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Financial Statements

Union Rural Electric Cooperative, Inc. December 31, 2015 and 2014

XX, 20XXCONTENTS

Page

Independent Auditor’s Report 3

Financial Statements:

Balance Sheets 6

Statements of Revenue, Expenses and Comprehensive Income 8

Statements of Changes in Equities 9

Statements of Cash Flows 10

Notes to Financial Statements 12

To the Board of Trustees Union Rural Electric Cooperative, Inc. Marysville, Ohio

Independent Auditor’s Report

We have audited the accompanying financial statements of Union Rural Electric Cooperative, Inc., which comprise of the balance sheets as of December 31, 2015 and 2014, and the related statements of revenue, expenses and comprehensive income, changes in equities and cash flows for the years then ended, 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 accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s 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. Those standards require that we plan and perform the audits 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 auditor’s 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 auditor considers internal controls 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 presentation of the financial statements.

To the Board of Trustees Union Rural Electric Cooperative, Inc. Page 2

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 Union Rural Electric Cooperative, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Columbus, Ohio March 15, 2016

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2015 2014

ASSETS

Electric PlantElectric plant in service - at cost 81,426,451$ 78,482,890$ Construction work in progress 5,031,912 2,440,518

86,458,363 80,923,408Less: provision for accumulated depreciation

and amortization 25,066,123 23,037,538Net electric plant 61,392,240 57,885,870

Other Assets and InvestmentsPatronage capital from associated organizations 23,507,198 21,534,618Investments in associated organizations 1,130,678 1,215,493Union Rural Electric Scholarship Fund 58,619 62,855

Total other assets and investments 24,696,495 22,812,966

Current AssetsCash and cash equivalents 132,549 292,481Accounts receivable (less accumulated provision for

uncollected accounts of $21,209 in 2015 and $45,801 in 2014) 3,363,332 3,082,004

Unbilled revenue 1,554,976 1,735,347Materials and supplies 2,996,906 2,417,825Other current assets 90,728 194,670

Total current assets 8,138,491 7,722,327

Deferred Charges 1,148,126 1,296,181

TOTAL ASSETS 95,375,352$ 89,717,344$

6

December 31, 2015 and 2014Balance Sheets

The accompanying notes are an integral part of the financial statements.

UNION RURAL ELECTRIC COOPERATIVE, INC.

2015 2014

EQUITIES AND LIABILITIES

EquitiesPatronage capital 44,953,652$ 42,367,068$ Other equities 426,755 394,723Accumulated other comprehensive loss 179,400)( 17,200)(

Total equities 45,201,007 42,744,591

Long-Term LiabilitiesCFC and Farmer Mac mortgage notes,

less current maturities 35,875,024 32,843,555

Other Non-Current LiabilitiesProvision for postretirement benefits,

less current maturities 1,344,600 1,190,549

Current LiabilitiesCurrent maturities of long-term debt 2,246,568 2,058,342Accounts payable - purchased power 2,827,529 3,114,011Accounts payable - other 1,009,935 744,560Consumer deposits 169,321 166,826Accrued taxes 1,605,123 1,598,113Current maturities of provision for

postretirement benefits 68,000 58,600Other current and accrued liabilities 953,908 1,001,249

Total current liabilities 8,880,384 8,741,701

Deferred Credits 4,074,337 4,196,948

TOTAL EQUITIES AND LIABILITIES 95,375,352$ 89,717,344$

UNION RURAL ELECTRIC COOPERATIVE, INC.Balance Sheets (continued)

December 31, 2015 and 2014


7

2015 2014

Operating Revenues 50,791,414$ 50,054,495$

Operating Expenses:Cost of power 36,024,640 35,713,227Distribution - operation 2,471,701 2,474,206Distribution - maintenance 1,494,222 1,332,252Consumer records & collection expense 1,291,054 1,310,290Administrative and general 2,566,705 2,529,575Depreciation and amortization 2,603,743 2,544,950Taxes 1,147,694 1,152,459

