Public Utilities Cooperatives and Market Liberalization Martin J. Lowery Executive Vice President, External Affairs National Rural Electric Cooperative Association ACI-Americas XVI Conferencia Regional San José, Costa Rica July 23, 2008

The Electric Cooperative Network in the United States Today

Electric Co-op Facts-at-a-Glance 864 distribution and 66 G&T cooperatives: –2.4 million miles of distribution line –17 million businesses, homes and farms –67,000 employees –10 percent of annual kWh sales nationally –12 percent of the nation's population

NRECA international assistance in electric co-op development: Bangladesh Philippines Vietnam Thailand Sudan Bolivia Yemen Afghanistan Brazil Costa Rica Honduras Argentina El Salvador Nicaragua Guatemala Dominican Republic

The Traditional Mission of Electric Cooperatives Reliable Service Lowest Possible Cost Sound Business Practices “Reliable, affordable, sustainable”

The U.S. Electric Industry Deregulation Experience Wholesale Deregulation –Generally successful –Still a “work in progress” after 10 years –Requires experience in hourly and forward market trading and hedging Retail Deregulation –Predominately a failure

Electric Co-op Experience Difficult to imagine large scale competition as a healthy environment for consumers Unlike the telephone or banking industries, difficult to identify enhanced consumer value in unbundled, new services

Obligation to Serve Adopted in the early 1900’s Regulated rate of return on investment coupled with acceptance of obligation to serve all consumers within the territorial boundaries Particularly important to those for whom would otherwise be unavailable or unaffordable

Back to the Future Electric cooperatives have always accepted the obligation to serve In many cases, cooperatives were formed because service was literally not otherwise available Once again today the issue of reliable service at an affordable price consistent with sound business practices is the key issue

The Cooperative Opportunity Investor-owned company divestiture of existing assets has increased since wholesale deregulation Investor-owned identification of unprofitable assets can be an opportunity for cooperative expansion

Successful Acquisitions in Past Five Years Creation of Kauai Island Utility Cooperative to acquire the assets of Citizens Communications Acquisition of additional Citizens Communications assets by Vermont Electric Cooperative Acquisition of Aquila Energy properties in Kansas by electric cooperatives Acquisition of Alliant Energy properties in Illinois and Wisconsin by electric cooperatives