beyond limits - big rivers · 2017-02-03 · beyond limits 2014 annual report. 345 kv high voltage...

BEYOND LIMITS2014 ANNUAL REPORT

345 KV HIGH VOLTAGE TRANSMISSION SYSTEM capable of expansion opportunities to serve Member growth.

CONTENTS

Company Profile

Big Rivers System

Message from Board Chair and CEO

2014 Activities and Achievements

2014 Financial Review

Financial Statements

Notes to Financial Statements

Five-Year Review

02

03

06

10

28

30

35

51

2014 ANNUAL REPORT 1

FINANCIAL HIGHLIGHTSAs of December 31, 2014 and the four preceding Fiscal Years

DEBT RATIOS 2014 2013 2012 2011 2010

Margins for Interest Ratio (MFIR) 2.25 1.20 1.25 1.12 1.15

Times Interest Earned Ratio (TIER) 1.79 1.20 1.25 1.12 1.15

Debt Service Coverage Ratio (DSCR) 1.58 1.47 1.58 1.47 1.47

2 BIG R IVERS ELECTR IC C ORPORAT ION

HIGH-VOLTAGE ELECTRIC POWER is delivered to Big Rivers’ Member-Owners over a system of 1,298 miles of transmission lines and 22 substations.

COMPANY PROFILE

Big Rivers Electric Corporation is a Member-owned, not-for-profit, generation and transmission cooperative (G&T). We provide wholesale electric power and shared services to three distribution cooperative Member-Owners across 22 counties in western Kentucky. The Member-Owners are Jackson Purchase Energy Corporation, head-quartered in Paducah; Kenergy Corp, headquartered in Henderson; and Meade County Rural Electric Cooperative Corporation, headquartered in Brandenburg. Together, the Member-Owners distribute retail electric power to approximately 114,000 homes, farms, businesses and industries.

Incorporated in June of 1961, the mission of Big Rivers is to safely deliver competitive and reliable wholesale power and cost-effective shared services desired by the Member-Owners. Business operations revolve around seven core values: safety, excellence, teamwork, integrity, Member and community service, respect for the employee and environmental consciousness.

Big Rivers owns and operates 1,444 net megawatts (MW) of generating capacity from four power stations: Robert A. Reid (130 MW), Kenneth C. Coleman (443 MW), Robert D. Green (454 MW), and D.B. Wilson (417 MW). Total power capacity is 1,819 MW, including rights to Henderson Municipal Power and Light’s (HMP&L) Station Two and contracted capacity from the Southeastern Power Administration (SEPA). High-voltage electric power is delivered to the Member-Owners over a system of 1,298 miles of transmission lines and 22 substations owned by Big Rivers. Twenty-four transmission interconnections link our system with several surrounding utilities.

Big Rivers is led by an experienced management team and is governed by a six-member board of directors. The board is comprised of two representatives from each Member-Owner. Big Rivers employs over 500 people at five locations in Kentucky, who actively contrib-ute to the communities our Member-Owners serve.

Continually focused on the needs and local priorities of our Member-Owners, Big Rivers provides shared services in areas such as information technology, mapping and planning, safety programs and training, economic development, a robust energy efficiency program and customer support services. As long-standing members of Touchstone Energy®, Big Rivers and the Member-Owners pledge to serve western Kentucky with integrity, account-ability, innovation and a commitment to community. Our priority has always been to keep the cost of electricity affordable and the reliability of service high.

OUR MISSION

Safely deliver competitive and reliable wholesale power and cost-effective shared services desired by our Member-Owners.

OUR VISION

Big Rivers will be viewed as one of the top G&Ts in the country and will provide services our Member- Owners desire in meeting future challenges.

OUR VALUES

SafetyExcellenceIntegrityTeamworkMember and Community ServiceRespect for the EmployeeEnvironmentally Conscious


Jackson Purchase Energy CorporationKenergy Corp.Meade County RECC

Big Rivers Headquarters

SEBREE STATIONGreen Units 1 & 2Reid Unit 1 & Reid Combustion TurbineHMP&L Station Two - Units 1 & 2Total net generating capacity: 896 MW

WILSON STATIONWilson Unit 1Total net generating capacity: 417 MW

COLEMAN STATIONColeman Units 1, 2, 3Total net generating capacity: 443 MW

S W C

BIG RIVERS SYSTEM

KENTUCKY

Livingston County

Carlisle County

Ballard County McCracken

County

Graves County

Marshall County

Lyon County

Trigg County

Caldwell County

Hopkins County

Webster County

Union County

Henderson County

Muhlenberg County

Daviess County

Ohio County

Hancock County

Breckinridge County

Grayson County

Hardin County

Meade County

CrittendenCounty

C

ILLINOIS

INDIANA

McLean County

S

W

PRODUCTION & TRANSMISSION MANAGEMENT

(Left to right) Keith Scott, Wilson Station and Coleman Station Plant ManagerRon Gregory, Sebree Station Plant ManagerTim Tapp, Manager Transmission System

ETS

ETS


SENIOR LEADERSHIP TEAM

Back Row (left to right):Paula Mitchell, Executive AssistantJim Garrett, V.P. Production James Miller, Corporate CounselMatt Moore, Interim V.P. Energy ServicesMarty Littrel, Managing Director Communications and Community Relations

Front Row (left to right):Tom Davis, VP Administrative ServicesLindsay Barron, Chief Financial OfficerRobert Berry, President & Chief Executive Officer Michael Chambliss, V.P. System OperationsEric Robeson,V.P. Environmental Services and Construction

BOARD OF DIRECTORS

Back Row (left to right):Dr. James Sills, Meade County RECC Wayne Elliot, Chair,Jackson Purchase Energy Corporation William Denton, Kenergy Corp.

Front Row (left to right):Lee Bearden,Jackson Purchase Energy Corporation Paul Edd Butler, Secretary-Treasurer, Meade County RECC Larry Elder, Vice-Chair,Kenergy Corp.

BOARD OF DIRECTORS + SENIOR LEADERSHIP TEAM


DENNIS L. CANNONPresident & CEO

JACKSON PURCHASE ENERGY CORPORATION

ServesBallard, Carlisle, Graves, Livingston, Marshall and McCracken Counties

MEADE COUNTY RURAL ELECTRIC COOPERATIVE CORPORATION

BURNS MERCERPresident & CEO

MEMBER-OWNERS

GREG STARHEIMPresident & CEO

KENERGY CORP.

HeadquarteredPaducah, KY

Number of Accounts

29,295Miles of Line

2,931

ServesBreckinridge, Caldwell, Crittenden, Daviess, Hancock, Henderson, Hopkins, Livingston, Lyon, McLean, Muhlenberg, Ohio, Union and Webster Counties

HeadquarteredHenderson, KY

Number of Accounts

55,805Miles of Line

7,047

ServesBreckinridge, Grayson, Hancock, Hardin, Meade and Ohio Counties

HeadquarteredBrandenburg, KY

Number of Accounts

28,817Miles of Line

2,980


Big Rivers is proud to report that it experienced a highly productive and successful year while remaining committed to building on our strengths and vision for the future. We appreciate the support of our Member-Owners and the capable and dedicated workforce that allowed us to achieve many accomplishments over the past 12 months. It was a year of transition that encompassed many successes and changes, including succession in our management team and board staff. In July, Bob Berry became the 12th person elected as President and CEO at Big Rivers, replacing Mark Bailey who served in that capacity from 2008 until retiring in 2014. Likewise, Wayne Elliott was elected as the new Board Chair in September replacing long-time Chair of the Board, Dr. James Sills. Inspired by the success of our previous leadership, we look forward to capitalizing on the experience and passion of our new management team to help shape the organization’s future success.

As our top corporate asset, Big Rivers’ employees remained dedicated and focused on safe working practices throughout the year. In a cooperative spirit, our employees continued to build on our stellar safety tradition. This year, each of our company locations was awarded Governor’s Safety and Health Awards by the Kentucky Labor Cabinet, totaling 38 company-wide for outstanding safety and health performance. These figures have designated our electric cooperative as the most highly decorated entity in the Commonwealth of Kentucky among Governor’s Safety Award recipients. Over the years, we have developed the groundwork to ensure the safest possible working conditions, and we are proud of the accomplishments and recognition achieved by our employees.

We are proud to report that our generating assets continued to perform successfully, despite the harsh winter conditions, and our staff ’s commitment to providing value to our Member-Owners both resulted in strong year-end financial results. The competitiveness of our generating units coupled with the record low temperatures created higher than forecasted off-system energy sales that contributed to net margins of $32.6 million. The successful execution of the Load Mitigation Plan has enabled Big Rivers to execute short- and long-term power sales that provided substantial benefit to our organization and Member-Owners. The Load Mitigation Plan was created to mitigate the financial loss created by Century Aluminum’s decision to terminate its power supply arrangement in 2013. The plan focuses on replacing the revenues lost through rate adjustments and the sales of our available power on a short-term, mid-term and long-term basis as well as cost reductions and the optimization of our existing assets. As a result of this plan, we successfully sold energy and capacity forward from our Wilson facility under multiple contracts through mid-2016. These transactions alone are projected to result in over $40 million in benefit to Big Rivers and our Member-

BIG RIVERS OWNS, OPERATES AND MAINTAINS A 1,298 MILE TRANSMISSION SYSTEM AND 22 SUBSTATIONS. TWENTY-FOUR INTERCONNECTIONS LINK THE BIG RIVERS TRANSMISSION SYSTEM WITH SEVEN NEIGHBORING UTILITIES.

WAYNE ELLIOT Chair, Board of Directors

ROBERT BERRY President and CEO

MESSAGE FROM BOARD CHAIR AND CEO


Owners. This contract arrangement produced nearly $13 million in immediate fuel savings that flow directly to Big Rivers’ Member-Owners’ retail consumers through the Fuel-Adjustment Clause.

In addition, we entered into nine-year contracts to sell capacity and energy to three Nebraska entities. If approved by the Kentucky Public Service Commission (KPSC), this long-term power sales transaction would allow Big Rivers to transmit 67 MW to the Nebraska utilities with power projected to flow in 2018 and reaching full output in 2022. This capacity and energy sale is projected to provide an estimated benefit to our Member-Owners of $65 million over the life of the agreement.

Success was not limited to our energy sales, as our generation fleet, along with our transmission and substation resources, continued to perform well in spite of the prolonged and extreme winter season of 2014. Our

generation fleet continued to perform in the top quartile in several categories measured in our benchmarking reports, with some units operating in the top decile. We proudly celebrated our Kenneth C. Coleman plant’s record-breaking achievement in performance by receiving its third consecutive GKS Navigant Operational Excellence Award. The GKS Navigant Operational Excellence Award recognizes coal-fired plants that have demonstrated excellence in cost and operational management, as well as improved performance and reliability over the most recent five-year period. Similarly, we continued to reduce unit heat rates in an effort to lower operational expenses and reduce

emissions. This focused cost reduction and operational improvement strategy has generated cumulative heat rate fuel savings of $10.3 million since 2009. At the same time, our engineering staff continued to enhance the transmission system during the year by undertaking multiple projects to improve system reliability in our region. These expansions to Big Rivers’ power delivery system will strengthen our transmission grid ensuring the safe delivery of reliable electricity to meet our Member-Owners’ energy needs. As the owner of over 1,200 miles of transmission lines, we understand the importance of a reliable and robust high-voltage transmission system, therefore we remain committed to lasting operational excellence and dependably serving our distribution Member-Owners.

During the year, Big Rivers worked diligently to diversify and expand its load portfolio by successfully implementing its Load Mitigation Plan as a result of Century Aluminum’s (formerly Rio Tinto Alcan) delivery of a one-year

Termination Notice on January 31, 2013 for its Sebree aluminum smelting facility. Century Aluminum’s decision to leave Big Rivers’ system resulted in a potential $155 million per year loss in annual revenue. As a result, Big Rivers made the difficult decision to idle its Kenneth C. Coleman generation facility in May of 2014. Knowing the Coleman Station is a repeated award winning generation plant that remains valuable to our organization, Big Rivers had no other alternative but to temporarily cease power production at our Hawesville, Kentucky generation facility. This cost-reduction measure included the downsizing of 103 full-time employees. This move created a $12.3 million

Each of our locations was

awarded Governor’s Safety

and Health Awards, totaling

38

company-wide, demonstrating

our commitment to safety and

health performance.

The competitiveness of our

generating units coupled with

the record low temperatures

created higher than forecasted

off-system energy sales that

helped achieve net margins of

$32.6 million.

Our focused cost reduction

and operational improvement

strategy has generated cumu-

lative heat rate fuel savings of

$10.3 million

since 2009.

MESSAGE FROM BOARD CHAIR AND CEO


reduction in labor expense and $26 million of overall savings per year that aided in offsetting the loss of revenue stemming from the departure of Century Aluminum’s Sebree smelter. We enacted a series of extensive cost-cutting measures in addition to filing and receiving an additional $36.16 million annual revenue increase to adjust for the substantial revenue loss from the Sebree smelter’s departure. The favorable support from the KPSC provided positive encouragement to Big Rivers’ current and future

leaders while also allowing Big Rivers the financial capital to viably operate its resources well into the future. Moreover, the KPSC approved our plan to utilize reserve funds that were established in 2009 to entirely offset the impact of this electric rate increase to residential consumers until the summer of 2016 and mid-2015 for commercial consumers. As a not-for-profit electric cooperative that is owned by the three distribution Member-Owners it serves, we have made every attempt to minimize electric rate increases on the retail consumers of western Kentucky.

Looking ahead, we believe our low-cost and reliable generating assets will position us advantageously to achieve

additional energy sales that in time will improve our overall financial strength. As we further diversify our load portfolio through long-term energy sales and/or bilateral contracts, it will allow us to continue offsetting electricity rates for the consumers of our three Member-Owners as the revenues from these sales will contribute to our fixed costs while strengthening our financial position. As always, our operational objective is to minimize the cost of energy delivered to our Member-Owners and keep their rates as one of the best energy values in the nation.

