP TEAM
Stan FeuerbergPresident/CEO
Jim MoxleySenior Vice President, Administration, Substations andTelecommunications
Marlane Parsons Assistant Vice President,Organizational Development
Allen BarbeeAssistant Vice President, Electric System Operations
Elizabeth GrayExecutive AdministrativeAssistant
Albert BrittonRisk & Security Manager
Robert BissonVice President, Electric System Development
Wilbur Rollins Senior Vice President, Finance & Asset Development
Patrick ToulmeAssistant Vice President & Corporate Counsel
Michael DaileyAssistant Vice President,Business Development
Diane Johnson Senior Manager, Customer Service
Mike CurtisVice President, Public Relations
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The Federal Aviation Administration‘s newregional air traffic control center at Vint Hillis one of of our largest energy users.
Our Web site has been recentlyredesigned to provide the most currentinformation to our customers.
Larry Grant inspects the devastationwrought by Hurricane Isabel. Power wasrestored within five days - by far the bestelectric utility performance in the area.
Renee Barr works with Michael Hudak,manager, Potomac Consolidated TRACONto determine specific needs at the FAA.
The Federal Aviation Administration‘s new regional air traffic control center atVint Hill is one of our largest energy users.
N O V E C A N N U A L R E P O R T 2 0 0 4 O p e r a t i n g R e p o r t 12
Driving around NOVEC’s service territory you can
witness firsthand the phenomenal growth that
our area is experiencing. NOVEC’s customer base
is more than 120,000 in the six counties we serve and is
predicted to reach 130,000 by year-end 2006.
Just about every county in our service area has experi-
enced unprecedented growth. Loudoun County leads the
way with 96.9 percent growth in the period from 1990 to
2000. Behind Loudoun is the city of Manassas Park, with
52.8 percent growth and then Stafford County at 51 percent
over the same ten year period. Despite the increased growth
and its accompanying need for enhanced infrastructure,
NOVEC has been able to serve our expanding customer
base without a rate increase for distribution service since
1991. And, we have maintained our position as the most
reliable electric utility in the Washington metropolitan area.
New TechnologyEffective use of new technology enables us to provide
better service, improve reliability and offer customers
new products.
NOVEC’s Web site was recently redesigned to provide the
most current information and to give customers additional
options for doing business with us.
Over the past five years, we have prudently invested
more than $1 million in new billing and customer infor-
mation systems. This has improved the efficiency of our
response to customer concerns. While the software costs
were significant, our ongoing commitment to providing
world-class customer service demanded it.
The refinement of work processes and procedures to
improve our ability to meet and exceed customers’ service
expectations remains a primary corporate focus.
Improvements to Telephone SystemNOVEC’s telephone system was enhanced in early 2004
to handle a higher volume of normal business and outage
calls, and to provide additional convenience features for
customers. The number of incoming lines was more than
doubled. Also, our interactive voice response (IVR) system
was expanded and integrated with our outage management
system (OMS). The IVR system uses voice recognition as
well as touch-tone input for outage reporting. Customers
are provided with a message specific to their outage
location, complete with a service restoration time estimate.
The system also includes an automatic callback when
power is restored, at the customer’s option. The net
result is a more effective process for reporting and
managing outages and a much shorter wait time for
customers using the IVR system.
We encourage the use of our IVR system to obtain
account information, update telephone numbers and
report power outages. It has the advantage and convenience
of 24/7 availability. However, customers still have the
option to speak directly with a NOVEC Customer Service
Representative, Monday through Friday, from 7:00 a.m.
to 7:00 p.m.
CUSTOMER SERVICE
New Work Processes In 2003, we focused on improving our streetlight repair
process. Adding automation has enabled us to simplify the
reporting of problems and to reduce repair time. We are
also committed to reducing the time it takes to install new
service for our customers.
Key Accounts ProgramNOVEC’s largest commercial and business customers
represent nearly 10 percent of our total revenue. They are
designated as key accounts, with specific employees assigned
to work with them. These customers are among our
largest energy-users and include: Upper
Occoquan Sewage Authority, the Federal
Aviation Administration’s Regional Air
Traffic Control Center at Vint Hill and
George Mason University.