Total cost of electric service 47,599,759 47,056,959

Operating margins before fixed charges 3,191,655 2,997,536

Fixed Charges, interest expense 1,436,629 1,484,884

Operating margins after fixed charges 1,755,026 1,512,652

Patronage Capital Credits:Generation and transmission credits 2,871,075 1,994,804Other credits 120,763 120,778

Total patronage capital credits 2,991,838 2,115,582

Net operating margins 4,746,864 3,628,234

Non-Operating Margins:Interest income 22,742 30,118Other income 3,947 55,401

Total non-operating margins 26,689 85,519

Net Margins 4,773,553$ 3,713,753$

Other Comprehensive Loss:Prior service credit 25,000)$( 25,000)$(Actuarial loss 137,200)( -

Total other comprehensive loss 162,200)( 25,000)(

Comprehensive Income 4,611,353$ 3,688,753$

8

UNION RURAL ELECTRIC COOPERATIVE, INC.Statements of Revenue, Expenses and Comprehensive Income

For the Years Ended December 31, 2015 and 2014


AccumulatedOther

Patronage Other Comprehensive TotalCapital Equities Income (Loss) Equities

Balance at December 31, 2013 40,799,453$ 355,596$ 7,800$ 41,162,849$

Net margins 3,713,753 - - 3,713,753

Retirement of capital credits 2,146,138)( - - 2,146,138)(

Capital credit gain - 39,588 - 39,588

Scholarship fund - 461)( - 461)(

Other comprehensive loss - - 25,000)( 25,000)(

Balance at December 31, 2014 42,367,068 394,723 17,200)( 42,744,591

Net margins 4,773,553 - - 4,773,553

Retirement of capital credits 2,186,969)( - - 2,186,969)(

Capital credit gain - 36,268 - 36,268

Scholarship fund - 4,236)( - 4,236)(

Other comprehensive loss - - 162,200)( 162,200)(

Balance at December 31, 2015 44,953,652$ 426,755$ 179,400)$( 45,201,007$


9

UNION RURAL ELECTRIC COOPERATIVE, INC.Statements of Changes in Equities

For the Years Ended December 31, 2015 and 2014

2015 2014

Cash Flows from Operating Activities:Cash received from consumers 50,570,341$ 49,953,077$ Interest and dividend income 22,742 30,118

Cash received from operating activities 50,593,083 49,983,195

Cash paid to suppliers and employees 45,718,537 44,360,363Interest paid 1,446,429 1,520,104

Cash disbursed for operating activities 47,164,966 45,880,467Net cash from operating activities 3,428,117 4,102,728

Cash Flows from Investing Activities:Construction and acquisition of plant 5,761,116)( 3,011,465)(Investment in other associated organizations 1,104,073 1,212,271Withdrawals of scholarship fund 4,236 461

Net cash used in investing activities 4,652,807)( 1,798,733)(

Cash Flows from Financing Activities:Advances on long-term debt 5,271,009 1,500,000Payments on long-term debt 2,051,314)( 1,977,988)(Patronage capital credits retired 2,186,969)( 2,146,138)(Other equities 32,032 39,127

Net cash provided by (used in) financing activities 1,064,758 2,584,999)(

Net decrease in cash 159,932)( 281,004)(

Cash and Cash Equivalents - Beginning of Year 292,481 573,485

Cash and Cash Equivalents - End of Year 132,549$ 292,481$

10

UNION RURAL ELECTRIC COOPERATIVE, INC.Statements of Cash Flows

For the years ended December 31, 2015 and 2014


2015 2014

Reconciliation of Net Margins to Net CashProvided by Operating Activities:

Net Margins 4,773,553$ 3,713,753$

Adjustments to reconcile net margins to net cashprovided by operating activities:

Depreciation and amortization 2,603,743 2,544,950Gain on disposal of assets 7,895)( 56,440)(Buckeye Power, Inc. and other capital credits 2,991,838)( 2,115,582)(Provision for uncollectible accounts receivable 24,642)( 38,166(Increase) decrease in:

Customer and other accounts receivable 256,686)( 162,075)(Unbilled revenue 180,371 6,363Materials and supplies 579,081)( 145,832)(Other current and accrued assets 103,942 10,069Deferred charges 148,055 177,338

