Annual Report 2006
Major 2006 Accomplishments
SHARP Award - Midwest Energy became the first utility in Kansas to earn the SHARP award from the Occupational Safety and Health Administration (OSHA) in 2006. The Safety and Health Achievement Recognition Program (SHARP) recognizes companies with less than 500 employees who operate an exemplary safety and health management system. Acceptance into SHARP identifies Midwest Energy as a model for worksite safety and health. 
Kansas Governor Kathleen Sebelius presented the award on August 30, 2006. She was accompanied by Charles Adkins, Region 7 Administrator for the OSHA, Jim Garner, the Kansas Secretary of Labor, and other state officials who worked with Midwest Energy employees to help us qualify for the award. Two years ago, Midwest Energy began the voluntary SHARP process with comprehensive site audits conducted by Kansas Department of Labor, Industrial Safety and Health consultants at each of 31 employee reporting locations. Any hazards found were corrected or eliminated. A comprehensive safety and health program has been written and put into action.
Safety Manager, Gary Miller, pursued this objective vigorously and his efforts, combined with the dedication of all employees, resulted in the Company receiving this Award.
Reliable Energy Source - The Company signed a Letter of Intent last year to purchase 75 megawatts from the new Holcomb 2 unit that will be built at Sunflower Electric's Holcomb Station. Midwest Energy is pleased to partner with Sunflower in this project for the benefits it will bring to our customer-owners and to western Kansas. This commitment to Holcomb 2 reflects our confidence that it will be a long-term reliable source of competitively priced electricity.
Sunflower's President and CEO, Earl Watkins, commenting on the agreement said, "Sunflower and Midwest Energy have done business together for many years." He added, "I am very happy that the Midwest Board and management chose to participate with Sunflower in the expansion of the Holcomb plant.”
The power purchase agreement extends for a period of 30 years from the date Holcomb 2 begins commercial operation, currently projected for 2012.
Economic Development - USDA Rural Development State Director Chuck Banks presented a ceremonial check totaling $708,000.00 in USDA’s Rural Economic Development Loan & Grant Program funding to Midwest Energy to support the expansion of Frick Veterinary Services located in Pawnee County, resulting in up to 11 jobs.
State Director Banks said “These business development funds will help support important local efforts to bring added economic growth and employment opportunities to the Pawnee and surrounding counties. The loan, also supported by the technical assistance from Midwest Energy, Inc. and USDA Rural Development, underscore our Nation’s continued commitment to promote community and economic development for rural America.”
Under the Rural Economic Development Loan & Grant Program, the Agency will make a zero-interest loan to the local rural utility cooperative. Upon receipt of the loan proceeds, following execution of loan documentation and meeting the conditions of the Program, the cooperative will then pass the loan proceeds on to the local applicant to finance job creation efforts.
Expanding Our Service Territory - Midwest Energy began operating the Bunker Hill natural gas system on November 1, 2006. The City of Bunker Hill had approached Midwest Energy with a proposal to purchase and operate the distribution system that provides service to 57 natural gas customers. Midwest Energy had been providing billing and maintenance services to Bunker Hill customers previously.
November 28, 2006, marked the closing date for the sale of the Oakley electric distribution system to Midwest Energy. Oakley citizens voted overwhelmingly to accept the proposal in September. Approximately 1,300 electric customers joined our system. Midwest Energy has been providing natural gas services to Oakley customers since 1998, and began operating the electric system December 1, 2006.
Frank Munk, Mayor of the City of Oakley said, “I want to thank the citizens of Oakley for getting involved in this decision and demonstrating their civic responsibility, and letting the City Council know how they felt on this issue and in which direction they wanted the City to proceed. The City will continue a lasting working relationship with Midwest Energy.”
Neither transaction would have been possible without the good reputation and great work ethic our employees exemplified in the community. We thank them for helping build Midwest Energy.