As a Generation and Transmission (G&T) leader, we endlessly look toward the future. We know that our assets will create opportunity for our Member-Owners and that our loyal workforce is devoted to fulfilling our mission. The challenges we have endured over recent years have refined and improved our internal processes, creating a stronger and more efficient organization. This year ushered a host of accomplishments which are only the start of many more to come in our plan to diversify our load portfolio and optimize our generation assets. In fact, as success is achieved, it will continue to mitigate our need for rate relief while creating a promising energy future for western Kentucky. Big Rivers’ knowledge, experience and values will allow us to safely deliver competitive and reliable wholesale power while being viewed as one of the top G&T cooperatives in the country. In closing, we know our foundation is solid and we truly believe Big Rivers’ outlook is reflective of our annual report theme, “Beyond Limits.”

ROBERT BERRY WAYNE ELLIOTT

President and CEO Chair, Board of Directors

As the owner of over 1,200 miles

of transmission lines, we understand the

importance of a reliable and robust high-voltage

transmission system; therefore we remain

committed to lasting operational excellence

and dependably serving our distribution

Member-Owners.


BIG RIVERS’ KNOWLEDGE, VALUES AND EXPERIENCE WILL ALLOW US TO SAFELY DELIVER COMPETITIVE AND RELIABLE WHOLESALE POWER WHILE BEING VIEWED AS ONE OF THE TOP GENERATION AND TRANSMISSION COOPERATIVES IN THE COUNTRY.

WE HAVE DEVELOPED SOLID GROUND-WORK to ensure the safest possible working conditions at Big Rivers, and we’re proud of the accomplishments and recognition achieved by our employees.


OUR AIM FOR SAFETYContinue Big Rivers’ emphasis on safety for employees, Member-Owners, contractors and the public.SAFETY

THE GOVERNOR’S SAFETY AND HEALTH AWARD annually recognizes outstanding safety and health performance and encourages development of programs designed to reduce occupational injuries and illnesses. As of 2014, Big Rivers has received the award 38 times.

OUR SAFETY CULTURE

Each year Big Rivers’ safety leadership team participates in a

variety of events and workshops to further promote the safety and

wellness culture. In January 2014, approximately 250 contractors

and employees attended the annual Contractor kick-off meeting

held in Philpot, KY. Big Rivers was also recognized by the Kentucky

Safety & Health Network (KSHN) in appreciation for their sponsor-

ship of the Governor’s Safety and Health Conference where

employees Warren Hust (Control Room Operator at Green) and

Donna Haynes (Control Room Operator at Coleman), are both

board members. Safety personnel also assisted Member-Owners

and the Kentucky Association of Electric Cooperatives with various

workshops and training demonstrations throughout the year.

Going forward, the Safety group will continue to focus on enhancing

not only a safe working environment, but offer tools to incorporate

a constant awareness of safety at home as well. One step toward this

goal was the development of Big Rivers’ first Safety Vision book

which focuses on both work and home safety and was mailed to all

present and retired employees.


BIG RIVERS’ GOVERNOR SAFETY AWARDS NOW TOTAL 38

SAFETY OF OUR EMPLOYEES AND CONTRACTORS has always been a top priority at Big Rivers, and it shows in our exemplary record.


0.2

0

*Recordable Incident: An injury or illness that results in medical attention beyond first aid and/or results in modified work duty and/or lost time from work.**Lost-time incident: An injury or illness that causes an employee to miss one or more scheduled full workday(s) following the incident.

.16

.33

0 0.1

0

OUR 2014 SAFETY RECORD

SAFETY IS MORE THAN A WORD OR CONCEPT AT BIG RIVERS. It is a foundational element of our company culture and a key focus for each employee every day. This was proven once again in 2014, through the following safety achievements:

Coleman Station employees achieved 8 years without a lost-time injury and received their 12th Governor’s Safety Award.

Transmission employees achieved 4 years without a lost-time injury, 1 year without a recordable injury and received their 1st Governor’s Safety Award.

Wilson Station achieved 7 years with-out a lost-time injury, 2 years without a recordable injury and received their 13th Governor’s Safety Award.

Headquarters employees recieved their 2nd Governor’s Safety Award in March 2015.

ALL employees achieved 3 years without a lost-time injury.

Sebree Station employees achieved 3 years without a lost-time injury and received their 10th Governor’s Safety Award.

OSHA RECORDABLE INCIDENT RATE*

Incident Rate: Number of incidents x 200,000/number of hours worked

LOST-TIME INCIDENT RATE**

Incident Rate: Number of incidents x 200,000/number of hours worked

4

2

1

02010

1.47

2011

1.97

2012

1.15

2013

1.22

2014

1.72

3

Kentucky 2013

4.34

6

Regional2013

5.35

National 2013

4.775

Kentucky: 24 Systems Regional: 86 Systems National: 760 Systems

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1.41.59

Big Rivers5-year

average

1.51

1.76

2010 2011 2012 2013 2014 Kentucky 2013

Regional2013

National 2013

Big Rivers5-year

average


GENERATING RELIABILITYBig Rivers’ generating units rank in the best quartile for reliable performance.GENERATION

WE ARE COMMITTED to safe, reliable and low-cost operations while maximizing the economic value of existing resources.

2014 KEY PERFORMANCE INDICATORS

1Equivalent Availability Factor Percentage of time a generating unit is available for power production at its full capacity

2Equivalent Forced Outage Rate Percentage of time a generating unit is unexpectedly offline or unable to obtain its full capacity

ACTUAL KPI TARGET

NET GENERATION

EAF

EFOR

NET HEAT RATE

10,021,324

89.0%

4.6%

10,745

DIFFERENCE

9,617,103

88.6%

4.8%

10.747

404,221

0.4%

-0.2%

-2

1

2


Robert A. Reid

130 MW

Kenneth C. Coleman

443 MW

D.B. Wilson

417 MW

OWNED GENERATING RESOURCES Big Rivers owns and operates 1,444 megawatts (MW) of generating capacity from four power stations.

Robert D. Green

454 MW

The Energy Services Department oversees a crucial element

contributing to the daily success of Big Rivers and its Member-

Owners by managing daily power supply, market transactions,

load forecasting, resource planning, and energy efficiency.

Big Rivers has been a member of the Midcontinent Independent

System Operator (MISO) since 2010, when we joined to meet our

NERC-mandated Contingency Reserve requirements. As a member

of MISO, the company has been able to sell all excess generation

that clears the energy market price versus selling in blocks during

on-peak and off-peak time periods, as was the only option prior to

membership in MISO.

Key initiatives for the department in 2014 included participating

in MISO activities and training, improving internal monitoring

and optimization processes, managing assets to the benefit of

all Members, and completing the Integrated Resource Plan as

required by the Kentucky Public Service Commission.

In February 2014, Big Rivers’ Production and Energy Services’

personnel collaborated to execute a forward sale of 200 megawatts

(MW) of electricity from the D.B. Wilson plant through February

2015. The remaining 217 MW of Wilson capability was sold into the

MISO day-ahead market. Executing this forward sales transaction

provided multiple benefits and value to employees, Member-

Owners, coal suppliers, other vendors, and the regional economy.

In June, Big Rivers successfully executed another forward transac-

tion for the sale of 200 megawatts (MW) of on-peak power from the

D.B. Wilson plant for all of 2015. The previous sale of 200 MW of

on-peak power through February 2015, combined with the June sale

resulted in 400 of Wilson’s 417 MW being sold on-peak for January

and February 2015.

Big Rivers’ continues to sell the remaining 217 MW of Wilson

capability from March through December 2015 into the MISO

day-ahead market in order to further enhance the forward sale

arrangement. These transactions further demonstrate the value of

our generating units to Member-Owners, employees, stakeholders

and the communities we serve.

Big Rivers continues to aggressively pursue opportunities to

increase electric sales and bring value to our Member-Owners.

Our low-cost generating units will allow us to continue to obtain

replacement power sales which will help lower electric rates for

the benefit of western Kentucky.

INCREASING SALES AND BRINGING VALUE

1 Equivalent Availability Factor Percentage of time a generating unit is available for power production at its full capacity

2 Equivalent Forced Outage Rate Percentage of time a generating unit is unexpectedly offline or unable to obtain its rated capacity

3 Net Capacity Factor Percentage of the maximum generation actually generated

RELIABILITY METRICS for Big Rivers’ generating units compared to their peer groupOctober 2009-September 2014

Higher is better

METRICBIG RIVERS

GENERATING UNITS

EAF1

EFOR2

NCF3

90.70%

3.97%

83.12%

BEST QUARTILE

87.75%

6.15%

75.67%

PEER GROUP MEDIAN

81.17%

8.73%

65.92%


Ensuring the 1,200+ miles of energized transmission line

operated and maintained by Big Rivers meets the demands

of its Member-Owners in a reliable and affordable manner

is no simple feat. It is one, however, that our Engineering

Department takes seriously. Over the course of 2014, several

projects were initiated and completed that continue to safe-

guard one of our key values of excellence in transmission.

Construction of a new 69 kV transmission line in Jackson

Purchase Energy Corporation territory to increase reliabil-

ity to distribution substations

Installation of new Power Circuit Breakers at Coleman

Switchyard and Wilson Substation

Replacement of a capacitor bank circuit switcher at

Coleman Switchyard

Construction of a new substation and 69 kV transmission

lines in Meade County RECC to serve increased electrical

power needs and an industrial park in the Brandenburg

area

Installation of radio controlled switches at various

substations across all Member-Owner territories

Addition of circuit switches and microprocessor based

protective relaying to 69 kV transmission lines at the

Hardinsburg Substation in order to increase reliability

Upgrades for 2015 are already underway with specific focus at

White Oak, Hardinsburg and Meade County Substations, as

well as Radio Controlled Switching projects at five Member-

Owner substations. Two new 161 kV transmission lines at

Coleman Extra High Voltage Substation and a proposed new

distribution substation will also be constructed as a result of

Aleris Rolled Product, Inc.’s expansion in Hawesville, KY.

As with any utility, there are always improvements to make.

Our Engineering Department is dedicated to that mission, and

will continue to focus on projects that further enhance trans-

mission reliability in Big Rivers’ and our Member-Owners’

service territories.

FOCUSED ON EXCELLENCEBig Rivers’ transmission system reliability is near an all-time high.TRANSMISSION

TRANSMISSION SYSTEM RELIABILITY

Upgrades for 2015 are already

underway with specific focus at White Oak,

Hardinsburg and Meade County Substations,

as well as Radio Controlled Switching

projects at five Member-Owner substations.


345 KV LINE located in Ohio County, KY stemming from our Wilson EHV complex.

WE CONTINUE TO FOCUS ON PROJECTS THAT FURTHER ENHANCE TRANSMISSION RELIABILITY IN BIG RIVERS’ AND OUR MEMBER-OWNERS’ SERVICE TERRITORIES.


ADVANCING OUR MEMBER-OWNERS’ GOALSWe’re working to provide present and future value and stability. OUR MEMBERS

Since 2008, Big Rivers has been actively involved in advancing

Governor Steve Beshear’s Strategy 1 issued in his Intelligent Energy

Choices for Kentucky’s Future. The target of improving “the efficiency

of Kentucky’s homes, buildings and transportation fleet by establish-

ing a goal of offsetting at least 18% of Kentucky’s projected 2025 energy

demand” is shared by utilities and organizations across the state and is a

focus of Big Rivers’ Member Services Department. 2014 marked the first

year that all Demand Side Management programs were offered for an

entire 12 months.

Programs offered to members throughout the year include:

Due to increased marketing and promotion, Member-consumer

participation has been growing steadily since introducing the

incentives in 2011. The 2014 energy efficiency program budget was

established at $1,000,000 including incentives and promotions.

Specific program budgets are flexible and tailored to meet retail

response for each Member-Owner. At year end, the total spend was

exceeded by $8,323 and saved retail members approximately 5,763

MWh. In addition, winter demand was reduced by an estimated

1,875 kW and summer demand by 1,134 kW.

Big Rivers will remain dedicated to the statewide goal of reducing

demand through Demand Side and Energy Efficiency programs.

Staff from Big Rivers and our Member-Owners meet quarterly to

plan for retail response to these programs. We also work closely

with the Kentucky Department of Energy and the Kentucky Public

Service Commission to measure, quantify and enhance Energy

Efficiency goals and projects across the state.

High Efficiency Lighting

General Energy Efficiency

HVAC Tune-Up

High Efficiency HVAC

Free Energy Audits

RESIDENTIALCOMMERCIAL INDUSTRIAL PROGRAMS

OTHER

High Efficiency

Lighting Replacement

Energy Star Clothes Washer

Replacement

Residential High Efficiency (HVAC)

Residential Weatherization

Touchstone Energy New Home

Residential HVAC Tune-Up

High Efficiency Outdoor Lighting


INVESTMENTS IN ENVIRONMENTAL IMPROVEMENTSBig Rivers is committed to comprehensive and least-cost compliance. ENVIRONMENTAL

IMPACT

WE PROUDLY CONTINUE TO EVALUATE RENEWABLE ENERGY SOURCES along with the regulatory and legislative efforts that impact additional generation development.

UPDATING OUR ENVIRONMENTAL COMPLIANCE PLAN

As with all coal-fired utilities in the nation today, increasing

requirements from the Environmental Protection Agency

are a source of concern for Big Rivers Electric Corporation.

Environmental staff continues to monitor and evaluate the

impact of all proposed federal regulations including the

following:

Coal Combustion Residuals (CCRs)

Effluent Limit Guidelines (ELGs)

316b (aquatic species impacts)

Cross State Air Pollution Rule

Clean Power Plan (CPP)

NAAQS for SO2

NAAQS for Ozone

At year end, we began efforts to update our master

Environmental Compliance Plan (ECP) to update compliance

methods and costs to comply with the above regulations.