Our key account representatives
also work with small and medium-sized
businesses to help them identify and
resolve problems. In 2003 our Questline
e-mail newsletter debuted for commercial and industrial
customers, providing valuable information and one-on-one
interaction with energy experts, researchers and engineers.
Payment OptionsSpeedpay was initiated in 2003, allowing customers to
pay their bill via credit card, check or debit card over the
phone or Internet. With 24/7 availability, Speedpay offers
a convenient payment option for customers.
Use of the e-billing payment option increased dramatically,
by nearly 100 percent, in the past year. More than 10 percent
of our customers now receive, view and pay their bills online.
Measuring Customer SatisfactionIt is important for us to understand our customers and
their impressions of NOVEC. In 2003 we began an ongoing
effort to measure customer satisfaction. Survey results have
placed us among industry leaders in most categories. NOVEC
customers rated us number one in service reliability, well
ahead of other large electric cooperatives and investor-
owned utilities. The survey process also identifies areas
where our performance is not as strong, enabling us to
more clearly focus our time and resources where they
can do the most good.
13 O p e r a t i n g R e p o r t N O V E C A N N U A L R E P O R T 2 0 0 4
NOVEC Affiliates We rely on our two wholly-owned affiliates to meet
the product and service expectations of our customers
beyond electricity. NOVEC’s State Corporation Commission
(SCC) utility certificate only allows us to sell and
deliver electricty.
NOVEC Energy Solutions (NES) was established
to help NOVEC evaluate its ability to meet all the
energy needs of our customers. As the demand for
natural gas continues to grow, the interest in the service
offered by NES has grown as well. NES has succeeded
in marketing competitively priced natural gas to NOVEC
customers and others, and had approximately 9,800
commercial and residential customers at year-end
2003, nearly a 100 percent increase from 2002.
In the aftermath of Hurricane Isabel, our customers
contacted NOVEC looking for stand-by generation
solutions. NOVEC Solutions sold a record number
of generators, as customers sought to prepare for
future emergency situations. Total sales of stand-by
generators and transfer switches approached $200,000
in 2003. NOVEC Solutions was also successful in
selling surge protectors and water heaters, including
a significant sale to Rutgers University.
N O V E C A N N U A L R E P O R T 2 0 0 4 O p e r a t i n g R e p o r t 14
RELIABILTY LEADER
T he past year brought with it some extreme weather
situations, which always present formidable challenges
for electric utilities. The snowstorms in early 2003, a
very wet spring, intense thunderstorms in August, Hurricane
Isabel in September, and ferocious windstorms in November,
put NOVEC’s service restoration abilities to the test. Despite these
weather events, NOVEC was again the reliability leader in the
Washington Metropolitan area, with power flowing to customers
99.9817 percent of the time. NOVEC is proud of our six-year record
of providing the most reliable electric service in the area.
Hurricane Isabel Hurricane Isabel’s strong winds and rain toppled trees and
power poles, causing the worst outage situation in NOVEC’s
history. Approximately 45 percent of our customer base was
affected. Despite the extensive devastation, power was
restored to NOVEC customers within five days, far and
away the best restoration performance in the area.
Operations Control CenterNOVEC’s outage-management efforts have evolved
from a cumbersome manual process into a highly automated
one that seamlessly integrates several complex computer
programs to improve efficiency. Our employees use
information technology applications to monitor more
components of the electric system than ever before. They
are proactive, constantly monitoring our distribution system,
taking preventative measures to avoid service interruptions.
When outages do occur, their goal remains to restore power
safely and as quickly as conditions permit.
System Upgrades NOVEC employees are responsible for the design,
construction and maintenance of our robust electric delivery
system. During the past year new substations have been
added and existing ones upgraded to improve the reliability
and flexibility of our distribution system. Because we have
a well-planned system with built-in redundancies, there are
often alternate ways to keep the power flowing to our
Sidney Johnson replacesone of 150 cross arms broken during Hurricane Isabel.