(Decrease) increase in:Accounts payable 362,209)( 97,854Consumer deposits 2,495 16,128Accrued taxes 7,010 98,232Other current and accrued liabilities 47,341)( 100,209Deferred credits 122,611)( 215,554)(Accumulated provision for pensions and benefits 1,251 4,851)(

Total adjustments 1,345,436)( 388,975

Net Cash Provided by Operating Activities 3,428,117$ 4,102,728$

UNION RURAL ELECTRIC COOPERATIVE, INC.Statements of Cash Flows (continued)

For the years ended December 31, 2015 and 2014


11

UNION RURAL ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31, 2015 and 2014

Nature and Scope of Activities

Union Rural Electric Cooperative, Inc. (the Cooperative) is incorporated under the laws of the State of Ohio, operates as a cooperative and is exempt from federal taxation under Section 501(c)(12)(A) of the Internal Revenue Code. The Cooperative’s primary business is that of providing electric service to its membership. This membership consists of individuals, businesses, towns, villages and other public authorities in Union, Delaware, Logan, Marion, Hardin and Champaign counties in Ohio. Providing electric service includes construction of plant as well as purchasing electricity to sell to its members.

The Cooperative is also engaged in the retail sale of natural gas providing service primarily to consumers in Union County in Ohio.

Summary of Significant Accounting Policies

Basis of Accounting

The Cooperative’s accounting records are maintained in accordance with the Uniform System of accounts prescribed by the Federal Energy Regulatory Commission as adopted and interpreted by the Rural Utilities Services (RUS).

Utility Plant and Depreciation

The Cooperative records amounts expended in connection with the purchase or construction of utility plant assets at cost. Utility plant assets also include the costs of betterments and major replacements. In determining the cost of utility plant assets, the Cooperative’s policy is to not capitalize interest expense. Utility plant assets that have not been placed in service are shown on the balance sheets as construction work in progress and are not depreciated. Operations are charged with labor, material, supervision and other costs incurred to maintain the plant assets in efficient operating condition. The accumulated provisions for depreciation are charged with retirements and removal costs, less salvage.

Impairment of Long-Lived Assets

The carrying value of long-lived assets is reviewed for impairment whenever events or changes in circumstances indicate the amount of the assets may not be recoverable. When an indication of impairment is present and the undiscounted cash flows estimated to be generated by the related assets are less than the assets’ carrying amount, an impairment loss will be recorded based on the difference between the carrying amount of the assets and their estimated fair value. There were no such impairment adjustments for the years ended December 31, 2015 and 2014.

Patronage Capital from Associated Organizations and Generation and Transmission Capital Credits

The Cooperative records its investment in patronage capital at cost plus assigned capital credits less any capital credits paid to the Cooperative. Amounts included under these captions principally represent the allocation of Buckeye Power, Inc.’s (Buckeye) net margins, in accordance with its code of regulations, to its members.

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Summary of Significant Accounting Policies (continued)

Investments in and Advances to Associated Organizations

For financial reporting purposes, the Cooperative accounts for its investments in and advances to associated organizations at cost. The Cooperative has not applied the guidance under the Fair Value Standards for non-financial assets, which are included in the Cooperative’s balance sheets. The Cooperative believes it is not practical to estimate the fair value of investments in other cooperatives due to the excessive cost involved as there is no established market for these investments and the Cooperative does not have the ability to sell or transfer these investments.

Cash and Cash Equivalents

The Cooperative considers cash and cash equivalents to be cash on demand, certificates of deposit, money market accounts and investments in commercial paper having a maturity of 90 days or less.

The Cooperative maintains its cash in six accounts at one financial institution and, at times, balances may exceed federally insured limits.

Accounts Receivable and Allowance for Losses in Collection

Customer accounts receivable are stated at the amount that management expects to collect on outstanding balances. Management provides an allowance for probable collection losses through a charge to earnings and a credit to valuation allowance based on a predetermined formula related to its collection experience. Balances that are still outstanding after management has used reasonable collection efforts are written-off through a charge to the valuation allowance. Changes in the valuation allowance have not been material to the financial statements. The Cooperative performs ongoing credit evaluations of its consumers and requires a security deposit for consumers meeting specified criteria. Members’ monthly bills that are paid by a specified date are discounted. The Cooperative does not charge interest on delinquent account balances. Payments of accounts receivable are allocated to the earliest unpaid bill.