In mid-December, the EPA released a pre-published report

on the classification of CCRs. The report classifies CCRs as

non-hazardous; however, the management requirements will

be substantial, resulting in additional expenses for disposal

of ash and scrubber material over current requirements. The

CCR regulatory package is expected to be published in the

Federal Register in early 2015.

Investments needed to meet Mercury Air Toxic Standards

(MATS) are currently underway at all Big Rivers’ plants,

except Coleman which is currently idled. In 2014, Big Rivers

constructed the Activated Carbon Injection (ACI) and Dry

Sorbent Injection (DSI) systems for the Green 1 and 2.

These projects consisted of a retaining wall, piling, founda-

tions, equipment and silo erection, piping, wiring and blower

control systems. Big Rivers was granted an extension for com-

pliance with MATS until April 2016 on all units. In addition,

it is Big Rivers’ intent to convert its Reid 1 coal-fired unit to

natural gas.


BIG RIVERS AND SOCIAL RESPONSIBILITYOur employees are dedicated to the success and well-being of the communities we serve.COMMUNITY

INVOLVEMENT

BIG RIVERS VALUES COMMUNITY SERVICE and strives to encourage civic engagement by our employees in community events. Above: Big Rivers employees accepted awards from local United Way agencies in western Kentucky.

UNITED WAY EMPLOYEE CAMPAIGN Our employees demonstrate their commitment to our community in many ways, including United Way. Thanks to our employees who made it possible for Big Rivers to have another successful United Way campaign. The 2015 campaign results are listed below:

United Way Employee Campaign Total:

$126,193.32

Total United Way Contribution:

$176,670.65

The average donation was $245.51 per employee

175 employees are donating equal to or greater than 1 hour’s pay per month

65% of employees contributed to United Way

Corporate Donation (40% of Employee Total):

$50,477.33


Concern for community is one of the seven principles

valued by cooperatives; therefore, in that spirit, Big

Rivers is committed to being a leader in corporate

responsibility. For years, Big Rivers has demonstrated

the importance of community and charitable involve-

ment by its corporate citizenship in western Kentucky.

As an individual employee activity and organizational

effort, we have established a culture of being an active

supporter of charitable causes and worthy efforts to

build stronger communities where we live and work.

Strengthening the communities we serve is fundamental

to the future success of our business. We recognize the

cooperative obligation to be a good corporate citizen;

therefore, we encourage employees to contribute to the

development of our region.

In 2014, our employees contributed countless volunteer

hours to local communities by serving in advisory

positions for local non-profit groups, economic develop-

ment organizations, health care foundations, and

chambers of commerce. In addition, our employees

provided financial contributions to organizations geared

towards health and human services in our area. Similar

to previous years, United Way was the premier non-

profit organization supported by Big Rivers totaling

$176,670 in our annual employee campaign with

65 percent of employees contributing an average dona-

tion of $245 per employee.

Each year we strive to build lasting partnerships in

western Kentucky to encourage sustainable development

and build our reputation through responsible actions and

social impact. We feel it is a privilege to have the ability

to benefit the lives of the people who reside within the

communities we serve. Our stewardship efforts reflect

the character, ethics and values that define Big Rivers

and our commitment to fulfill our public responsibilities.


ENCOURAGING GROWTH IN OUR REGIONBig Rivers and our Member-Owners offer one of the country’s most competitive economic incentive rates in an effort to encourage new capital growth in western Kentucky.

ECONOMIC DEVELOPMENT

WE EFFICIENTLY MAINTAIN our high voltage transmission system with a focus on Member reliability and performance.

IN 2014, BIG RIVERS AND OUR MEMBER- OWNERS INTRODUCED AN ECONOMIC DEVELOPMENT INCENTIVE RATE TO FOSTER GROWTH OF EXISTING INDUS-TRY AND ATTRACT NEW BUSINESS TO WESTERN KENTUCKY.


ENCOURAGING CAPITAL INVESTMENT AND GROWTH

Big Rivers has maintained a presence within the economic

development industry for several years through membership

in the Kentucky Association for Economic Development

(KAED), solid relationships with local and regional economic

development organizations and contributing to economic

development projects through our Member-Owners. In addi-

tion, Big Rivers and our Member-Owners are involved with

Kentucky United, an arm of KAED that serves as a market-

ing liaison for the Commonwealth in partnership with the

Kentucky Cabinet for Economic Development. This strategic

partnership has allowed Big Rivers and its Member-Owners to

assist in the Commonwealth’s industrial recruitment efforts,

thus benefiting our plan to encourage capital investment and

load growth in our region.

In 2014, Big Rivers went a step further in our attempts to

execute our Load Mitigation Strategy by collaborating with

our Member-Owners to introduce an Economic Development

Incentive Rate (EDR) developed to foster growth of existing

industry and attract new business. The incentive rate offers a

90% reduction in demand charges and is available to eligible

companies who relocate, expand or build within any Member-

Owner’s service territory with a load greater than 1,000 kW.

The EDR will be offered via special contracts that are subject

to approval by the Kentucky Public Service Comission (KPSC).

The incentive is one of the most robust in the state and is

being marketed on a national level. One of Kenergy’s existing

Member-consumers has already taken advantage of the offer

and announced an expansion nearly tripling the size of their

current load. The new rate, along with the combined efforts

of Big Rivers’ and its Member-Owners’ economic development

team, will be a strategic objective in our ongoing load mitiga-

tion efforts.


Several of Big Rivers’ long-term projects came to fruition in 2014,

when Information Systems staff successfully completed the migra-

tion of all three Member-Owners’ Financial Information Systems

(FIS), Customers Information Systems (CIS) and Geographic

Information Systems (GIS). These conversions began in 2012, with

representatives of both Big Rivers and each Member-Owner visiting

neighboring Kentucky cooperatives who had already upgraded to

newer software. Major vendors also visited each Member-Owner for

an onsite demonstration.

Meade County Rural Electric Cooperative Corporation elected

to utilize Southeastern Data Cooperative (SEDC) for its CIS/FIS

systems, and Futura to replace its Trimble GIS system. Jackson

Purchase Energy Corporation and Kenergy Corp. chose National

Information Solutions Cooperative (NISC) software as their CIS/FIS

system, and Milsoft for their GIS replacement.

An entire company upgrade from Windows XP to Windows 7, and

an upgrade from Oracle EBS version 12.1.1 to 12.1.3 also occurred in

2014. Achievements did not end there as Information Systems staff

completed design and launch of a new external website during the

year to update our digital image.

We look forward to utilizing the recent system improvements, plus

we have additional technological investments and projects slated for

2015, including:

Converting and installing the Oracle Fixed Assets System

Replacing the fuel’s accounting and management system with a

third-party package

Participating in the deployment of the new intranet hosted

by Apogee

Assisting Member-Owner Cooperatives with data extraction

from new software systems

Participating in HP’s Oracle Disaster Recovery test

Upgrading from Microsoft Office 2010 and IE9 to Microsoft

Office 2013 and IE11

Improving network security through the use of additional

monitoring tools

The solutions implemented in 2014, along with these new innovative

systems, will enable both Big Rivers and our Member-Owners to

enjoy user-friendly software packages that are in widespread use

across the industry. With greater software support resources, Big

Rivers and its Member-Owners are now equipped to more easily

merge with new technologies and respond to ever changing integra-

tion requirements.

IMPLEMENTING TECHNOLOGY SOLUTIONSEfforts in 2014 have enabled Big Rivers and our Member-Owners to respond to continuing integration requirements more easily.

INFORMATION SYSTEMS

AT BIG RIVERS, WE REMAIN FOCUSED on enhancing performance by adopting industry-leading practices.


BIG RIVERS PEOPLE STRATEGYWe’re focused on strategic alignment with our overall business strategy. ADMINISTRATION

During the year, the Administrative Services Team

started the journey towards a target state of “Less

Transactional...More Transformational.” Key highlights

included improving efficiencies in processes and trans-

actions necessary to support Big Rivers’ overall business

functions with improvements such as:

Fidelity Plan Automation for a better employee

experience

Benefits open enrollment including a New Benefits

brochure

Medicare transition to Humana

Significant reduction in Corporate Insurance expense

Merger of Defined Benefit Plans

A three-year plan entitled “Big Rivers People Strategy”

was developed in 2014, with a focus on Performance

Management, Leadership Development and Succession

Planning. One of the first initiatives included a three-day

leader management training for all generation and trans-

mission front line supervisors. Management Associated

Results Company (MARC) conducted the management

training at the Owensboro Convention Center and positive

feedback was collected from attendees.

The Administrative Services team is now putting more

focus on being strategically aligned to the overall business

strategy in order to ensure Big Rivers has sufficient talent

to run our business today as well as provide development

for future leaders.


ENGAGED IN PUBLIC POLICY AND ADVOCACYWorking diligently to protect the interests of our Member-Owners.LEGISLATIVE

EFFORTS

POWER BEHIND THE COOPERATIVE NATION

Big Rivers remains engaged in public policy impacting

Member-Owners on a local, state and national level, by

working closely with the Kentucky Association of Electric

Cooperatives (KAEC), East Kentucky Power Cooperative and

NRECA’s Governmental Affairs departments. Partnerships

have also been developed with investor-owned utilities

throughout the state as well as organizations such as the

Kentucky Association of Manufacturing and the Kentucky

Chamber of Commerce. These relationships help to monitor

energy issues and present a collaborative plan against poten-

tially harmful legislation.

Of specific interest over the last few years are the ever

increasing regulations proposed by the Environmental

Protection Agency for new and existing coal-fired power

plants. In 2014, Big Rivers urged consumers to participate

in NRECA’s grassroots campaign, The Cooperative Action

Network, to submit comments regarding proposed carbon

rules for existing plants. As a result of the national effort by

the cooperatives, over 1.1 million comments were sent urging

the EPA to reconsider what NRECA deemed “illegal, impru-

dent and impossible to implement” rules.

This is just one example of the role advocacy plays within the

utility industry and the power behind the cooperative nation.

Big Rivers will continue to nurture legislative relationships in

Frankfort, Washington, D.C., and the communities we serve

in order to protect the interest of our Member-Owners.


WE FORGE KEY RELATIONSHIPS to mon-itor energy issues, and present a collaborative plan against legislation that negatively impacts our Member-Owners.

BIG RIVERS WILL CONTINUE TO NURTURE LEGISLATIVE RELATIONSHIPS IN FRANKFORT, WASHINGTON, D.C., AND THE COMMUNITIES WE SERVE IN ORDER TO PROTECT THE INTERESTS OF OUR MEMBER-OWNERS.


STRONG FINANCIAL METRICS

Big Rivers’ net margins for the year ended December 31,

2014, were $32.7 million, exceeding budgeted margins by

more than $25 million. This margin level achieved a 1.79

actual times interest earned ratio (TIER) and a contractual

margins for interest ratio (MFIR) of 2.25 after adjusting for

a non-recurring charge to income. With $451.9 million in

equity, Big Rivers’ equity to assets ratio was 31.7 percent at

year-end. This is strong in comparison to most generation and

transmission cooperatives throughout the country. Big Rivers’

2014 debt service coverage ratio (DSCR) was solid at 1.58. The

continued operation of the Wilson facility added significant

margins for Big Rivers in addition to fuel savings that flowed

directly through the Fuel Adjustment Clause to the benefit of

Big Rivers’ Member-Owners.

REGULATORY SUPPORT

As a result of the January 2013 wholesale aluminum contract

termination notice of Rio Tinto Alcan, a smelter served by

Kenergy Corp, Big Rivers filed with the Kentucky Public

Service Commission requesting a base rate increase in mid-

2013. In April 2014, the Kentucky Public Service Commission

demonstrated regulatory support by ordering Big Rivers an

increase sufficient to provide financial viability while mini-

mizing the rate impacts to Big Rivers’ Member-Owners.

RATING ACTION

Big Rivers’ 2014 financial metrics, load mitigation successes

and the regulatory support shown by the Kentucky Public

Service Commission sparked positive rating indications from

three ratings agencies. In August 2014, Moody’s Investors

Service affirmed Big Rivers’ Ba2 rating and concurrently

revised the rating outlook to stable from negative. Likewise,

on January 29, 2015, Standard and Poor’s revised Big Rivers’

outlook to stable from negative; and maintained Big Rivers’

BB- rating. On February 5, 2015, Fitch Rating also revised

the rating outlook to stable from negative and affirmed Big

Rivers’ previous rating of BB.

LIQUIDITY

Big Rivers maintains a solid liquidity position, ending 2014

with $79 million in cash and cash equivalents. At year-end

2014, Big Rivers also had access to more than $41 million

through a line of credit with CFC which has since been

replaced by a new $130 million Syndicated Senior Secured

Credit Agreement with CFC, Regions Bank, KeyBank

National Association, Fifth Third Bank, and CoBank. In

conjunction with the closing of the 2015 Agreement, the

existing CFC line of credit was terminated, and Big Rivers

issued secured promissory notes (the Series 2015A Notes),

equal to each lender’s commitment. A portion (≈$30M) of the

2015 Agreement is reserved for interim financing of capital

expenditures associated with Big Rivers’ 2012 Environmental

Compliance Plan (ECP). When long-term financing of the

2012 ECP has been secured, Big Rivers will repay any out-

standing draws on the 2015 Agreement which were used to

fund 2012 ECP expenditures, and the total amount available

under the 2015 Agreement will be reduced to roughly

$100 million.

EXCEEDING EXPECTATIONSBig Rivers’ financial metrics compare favorably with most G&T cooperatives across the country.

2014 FINANCIAL REVIEW

BIG RIVERS’ NET MARGINS FOR THE YEAR ENDED DECEMBER 31, 2014, WERE $32.7 MILLION, EXCEEDING BUDGETED MARGINS BY MORE THAN $25 MILLION.


