IOWA LAKES ELECTRIC COOPERATIVE

2006 ANNUAL REPORTC E L E B R A T I N G 2 0 Y E A R S • 1 9 8 6 - 2 0 0 6

In the mid-1880s, electricity was available inmany of America’s larger cities but the electrificationof rural areas was deemed not feasible or impossible.

In the early 1930s, private power companies still considered it unprofitable to build lines in ruralareas. Without the aid of electricity, the economies ofrural areas were tied exclusively to agriculture.

In 1935, only 1 million of America’s 6 millionfarms had the benefit of electricity.

On May 11, 1935, President Franklin D. Rooseveltissued an executive order creating the RuralElectrification Administration (REA) and making

federal funds available to provide electric service to rural areas.

Power companies showed little interest so theleaders of farm organizations proposed the forma-tion of non-profit electric cooperatives.

In the mid-1930s, rural electric cooperatives likeIowa Lakes Electric Cooperative (formed from themerger of four smaller electric cooperatives) sprangup throughout the nation. Twenty years later, weremember our past with pride as we prepare for apromising future.

Board of Directors and Officers . . . . . . . . 1

Proud Past, 1936-1986 . . . . . . . . . . . . . . . . 2

The Merger, 1986-2006 . . . . . . . . . . . . . . . . 4

Faith in Our Future . . . . . . . . . . . . . . . . . . . 5

Comments from the President/CEO . . . . 6

Message from the Chair . . . . . . . . . . . . . . . 8

2006 Financial Statements

Balance Sheets . . . . . . . . . . . . . . . . . . . . . . .10

Statements of Operations . . . . . . . . . . . . .11

Statements of Cash Flows . . . . . . . . . . . . .12

O U R M I S S I O NIowa Lakes Electric Cooperative is dedicated to leadership and growth by providingreliable, competitively-priced energy while offering valuable services to benefit ourmembers, our customers and the communities we serve.

L. KIRBY RANGE ALAN MADDEN DENNIS KNONER JAMES HULTGRENMILFORD RINGSTED SWEA CITY ALTACHAIR VICE CHAIR SECRETARY TREASURER

JERRY BECK HANS CLAUSEN GERALD FUERSTENAU PETER HANSEN RICHARD HANSONSPENCER HAVELOCK MALLARD RUTHVEN ESTHERVILLE

S. VANCE HJELM TOM MORTENSON GARY ROUSE STEVEN WILLIAMS VERNON WINTERHOFLAKE PARK CHEROKEE AYRSHIRE STORM LAKE AURELIA

DISTRICT I

JERRY BECK

PETER HANSEN

S. VANCE HJELM

L. KIRBY RANGE

DISTRICT IIJAMES HULTGREN

TOM MORTENSON

STEVEN WILLIAMS

VERNON WINTERHOF

DISTRICT IIIHANS CLAUSEN

GERALD FUERSTENAU

GARY ROUSE

DISTRICT IVRICHARD HANSON

DENNIS KNONER

ALAN MADDEN

C O R P O R A T E O F F I C E R S :Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L. Kirby Range

Vice Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alan Madden

Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Dennis Knoner

Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . James Hultgren

President/CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Terry L. Bruns

Corn Belt Power Cooperative Representative . . . . . . . . . .L. Kirby Range

Northwest Iowa Power Cooperative Representative . .Vernon Winterhof

The Board of Directors of Iowa Lakes Electric Cooperative photographed on April 26, 1990 included the following directors:

Sitting (left to right) - Dale Larsen, V.P.; Floyd Zimmer, Marvin Simons, Paul

Fassler, NIPCO Rep.; Dale Bodholdt, Marlowe Feldman, Philip Simonson,

Treas.; Larry Lago, Kirby Range, Pres.

Standing (left to right) - Sherm Nelson, Sec.; Sam Elsen, Al Swart, Rodney

Meyer, Darwin Will, Larry Timmerman, Ed Toomer, Richard Hanson, Alan

Madden, Dennis Larson, Corn Belt Rep.; Bob Torrey, Larry Barglof, Willard

Schmidt, Donald Todd, Neal Anderson, Dick Nelson, Kent Schmillen, Marlin

Runksmeier, Harold Halverson. Absent: Darrel Bishop, Kenneth Herum

A N N U A L R E P O R T • 2 0 0 6 1

B O A R D O F D I R E C T O R S

P R I D E I N O U R P A S TIt has been twenty years since the historical merger ofthe three smaller electric cooperatives that joinedtogether to form Iowa Lakes Electric Cooperative.