15 O p e r a t i n g R e p o r t N O V E C A N N U A L R E P O R T 2 0 0 417 O p e r a t i n g R e p o r t N O V E C A N N U A L R E P O R T 2 0 0 4
(R-L) Bob Bisson and George Couttsdiscuss NOVEC'S plans for the CochranMill substation with Loudoun CountySupervisor Sally Kurtz and Parks andRecreation Director Debbie Heimburger.
Mercy Garcia-DePalma and EngleHomes staff discuss engineeringrequirements for residential develop-ment in Fauquier County.
Our improved procurement process ensuresthat we have in stock the materials we needto build and maintain our distribution system.In our Gainesville storage yard, Jeff Pennerloads a truck with transformers and otherequipment needed to perform his daily work.
Arnel Majillo uses the IED system todetect abnormal conditions at substations.
N O V E C A N N U A L R E P O R T 2 0 0 4 O p e r a t i n g r e p o r t 16
customers. Over the next three years, approximately
$17 million is designated for projects specifically aimed
at enhancing reliability.
The NOVEC planning process uses computer models
to analyze existing electrical loads, predict future load
conditions and evaluate the best improvement solutions to
serve our growing customer base. Growth projections
for our service area point to the need for continuing
electric system expansion, especially in the fast-growing
areas of southeast Loudoun County and western Prince
William County.
In several areas on NOVEC’s system, we will be installing
the capability to tie multiple circuits together. This allows us
to transfer customers from one circuit to another in the
event of a circuit failure.
Over the next three years, approximately 100 miles of over-
head conductor will be replaced throughout our service territory
to improve reliability. Similarly, in the next three years, we
plan to replace 12 miles of underground cable that was installed
in the late 1960s in the Dale City, Montclair and Centreville areas.
Two new substations will be completed in 2004, one in
Prince William County just south of Manassas and one near
the Brambleton and South Riding developments in
Loudoun County.
IED CapabilityAs substations are built or upgraded, many are being
equipped with state-of-the-art Intelligent Electronic Devices
(IED), which monitor and store information on each piece of
equipment in the substation. When our Supervisory Control
and Data Acquisition System (SCADA) detects an abnormal
condition at a substation, the IED records all the data and
events, which can then be downloaded to a computer for
immediate analysis. This information is used to pinpoint
the exact location and cause of a problem, saving precious
time that would otherwise be spent troubleshooting.
NOVEC’s computers will soon be able to communicate
with the IEDs using NOVEC’s telecommunications network.
This will enable an employee to retrieve and examine
technical data from a specific substation IED and remotely
make adjustments to the device’s technical settings.
Economic DevelopmentNOVEC’s outstanding reliability and its proven accomplish-
ments in economic development are two key factors that
attract large businesses and industrial customers to our area.
We already enjoy a close relationship with the economic
development offices across our service territory. In 2004,
we intend to strengthen those relationships. Our goal is to
support and foster the economic development objectives of
the communities we serve by working as partners with
them. We have the experience and expertise needed to
design, engineer, supply and deliver the highest quality
of electric service available in Northern Virginia and to
exceed the expectations of business customers that choose
to locate in our service territory.
Everything we do is focused on the reliable delivery of electricity to our customers’ homes and businesses. Whether it is used to power high-tech electronic equipment or simply to enjoy story time like the Williams family of Tavistock Farms in Loudoun County, NOVEC pledges to continue to deliver world-class electric service.
17 O p e r a t i n g R e p o r t N O V E C A N N U A L R E P O R T 2 0 0 4
George Sowers (on ground) and Bernie Cleveland load food and giftsdonated by NOVEC employees forneedy families in the area.
In November, 2003 The Prince William CleanCommunity Council presented NOVEC'sBecky Whitelock with their 2003 CommunityLeadership Award. Pictured are Mike Curtis,Becky Whitelock, John Grezjka, president ofthe PWCCC; Janet Ellis, PWCCC executivedirector; and Stan Feuerberg.