15

10

5

0

NET MARGINS ($ IN MILLIONS)

20

25

30

35

$7.0$5.6

$11.3$8.6

20

0

CASH AND CASH EQUIVALENTS ($ IN MILLIONS)

40

60

80

100

100

0

EQUITY($ IN MILLIONS)

200

300

400

500

300

200

100

0

ELECTRIC ENERGY REVENUES ($ IN MILLIONS)400

500

600

2010 2011 2012 2013 2014

$32.7

$386.6 $389.8$402.9 $422.5

$451.9

$514.5$558.4 $563.4 $554.8

$44.8 $44.8

$68.9

$95.7

$493.4

$79.0

FINANCIAL OVERVIEW

2010 2011 2012 2013 2014

2010 2011 2012 2013 2014

2010 2011 2012 2013 2014


INDEPENDENT AUDITORS REPORT

THE BOARD OF DIRECTORS AND MEMBERS BIG RIVERS ELECTRIC CORPORATION:

Report on the Financial Statements

We have audited the accompanying financial statements of Big Rivers Electric Corporation, which comprise the balance sheets as of December 31, 2014 and 2013, and the related statements of operations, comprehensive income, equities, and cash flows for each of the years in the three year period ended December 31, 2014, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted account-ing principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ 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 of America and the standards applicable to financial statement 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 from 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 auditors’ 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 auditors consider 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 presenta-tion 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 financial position of Big Rivers Electric Corporation as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the three year period ended Decem-ber 31, 2014, in accordance with U.S. generally accepted accounting principles.

Report on Other Legal and Regulatory Requirements

In accordance with Government Auditing Standards, we have also issued a report dated April 3, 2015, on our consideration of Big Rivers Electric Cor-porations’ internal control over financial reporting and our tests of their 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 the internal control over financial reporting or on compliance. The report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in assessing the results of our audits.

Philadelphia, Pennsylvania April 3, 2015

KPMG LLP1601 Market Street Philadelphia, PA 19103-2499

KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity.


BALANCE SHEETS

December 31, 2014 and 2013 (Dollars in thousands)

2014 2013

Utility plant – net $ 1,074,326 1,070,912

Restricted investments – Member rate mitigation 72,535 125,074

Restricted investments – NRUCFC Capital Term Certificates 40,099 41,650

Other deposits and investments – at cost 17,289 9,553

Current assets:

Cash and cash equivalents 78,973 95,727

Restricted cash – CAPEX Reserve — 11,829

Accounts receivable 33,834 48,879

Fuel inventory 44,900 35,152

Nonfuel inventory 24,190 25,056

Prepaid expenses 3,532 1,165

Total current assets 185,429 217,808

Deferred charges and other

Regulatory assets 31,143 3,758

Other 6,679 7,890

Total deferred credits and other 37,822 11,648

TOTAL $ 1,427,500 1,476,645

Capitalization

Equities $ 451,916 422,488

Long-term debt 820,284 832,958

Total capitalization 1,272,200 1,255,446

Current liabilities

Current maturities of long-term obligations 20,903 20,128

Purchased power payable 3,979 3,529

Accounts payable 27,592 34,775

Accrued expenses 11,598 19,711

Accrued interest 4,645 3,324

Total current liabilities 68,717 81,467

Deferred credits and other

Regulatory liabilities – member rate mitigation 67,704 124,923

Other 18,879 14,809

Total deferred credits and other 86,583 139,732

Commitments and contingencies (note 12)

TOTAL $ 1,427,500 1,476,645

See accompanying notes to financial statements.

ASSETS

EQUITIES AND LIABILITIES


STATEMENTS OF OPERATIONS

Years ended December 31, 2014, 2013 and 2012 (Dollars in thousands)

2014 2013 2012

$ 505,860 562,447 568,342

Total operating revenue 505,860 562,447 568,342

Operations

Fuel for electric generation 164,220 210,115 226,369

Power purchased and interchanged 117,177 120,770 111,465

Production, excluding fuel 41,942 47,985 48,055

Transmission and other 54,338 44,784 40,189

Severance expense (6,012) 9,272 —

Maintenance 45,591 41,564 45,962

Depreciation and amortization 19,655 39,425 41,090

Total operating expenses 436,911 513,915 513,130

Electric operating margin 68,949 48,532 55,212

Interest 40,987 42,823 44,414

Income tax expense — — —

Other – net 194 1,054 546

Total interest expense and other 41,181 43,877 44,960

Operating margin 27,768 4,655 10,252

Interest income and other 4,899 3,984 1,025

Total nonoperating margin 4,899 3,984 1,025

Net margin $ 32,667 8,639 11,277


OPERATING REVENUE

OPERATING EXPENSES

INTEREST EXPENSE AND OTHER

NONOPERATING MARGIN


STATEMENTS OF COMPREHENSIVE INCOME


2014 2013 2012

NET MARGIN $ 32,667 8,639 11,277

Other comprehensive income

Defined-benefit plans

Prior service cost 1 11 14

Actuarial gain (loss) (1,804) 6,580 1,035

Defined-benefit plans (1,803) 6,591 1,049

Postretirement benefits other than pensions

Prior service cost (138) (138) 1,974

Actuarial gain (loss) (1,154) 4,523 (1,269)

Transition obligation — — 31

Amortization of gain (144) (9) —

Postretirement benefits other than pensions (1,436) 4,376 736

OTHER COMPREHENSIVE INCOME (LOSS) (3,239) 10,967 1,785

COMPREHENSIVE INCOME $ 29,428 19,606 13,062


STATEMENTS OF EQUITIES


OTHER EQUITIES

Total Equities

Retained Margin

Donated Capital and

Memberships

Consumers’ Contributions

to Debt Service

Accumulated Other

Comprehen-sive Income

BALANCE – DECEMBER 31, 2011 $ 389,820 397,098 764 3,681 (11,723)

Net margin 11,277 11,277 — — —

Pension and postretirement benefit plans 1,785 — — — 1,785

BALANCE – DECEMBER 31, 2012 402,882 408,375 764 3,681 (9,938)

Net margin 8,639 8,639 — — —

Pension and postretirement benefit plans 10,967 — — — 10,967

BALANCE – DECEMBER 31, 2013 422,488 417,014 764 3,681 1,029

Net margin 32,667 32,667 — — —

Pension and postretirement benefit plans (3,239) — — (3,239)

BALANCE – DECEMBER 31, 2014 $ 451,916 449,681 764 3,681 (2,210)


STATEMENTS OF CASH FLOWS


2014 2013 2012

Net margin $ 32,667 8,639 11,277

Adjustments to reconcile net margin to net cash provided by operating activities:

Depreciation and amortization 22,881 43,687 44,733

Interest compounded – RUS Series A Note 47 44 7,603

Interest compounded – RUS Series B Note 8,182 7,724 7,291

Noncash member rate mitigation revenue (65,945) (23,727) (22,873)

Changes in certain assets and liabilities:

Accounts receivable 15,045 (503) (4,090)

Inventories (8,882) (1,105) 87

Prepaid expenses (2,367) 2,928 124

Deferred charges (1,572) (3,968) (1,278)

Purchased power payable 450 2,127 (476)

Accounts payable (7,184) 3,164 3,164

Accrued expenses (6,792) 7,155 (4,399)

Other – net 7,892 3,828 278

Net cash provided by operating activities (5,578) 49,993 41,441

Capital expenditures (49,843) (26,222) (39,853)

Proceeds from restricted investments 58,284 41,583 (58,094)

Purchases of restricted investments and other deposits and 510

investments 126 146

Change in restricted cash — 41,313 (41,313)

Net cash provided by (used in) investing activities 8,951 56,800 (139,114)

Principal payments on long-term obligations (20,127) (79,926) (456,206)

Proceeds from long-term obligations — — 580,156

Principal payments on short-term notes payable — — —

Debt issuance cost on bond refunding — — (2,266)

Net cash provided by (used in) financing activities (20,127) (79,926) 121,684

Net increase in cash and cash equivalents (16,754) 26,867 24,011

95,727 68,860 44,849

$ 78,973 95,727 68,860

Cash paid for interest $ 32,030 36,796 34,893

Cash paid for income taxes — — —


CASH FLOWS FROM OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

CASH AND CASH EQUIVALENTS – BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS – END OF YEAR

SUPPLEMENTAL CASH FLOW INFORMATION


NOTES TO FINANCIAL STATEMENTS

December 31, 2014 and 2013

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) General InformationBig Rivers Electric Corporation (Big Rivers or the Company), an electric generation and transmission cooperative, supplies wholesale power to its three member distribution cooperatives (Kenergy Corp., Jackson Purchase Energy Corporation, and Meade County Rural Electric Cooperative Corporation) under all requirements contracts, excluding the power needs of two large aluminum smelters (the Aluminum Smelters). Additionally, until August 2013 and February 2014, Big Rivers sold power under separate contracts to Kenergy Corp. for the Aluminum Smelters load. Big Rivers also markets power to nonmember utilities, power marketers, and the Midcontinent ISO (MISO). The members provide electric power and energy to industrial, residential, and commercial customers located in portions of 22 western Kentucky counties. The wholesale power contracts with the members remain in effect until December 31, 2043. Rates to Big Rivers’ members are established by the Kentucky Public Service Commission (KPSC) and are subject to approval by the Rural Utilities Service (RUS). The financial statements of Big Rivers include the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 980, Regulated Operations, and gives recognition to the ratemaking and accounting practices of the KPSC and RUS.

(b) EstimatesThe preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires man-agement to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contin-gent assets and liabilities. The estimates and assumptions used in the accompanying financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from those estimates.

(c) System of AccountsBig Rivers’ maintains its accounting records in accordance with the Uniform System of Accounts as prescribed by the RUS Bulletin 1767B-1, as adopted by the KPSC. These regulatory agencies retain authority and periodically issue orders on various accounting and ratemaking matters. Adjustments to RUS accounting have been made to make the financial statements consistent with generally accepted accounting principles in the United States of America.

(d) Revenue RecognitionRevenues generated from the Company’s wholesale power sales are based on month-end meter readings and are recognized as earned when electricity is delivered. Capacity revenues are recognized in the period in which the Company provides capacity to a counterparty.

(e) Utility Plant and DepreciationUtility plant is recorded at original cost, which includes the cost of contracted services, materials, labor, overhead, and an allowance for borrowed funds used during construction. Replacements of depreciable property units, except minor replacements, are charged to utility plant.

Allowance for borrowed funds used during construction is included on projects with an estimated total cost of $250 or more before consideration of such allowance. The interest capitalized is determined by applying the effective rate of Big Rivers’ weighted average debt to the accumulated expendi-tures for qualifying projects included in construction in progress.

Depreciation of utility plant in service is recorded using the straight line method over the estimated remaining service lives, as approved by the RUS and KPSC. During 2012, a depreciation study was completed to evaluate the remaining economic lives of the Company’s assets and establish new depre-ciation rates. The study was approved by the RUS in 2012 and by the KPSC in 2014, with the rates becoming effective February 1, 2014. The annual composite depreciation rates used to compute depreciation expense were as follows:

Electric plant 0.35%–25.38%Transmission plant 1.36%–2.29%General plant 3.76%–9.88%

For 2014, 2013, and 2012, the average composite depreciation rates were 2.34%, 2.23%, and 2.23%, respectively. At the time plant is disposed of, the original cost plus cost of removal less salvage value of such plant is charged to accumulated depreciation, as required by the RUS.

(f) Impairment Review of Long Lived AssetsLong lived assets are reviewed as facts and circumstances indicate that the carrying amount may be impaired. FASB ASC 360, Property, Plant, and Equipment, requires the evaluation of impairment by comparing an asset’s carrying value to the estimated future cash flows the asset is expected to generate over its remaining life. If this evaluation were to conclude that the future cash flows were not sufficient to recover the carrying value of the asset, an impairment charge would be recorded based on the difference between the asset’s carrying amount and its fair value (less costs to sell for assets to be disposed of by sale) as a charge to net margin.


(g) InventoryInventories are carried at average cost and include coal, petroleum coke, lime, limestone, oil and gas used for electric generation, and materials and supplies used for utility operations. Purchased emission allowances are recorded in inventory at actual cost by each vintage year. Allowances issued by the Environmental Protection Agency (EPA) are recorded at zero cost by each vintage year. Total purchased and EPA issued allowances are carried in inventory at a weighted average cost by each vintage year. Issuances of allowances are accounted for on a vintage basis using a monthly weighted average cost.

(h) Restricted InvestmentsInvestments are restricted under KPSC order to establish certain reserve funds for Member rate mitigation. These investments have been classified as held to maturity and are carried at amortized cost. Additionally, Big Rivers was required to purchase investments in National Rural Utilities Cooperative Finance Corporation’s (CFC) Capital Term Certificates (CTCs) in connection with a 2012 secured term loan agreement with CFC (note 8), which are also classified as held to maturity.

(i) Cash and Cash EquivalentsBig Rivers considers all short term, highly liquid investments with original maturities of three months or less to be cash equivalents.

(j) Restricted CashAs of December 31, 2013, certain cash amounts were restricted for capital expenditures in the ordinary course of business per Order of the KPSC (note 8). This restricted cash was used during 2014 to fund certain capital expenditures. As of December 31, 2014, the Company had no restricted cash.

(k) Regulatory Assets and LiabilitiesASC Topic 980-10 applies to regulated entities for which rates are designed to recover the costs of providing service. In accordance with this topic, certain items that would normally be reflected in the statement of operations are deferred on the balance sheets. Regulatory assets represent probable future revenues associated with certain incurred costs, which will be recovered from customers through the rate-making process. Regulatory assets are charged to earnings as collection of the cost in rates is recognized or when future recovery is no longer probable. Conversely, regulatory liabilities represent future reductions in revenues associated with amounts that are to be credited to customers through the rate-making process.