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C O O P E R A T I V E S F O R M

On July 13, 1938, D.E.K. Rural Electric Cooperative (named after theIowa counties of Dickinson, Emmet and Kossuth) incorporated fol-lowing a meeting at the Farm Bureau office in Estherville. In 1986,D.E.K., along with Pocahontas REC and Buena Vista Co. REC, joinedforces to become Iowa Lakes Electric Cooperative. Twenty years later,we pay tribute to our founding cooperatives as we continue to putfaith in our future.

nov. 8, 1938

Received REA loan of $431,000 tobuild the first 417miles of lines.

sept. 16, 1939

D.E.K.'s first lines wereenergized. The averagemile of rural line cost$538 build (nationally).

december 1940

D.E.K.'s member-ship reached1,001.

august 1958

Construction beganon a new headquartersbuilding on the eastedge of Estherville.

1951

"Willie Wirehand" isadopted as the national symbol ofelectric cooperativepower use for ruralAmerica.

1964

D.E.K. held its 25thannual meeting inEstherville.

january 1950

D.E.K. became amember of Corn BeltPower Cooperative.

1947

Initially D.E.K. received all wholesalepower from the City of Estherville. In1947, D.E.K. entered into a five yearcontract to purchase additional powerfrom Interstate Power Company.

d.e.k. annual meeting

first d.e.k. headquarters

When kerosenelanterns were theonly source oflight on a farm,the danger of firewas persistent.

D.E.K. Rural Electric Cooperative, Estherville Buena Vista County Rural Electric Cooperative

january 1937

Buena Vista County RECincorporates and holds itsfirst meeting of directorsin Storm Lake.

1952

A service center at 15 West17th Street in Spencer waspurchased for a line crew of four.

1954

Buena Vista County RECmoves into a new officebuilding in Storm Lake.

december 1938

The cooperative is371 member-owners strong with187 miles of line.

august 1938

Clay County became part ofBuena Vista County RuralElectric Cooperative and threeadditional board membersfrom Clay County were electedto the board of directors.

december 1945

Power shortages began. Lines were switched inorder to give service to all member-owners asmuch of the time as was possible. Short outages of15 minutes were necessary during the evening peakthrough the holidays.

february 1937

The cooperativesecures it's firstREA loan of 1.2million dollars.

D.E.K.'s First Man-Lift

Bucket Truck

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Pocahontas REC, along withfour neighboring cooperatives

(Humboldt Co. REC, Calhoun REC and Sac Co. REC) needed an economical source of wholesale power so they organized theCentral Electric Federated Cooperative Assoc. in Pocahontaswhich was the first REA financed diesel generating plant in theUnited States. Central Electric Federated Cooperatives Associationin Pocahontas and Federated Cooperative Association inHampton merged to become Corn Belt Power Cooperative in 1947.

In 1938, the original$5 membership fee tojoin the rural electriccooperative was some-times hard to come by.The membership feeof $5 was eventuallyeliminated in June 2002.

april 1936

The first group of 125 farmers met at Pocahontas' Hronek Hallto consider organizing a Rural Electric Cooperative. Around thesame time, a similar meeting was being held in Emmetsburg.Upon advice of the REA in Washington D.C., Pocahontas Countyand Palo Alto County merged to form one larger cooperative.

1950

A service center building and ware-house was constructedin Emmetsburg, Iowa.

1951

A service building,garage and warehousewas constructed inPocahontas.

january 1937

Pocahontas CountyREC incorporates andholds its first meeting.

march 20, 1942The cooperative moves into a newheadquarters building and became thefirst rural electric cooperative in Iowa toown its own headquarters building.

nation's first rea generatingplant, pocahontas, IA, 1938

Pocahontas Rural Electric CooperativeFirst D.E.K Board President:Gaylord Olson . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1938-1941

First D.E.K General Manager:In June 1938, M.A Balkema volunteered his services as gen-eral manager until Earl Davenport was hired in Oct. 1938.

First Pocahontas REC Board President:R.R. Cejka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1937-1958

First Pocahontas REC General Manager:Harry W. Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1937-1939

First Buena Vista Co. REC Board President:O.J. Grau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1937

First Buena Vista Co. REC General Manager:Miles Nelsen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1937-1963

First Cherokee Co. REC Board President:Alfred A. Schmillen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1937

Cherokee County Rural Electric Cooperative

Although not part of the original merger of the three ruralelectric cooperatives that joined together to form Iowa LakesElectric Cooperative in 1986, Cherokee County Rural ElectricCooperative became an important part of the newly formedcooperative just three years later.

july 1937

First meeting of the incorpo-rators at the Farm BureauOffice in Cherokee, Iowa.

july 1970

Loan papers for $20,125,000 weresigned to build Iowa’s first nuclearplant - The Duane Arnold EnergyCenter. Today, Iowa Lakes stillreceives a portion of its powerfrom here.