Robin Lazo directs a team of NOVECvolunteers who registered more than6,000 visitors at Youth for Tomorrow'sCountry Fair and Auctions. (L to R)Gordon Myers, Bethany Myers, PatHolland, Bob Holland, Bridgette Atkinsand Jonathan Atkins.
A Sampling of OrganizationsNOVEC Supports
• Prince William Education Foundation
• SERVE
• Easter Seals of Virginia
• Boys & Girls Clubs
• Habitat for Humanity
• Liberty Memorial Committee
• VIVA Van (library van for Hispanic communities)
• Youth for Tomorrow
• 4-H Clubs
• Boy Scouts of America
• Girl Scouts of the USA
• Inova Fairfax Hospital for Children
• Loudoun Art Society
• Fauquier Free Clinic
• Fairfax Library Foundation
• Center for The Arts
As a customer-owned company, NOVEC has a
special relationship with, and responsibility to, the
communities it serves. The Cooperative and its
employees have a long history of involvement in the community
and we have established an enviable
reputation in our area of Northern Virginia
as a good corporate citizen. We are dedicated
to powering the community through
support of the arts, non-profit programs
for families and children, and to Operation
Round Up which helps those less fortunate
pay their electric bill.
Continued growth has resulted in many
more requests for NOVEC’s involvement
in the communities we serve. Our goal is
to support a wide range of charitable and civic activities,
with a particular focus on youth and education. While it has
been gratifying to see NOVEC recognized for its community
involvement, that is not our objective. Being a good neighbor
is just part of the way we do business and that won’t change
as we continue to grow.
Advertising With A PurposeDuring the past year, NOVEC has continued to emphasize
cause-based marketing, which is advertising with a community
service component that benefits our customers or a local
charitable or civic organization. While promoting NOVEC,
we also brought recognition to organizations and events
that could not otherwise afford to purchase advertising.
Every group we worked with indicated that the exposure
was as valuable to them as a monetary contribution.
Some examples of this effort are NOVEC’s partnership
with WBIG and Inova Blood Donor Services to support their
ongoing blood drive program. NOVEC also partnered
with W*USA-Channel 9 to promote “Game Ball.” Each
week following the presentation of the Game Ball to a
Washington Redskins player, NOVEC donated money to
Youth for Tomorrow and Boys and Girls Clubs
in Prince William and Fauquier counties in
the name of the player.
Business of the Year In 2003, the Prince William Regional Chamber
of Commerce named NOVEC the “Large
Business of the Year” in recognition of our
continued growth and contribution to the
positive business environment, our fiscal
responsibility, reliability, customer service
and our contribution to the community, both
monetary and with volunteer manpower hours.
Operation Round UpOperation Round Up (ORU) is NOVEC’s
community service assistance program.
Participating customers volunteer to have
their monthly electric bill rounded up to
the next higher dollar for donation to the fund. During
the 2003-2004 heating season, ORU distributed a record
$46,000 to qualified customers through local social
service agencies.