(l) Income TaxesBig Rivers was formed as a tax exempt cooperative organization as described in Internal Revenue Code Section 501(c)(12). To retain tax exempt status under this section, at least 85% of the Big Rivers’ receipts must be generated from transactions with the Company’s members. In 1983, sales to non-members resulted in Big Rivers failing to meet the 85% requirement. Until Big Rivers can meet the 85% member income requirement, the Company will not be eligible for tax exempt status and will be treated as a taxable cooperative.

As a taxable cooperative, Big Rivers is entitled to exclude the amount of patronage allocations to members from taxable income. Income and expenses related to nonpatronage sourced operations are taxable to Big Rivers. Big Rivers files a federal income tax return and certain state income tax returns.

Under the provisions of FASB ASC 740, Income Taxes, Big Rivers is required to record deferred tax assets and liabilities for temporary differences between amounts reported for financial reporting purposes and amounts reported for income tax purposes. Deferred tax assets and liabilities are deter-mined based upon these temporary differences using enacted tax rates for the year in which these differences are expected to reverse. Deferred income tax expense or benefit is based on the change in assets and liabilities from period to period, subject to an ongoing assessment of realization. Tax benefits associated with income tax positions taken, or expected to be taken, in a tax return are recorded only when the more likely than not recognition threshold is satisfied and measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement.

(m) Patronage CapitalAs provided in the bylaws, Big Rivers accounts for each year’s patronage sourced income, both operating and nonoperating, on a patronage basis. Notwithstanding any other provision of the bylaws, the amount to be allocated as patronage capital for a given year shall not be less than the greater of regular taxable patronage sourced income or alternative minimum taxable patronage sourced income.

(n) DerivativesManagement has reviewed the requirements of FASB ASC 815, Derivatives and Hedging, and has determined that certain contracts the Company is party to may meet the definition of a derivative under FASB ASC 815. The Company has elected the Normal Purchase and Normal Sale exception for these contracts, and therefore, the contracts are not required to be recognized at fair value in the financial statements.

(o) Fair Value MeasurementsFASB ASC 820, Fair Value Measurement, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal, or most advantageous, market for the asset or liability in an orderly transaction between market participants at the measure-ment date. FASB ASC 820 establishes a three level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs when possible. The three levels of inputs used to measure fair value are as follows:


• Level 1 – quoted prices in active markets for identical assets or liabilities;

• Level 2 – observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and

• Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities, including certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

2. UTILITY PLANT

At December 31, 2014 and 2013, utility plant is summarized as follows:

2014 2013

Classified plant in service:

Production plant $ 1,738,206 1,727,602

Transmission plant 258,307 248,466

General plant 45,483 44,441

Other 543 543

2,042,539 2,021,052

Less accumulated depreciation 1,018,800 989,604

1,023,739 1,031,448

Construction in progress 50,587 39,464

Utility plant – net $ 1,074,326 1,070,912

Interest capitalized for the years ended December 31, 2014, and 2013 was $594 and $226, respectively.

The Company has not identified any material legal asset retirement obligations, as defined in FASB ASC 410, Asset Retirement and Environmental Obligations. In accordance with regulatory treatment, the Company records an estimated net cost of removal of its utility plant through normal depreciation.

As of December 31, 2014 and 2013, the Company had an estimated $48,676 and $45,934, respectively, related to nonlegal removal costs included in accumulated depreciation as required by RUS.

3. DEBT AND OTHER LONG-TERM OBLIGATIONS

A detail of long-term debt at December 31, 2014 and 2013 is as follows:

2014 2013

CFC Refinance Promissory Note, Series 2012 B, serial note pricing, all-in effective interest rate of 4.30%, final maturity date of May 2032 $ 275,068 286,077

CFC Equity Note, Series 2012B, stated interest rate of 5.35%, final maturity date of May 2032 40,203 41,559

CoBank Promissory Note, Series 2012A, stated interest rate of 4.30%, final maturity date of June 2032 216,260 224,023

RUS Series A Promissory Note, stated amount of $80,456, stated interest rate of 5.75%, with an imputed interest rate of 5.84% maturing July 2021 80,110 80,063

RUS Series B Promissory Note, stated amount of $245,530, no stated interest rate, with interest imputed at 5.80%, maturing December 2023 146,246 138,064

County of Ohio, Kentucky, promissory note, fixed interest rate of 6.00%, maturing in July 2031 83,300 83,300

Total long-term debt 841,187 853,086

Current maturities 20,903 20,128

Total long-term debt – net of current maturities $ 820,284 832,958


The following are scheduled maturities of long-term debt at December 31:AMOUNT

Year2015 $ 20,903

2016 21,717

2017 22,576

2018 23,488

2019 24,464

Thereafter 728,039

Total $ 841,187

(a) National Rural Utilities Cooperative Finance Corporation (CFC) Refinance and Equity Promissory Notes, 2012BIn July 2012, Big Rivers issued new debt with CFC in the form of a secured term loan in the amount of $302,000 (the Refinance Note) and a CFC Equity Note in the amount of $43,156. The Refinance Note is secured under the Big Rivers indenture and consists of 20 individual notes with different fixed interest rates ranging from 3.05% to 5.35%. The Refinance Note has an effective interest rate of 4.30% and a final maturity date of May 2032. The proceeds of the Refinance Note were used to prepay $302,000 of the RUS Series A Note.

The Equity Note has a fixed interest rate of 5.35% and a final maturity date of May 2032. The proceeds of the CFC Equity Note were used to purchase interest bearing Capital Term Certificates (CTCs), as required in connection with the Refinance Note (note 8).

(b) CoBank, ACB (CoBank) Promissory Note, Series 2012AIn July 2012, Big Rivers issued new debt with CoBank in the form of a secured term loan in the amount of $235,000, which is secured under Big Rivers’ Indenture. The loan has a fixed interest rate of 4.30% per annum and a final maturity date of June 2032. Proceeds from the CoBank term loan were used to prepay $140,000 of the RUS Series A Note in July 2012, replenish the $35,000 Transition Reserve fund (depleted on April 1, 2011 to prepay the RUS Series A Note and realize a net interest expense reduction) and pay off the $58,800 County of Ohio, Kentucky Pollution Control Floating Rate Demand Bonds, Series 1983 in May 2013. The remaining funds were used to fund capital expenditures in the ordinary course of business (note 5).

(c) RUS NotesOn July 15, 2009, Big Rivers’ previous RUS debt was replaced with the RUS 2009 Promissory Note Series A (the RUS Series A Note) and the RUS 2009 Promissory Note Series B (the RUS Series B Note). The RUS Series A Note has a stated interest rate of 5.75% and is recorded at an imputed interest rate of 5.84%. The RUS Series B Note has no stated interest rate and is recorded at an imputed interest rate of 5.80%. The RUS Notes are secured under the Indenture dated July 1, 2009 between the Company and U.S. Bank National Association.

(d) Pollution Control BondsIn June 2010, the County of Ohio, Kentucky, issued $83,300 of Pollution Control Refunding Revenue Bonds, Series 2010A (Series 2010A Bonds), the proceeds of which are supported by a promissory note from Big Rivers, which bears the same interest rate as the bonds. These bonds bear interest at a fixed rate of 6.00% and mature in July 2031.

The County of Ohio, Kentucky, issued $58,800 of Pollution Control Variable Rate Demand Bonds, Series 1983 (Series 1983 Bonds), the proceeds of which were supported by a promissory note from Big Rivers, which bore the same interest rate as the bonds. These bonds incurred interest at a variable rate, subject to a maximum interest rate of 13.00%, and matured in June 2013. Big Rivers refunded these bonds by purchase on May 31, 2013 using funds from the CoBank Promissory Note, Series 2012A (note 5).

(e) Line of Credit In August 2013, Big Rivers amended and restated its $50,000 revolving line of credit agreement with CFC, dated as of July 16, 2009, (the 2009 Agreement) with the 2013 Amended & Restated Revolving Line of Credit Agreement (the 2013 Agreement). Under the 2009 Agreement, which had an expiration date of July 16, 2014, Big Rivers would have lost access to the line of credit on August 20, 2013, the date which the Century contract termi-nation became effective (note 5). The 2013 Agreement amended the 2009 Agreement by, among other things, extending the term of the line of credit to July 16, 2017, and amending sections that would have otherwise caused the 2009 Agreement to become unavailable to Big Rivers on August 20, 2013. Based on the terms of the 2013 Agreement, Big Rivers may draw on the line of credit when its unrestricted cash balance at the time of an advance is less than $35,000. Additionally, the amount of any advance may not exceed the difference between the $35,000 and Big Rivers’ unrestricted cash at the time of the advance.

In connection with the 2013 Agreement, Big Rivers issued a secured promissory note (the Series 2013A Note) with a stated principal amount equal to the CFC commitment. The Series 2013A Note is payable to the order of CFC and secured under Big Rivers’ Indenture.

Advances on the 2013 Agreement bore interest at a variable rate and outstanding balances were payable in full by the maturity date of July 16, 2017. The CFC variable rate is equal to the CFC Line of Credit Rate, which is defined as “the rate published by CFC from time to time, by electronic or other means, for similarly classified lines of credit, but if not published, then the rate determined for such lines of credit by CFC from time to time.”


Big Rivers had no outstanding borrowings on the 2013 Agreement at December 31, 2014 and 2013. Letters of credit issued under an associated Letter of Credit Facility with CFC reduced the borrowing capacity on the Revolvers by $8,594 and $8,425 for the years ended December 31, 2014 and 2013, respectively.

On March 5, 2015, Big Rivers entered into a new $130,000 Syndicated Senior Secured Credit Agreement (the 2015 Agreement) with CFC, CoBank, Fifth Third Bank, KeyBank National Association and Regions Bank. In conjunction with the closing of the 2015 Agreement, the 2013 Agreement was terminated and Big Rivers issued secured promissory notes (the Series 2015A Notes), equal to each lender’s commitment. A portion ($30,000) of the 2015 Agreement is reserved for interim financing of capital expenditures associated with Big Rivers’ 2012 Environmental Compliance Plan (ECP). Once long-term financing of the 2012 ECP has been secured, Big Rivers will be required to repay any outstanding draws on the 2015 Agreement which were used to fund 2012 ECP expenditures and the total amount available under the 2015 Agreement will be reduced to $100,000.

(f) CovenantsBig Rivers is in compliance with all debt covenants associated with both long-term and short term debt. The Company’s Indenture and other debt agreements require that a Margins for Interest Ratio (MFIR) of at least 1.10 be maintained for each fiscal year. The 2013 CFC line of credit agreement requires that Big Rivers, throughout the duration of the agreement, maintain a minimum members’ equities balance at each fiscal quarter end and year end of $325,000 plus 75% of the Company’s cumulative positive net margins for each of the preceding fiscal years, beginning with the fiscal year ended December 31, 2012. Big Rivers’ MFIR for the fiscal year ended December 31, 2014 was 2.25, as adjusted to exclude a $19,500 non-recurring charge to income (note 12), and its members’ equities balance was $451,916.

A MFIR less than 1.10, per the Indenture and other debt agreements, may result in the following actions, restrictions or consequences: Big Rivers cannot secure additional debt under the Indenture; the Company must seek rates that are reasonably expected to yield a 1.10 MFIR; the Company must provide a written plan satisfactory to the RUS setting forth actions to be taken to achieve the specified MFIR on a timely basis; an event of default may occur; interest rates may increase; and its line of credit may be terminated with an acceleration of any outstanding amounts under the line of credit.

In accordance with the Amended and Consolidated Loan Contract between Big Rivers and the United States of America (acting by and through the RUS Administrator), Big Rivers provided notification to the RUS Administrator via letter dated February 7, 2013 of a failure to maintain two Credit Ratings of Investment Grade. As required, in March 2013, the Company, prepared and presented to the RUS, its Corrective Action Plan setting forth the actions that are being taken by management that are reasonably expected to achieve two Credit Ratings of Investment Grade. In March 2014, the Company provided the RUS with an update on actions taken to date related to its’ Corrective Action Plan. The Company will continue to provide ongoing updates to the RUS.

4. RATE MATTERS

The rates charged to Big Rivers’ members consist of a demand charge per kilowatt (kW) and an energy charge per kilowatt hour (kWh) consumed as approved by the KPSC. The rates include specific demand and energy charges for its members’ two classes of customers, the large industrial customers, and the rural customers under its jurisdiction. For the large industrial customers, the demand charge is generally based on each customer’s maximum demand during the current month. Effective September 1, 2011, the Company received approval from the KPSC to base the member rural demand charge on its Maximum Adjusted Net Local Load (as defined in Big Rivers’ tariff).

Effective July 17, 2009, the KPSC approved the implementation of certain tariff riders; including a fuel adjustment clause and an environmental surcharge, offset by an unwind surcredit (a refund to tariff members of certain charges collected from the Aluminum Smelters in accordance with the contract terms). The net effect of these tariffs is recognized as revenue on a monthly basis with a partial offset to the regulatory liability – member rate mitigation described below.

The net impact of the tariff riders to members’ rates is currently mitigated by a Member Rate Stability Mechanism (MRSM) that is funded by certain cash reserves (the Economic and Rural Economic Reserves) established and held by Big Rivers as restricted investments. An offsetting regulatory liability – member rate mitigation reflects the obligation associated with the funding of these reserve accounts.

Under the Aluminum Smelters’ agreements, the wholesale rates established for the members’ non smelter large direct served industrial customers (the Large Industrial Rate) provide the basis for pricing the energy consumed by the Aluminum Smelters (Century Aluminum Company and Alcan Primary Products Corporation). The primary component of the pricing used for the Aluminum Smelters is an energy charge in dollars per megawatt hour (MWh) determined by applying the Large Industrial Rate to a load with a 98% load factor, and adding an additional charge of $0.25 per MWh. The other compo-nents reflected in the pricing of the Aluminum Smelters’ energy usage are certain charges and credits as provided for under the terms of the Aluminum Smelters’ wholesale electric service agreements between Big Rivers and Kenergy Corp. (Kenergy Corp. is the retail provider for the Aluminum Smelters load).