1940

The REA approvesloan to serve the onemillionth ruralelectric customer.

november 1988

Cherokee Co. RECdecides to bring avote to the member-ship to merge withIowa Lakes.

headquarters facility following the merger

The Iowa Lakes Electric Cooperativeconsolidation was the first of its kindunder the current Iowa statute, whichrequired at least 50 percent of themembership of each system to vote.More than 68 percent of the threeREC’s total membership cast a vote,with a response of 82 percent of themembership agreed to consolidate. “That’sa mandate!” Bosworth said. “With thiskind of mandate, it’s not difficult forchanges to take place.”

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C O O P E R A T I V E S M E R G EIn 1985, the boards of Buena Vista REC (3,534 member-own-ers), Pocahontas County REC (2,495 member-owners) andD.E.K. County REC (3,571 member-owners) began investi-gating the feasibility of consolidating the three small coop-eratives into one larger cooperative to be named Iowa LakesElectric Cooperative with headquarters in Estherville.

“Sometimes we have to give up something so that all cangain something. The board members of these three systemsare to be commended for their foresight. They are convincedif it is to survive, tomorrow’s cooperative must become alower cost system than what we now provide,” said J. BruceBosworth. At the time of the merger, small cooperativeswere experiencing the continuing loss of farms and declin-ing kilowatt hour sales.Iowa Lakes Electric Cooperative

january 1986With overwhelming approval from the membership,

the newly-formed Iowa Lakes Electric Cooperative made

history by becoming the first distribution cooperative in

the state to merge. “As our numbers decline we must

consolidate and use our strengths to prepare for what

the future may bring. It’s great to have pride in our past,

however more important is to have faith in our future,”

said Dennis Larson, a director on the Pocahontas REC

board, who was appointed by the collective boards as the

chairman during the transition.

General Manager of D.E.K., J. Bruce

Bosworth, was selected to become General

Manager of Iowa Lakes.

1992The total savings attributed to theconsolidation of the four electriccooperatives reached almost $5.8million by the end of 1992.

2002Iowa Lakes Electric Cooperativemoved into the new headquartersand service center facility inEstherville. The new complexallowed the Cooperative to operatemore efficiently.

Groundbreaking of thenew headquarters facilityin estherville, 2002

1987 Rural TV C-Band service is launched

1993 First digital direct broadcast satellite, DBS-1 is launched

1994 Iowa Lakes began selling DIRECTV

1997 Iowa Lakes launches its first website on the Internet — www.ilec.org

2001 Iowa Lakes offered e-billing (Click-to-Pay) services

2001 Iowa Lakes sells remaining Rural TV subscribers (less than 200) toFederated Rural Electric ofJackson, MN.

2001 Iowa Lakes began offering DIRECWAY high-speed satellite Internet service

2002 The National Rurat Telecommunications Cooperative (NRTC) invests $29 million in WildBlue Communications

2004 DIRECTV & NRTC jointly agreeto end NRTC’s exclusive DIRECTV distribution agreement

2004 ILEC Sold DIRECTV franchise

2004 Iowa Lakes’ Board of Directors approves to proceed with the conversion to an automated meter reading (AMR) system

2005 Iowa Lakes began offering Wildblue high-speed Internet service

2005 First AMR bills rendered

Iowa Lakes Electric Cooperativehas a proud history of providingvaluable services to benefit itsmembers, customers and the communities it serves. Here’s a lookback at the technological advancesmade through the years:

branding rural electric cooperatives

todayIowa Lakes Electric Cooperative operatesfrom the same principles the early organizersof rural electric cooperatives adopted — vol-untary and open membership; democraticmember control; member economic partici-pation; autonomy and independence; educa-tion, training and information; and coopera-tion among cooperative. A seventh principle— concern for community — has since beenadded. In the future, the entire electric indus-try is likely to change incredibly with theonset of deregulation. At Iowa Lakes, we willnot lose sight of the reason cooperatives wereformed in the first place, to provide cost-effective service to our member-owners.