The Cooperative also records an estimate of revenues for electricity delivered, but not yet billed. As of December 31, 2015 and 2014, the Cooperative had unbilled revenues of $1,554,976 and $1,735,347, respectively.

Credit risk for accounts receivable is concentrated because substantially all of the balances are receivable from consumers located within the same geographic region.

Materials and Supplies

Inventories are valued at average cost or market, whichever is lower. Materials and supplies consist primarily of items used in the transporting of energy to customers.

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Deferred Charges

Amounts included under this caption represent costs incurred which are chargeable to future periods. The Cooperative amortizes these costs to operations or construction work in progress by the straight-line method over the period to be benefited.

Patronage Capital

The Cooperative adopted the patronage capital credits plan of non-profit cooperative accounting. Operating margins since that date of adoption have been assigned to the patrons’ individual patronage accounts in accordance with the Cooperative’s Code of Regulations. There are other equities not subject to distribution to members.

Under the Cooperative’s capital credits retirement policy, patronage capital, which has been credited to a patron’s account, becomes eligible for retirement, at the Board’s discretion, following any year for which such capital has been credited to the patrons account or upon the death of the patron. Any retirement of capital credits (which is discretionary and not mandatory) is subject to a proper claim being made by or on behalf of the individual patron, compliance with all provisions of the Cooperatives’s Code of Regulations and a determination that the financial condition of the Cooperative will not be impaired. The Cooperative may revise or rescind this policy at any time. Patronage capital, which remains unclaimed after a period of four years from the date it has been made available to the patron for retirement, may be reassigned to current patrons’ accounts.

Revenue Recognition

The Cooperative reports operating revenues when delivery to the customer occurs and collection is deemed probable.

Income Taxes

The Internal Revenue Service has previously ruled that the Cooperative is exempt from federal income taxes under section 501(a) as an organization described in section 501(c)(12), provided at least 85% of its total revenue consists of amounts collected from members for the sole purpose of meeting losses and expenses. Evaluation by the Cooperative has determined that it continues to be exempt under the aforementioned requirement and, accordingly, no provision for federal income tax has been made. The Cooperative is required to pay unrelated business income tax, however has determined that none of its income is subject to the tax.

The Cooperative accounts for uncertainty in income taxes in its financial statements as required by accounting principles generally accepted in the United States of America (GAAP). The Cooperative annually evaluates its tax positions as part of the preparation of its tax accrual. This process includes an analysis of whether tax positions the Cooperative takes with regard to a particular item of income or deduction be sustained upon examination by a taxing authority. No accrual has been recorded as management believes there are no uncertain tax positions of the Cooperative.

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Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Utility Plant and Depreciation Procedures

Listed below are the major classes of the electric plant as of December 31:

2015 2014

Distribution plant $ 67,891,601 $ 65,164,115 General plant 13,534,850 13,318,775 Utility plant in service 81,426,451 78,482,890 Construction work in progress 5,031,912 2,440,518

Total $ 86,458,363 $ 80,923,408

Provision has been made for depreciation of distribution plant assets at a straight-line composite rate of 3.20% (31.25 years) per annum, except for remote meter reading devices that have a provision for depreciation at a straight-line composite rate ranging from 5.00% to 6.67% (15 to 20 years) per annum. Provision has also been made for depreciation of natural gas distribution plant assets at a straight-line composite rate of 3.33% (30 years).

Total utility plant depreciation expense was $2,603,743 and $2,544,950 for 2015 and 2014, respectively.

General plant depreciation rates have been applied on a straight-line basis over lives ranging from 3 – 35 years.

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Investments in and Patronage Capital from Associated Organizations

Patronage capital assigned from associated organizations is increased by allocations and reduced by retirements.