Kenergy Corp.’s smelter agreements were terminated effective August 20, 2013 and January 31, 2014, respectively as described in note 5.

As a result of Century’s notification of termination, received on August 20, 2012, the Company filed an application with KPSC, on January 15, 2013, requesting authority to adjust its rates for wholesale electric service. The KPSC entered an order on October 29, 2013, granting Big Rivers an annual revenue increase of $54,227, effective August 20, 2013. In its order, the KPSC excluded the Coleman plant depreciation from rate recovery at this time. The KPSC directed the Company to defer this depreciation expense and to record the amount in a regulatory asset account. The KPSC’s order indicated this action was being taken due to the planned temporary idling of Coleman, the length of time the plant will be idled, and the impact of the rate increase


on customers. As of December 31, 2014, cumulative depreciation expense of $7,760 was deferred for the Coleman plant, which management believes is probable of recovery in future rates.

On November 20, 2013, the intervenors in this case filed a petition for rehearing on three issues. The KPSC granted rehearing on one issue on December 10, 2013. On July 24, 2014, the KPSC issued its Rehearing Order denying the intervenors’ request to make adjustment to Big Rivers’ rates.

The wholesale rate increase granted by the KPSC resulted in a base wholesale rate increase of approximately: 21.9% for rural customers; 11.8% for large industrial customers; and 11.2% for the remaining aluminum smelter (Century Aluminum Sebree LLC, formerly Alcan Primary Products Corporation).

As a result of Alcan’s notification of termination, received on January 31, 2013, the Company filed an application with KPSC, on June 28, 2013, requesting authority to adjust its rates for wholesale electric service in the amount of $70,397. This requested amount was later revised to $71,223 in the Company’s rebuttal testimony filed December 17, 2013. The Company proposed to temporarily offset this rate increase by utilization of the MRSM. The Company also proposed to use transmission revenues from both smelters to replenish the Economic Reserve Fund. An evidentiary hearing was held by the KPSC in January 2014. The KPSC entered an order on April 25, 2014, granting Big Rivers an annual revenue increase of $36,160, effective February 1, 2014. In its order, the KPSC approved Big Rivers’ Depreciation Study, but excluded Wilson plant depreciation from rate recovery at this time. The KPSC directed the Company to defer this depreciation expense, and continue deferring Coleman plant depreciation expense, and to record the amounts in regulatory asset accounts. As of December 31, 2014, depreciation expense of $18,395 was deferred for the Wilson plant, which management believes is probable of recovery in future rates. The KPSC also approved Big Rivers’ proposal to temporarily offset the rate increase by utilization of MRSM. The KPSC further granted Big Rivers’ proposed accounting treatment for transmission revenues related to the Hawesville smelter, but included the test year transmission revenues related to the Sebree smelter in the determination of Big Rivers’ revenue requirement. The net effect of this accounting treatment is to recognize revenue on a monthly basis with an offset to the Economic Reserve regulatory liability account as the funds are applied to the members’ monthly revenue billing to offset the MRSM and rate increase from this case. The wholesale rate increase granted by the KPSC resulted in a base wholesale rate increase of approximately 16.3% for rural customers and 13.7% for large industrial customers.

On May 19, 2014, the intervenors in this case filed a petition for rehearing on two issues. The KPSC granted rehearing on one issue on June 6, 2014 to the limited extent that the issue was clarified in the June 6 Rehearing Order.

In connection with the rate matters discussed above, the following tables provide a summary of Regulatory Assets and Liabilities reflected in the Balance Sheet as of December 31, 2014 and 2013:

REGULATORY ASSETS

2014 2013

Coleman plant deferred depreciation $ 7,760 1,856

Wilson plant deferred depreciation 18,395 —

Rate case expense & other 2,800 —

Non-FAC PPA 2,188 1,902

Total regulatory assets $ 31,143 3,758

REGULATORY LIABILITIES

2014 2013

Economic reserve-member rate mitigation $ 2,218 57,766

Rural economic reserve-member rate mitigation 65,486 65,413

Non-FAC PPA — 1,744

Total regulatory liabilities $ 67,704 124,923

Effective July 17, 2009, the KPSC approved the implementation of the Non-Fuel Adjustment Clause-Purchased Power Adjustment (Non-FAC PPA) which is a rate mechanism allowing Big Rivers to recover certain costs of purchased power that are not recoverable through its FAC. An accrual is recorded monthly to a regulatory asset or liability account based on the difference between the actual purchased power costs recoverable through the Non-FAC PPA and the purchased power base cost included in base rates. The balance in the regulatory asset or liability account as of June 30 each year is billed or refunded to members during the following twelve-month period beginning September 1 through August 31 of the following year.

5. ALUMINUM SMELTERS TERMINATION NOTICES

On August 20, 2012, Big Rivers as wholesale power supplier, and Kenergy Corp. (Kenergy) as retail power supplier, received a letter from Century Aluminum Company (Century) serving Notice of Termination of its Retail Service Agreement with Kenergy. Big Rivers provided notification to the three credit rating agencies and certain creditors, in accordance with its debt covenant requirements, of the Century termination notice. As a result of Century’s notice, two credit rating agencies revised their Outlook for Big Rivers to negative from stable and the other revised Outlook from stable to under review. Standard & Poor’s Rating Services (Standard & Poor’s) and Fitch Ratings (Fitch) maintained their credit ratings at BBB-, while Moody’s Investors Service, Inc. (Moody’s) downgraded its rating of Big Rivers’ Series 2010A Bonds (in the amount of $83,300) to Baa2 from Baa1 and placed the rating under review.


On January 31, 2013, Alcan Primary Products Corporation (Alcan) provided a Notice of Termination of its Kenergy Retail Service Agreement to Big Rivers and Kenergy. Alcan stated in its notice that with the proposed rate increase of 15.6% its smelter would be “unprofitable and therefore unsustainable.” Big Rivers provided notification to the three credit rating agencies and its creditors of the Alcan termination notice. As a result of Alcan’s notice, the three credit rating agencies downgraded Big Rivers’ credit ratings in early February 2013 as follows: Standard & Poor’s to BB- from BBB-; Fitch to BB from BBB-; and Moody’s to Ba1 from Baa2. In addition, all three credit rating agencies maintained their Outlooks.

Moody’s released an Issuer Comment of Credit Positive dated November 1, 2013, resulting from the KPSC order to increase wholesale rates on October 29, 2013. Fitch maintained its credit rating and outlook in its updated report issued February 6, 2014.

On August 5, 2014, Moody’s released an Issuer Comment revising Big Rivers’ rating outlook from negative to stable based on the Company’s good progress in implementing load concentration mitigation strategies including the credit supportive rate case outcomes at the KPSC. The stable outlook also incorpo-rates Moody’s view that the smelters will continue to operate, thereby providing support for the local economy.

On January 29, 2015, Standard and Poor’s revised Big Rivers’ outlook to stable from negative; they maintained Big Rivers’ BB- rating. On February 5, 2015, Fitch Rating also revised the rating outlook from negative to stable and affirmed Big Rivers’ previous rating of BB.

Big Rivers has developed and continues to implement its Load Concentration Mitigation Plan (LCMP) to preserve its financial position notwithstanding the termination of the smelter agreements. This included the filing of two applications requesting approval of rate increases (note 4) and actively pursuing 400-800 MW of replacement load resulting from the terminated smelter contracts.

On June 12, 2013, Big Rivers and Kenergy filed a joint application with the KPSC requesting, among other things, approval of agreements with Century, which would allow Kenergy to purchase power at market prices for Century’s Hawesville Smelter beginning August 20, 2013. The KPSC issued its order approving these agreements on August 14, 2013. The Kentucky Industrial Utility Customers (KIUC), one of the intervenors in this proceeding, filed a complaint on September 11, 2013, appealing the KPSC’s order in Franklin Circuit Court. Subsequently, the KIUC withdrew its complaint, with prejudice, on December 6, 2013.

In June 2013, Century acquired substantially all of the assets of the Alcan smelter (Sebree Smelter) from Rio Tinto Alcan.

On November 20, 2013, Big Rivers and Kenergy filed a joint application with the KPSC requesting, among other things, approval of agreements with Century, which would allow Kenergy to purchase power at market prices for Century’s Sebree Smelter after January 31, 2014. The KPSC issued its order approving these agreements on January 30, 2014. The KIUC, one of the intervenors in this proceeding, filed a petition for rehearing on February 24, 2014, with the KPSC. The Company filed a response to KIUC’s petition for rehearing on February 28, 2014. The KPSC denied the KIUC’s petition for rehearing on March 14, 2014. The KIUC filed a complaint on April 7, 2014, appealing the KPSC’s order in Franklin Circuit Court. The KIUC and parties to the complaint filed briefs during the third and fourth quarters of 2014. Oral arguments were held on March 17, 2015, in Franklin Circuit Court.

Additionally, the Midcontinent Independent System Operator (MISO) requested the Big Rivers’ Coleman plant remain in operation under a System Support Resources (SSR) arrangement until the Century Hawesville Smelter could install equipment for transmission reliability issues. The SSR agreement between MISO and Big Rivers required approval by the Federal Energy Regulatory Commission (FERC). The FERC approved tariff required all operating costs of Coleman Station to be netted with revenues resulting from Coleman’s generation. Under the direct agreement between Century and Big Rivers, Century was responsible for paying all actual operating costs associated with running Coleman, offset by revenues generated by Coleman. Effective August 20, 2013, all such revenues and operating costs resulting from this direct agreement were netted in the Company’s financial statement. At MISO’s direction the SSR arrangement terminated April 30, 2014, at which time, temporary idling of the Coleman plant began. Revenues in excess of the actual operating expenses of the Coleman plant were distributed to all Load Serving Entities (LSE) impacted by the SSR arrangement.

As a result of the termination of the second smelter contract, a temporary idling of the Wilson plant had been scheduled for early 2014. Due to forward sales of Wilson generation, the idling of the Wilson plant will occur no sooner than June 1, 2016, if at all. The Coleman plant idling will continue until replacement load is acquired or until the price of the wholesale power market improves, which may take a number of years. At this time, the Company cannot project when the temporary plant idling will end.

As a result of the anticipated plant idlings, management distributed Work Adjustment and Retraining Notification Act of 1998 (WARN) notices to the employees of the Coleman, Wilson and Sebree generating facilities on December 5, 2013. The notices stated that the workforce would be reduced by approximately 188 positions due to the smelter terminations. The workforce reduction process for Coleman began immediately after the plant was idled.

In connection with the workforce reduction and in accordance with the terms and conditions of the Company’s severance plan, the Company recorded severance expense of $9,272 for the year ended December 31, 2013 which was reflected within “Accrued Expenses” on the Balance Sheet. All payouts were expected to occur in 2014 after the plant idlings, however, due to the Wilson plant remaining in operation until at least mid-2016, and the anticipated reduction in force not occurring in 2014, the Company reversed previously recorded severance expense of $6,012 for the year ended December 31, 2014. The entire $6,012 is reflected as a reduction to expense in the Company’s Statement of Operations. Additionally, the Company has reflected $596 within “Accrued Expenses” on the Balance Sheet as of December 31, 2014 for remaining expected severance payouts to occur in 2015.

On November 14, 2012, Big Rivers filed an application with the KPSC seeking approval to issue new debt to be used to refund the $58,800 Series 1983 Bonds (note 3) that mature in June 2013. However, with the uncertainty created by the Aluminum Smelters’ termination notices, and potential cumulative impact on prospective bond purchasers, the Company decided to seek KPSC approval to repay the bonds from repurposed funds currently restricted by


previously issued orders of the KPSC. The restricted funds consisted of $60,000 CoBank borrowings to be used for capital expenditures in the ordinary course of business and the $35,000 Transition reserve established for use upon the loss of one or both of the Aluminum Smelter loads. On March 26, 2013, the KPSC issued an Order granting the approval sought by the Company in this matter. Per the order, the Company refunded the Series 1983 Bonds, closed the Transition reserve account, and transferred the $35,000 balance to a CAPEX Reserve account (CAPEX) used to fund capital expenditures in the ordinary course of business. The balance of the CAPEX was $0 at December 31, 2014.

Management of Big Rivers believes that the Company’s results of operations and cash flows will provide sufficient liquidity for the Company to operate its business and meet its obligations as they come due for the foreseeable future. Furthermore, the Company’s ability to ultimately recover the carrying value of its assets, including those related to the Coleman and Wilson plants (and the regulatory assets related to deferred depreciation expense) will ultimately be dependent upon recovery through future rates subject to future KPSC orders. If the Company is unable to recover the carrying values of its assets, the value could become impaired, which would also potentially have a material impact on the Company’s results of operations, cash flows, and liquidity.

6. INCOME TAXES

At December 31, 2014, Big Rivers had a Nonpatron Net Operating Loss Carryforward of approximately $13,238 expiring at various times between 2029 and 2034, and an Alternative Minimum Tax Credit Carryforward of approximately $7,241, which carries forward indefinitely.

The Company has not recorded any regular income tax expense for the years ended December 31, 2014, 2013, and 2012, as the Company has utilized federal net operating losses to offset any regular taxable income during those years. Had the Company not had the benefit of a net operating loss carryfor-ward, the Company would have recorded $0, $0, and $0 in current regular tax expense for the years ended December 31, 2014, 2013, and 2012, respec-tively, given that the majority of the Company’s income is considered patronage income.