1951"Willie Wirehand" isadopted as the nationalsymbol of electric cooperative power use for rural America.

1989Iowa Lakes ElectricCooperative adopts the new national REC logo,symbolizing rural electrification.

1998Iowa Lakes Electric Cooperative joinsthe Touchstone Energy Cooperatives -an association of over 600 utility cooperatives in the United States thatcollectively serve 6 million homes andbusinesses.

A N N U A L R E P O R T • 2 0 0 6 5

It’s great to have pride in our past…however itis more important to have faith in our future.”Dennis Larson made this statement to the mem-ber-owners of Pocahontas County REC, BuenaVista County REC and D.E.K. REC in 1985 as hewas recommending to member-owners to cast a“yes” vote for the three cooperatives to jointogether and consolidate. At that time, DennisLarson was a director on the Pocahontas CountyREC board who was appointed to serve as thechairman during the merger into one new coop-erative – Iowa Lakes Electric Cooperative.

Not only was it important in 1986 to believein the future of your new Cooperative, it remainsjust as important today as we face new and verydifferent challenges together. During the twentyyear history of your Cooperative, together wehave made incredible strides in helping toimprove the quality of life in Northwest Iowa.

Your Cooperative is dedicated to meeting theneeds of member-owners by providing safe, reli-able and affordable electric service while helpingto improve the quality of life in your local com-munities. In 1986, your Cooperative establishedan economic development program to attract andgrow businesses within our communities with agoal to increase the commercial and industrial(C&I) energy sales to 40 percent of theCooperatives total annual energy sales by the year1995. In 2006, C&I’s energy sales account fornearly 60 percent of your Cooperative’s energysales which helps provide price stability to allmember-owners by spreading the Cooperative’sfixed costs over a greater volume of electricitysales. Your Cooperative is proud of the successwith these economic development initiatives andthe contributions that have been made to the eco-nomic vitality of the local communities whereyou live, work and do business.

Your Cooperative’s Board of Directors arecommitted to upgrading the distribution infra-structure to ensure safe, reliable and affordableelectricity that is delivered to homes, farms andbusinesses. Over the last three years, yourCooperative has invested on average of $4.3 mil-lion per year to maintain and operate the nearly$80 million of total utility plant, which includesapproximately 4,690 miles of distribution utilitylines. In addition to meeting the current needs ofmember-owners today, your Cooperative ispreparing to meet member-owner’s future needswith innovative new technologies and services.

During 2006, Iowa Lakes completed the auto-mated meter reading (AMR) deployment to resi-dential member-owners. The AMR system usesexisting power lines as a communication path tothe electric meter. While the main objective is tocollect accurate and efficient meter readings, theAMR system actually provides improved end ofthe line voltage-drop monitoring which meansbetter power quality for all member-owners. TheAMR system is also being used to efficientlyrespond to and identify outages, as well as per-form remote connects and disconnects for collec-tion purposes and employee safety. This high-tech, communication system helps shorten thelength of outages, improves internal efficienciesand saves money.

Message from your

“During the twenty year history of your Cooperative, together we have madeincredible strides in helping to improve the quality of life in Northwest Iowa.”

P R E S I D E N T / C E OT E R R Y L . B R U N S

n COMMERCIAL & INDUSTRIAL SALESn OTHER SALES

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Iowa Lakes is very proud of thereliable electric service we provide toour member-owners. Much of thissuccess results from yourCooperative’s aggressive maintenanceprograms. Once again, 2006 was astrong performance year for electricservice reliability as the graph on page7 indicates with only 1.114 outagehours per consumer or just 66.82minutes per consumer for the entireyear which equates to a reliability fac-tor of 99.9873 percent.

Your Cooperative’s rural distribu-tion system compares extremelyfavorable to other electric utilities inIowa as the graph on page 7 indicates.You, the member-owner, receive theelectric service reliability of anurban/suburban distribution systemwhile enjoying the quality of life andbenefits of a rural electric distribu-tion system.

Focusing on the future alsomeans helping member-owners touse energy as wisely as possible. In2006, Iowa Lakes invested over$285,000 in energy efficiency pro-grams that encourages more efficientenergy use. These programs includesuch things as rebates for energy effi-cient heating systems, educationalprograms and the “Change a Light,Change the World” program thatpromotes the benefits of energy effi-cient lighting. Your Cooperative alsocontinues with our efforts to advancethe development of electricity fromrenewable energy resources.

6 I O W A L A K E S E L E C T R I C C O O P E R A T I V E