Governed by a volunteer board made up of NOVEC
customers, ORU also distributed the following grants:
• $2,000 to the Prince William Education Foundation’s
EduLink System
• $2,000 to Shakespeare Theatre Youth Program
• $2,000 to VERDUN Adventure Bound, outdoor
youth education program
N O V E C A N N U A L R E P O R T 2 0 0 4 O p e r a t i n g R e p o r t 18
COMMUNITY
Stan Feuerberg is interviewed for a public service announcement on
W*USA-TV
CONSOLIDATED BALANCE SHEETS
19 C o n s o l i d a t e d B a l a n c e S h e e t s N O V E C A N N U A L R E P O R T 2 0 0 4
December 31, 2003 and 2002 (in thousands) 2003 2002
AssetsUtility plant, net of accumulated depreciation and amortization $317,062 302,269Investments
Associated organizations 80,649 77,517Other 903 2,429Total investments 81,552 79,946
Current assets:Cash and cash equivalents 29,480 27,493Investment securities 34,298 30,604 Accounts receivable, less allowance for doubtful accounts of
$1,447 in 2003 and $1,404 in 2002 20,589 19,782 Materials and supplies inventories 5,521 5,473Other current assets 15,986 16,192 Total current assets 105,874 99,544
Deferred charges 5,621 5,760Total assets $510,109 487,519
Liabilities and EquitiesEquities and margins:
Membership fees $975 930 Patronage capital 308,179 278,562 Other equities 6,691 6,130Accumulated other comprehensive income 1,045 1,215Total equities and margins 316,890 286,837
Long-term debt, excluding current installments 143,266 150,536
Current liabilities:Current installments of long-term debt 5,771 5,841 Notes payable 4,333 6,761Accounts payable 17,355 15,627Consumer deposits 4,186 3,922 Accrued expenses and other current liabilities 2,573 2,146 Total current liabilities 34,218 34,297
Deferred credits 9,255 10,229
Accrued post retirement benefit costs 6,480 5,620
Total liabilities and equities $510,109 487,519
N O V E C A N N U A L R E P O R T 2 0 0 4 C o n s o l i d a t e d S t a t e m e n t s o f O p e r a t i o n s & P a t r o n a g e C a p i t a l 20
CONSOLIDATED STATEMENTS OF OPERATIONS & PATRONAGE CAPITAL
December 31, 2003 and 2002 (in thousands) 2003 2002
Operating revenues $252,816 238,883
Operating expenses:Cost of power 149,042 139,902Distribution expense –– operations 6,399 6,023Distribution expense –– maintenance 10,167 9,441Consumer accounts 3,607 3,193Customer service and information expense 2,423 2,948Sales expense 443 158Administrative and general 15,769 17,394Depreciation and amortization 12,328 11,132Other 354 695
Total operating expenses 200,532 190,886
Net operating margins before interest expense 52,284 47,997Interest expense 7,837 8,280
Net operating margins after interest expense 44,447 39,717
Non-operating margins:Patronage capital assigned from associated organizations 3,555 3,112Dividends and interest income 2,524 2,848Other non-operating income 611 386
Total non-operating margins 6,690 6,346
Net margins 51,137 46,063Patronage capital –– beginning of year 278,562 263,974Net margins 51,137 46,063Retirement of patronage capital (21,520) ( 31,475)Patronage capital –– end of year $308,179 278,562
Net margins $51,137 46,063Other comprehensive income:
Unrealized gains (losses) on marketable securities (116) 132Reclassification adjustment for (gains) losses realized in net margins (54) 311
Other comprehensive income (170) 443
Comprehensive income $50,967 46,506
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
December 31, 2003 and 2002 (in thousands) 2003 2002
Cash flows from operating activities:Cash received from consumers $251,979 235,190Cash paid to suppliers and employees (183,500) ( 171,958)Dividends, interest and other non-operating income 3,134 3,233Interest paid (7,837) ( 8,280)
Net cash provided by operating activities 63,776 58,185