Investments in and patronage capital from associated organizations consisted of the following on December 31:

2015 2014

Investments in associated organizations: Buckeye Power, Inc. - Membership $ 416,969 $ 416,969 Capital term certificates of the National Rural Utilities

Cooperative Finance Corporation 711,659 796,474 Other 2,050 2,050

Total investments in associated organizations 1,130,678 1,215,493

Patronage capital from associated organizations: Buckeye Power, Inc. 22,254,951 20,347,440 National Rural Utilities Cooperative Finance

Corporation 878,529 842,840 Rural Electric Supply Cooperative 115,712 112,900 Federated Rural Electric Insurance Exchange 118,002 97,737 Other 140,004 133,701

Total patronage capital from associated organizations 23,507,198 21,534,618

Total $ 24,637,876 $ 22,750,111

Patronage capital from associated organizations in the balance sheets are principally Buckeye capital credits allocated to the Cooperative, based upon the Cooperative’s power and energy purchased. In 2015 and 2014, Buckeye retired and paid to the Cooperative capital credits totaling $963,564 (earned in 2000 and 2001) and $1,012,789 (earned in 1999 and 2000), respectively.

Buckeye is a non-profit corporation operating on a cooperative basis for principal purpose of generating and acquiring electric power and energy and transmitting such power and energy to its members. At December 31, 2015, this membership consisted of 25 non-profit electric cooperatives, including the Cooperative.

As specified in a wholesale power agreement, the Cooperative is required to purchase the power and energy to service its customers from Buckeye. The agreement further provides that the rates charged by Buckeye for electric power and energy furnished can be adjusted so that such rates produce revenues sufficient to meet operating expenses, principal indebtedness and any other costs or expenses incurred as well as reasonable reserves.

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Deferred Charges

The following is a summary of amounts recorded as deferred charges as of December 31:

2015 2014

Construction and technology work plans $ 42,832 $ 32,988 Other regulatory asset – pension prepayment 1,105,294 1,263,193

Total $ 1,148,126 $ 1,296,181

The pension prepayment was made in 2013 to reduce required further contributions to the Cooperative’s participation in a multiemployer plan. The prepayment is being amortized as a regulatory asset over approximately 10 years.

Patronage Capital

At December 31, patronage capital consisted of:

2015 2014

Assigned and assignable to date $ 68,893,943 $ 64,120,390 Less: retirement to date (23,940,291) (21,753,322)

Total $ 44,953,652 $ 42,367,068

Under the provisions of its mortgage agreement, until the equities and margins equal or exceed 30% of the total assets of the Cooperative, the return to patrons of capital contributed by them is limited generally to 25% of the patronage capital or margins received by the Cooperative in the prior calendar year. The equities and margins of the Cooperative represent 47.4% and 47.6% in 2015 and 2014, respectively, of the total assets at balance sheet date. Capital credit retirements in the amount of $2,186,969 and $2,146,138 in 2015 and 2014 were paid to members and former members, respectively.

Other Equities

At December 31, other equities consisted of:

2015 2014

Retired capital credit gain $ 610,293 $ 574,025 Appropriated margins – scholarship fund 58,619 62,855 Subsidiary deficit ( 242,157) ( 242,157)

Total $ 426,755 $ 394,723

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Mortgage Notes – CFC and Farmer Mac

Long-term debt is represented by mortgage notes payable to the National Rural Utilities Cooperative Finance Corporation (CFC) and Federal Agricultural Mortgage Corporation (Farmer Mac). Following is a summary of outstanding long-term debt as of December 31:

2015 2014

Notes with variable interest rates (1.344% and 1.255% at December 31, 2015 and 2014, respectively) due between January 2039 and February 2043 $ 1,981,705 $ 2,046,894