The components of the net deferred tax assets as of December 31, 2014 and 2013 were as follows:

2014 2013

Deferred tax assets:

Net operating loss carryforward $ 5,229 2,630

Alternative minimum tax credit carryforwards 7,241 7,241

Member rate mitigation — 10,327

Fixed asset basis difference 1,085 1,874

RUS Series B Note (5,293) 19,689

Total deferred tax assets 8,262 41,761

Deferred tax liabilities:

Bond refunding costs (140) (10)

Total deferred tax liabilities (140) (10)

Net deferred tax asset (prevaluation allowance) 8,122 41,751

Valuation allowance (8,122) (41,751)

Net deferred tax asset $ — —

A reconciliation of the Company’s effective tax rate for 2014, 2013, and 2012 is as follows:

2014 2013 2012

Federal rate 35.0% 35.0% 35.0%

State rate – net of federal benefit 4.5 4.5 4.5

Permanent differences — 0.2 0.9

Patronage allocation to members (39.6) (39.8) (40.4)

Tax benefit of operating loss

carryforwards and other 0.1 0.1 —

Alternative minimum tax — —

Effective tax rate —% —% —%

The Company files a federal income tax return, as well as certain state income tax returns. The years currently open for federal tax examination are 2010 through 2013. The major state tax jurisdiction currently open for tax examination is Kentucky for years 2001 through 2013, also due to unused net operat-ing loss carryforwards. The Company has not recorded any unrecognized tax benefits or liabilities related to federal or state income taxes.

The Company classifies interest and penalties as an operating expense on the statement of operations and accrued expenses in the balance sheet. No material interest or penalties have been recorded during 2014, 2013, or 2012.


7. PENSION PLANS

(a) Defined-benefit PlansBig Rivers has noncontributory defined-benefit pension plans covering substantially all employees who meet minimum age and service requirements and who were employed by the Company prior to the plans closure dates cited below. The plans provide benefits based on the participants’ years of service and the five highest consecutive years’ compensation during the last ten years of employment. Big Rivers’ policy is to fund such plans in accor-dance with the requirements of the Employee Retirement Income Security Act of 1974.

The salaried employees defined-benefit plan was closed to new entrants effective January 1, 2008, and the bargaining employees defined-benefit plan was closed to new hires effective November 1, 2008. The Company simultaneously established base contribution accounts in the defined contribution thrift and 401(k) savings plans, which were renamed as the retirement savings plans. The base contribution account for an eligible employee, which is one who meets the minimum age and service requirements, but for whom membership in the defined-benefit plan is closed, is funded by employer contributions based on graduated percentages of the employee’s pay, depending on his or her age.

In order to meet minimum participation requirements, Big Rivers’ salaried employees defined-benefit plan was merged into the bargaining employees defined-benefit plan. The merger was effective January 1, 2014 for purposes of Internal Revenue Code and effective December 31, 2014 for all other purposes.

The Company has adopted FASB ASC 715, Compensation – Retirement Benefits, including the requirement to recognize the funded status of its pension plans and other postretirement plans (note 10 – Postretirement Benefits Other Than Pensions). FASB ASC 715 defines the funded status of a defined-benefit pension plan as the fair value of its assets less its projected benefit obligation, which includes projected salary increases, and defines the funded status of any other postretirement plan as the fair value of its assets less its accumulated postretirement benefit obligation.

FASB ASC 715 also requires an employer to measure the funded status of a plan as of the date of its year-end balance sheet and requires disclosure in the notes to the financial statements certain additional information related to net periodic benefit costs for the next fiscal year. The Company’s pension and other postretirement benefit plans are measured as of December 31, 2014 and 2013.

The following provides an overview of the Company’s noncontributory defined-benefit pension plans.

A reconciliation of the Company’s benefit obligations of its noncontributory defined-benefit pension plans at December 31, 2014 and 2013 is as follows:

2014 2013

Benefit obligation – beginning of period $ 18,773 30,907

Service cost – benefits earned during the period 900 1,282

Interest cost on projected benefit obligation 856 986

Benefits paid (1,378) (13,599)

Actuarial loss (gain) 2,125 (803)

Benefit obligation – end of period $ 21,276 18,773

Big Rivers’ defined-benefit pension plans provide retirees and terminated employees with a lump sum payment option. Benefits paid in 2014 include lump sum payments in the amounts of $1,349 – the result of six retirees or terminated employees electing the lump sum payment option. Benefits paid in 2013 include lump sum payments in the amounts of $13,538 – the result of twenty retirees or terminated employees electing the lump sum payment option.

The accumulated benefit obligation for all defined-benefit pension plans was $15,961 and $14,017 at December 31, 2014 and 2013, respectively.

A reconciliation of the Company’s pension plan assets at December 31, 2014 and 2013 is as follows:

2014 2013

Fair value of plan assets – beginning of period $ 20,264 29,331

Actual return on plan assets 1,326 4,532

Employer contributions — —

Benefits paid (1,378) (13,599)

Fair value of plan assets – end of period $ 20,212 20,264


The funded status of the Company’s pension plans at December 31, 2014 and 2013 is as follows:

2014 2013

Benefit obligation – end of period $ (21,276) (18,773)

Fair value of plan assets – end of period 20,212 20,264

Funded status $ (1,064) 1,491

Components of net periodic pension costs for the years ended December 31, 2014, 2013, and 2012 were as follows:

2014 2013 2012

Service cost $ 900 1,282 1,428

Interest cost 856 986 1,304

Expected return on plan assets (1,423) (1,926) (1,897)

Amortization of prior service cost — 11 14

Amortization of actuarial loss 177 604 779

Settlement loss 242 2,566 2,064

Net periodic benefit cost $ 752 3,523 3,692

As a result of the 2014 lump sum payments there was a settlement required to the defined-benefit pension plans as provided in FASB ASC 715. The 2014 settlement loss of $242 reflects an accelerated amortization of unrecognized losses existing at the settlement date of December 31, 2014. The settlement loss is determined by multiplying the total unrecognized losses as of the settlement date by the projected benefit obligation that was settled or eliminated due to the lump sum payments.

A reconciliation of the pension plan amounts in accumulated other comprehensive income at December 31, 2014 and 2013 is as follows:

2014 2013

Prior service cost $ (1) (2)

Unamortized actuarial gain (5,339) (3,536)

Accumulated other comprehensive income $ (5,340) (3,538)

In 2015, $1 of prior service cost and $295 of actuarial loss is expected to be amortized to periodic benefit cost.

The recognized adjustments to other comprehensive income at December 31, 2014 and 2013 are as follows:

2014 2013

Prior service cost $ — 11

Unamortized actuarial gain (1,803) 6,580

Other comprehensive income $ (1,803) 6,591

At December 31, 2014 and 2013, amounts recognized in the balance sheets were as follows:

2014 2013

Deferred credits and other – surplus (deficit) $ (1,064) 1,491


Assumptions used to develop the projected benefit obligation and determine the net periodic benefit cost were as follows:

2014 2013 2012

Discount rate - projected benefit obligation 3.76% 4.61% 3.57%

Discount rate - net periodic benefit cost 4.61% 3.57% 4.26%

Rates of increase in compensation levels 4.00% 4.00% 4.00%

Expected long-term rate of return on assets 7.25% 7.25% 7.25%

The expected long-term rate of return on plan assets for determining net periodic pension cost for each fiscal year is chosen by the Company from a best estimate range determined by applying anticipated long-term returns and long-term volatility for various asset categories to the target asset alloca-tion of the plans, as well as taking into account historical returns.

Using the asset allocation policy adopted by the Company noted in the paragraph below, the expected rate of return at a 50% probability of achieve-ment level based on (a) forward looking rate of return expectations for passively managed asset categories over a 20-year time horizon and (b) historical rates of return for passively managed asset categories. Applying an approximately 80%/20% weighting to the rates determined in (a) and (b), respectively, produced an expected rate of return of 7.28%, which was rounded to 7.25%.

Big Rivers utilizes a third party investment manager for the plan assets, and has communicated thereto the Company’s Retirement Plan Investment Policy, including a target asset allocation mix of 50% U.S. equities (an acceptable range of 45%–55%), 15% international equities (an acceptable range of 10%–20%), and 35% fixed income (an acceptable range of 30%–40%). As of December 31, 2014 and 2013, the investment allocation was 56% and 59%, respectively, in U.S. equities, 6% and 7%, respectively, in international equities, and 38% and 34%, respectively, in fixed income. The objective of the investment program seeks to (a) maximize return on investment, (b) minimize volatility, (c) minimize company contributions, and (d) provide the employee benefit in accordance with the plans. The portfolio is well diversified and of high quality. The average quality of the fixed income invest-ments must be “A” or better. The equity portfolio must also be of investment grade quality. The performance of the investment manager is reviewed semiannually.

At December 31, 2014 and 2013, the fair value of Big Rivers’ defined-benefit pension plan assets by asset category are as follows:

LEVEL 1 LEVEL 2 DEC. 31, 2014

Cash and money market $ 718 — 718

Equity Securities:

Common Stock 8,933 — 8,933

Preferred Stock 184 — 184

Mutual Funds 4,261 254 4,515

Fixed:

U.S. Government Agency Bonds — 593 593

Tax Exempt Bonds & Notes — 2,519 2,519

Corporate Bonds & Notes — 2,750 2,750

$ 14,096 6,116 20,212

LEVEL 1 LEVEL 2 DEC. 31, 2013

Cash and money market $ 741 — 741

Equity Securities:

Common Stock 8,525 — 8,525

Preferred Stock 208 — 208

Mutual Funds 4,928 184 5,112

Fixed:

U.S. Government Agency Bonds — 179 179

Tax Exempt Bonds & Notes — 2,954 2,954

Corporate Bonds & Notes — 2,545 2,545

$ 14,402 5,862 20,264


Expected retiree pension benefit payments projected to be required during the years following 2014 are as follows:

AMOUNT

Year2015 $ 701

2016 601

2017 1,176

2018 1,680

2019 1,279

Thereafter 12,885

Total $ 18,322

(b) Defined Contribution PlansBig Rivers has two defined contribution retirement plans covering substantially all employees who meet minimum age and service requirements. Each plan has a thrift and 401(k) savings section allowing employees to contribute up to 75% of pay on a pretax and/or after tax basis, with employer match-ing contributions equal to 60% of the first 6% contributed by the employee on a pretax basis.

A base contribution retirement section was added and the plan name changed from thrift and 401(k) savings to retirement savings, effective January 1, 2008, for the salaried plan and November 1, 2008, for the bargaining plan. The base contribution account is funded by employer contributions based on graduated percentages of pay, depending on the employee’s age.

The Company’s expense under these plans was $4,511, $4,417 and $4,808 for the years ended December 31, 2014, 2013 and 2012 respectively.

(c) Deferred Compensation PlanBig Rivers sponsors a nonqualified deferred compensation plan for its eligible employees who are members of a select group of management or highly compensated employees. The purpose of the plan is to allow participants to receive contributions or make deferrals that they could not receive or make under the salaried employees qualified defined contribution retirement savings plan (formerly, the thrift and 401(k) savings plan) as a result of nondis-crimination rules and other limitations applicable to the qualified plan under the Internal Revenue Code. The nonqualified plan also allows a participant to defer a percentage of his or her pay on a pretax basis.

The nonqualified deferred compensation plan is unfunded, but the Company has chosen to finance its obligations under the plan, including any employee deferrals, through a rabbi trust. The trust assets remain a part of the Company’s general assets, subject to the claims of its creditors. The 2014 employer contribution was $98 and deferred compensation expense was $98. As of December 31, 2014, the trust asset was $643 and the deferred liability was $643.

8. RESTRICTED INVESTMENTS

The amortized costs and fair values of Big Rivers’ restricted investments held for Member rate mitigation and the CAPEX Reserve at December 31, 2014 and 2013 are as follows:

2014 2013

Amortized costs Fair values Amortized costs Fair values

Cash and money market $ 7,283 7,283 16,739 16,739

Debt securities:

U.S. Treasuries 65,252 65,501 65,314 65,531

U.S. Government agency 43,021 43,017

Total $ 72,535 72,784 125,074 125,287

Gross unrealized gains and losses on restricted investments at December 31, 2014 and 2013 were as follows:

2014 2013

Gains Losses Gains Losses

Debt securities:

U.S. Treasuries $ 1 23 2 20

U.S. Government agency 4 7

Total $ 1 23 6 27


Debt securities at December 31, 2014 and 2013 mature, according to their contractual terms, as follows (actual maturities may differ due to call or prepay-ment rights):

2014 2013

Amortized costs Fair values Amortized costs Fair values

In one year or less $ 66,910 66,894 80,736 80,764

After one year through five years 5,896 5,890 44,338 44,523

Total $ 72,806 72,784 125,074 125,287

Gross unrealized losses on investments and the fair values of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2014 and 2013 were as follows:

2014 2013

Less than 12 months Less than 12 months

Losses Fair values Losses Fair values

Debt securities:

U.S. Treasuries $ 23 59,611 20 57,524

U.S. Government agency — — 7 29,013

Total $ 23 59,611 27 86,537

The unrealized loss positions were primarily caused by interest rate fluctuations. The number of investments in an unrealized loss position as of December 31, 2014 and 2013 was 6 and 11, respectively. Since the Company does not intend to sell, and will more likely than not, maintain each debt security until its anticipated recovery, and no significant credit risk is deemed to exist, these investments are not considered other than temporarily impaired.

In conjunction with the CFC $302,000 secured term loan (note 3), Big Rivers was required to invest in Capital Term Certificates (CTCs) equal to 14.29% of the Refinance Note. Proceeds of the Equity Note were used to purchase the investments in CTCs as required under the loan agreement. The interest rate on the CTCs is fixed at 4.28% and is equal to 80% of the Equity Note rate of 5.35%. The CTCs cannot be traded in the market, and therefore, a value other than their outstanding principal amount cannot be determined. The Company’s investment in these CTC’s at December 31, 2014 and 2013 was $40,099 and $41,650, respectively.

9. FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS

FASB ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measures. It applies under other accounting standards that require or permit fair value measurements and does not require any new fair value measurements.

The carrying value of accounts receivable and accounts payable approximate fair value due to their short maturity. At December 31, the Company’s cash, cash equivalents, and restricted cash included short term investments in an institutional money market government portfolio account classified as trading securities under ASC 320, Investments – Debt and Equity Securities, that were recorded at fair value which were determined using quoted market prices for identical assets without regard to valuation adjustment or block discount (a Level 1 measure), as follows:

2014 2013

Institutional money market government portfolio $ 86,038 107,551

It was not practical to estimate the fair value of patronage capital included within other deposits and investments due to these being untraded companies.

Big Rivers’ long-term debt at December 31, 2014 consists of CFC loans totaling $315,271, a CoBank loan in the amount of $216,260, RUS notes totaling $226,356, and fixed rate pollution control bonds in the amount of $83,300 (note 3). The RUS, CFC, and CoBank debt cannot be traded in the market, and therefore, a value other than their outstanding principal amount cannot be determined. The fair value of the Company’s variable rate pollution control debt is par value, as each variable rate reset effectively prices such debt to the current market. At December 31, 2014, the fair value of Big Rivers’ fixed rate pollution control debt was determined based on quoted prices in active markets of similar instruments (Level 1 measure) and totaled $83,300.

10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

Big Rivers provides certain postretirement medical benefits for retired employees and their spouses. Generally, except for generation bargaining retirees, Big Rivers pays 85% of the premium cost for all retirees age 62 to 65. The Company pays 25% of the premium cost for spouses under age 62. Beginning at age 65, the Company pays 25% of the premium cost if the retiree is enrolled in Medicare Part B. For each generation bargaining retiree, Big Rivers establishes a retiree medical account at retirement equal to $1,200 per year of service up to 30 years ($1,250 per year for those retiring on or after January 1, 2012). The account balance is credited with interest based on the 10-year treasury rate subject to a minimum of 4% and a maximum of 7%. The account is to be used for the sole purpose of paying the premium cost for the retiree and spouse.


The discount rates used in computing the postretirement benefit obligation and net periodic benefit cost were as follows:

2014 2013 2012

Discount rate - projected benefit obligation 3.77% 4.48% 3.72%

Discount rate - net periodic benefit cost 4.48% 3.72% 4.29%

The healthcare cost trend rate assumptions as of December 31, 2014 and 2013 were as follows:

2014 2013

Initial trend rate 7.20% 7.30%

Ultimate trend rate 4.50% 4.50%

Year ultimate trend is reached 2028 2028

An one-percentage-point change in assumed healthcare cost trend rates would have the following effects:

2014 2013

One-percentage-point decrease:

Effect on total service and interest cost components $ (91) (104)

Effect on year-end benefit obligation (1,148) (976)

One-percentage-point increase:

Effect on total service and interest cost components $ 109 126

Effect on year-end benefit obligation 1,363 1,138

A reconciliation of the Company’s benefit obligations of its postretirement plan at December 31, 2014 and 2013 is as follows:

2014 2013

Benefit obligation - beginning of period $ 14,581 18,669

Service cost - benefits earned during the period 516 616

Interest cost on projected benefit obligation 616 555

Participant contributions 282 240

Benefits paid (1,250) (976)

Actuarial loss (gain) 1,154 (4,523)

Benefit obligation - end of period $ 15,899 14,581

Big Rivers revised the eligibility requirements for postretirement medical with regard to age and service. Beginning January 1, 2013, eligibility for retire-ment is age 62 with 10 years of service. The service requirement is waived for active employees on December 31, 2012 who will not have 10 years of service at age 62. A reconciliation of the Company’s postretirement plan assets at December 31, 2014 and 2013 is as follows:

2014 2013

Fair value of plan assets - beginning of period $ — —

Employer contributions 968 736

Participant contributions 282 240

Benefits paid (1,250) (976)

Fair value of plan assets - end of period $ — —


The funded status of the Company’s postretirement plan at December 31, 2014 and 2013 is as follows:

2014 2013

Benefit obligation - end of period $ (15,899) (14,581)

Fair value of plan assets - end of period —

Funded status $ (15,899) (14,581)

The components of net periodic postretirement benefit costs for the years ended December 31, 2014, 2013, and 2012 were as follows:

2014 2013 2012

Service cost $ 516 616 1,169

Interest cost 616 555 766

Amortization of prior service cost (138) (138) 17

Amortization of transition obligation — — 31

Amortization of gain (144) (9) —

Net periodic benefit cost $ 850 1,024 1,983

A reconciliation of the postretirement plan amounts in accumulated other comprehensive income at December 31, 2014 and 2013 is as follows:

2014 2013

Prior service cost $ 1,569 1,707

Unamortized actuarial loss 1,560 2,858

Transition obligation — —

Accumulated other comprehensive income $ 3,129 4,565

In 2015, $138 of prior service cost and $0 of actuarial gain is expected to be amortized to periodic benefit cost.

The recognized adjustments to other comprehensive loss at December 31, 2014 and 2013 are as follows:

2014 2013

Prior service cost $ (138) (138)

Unamortized actuarial gain (loss) (1,154) 4,523

Transition obligation — —

Amortization of net gain (144) (9)

Other comprehensive income $ (1,436) 4,376

At December 31, 2014 and 2013, amounts recognized in the balance sheets were as follows:

2014 2013

Accounts payable $ (1,224) (990)

Deferred credits and other (14,675) (13,591)

Net amount recognized $ (15,899) (14,581)


Expected retiree benefit payments projected to be required during the years following 2014 are as follows:

AMOUNT

Year2015 $ 1,224

2016 1,225

2017 1,229

2018 1,311

2019 1,406

Thereafter 6,379

Total $ 12,774

In addition to the postretirement plan discussed above, Big Rivers has another postretirement benefit plan, which vests a portion of accrued sick leave benefits to salaried employees upon retirement or death. To the extent an employee’s sick leave hour balance exceeds 480 hours, such excess hours are paid at 20% of the employee’s base hourly rate at the time of retirement or death. The accumulated obligation recorded for the postretirement sick leave benefit is $419 and $379 at December 31, 2014 and 2013, respectively. The postretirement expense recorded was $51, $46, and $57, for 2014, 2013, and 2012, respectively, and the benefits paid were $12, $256, and $47 for 2014, 2013, and 2012, respectively.

11. RELATED PARTIES

For the years ended December 31, 2014, 2013, and 2012, Big Rivers had tariff sales to its members’ of $258,967, $183,957, and $158,893, respectively. In addition, for the years ended December 31, 2014, 2013, and 2012, Big Rivers had certain sales to Kenergy for the Aluminum Smelters and Domtar Paper loads of $20,165, $295,878, and $366,758, respectively.

At December 31, 2014 and 2013, Big Rivers had accounts receivable from its members of $16,495 and $33,004, respectively.

12. COMMITMENTS AND CONTINGENCIES

The Company was a defendant in a lawsuit that alleged, among other things, a breach of a fuel supply contract with a former supplier. The plaintiff filed suit against the Company in Ohio County, Kentucky on April 26, 2012 seeking unspecified damages and a trial date was set for November 12, 2014. Prior to the trial date, the parties conducted a mediation during which they were able to reach a settlement whereby Big Rivers would pay the plaintiff $19,500 in August 2014. The settlement amount is reflected within “Operating Expenses-Transmission and other” on the Company’s Statement of Operations. The settlement removed the risks of trial, saved legal and expert expenses which would have been incurred if the case had gone to trial, and preserved a substantial portion of the savings to the ratepayers which resulted from the March 2012 termination of the coal supply agreement.

Big Rivers is involved in other litigation arising in the normal course of business. While the results of such litigation cannot be predicted with certainty, management, based upon advice of counsel, believes that the final outcome will not have a material adverse effect on the financial statements.

On April 2, 2012, Big Rivers filed an application with the KPSC seeking approval of its 2012 environmental compliance plan (ECP). As filed, the ECP requested KPSC approval to install certain equipment allowing Big Rivers to comply, in the most cost effective manner, with the U.S. Environmental Protection Agency Cross State Air Pollution Rule (CSAPR), and Mercury and Air Toxics Standards (MATS). In addition, the ECP filing requested approval to recover the costs of the ECP through an amendment to Big Rivers’ existing environmental surcharge tariff rider, an automatic cost recovery mechanism that is similar in function to the fuel adjustment clause. Prior to the evidentiary hearing conducted on August 22 and 23, 2012 at the KPSC’s offices, a ruling by the United States Court of Appeals for the District of Columbia Circuit resulted in CSAPR being vacated. On August 22, 2012, with CSAPR vacated and only MATS compliance remaining (at an estimated cost of $58,440), the parties to the KPSC hearing were able to reach a full and unani-mous settlement of all issues related to the ECP case. On October 1, 2012, the KPSC issued an order approving Big Rivers’ ECP. Due to the idlings of the Coleman and Wilson plants, $1,388 of MATS compliance testing and $725 of CSAPR stack testing performed at the plants and, previously deferred, was expensed in 2014.

13. SUBSEQUENT EVENTS

Management evaluated subsequent events up to and including April 3, 2015, the date the financial statements were available to be issued.

See note 3 for information on a new line of credit entered into on March 5, 2015.

2014 2013 2012 2011 2010

SUMMARY OF OPERATIONS

Operating Revenue:Electric Energy Revenue $ 493,406 $ 554,835 $ 563,385 $ 558,372 $ 514,490 Other Operating Revenue and Income 12,454 7,612 4,957 3,617 12,834

Total Operating Revenue $ 505,860 $ 562,447 $ 568,342 $ 561,989 $ 527,324 Operating Expenses:

Fuel for Electric Generation $ 164,220 $ 210,115 $ 226,369 $ 226,229 $ 207,749 Power Purchased 117,177 120,770 111,465 112,262 99,421 Operations (Excluding Fuel), Maintenance and Other 135,859 143,605 134,206 137,213 134,660 Depreciation 19,655 39,425 41,090 35,407 34,242

Total Operating Expenses $ 436,911 $ 513,915 $ 513,130 $ 511,111 $ 476,072 Interest Expense and Other:

Interest $ 40,987 $ 42,823 $ 44,414 $ 45,226 $ 46,570 Other-net 194 1,054 546 320 425

Total Interest Expense and Other $ 41,181 $ 43,877 $ 44,960 $ 45,546 $ 46,995 Operating Margin $ 27,768 $ 4,655 $ 10,252 $ 5,332 $ 4,257 Non-Operating Margin $ 4,899 $ 3,984 $ 1,025 $ 268 $ 2,734 Net Margin $ 32,667 $ 8,639 $ 11,277 $ 5,600 $ 6,991

SUMMARY OF BALANCE SHEET

Total Utility Plant $ 2,093,126 $ 2,060,516 $ 2,050,221 $ 2,028,418 $ 2,001,067 Accumulated Depreciation 1,018,800 989,604 962,994 936,355 909,501

Net Utility Plant $ 1,074,326 $ 1,070,912 $ 1,087,227 $ 1,092,063 $ 1,091,566 Cash and Cash Equivalents $ 78,973 $ 95,727 $ 68,860 $ 44,849 $ 44,780 Restricted Cash - 11,829 41,313 - - Reserve Account Investments1 72,603 125,120 182,994 164,399 218,955 Other Assets 201,598 173,057 166,284 116,611 116,884

Total Assets $ 1,427,500 $ 1,476,645 $ $1,546,678 $ 1,417,922 $ 1,472,185

Equities (deficit) $ 451,916 $ 422,488 $ 402,882 $ 389,820 $ 386,575 Long-term Debt 2 841,187 856,086 925,243 786,399 816,996 Regulatory Liabilities - Member Rate Mitigation 67,704 124,923 147,732 169,001 185,893 Other Liabilities and Deferred Credits 66,693 73,148 70,821 72,702 82,721

Total Liabilities and Equity $ 1,427,500 $ 1,476,645 $ 1,546,678 $ 1,417,922 $ 1,472,185

ENERGY SALES (MWH)

Member Rural 2,415,564 2,374,920 2,321,477 2,371,106 2,481,390 Member Large Industrial 966,010 996,267 961,298 973,093 930,168 Smelter Contracts 305,151 5,869,334 7,424,473 6,854,820 6,348,431 Other 5,923,301 2,618,866 1,536,834 3,056,106 2,209,431

Total Energy Sales 9,610,026 11,859,387 12,244,082 13,255,125 11,969,420

SOURCES OF ENERGY (MWH)

Generated 6,669,469 8,700,662 9,143,111 10,284,350 9,895,512 Purchased 2,994,287 3,221,793 3,162,489 2,998,361 2,220,994 Losses and Net Interchange (53,730) (63,068) (61,518) (27,586) (147,086)

Total Energy Available 9,610,026 11,859,387 12,244,082 13,255,125 11,969,420

NET CAPACITY (MW)

Net Generating Capacity Owned 1,444 1,444 1,444 1,444 1,444 Rights to HMP&L Station Two 197 197 197 202 207 Other Net Capacity Available 178 178 178 178 178

DEBT RATIOS

Margins for Interest Ratio (MFIR) 2.25 3 1.20 1.25 1.12 1.15 Times Interest Earned Ratio (TIER) 1.79 1.20 1.25 1.12 1.15 Debt Service Coverage Ratio (DSCR) 1.58 1.47 1.58 1.47 1.47

FIVE-YEAR REVIEW

As of December 31, 2014 and the Four Preceding Fiscal Years (Dollars in thousands)

1Includes investment income receivable.2Includes current maturities of long-term obligations.3Excludes impact of $19,500 non-recurring charge to income based on the definition and calculation of MFIR per Big Rivers’ Indenture.

PO Box 24Henderson, KY 42419-0024

TEL 270.827.2561FAX 270.827.2558WEB BigRivers.com

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