Cash flows from investing activities:Extension and replacement of utility plant (33,723) ( 26,636)Utility plant removal costs (145) ( 101)Contributions in aid of construction of utility plant 6,835 6,225Proceeds from sale of utility plant 194 396Extension and replacement of non-utility plant (282) (649)Purchases of investment securities available-for-sale (18,340) ( 9,245)Proceeds from sale or maturity of investment securities available-for-sale 14,699 6,508Retirements of patronage capital by associated organizations 216 194
Net cash used in investing activities (30,546) ( 23,308)
Cash flows from financing activities:Principal payments on long-term debt (7,340) ( 12,187)Proceeds from notes payable 2,975 6,761Membership fee receipts 45 46Principal payments on notes payable (5,403) ––Retirement of patronage capital (21,520) ( 31,475)
Net cash used in financing activities (31,243) ( 36,855)
Net increase (decrease) in cash and cash equivalents 1,987 (1,978)
Cash and cash equivalents at beginning of year 27,493 29,471
Cash and cash equivalents at end of year $29,480 27,493
21 C o n s o l i d a t e d S t a t e m e n t s o f C a s h F l o w s N O V E C A N N U A L R E P O R T 2 0 0 4
CONSOLIDATED STATEMENTSOF CASH FLOWS
N O V E C A N N U A L R E P O R T 2 0 0 4 C o n s o l i d a t i n g S c h e d u l e – B a l a n c e S h e e t 22
NOVEC NOVEC NOVEC Energy Eliminating ConsolidatedSolutions Inc. Solutions Inc. entries totals
AssetsUtility plant, net of accumulated depreciation
and amortization $316,112 –– 19 –– 316,131Non-utility plant, net of accumulated
depreciation and amortization 931 –– –– –– 931Total plant 317,043 –– 19 –– 317,062
Investments:Associated organizations 80,649 –– –– –– 80,649Other (421) 1 –– 1,323 903Total investments 80,228 1 –– 1,323 81,552
Notes receivable 200 105 –– (305) ––Current assets:
Cash and cash equivalents 29,098 95 287 –– 29,480Investment securities 34,298 –– –– –– 34,298Accounts receivable, less allowance
for doubtful accounts 18,360 40 2,451 (262) 20,589Materials and supplies inventories 4,112 13 1,396 –– 5,521Other current assets 15,985 –– 1 –– 15,986
Total current assets 101,853 148 4,135 (262) 105,874
Deferred charges 5,621 –– –– –– 5,621Total assets $504,945 254 4,154 756 510,109
Liabilities and EquitiesEquities and margins:
Membership fees $975 –– –– –– 975 Patronage capital and accumulated earnings (deficit) 308,188 (5) (2,073) 2,069 308,179 Other equities 6,690 100 647 (746) 6,691Accumulated other comprehensive income (loss) 1,045 –– –– –– 1,045
Total equities and margins 316,898 95 (1,426) 1,323 316,890
Long-term debt, excluding current installments 143,266 105 200 (305) 143,266 Current liabilities:Current installments of long-term debt 5,771 –– –– –– 5,771 Notes payable 397 –– 3,936 –– 4,333Accounts payable 16,149 54 1,414 (262) 17,355Consumer deposits 4,186 –– –– –– 4,186 Accrued expenses and other current liabilities 2,543 –– 30 –– 2,573
Total current liabilities 29,046 54 5,380 (262) 34,218
Deferred credits 9,255 –– –– –– 9,255Accrued post retirement benefit costs 6,480 –– –– –– 6,480 Total liabilities and equities $504,945 254 4,154 756 510,109
CONSOLIDATING SCHEDULEBALANCE SHEET
December 31, 2003 (in thousands)
23 C o n s o l i d a t i n g S c h e d u l e – O p e r a t i o n s a n d P a t r o n a g e C a p i t a l N O V E C A N N U A L R E P O R T 2 0 0 4
NOVEC NOVEC NOVEC Energy Eliminating ConsolidatedSolutions Inc. Solutions Inc. entries totals
Operating revenues $244,626 40 8,150 –– 252,816
Operating expenses:Cost of power 141,061 23 7,958 –– 149,042Distribution expense –– operations 6,399 –– –– –– 6,399Distribution expense –– maintenance 10,167 –– –– –– 10,167Consumer accounts 3,607 –– –– –– 3,607Customer service and information expense 2,423 –– –– –– 2,423Sales expense 128 1 314 –– 443Administrative and general 14,978 58 733 –– 15,769Depreciation and amortization 12,310 –– 18 –– 12,328Other 1,735 –– 688 (2,069) 354