2.58% note due November 2016 64,553 127,472 2.62% notes due January 2037 920,808 953,333 2.74% notes due November 2041 1,508,892 1,548,258 2.75% note due September 2036 372,596 385,557 2.80% note due March 2023 1,214,122 1,363,130 Note with variable interest rates (2.90% at December 31, 2015

and 2014) due December 2042 140,153 143,531 3.15% notes due February 2026 918,049 990,776 3.62% note due September 2039 1,458,432 1,496,068 3.73% notes due January 2043 1,426,483 1,456,707 Notes (3.73% and 3.07% at December 31, 2015 and 2014,

respectively) due October 2035 1,530,374 1,585,095 3.79% note due November 2042 409,823 418,424 4.25% note due March 2032 636,417 661,502 4.31% note due January 2021 310,756 365,334 4.35% notes due between February 2021 and June 2037 1,167,662 1,244,844 4.40% note due September 2028 404,806 428,007 4.43% notes due December 2041 720,176 734,247 4.45% notes due between September and November 2045 2,767,397 -Note (4.50% and 5.80% at December 31, 2015 and 2014,

respectively) due March 2040 520,774 530,873 4.55% note due December 2045 1,500,000 -Notes (4.55% and 6.60% at December 31, 2015 and 2014

respectively) due June 2042 1,283,454 1,302,663 4.60% notes due December 2044 and June 2045 2,472,186 1,500,000 4.67% notes due September 2040 and December 2041 2,146,259 2,187,747 4.70% notes due December 2035 and September 2036 1,601,527 1,647,488 4.71% note due March 2020 1,395,083 1,667,374 4.75% notes due June 2042 and December 2043 2,849,251 2,898,114 4.95% note due December 2043 484,681 492,529 5.05% note due December 2043 484,945 492,662 5.15% note due December 2043 485,205 492,792 5.40% notes due between October 2015 and March 2038 2,699,224 2,840,846 6.45% note due September 2015 - 653,824 6.55% note due September 2016 699,087 699,087 6.65% note due September 2017 747,483 747,483 6.75% notes due September 2018 799,229 799,236 Less: current maturities ( 2,246,568) ( 2,058,342)

Total $ 35,875,024 $ 32,843,555

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Mortgage Notes – CFC and Farmer Mac (continued)

Principal and interest installations on the above notes are due quarterly and semiannually in amounts totaling approximately $3,626,000 per year. As of December 31, 2015, annual maturities of long-term debt outstanding for the next five years are as follows:

2016 $ 2,246,568 2017 2,289,408 2018 2,402,616 2019 1,667,420 2020 1,560,309

Thereafter 27,955,271

Total $ 38,121,592

The CFC and Farmer Mac notes contain certain restrictive provisions and covenants, including maintaining certain debt service coverage, times interest earned, equity to total assets and long-term debt to EBITDA ratios, with which the Cooperative was in compliance with at December 31, 2015.

There are no advance payments available to be applied to the installments.

The Cooperative maintains a line of credit with the National Rural Utilities Cooperative Finance Corporation in the amount of $5,000,000. Borrowings under the line of credit bear interest at an annual rate of 2.90%. There was no outstanding balance at December 31, 2015 or 2014. The line of credit matures in December 2049.

The Cooperative has established an unsecured short-term line of credit with CoBank in the amount of $5,000,000 that accrues interest at a current annual rate of 2.53% and matures in June 2016. There was no outstanding balance at December 31, 2015 or 2014.

The Cooperative has an $18,500,000 loan commitment under the Power Vision loan arrangement with National Rural Utilities Cooperative Finance Corporation at December 31, 2015. No amounts have been drawn on this commitment.

Substantially all assets are pledged as security for long-term debt.

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Pension Plan and Retirement Plans and Postretirement Plans

National Rural Electric Cooperative Association Retirement and Security Program

The Cooperative contributes to The National Rural Electric Cooperative Association (NRECA) Retirement Security Plan (RS Plan) on behalf of substantially all full-time employees. It is a multiemployer plan. The RS Plan is qualified under Section 401 and is tax-exempt under Section 501(a) of the Internal Revenue Code. The plan sponsor’s employer identification number is 53-0116145 and the plan number is 333. As of December 31, 2015 and 2014, there were 38 and 39 employees participating in the RS Plan, respectively. No employees participating in the RS Plan were covered under a collective bargaining agreement. Benefits under the RS Plan are targeted at 1.6% of a participant’s final average effective salary, times years of benefit service.

The risks of participating in multiemployer plans are different from single-employer plans in the following aspects: (1) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and (3) if the Cooperative chooses to stop participating in a multiemployer plan, the Cooperative may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. At this time, the Cooperative has not established any liabilities because withdrawal from this plan is not probable.