Community Service - The Midwest Energy Community Fund was established to benefit charitable, educational or nonprofit agencies in the Midwest Energy service area. The Community Fund improves the Company’s ability to channel dollars to causes most important to local customer-owners. Five customer committees, representing specific counties across our 41-county service area, review charitable requests and submit recommendations to Midwest Energy management for approval. The committees can direct funds to activities that focus on youth, arts, education, libraries, community events or other priorities that fall within the guidelines. Awards range from $50 to $500 and are granted semiannually. The Company donated over $85,000 in 2006 to projects throughout the service area.
Midwest Energy also provides a program to help with energy bill assistance. The program was initiated late in 2006 and is called Midwest Customers Care. It is funded by voluntary donations. Midwest Customers Care is designed to help those in need pay utility bills. Energy assistance is administered through The Salvation Army with help available throughout the Company's service territory for either electric or natural gas customers. The program is designed for households that need help and can show a provable need.
Energy Costs
Average Gas Bills Drop Despite Rate Increase - Wholesale natural gas costs fell significantly in 2006. However, increasing costs for delivery caused Midwest Energy to request Kansas Corporation Commission permission to increase natural gas delivery charges. This is the cooperative’s first change in gas delivery rates since early 2003, and only its second increase since 1995.
There are several reasons for the increase including on-going replacement of aging pipelines, increasing material costs and declining sales. Even though customer-owners are continuing to improve the efficiency of the space and water heating systems in their homes, sharp increases in the market cost for gas have reduced the consumption of natural gas by both homeowners and farmers. But regardless of how much gas is flowing through the pipes, Midwest Energy has an obligation to continue regular maintenance and replacements to keep ahead of safety standards.
The Kansas Corporation Commission approved the request in September and the increase went into effect October 1, 2006.
Power Supply - In March, Midwest Energy issued a Request for Proposals for the supply of electric capacity and energy commencing in 2007 and for control area services beginning in 2010. Base load, intermediate, and peaking capacity were all requested. The Company received proposals to furnish energy from generating units utilizing both coal and natural gas as the fuel, and some proposals also utilize other fuel sources, including nuclear and renewable resources.
In addition to replacing our own expiring contracts, the Company worked with three 
other Kansas electric cooperatives to jointly solicit power supply proposals. The Kaw Valley Electric Cooperative, Inc., Doniphan Electric Cooperative Assn. Inc. and Nemaha-Marshall Electric Cooperative Assn., Inc., agreed to work with Midwest Energy to develop a composite energy and capacity supply portfolio. Midwest Energy’s needs were over 80% of the combined needs of all four cooperatives. Ultimately all agreed that the proposals that best served Midwest Energy customers would be different from those that best served the customers of the other cooperatives.
The Company is now in the process of finalizing agreements with the winning bidders.
November 2005 Ice Storm After Effects - In November, 2005 the Company suffered severe damage to infrastructure in several areas of the service territory. Several counties were declared disaster areas and we applied for reimbursement from Federal and State Emergency Management Agencies, and were granted over $16 million dollars to help pay for reconstruction. This past year, crews have undertaken the process of working with our contractors to repair over 102 miles of transmission line and nearly 137 miles of distribution line. Crews have been working mainly in the counties of Sheridan, Decatur, Logan, Rawlins, Cheyenne, Thomas, Sherman, Graham, Norton, Trego and Gove. The project is expected to last three years, depending on storms and contractor availability. This project will add to our service reliability and of course, customer satisfaction.
Controlling Costs - Midwest Energy continues to find ways to improve efficiency and manage costs. One very large cost is the interest paid on the loans that pay for the facilities that serve our customers. By developing a new relationship with CoBank, a cooperative financial institution, we will experience substantial reductions in the cost of borrowing funds.
Midwest Energy remains the leading utility in Kansas for helping customers use energy efficiently. Our Energy Analysts and Account Managers provide a wide range of customized services, including comprehensive energy audits, equipment testing and leak testing. These services will expand in 2007.