Total operating expenses 192,808 82 9,711 (2,069) 200,532
Net operating margins before interest expense 51,818 (42) (1,561) 2,069 52,284
Interest expense 7,791 –– 63 (17) 7,837
Net operating margins after interest expense 44,027 (42) (1,624) 2,086 44,447
Non-operating margins:Patronage capital assigned from
associated organizations 3,555 –– –– –– 3,555Dividends and interest income 2,541 –– –– (17) 2,524Other non-operating income 494 78 39 –– 611
Total non-operating margins 6,590 78 39 (17) 6,690
Net margins: 50,617 36 (1,585) 2,069 51,137
Patronage capital –– beginning of year 279,091 (41) (488) –– 278,562
Retirements of patronage capital (21,520) –– –– –– (21,520)
Patronage capital –– end of year $308,188 (5) (2,073) 2,069 308,179
CONSOLIDATING SCHEDULEOPERATIONS & PATRONAGE CAPITAL
December 31, 2003 (in thousands)
N O V E C A N N U A L R E P O R T 2 0 0 4 C o n s o l i d a t i n g S c h e d u l e – C a s h F l o w s 24
CONSOLIDATING SCHEDULECASH FLOWS
NOVEC NOVEC NOVEC Energy Eliminating ConsolidatedSolutions Inc. Solutions Inc. entries totals
Cash flows from operating activities:Cash received from consumers $244,758 6 7,215 –– 251,979Cash paid to suppliers and employees (173,513) (34) (9,953) –– (183,500)Dividends, interest and other
non-operating income 3,035 78 38 (17) 3,134Interest paid (7,791) –– (63) 17 (7,837)
Net cash provided by (used in) operating activities 66,489 50 (2,763) –– 63,776
Cash flows from investing activities:Extension and replacement of utility plant (33,723) –– –– –– (33,723)Utility plant removal costs (145) –– –– –– (145)Contributions in aid of construction of utility plant 6,835 –– –– –– 6,835Proceeds from sale of utility plant 194 –– –– –– 194Extension and replacement of non-utility plant (282) –– –– –– (282)Purchases of investment securities
available-for-sale (18,340) –– –– –– (18,340)Proceeds from sale of investment securities
available-for-sale 14,699 –– –– –– 14,699Retirements of patronage capital by
associated organizations 216 –– –– –– 216
Net cash used in investing activities (30,546) –– –– –– (30,546)
Cash flows from financing activities:Principal payments on long-term debt (7,340) –– –– –– (7,340)Principal payments on notes payable (5,403) –– –– –– (5,403)Proceeds from notes payable –– –– 2,975 –– 2,975Membership fee receipts 45 –– –– –- 45Retirement of patronage capital (21,520) –– –– –– (21,520)
Net cash provided by (used in) financing activities (34,218) –– 2,975 –– (31,243)
Net increase (decrease) in cash and cash equivalents 1,725 50 212 –– 1,987
Cash and cash equivalents at beginning of year 27,373 45 75 –– 27,493
Cash and cash equivalents at end of year $29,098 95 287 –– 29,480
December 31, 2003 (in thousands)
FINANCIALS AT A GLANCE
25 F i n a n c i a l s A t A G l a n c e N O V E C A N N U A L R E P O R T 2 0 0 4
0
100
200
300
400
500
600
03020100
442.
8
471.
9
487.
5
504.
9Assets ( m i l l i o n s )
030201000.0
0.5
1.0
1.5
2.0
2.5
3.0
2.2
2.2
2.5 2.
6
Kilowatt-Hours Sold( b i l l i o n s )
030201000
10
20
30
40
50
60
70
80
52
57
59
63
Equity-To-Assets( p e r c e n t a g e )
030201000
20
40
60
80
100
120
101.
0
106.
3
110.
9
117.
14
Total Meters( t h o u s a n d s )
030201000
500
1000
1500
2000
1721
1586
1410
1272
Average Debt Per Meter
030201000
50
100
150
200
173.
8
168.
6
156.
4
149.
03
Long-Term Debt( m i l l i o n s )
030201000
10
20
30
40
50
17.9
31.6
40.2 44
.0
Net Operating Margins( m i l l i o n s a f t e r i n t e r e s t e x p e n s e )
2003 Allocation of Cost Of Electric Service
P o w e r C o s t s - 7 1 . 5 %
Distribution & Transmission - 7.9%
Customer Service & Sales - 3.1%
Other - .17%
Administration & General - 7.6%
D e p r e c i a t i o n - 5 . 9 %
I n t e r e s t - 3 . 7 %
N o t e : E x c l u d i n g s u b s i d i a r y a c t i v i t i e s