The Cooperative’s contributions to the RS Plan in 2015 and in 2014 represented less than 5% of the total contributions made to the RS Plan by all participating employers. The Cooperative made contributions to the RS Plan of $520,043 and $462,184 in 2015 and 2014, respectively, which were charged to expense.

In the RS Plan, a “zone status” determination is not required, and therefore not determined under the Pension Protection Act (PPA) of 2006. In addition, the accumulated benefit obligations and plan assets are not determined or allocated separately by individual employer. In total, the RS Plan was over 80% funded on January 1, 2015 and 2014 based on the PPA funding target and PPA actuarial value of assets on those dates.

Because the provisions of the PPA do not apply to the RS Plan, funding improvement plans and surcharges are not applicable. Future contribution requirements are determined each year as part of the actuarial valuation of the plan and may change as a result of plan experience.

401(k) Plan

In addition, the Cooperative also offers a 401(k) option savings plan with cooperative participation to all eligible employees. The pension expense related to this plan was $151,250 for 2015 and $139,709 for 2014.

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Pension Plan and Retirement Plans and Postretirement Plans (continued)

Postretirement Health Care Plan

The Cooperative sponsors a defined benefit postretirement health care plan covering substantially all full-time employees. The Cooperative has adopted the accounting provisions for the measurement and recognition of defined benefit postretirement benefit plans.

“The Federal Medicare Prescription Drug, Improvement and Modernization Act of 2003” provides a federal subsidiary to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Measurement of the accumulated postretirement benefit and the net periodic postretirement benefit include amounts associated with the federal subsidy.

The following table sets forth the plan’s status reconciled with the amount shown in the Cooperative’s balance sheet at December 31:

2015 2014

Accumulated postretirement benefit obligation $ 1,412,600 $ 1,249,149 Fair value of plan assets - -

Net liability recognized in the balance sheet $ 1,412,600 $ 1,249,149 Net periodic postretirement benefit cost for the

year $ 59,900 $ 57,700 Benefits paid 58,600 55,500 Actuarial loss – other comprehensive income 162,200 -

The balance of accumulated other comprehensive (loss) income at December 31 includes:

2015 2014

Beginning balance $( 17,200) $ 7,800 Postretirement benefits – reclassification

adjustments – prior service credit ( 25,000) ( 25,000) Actuarial loss ( 137,200) -

Ending balance $( 179,400) $( 17,200)

The amount of the prior service credit and actuarial net loss included in accumulated other comprehensive income and expected to be recognized in the net periodic pension cost for the year ended December 31, 2016 totaled $25,000.

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Pension Plan and Retirement Plans and Postretirement Plans (continued)

Postretirement Health Care Plan (continued)

Based on the most recent report available, estimated future contributions for the year ended December 31 are as follows:

2016 $ 68,000 2017 74,400 2018 99,500 2019 88,000 2020 96,500

2020-2024 479,700

For measurement purposes, an annual rate of increase in the per capita cost of covered health care benefits was assumed for 2015 in the amount of 7.5%. The rate was assumed to decrease gradually to 5.0% over the next five years. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 4.15% and 5.15% at December 31, 2015 and 2014, respectively. The weighted average discount rate used in determining net periodic postretirement benefit cost was 5.15% for the years ended December 31, 2015 and 2014.

Deferred Credits

Deferred credits as of December 31, 2015 and 2014 consist of consumer prepayments of $4,074,337 and $4,196,948, respectively.

Commitments

Under its wholesale power agreement, the Cooperative is committed to purchase its electric power and energy requirements from Buckeye Power, Inc. until December 31, 2057. The rates paid for such purchases are subject to review not less than annually.

Customer Concentrations

During 2015 and 2014, sales to one customer accounted for 34% of total sales. At December 31, 2015 and 2014, the Cooperative had receivables due from one customer that represented 35% and 36%, respectively, of total accounts receivable.

Subsequent Events – Date of Management Evaluation

Management has evaluated subsequent events through the date of the Independent Auditor’s Report, the date on which the financial statements were available to be issued.

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