ML18116A471

Financial Statement and Auditors Report

ML18116A471
Person / Time
Site:	La Crosse File:Dairyland Power Cooperative icon.png
Issue date:	04/20/2018
From:	Nick B Dairyland Power Cooperative
To:	Document Control Desk, Office of Nuclear Material Safety and Safeguards
References
LAC-14413
Download: ML18116A471 (29)

Text

BARBARA A. NICK President and CEO 4tz...

DAIRYLAND POWER COOPERATIVE April 20, 2018 In reply, please refer to LAC-14413 DOCKET NO. 50-409 ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Washington, DC 20555-0001

SUBJECT:

Dairyland Power Cooperative La Crosse Boiling Water Reactor (LACBWR)

Possession-Only License DPR-45 Financial Statement and Auditors' Report

REFERENCE:

1) 10 CFR 50.71(b)

In accordance with the requirements of Reference 1, we are forwarding three (3) copies of the Financial Statements and Independent Auditors' Reports for Dairyland Power Cooperative as of December 31, 2017 and 2016. We will forward our 2017 Annual Report to you when it is completed.

Sincerely,

~ -

Barbara A. Nick President and CEO BAN:AIVIW:krm G:\\Shared\\Audit\\2017 Audit\\NRC Audit Transmittal Letter Of Financial Statements 04202018.Docx Enclosure(s) cc: Cynthia D. Pederson, NRC Regional Administrator Marlayna Vaaler, NRC, FSME Ed Bowen, DPC Cheryl Olson, DPC LACBWR A Touchstone Energy" Cooperative ~

3200 East Ave. S.

• PO Box 817

• La Crosse, WI 54602-0817

• 608-787-1449

• 608-787-1321 fax* www.dairynet.com Dairyland Power Cooperative is an equal *opportunity provider and employer.

STATE OF WISCONSIN)

COUNTY OF LA CROSSE Personally came before me this o2...D +k day of H/J /I'; (

, 2018, the above named, Barbara A. Nick, to me known to be the person who executed the foregoing instrument and acknowledged the same.

M S~ d. S- ~(!) I~

y comm1ss1on expires _________ _

LAURIE A. ENGEN Notary Public State of Wisconsin

Dairyland Power Cooperative and Subsidiary Consolidated Financial Statements as of and for the Years Ended December 31, 2017 and 2016, and Independent Auditors' Report

f Deloitteo INDEPENDENT AUDITORS' REPORT Board of Directors Dairyland Power Cooperative La Crosse, Wisconsin Deloitte & Touche LLP Suite 2800 50 South Sixth Street Minneapolis, MN 55402-1538 USA Tel:

+1 612 397 4000 Fax: +1 612 397 4450 www.deloitte.com We have audited the accompanying consolidated financial statements of Dairyland Power Cooperative and subsidiary (the "Cooperative"), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of revenues, expenses, and comprehensive income, member and patron equities, and cash flows for the years.then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated 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 consolidated 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Cooperative's preparation and fair presentation of the consolidated 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 Cooperative'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 consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Cooperative as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

March 28, 2018

DAIRYLAND POWER COOPERATIVE AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2017 AND 2016 (In thousands)

ASSETS ELECTRIC PLANT:

Plant and equipment-at original cost Less accumulated depreciation Net plant and equipment Construction work in progress Total electric plant OTHER ASSETS:

Nuclear decommissioning funds (Note 4)

Investments under debt agreements-marketable securities (Note 4)

Other property and investments Investments in capital term certificates of National Rural Utilities Cooperative Finance Corporation Regulatory assets (Note 1)

Investment for deferred compensation Deferred charges (Note 1)

Total other assets CURRENT ASSETS:

Cash and cash equivalents Accounts receivable:

Energy sales-net of allowance for doubtful accounts of $10 for 2017 and 2016 Other Inventories:

Fossil fuels Materials and supplies Prepaid expenses and other Total current assets TOTAL 2017

$1,760,050 (644,353) 1,115,697 66,775 1,182,472 23,114 2,631 11,627 9,176 24,939 1,890 17,546 90,923 30,731 40,793 2,678 55,075 21,324 15,295 165,896

$1,439,291 2016

$1,691,311 (612,445) 1,078,866 109,556 1,188,422 74,343 3,783 11,721 9,176 29,995 1,603 16,909 147,530 27,278 37,362 1,942 59,863 19,769 21,078 167,292

$1,503,244 (Continued)

DAIRYLAND POWER COOPERATIVE AND SUBSIDIARY CONSOLIDJ\\TED BALANCE SHEETS AS OF DECEMBER 31, 2017 AND 2016 (In thousands)

CAPITALIZATION AND LIABILITIES CAPITALIZATION:

Member and patron equities:

Membership fees Patronage capital Accumulated other comprehensive income (Note 1)

Total member and patron equities Long-term obligations (Note 6)

Total capitalization OTHER LIABILITIES:

Decommissioning and asset retirement obligations (Note 14)

Postretirement health insurance obligation (Note 11)

Accrued benefits Deferred compensation Obligations under capital leases Other deferred credits (Note 1)

Total other liabilities COMMITMENTS AND CONTINGENCIES (Note 10)

CURRENT LIABILITIES:

Current maturities of long-term obligations and obligations under capital leases Line of credit (Note 5)

Advances from member cooperatives Accounts payable Accrued expenses:

Payroll, vacation, and benefits Interest Property and other taxes Special refund to members (Note 15)

Other Total current liabilities TOTAL See notes to consolidated financial statements. 2017 1

296,389 2!397 298,787 767!343 ll066l130 28,614 4,492 645 1,890 5,875 63A94 105!010 49,533 154,000 12,461 23,425 6,307 9,195 3,924 9!306 268!151

$1A39l291 2016 1

273,501 2!289 275,791 772!961 ll048J52 81,380 4,669 853 1,603 5,615 69!263 163!383 52,899 108,000 13,274 38,835 6,980 9,500 3,919 47,636 101066 291!109

$ ll503l244 (Concluded)

t t

DAIRYLAND POWER COOPERATIVE AND SUBSIDIARY CONSOLID,~TED STATEMENTS OF REVENUES, EXPENSES AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In thousands)

UTILITY OPERATIONS:

Operating 1*evenues:

Sales of electric energy Other Total operating revenues Operating expenses:

Fuel Purchased and interchanged power Other operating expenses Depreciation and amortization Maintenance Property and other taxes Total operating expenses Operating margin before interest and other Interest and other:

Interest expense Allowance for funds used in construction-equity Other-net Total interest and other OPERATING MARGIN NONOPERATING MARGIN (Note 1)

NET MARGIN AND EARNINGS OTHER COMPREHENSIVE INCOME (LOSS)-Postretirement health insurance obligation adjustments COMPREHENSIVE INCOME See notes to consolidated financial statements. 2017 2016

$414,194

$392,123 27,192 22,709 441,386 414,832 120,471 107,746 66,664 61,651 94,438 92,693 55,000 48,989 37,839 40,198 8,842 8,230 383,254 359,507 58,132 55,325 40,679 39,817 (1,024)

(1,591) 203 1,639 39,858 39,865 18,274 15,460 8,724 7,686 26,998 23,146 108 (126)

$ 27,106

$ 23,020

DAIRYLAND POWER COOPERATIVE AND SUBSIDIARY CONSOLID,ffED STATEMENTS OF MEMBER AND PATRON EQUITIES FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In thousands)

Accumulated Total Other Member Membership Comprehensive Patronage and Patron I

Fees Income Capital Equities I l BALANCE-December 31, 2015

$ 1

$2,415

$254,265

$256,681 Net margin and earnings 23,146 23,146

~

Postretirement health insurance obligation adjustments (126)

(126)

Retirement of capital credits (3,910)

(3,910)

BALANCE-December 31, 2016 1

2,289 273,501 275,791 Net margin and earnings 26,998 26,998 Postretirement health insurance obligation adjustments 108 108 Retirement of capital credits (4,110)

(4,110)

BALANCE-December 31, 2017 Ll

$2,397

$296,389

$298,787 See notes to consolidated financial statements.

f DAIRYLAND POWER COOPERATIVE AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net margin and earnings Adjustments to reconcile net margin and earnings to net cash provided by operating activities:

Depreciation and amortization:

Charged to operating expenses Charged through other operating elements such as fuel expense Allowance for funds used in construction-equity Unrealized gains on nuclear decommissioning trust investments Changes in operating elements:

Accounts receivable Inventories Prepaid expenses and other assets Accounts payable Accrued expenses and other liabilities Deferred charges and other Total adjustments Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES:

Electric plant additions Advances to nuclear decommissioning funds Purchase of investments Proceeds from sale of investments and economic development loans Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under line of credit Repayments under line of credit Borrowings under long-term obligations Repayments of long-term obligations Retirement of capital credits Borrowings of advances from member cooperatives Repayments of advances from member cooperatives Net cash provided by (used in) financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS-Beginning of year CASH AND CASH EQUIVALENTS-End of year SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for interest Electric plant additions funded through accounts payable and accrued expenses Electric plant additions under capital leases See notes to consolidated financial statements. $

2017 2016 26,998 23,146 55,000 48,989 1,798 1,754 (1,024)

(1,591)

(1,046)

(4,167)

(1,538) 2,728 (10,812) 5,783 (4,853)

(20,117) 12,727 (55,518) 42,668 1 377 38,743 (15,186) 126,087 11,812 149,233 (37,490)

(56,283)

(8)

(190,454)

(547,107) 190,247 546,278 (37,697)

(57,120) 182,000 79,000 (136,000)

(167,000) 21,665 99,090 (33,404)

(100,917)

(4,110)

(3,910) 255,562 219,173 (256,375)

(216,657) 29,338 (91,221) 3,453 892 27,278 26,386 30,731 27,278 42,274 32,575 9,470 4.764 3,015 4,062

DAIRYLAND POWER COOPERATIVE AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND 1=0R THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (All dollar amounts in thousands)

1.

NATURE OF BUSINESS AND ORGANIZATION Business-Dairyland Power Cooperative and subsidiary ("Dairyland" or the "Cooperative")

is an electric generation and transmission cooperative organized under the laws of the states of Wisconsin and Minnesota. The Cooperative, whose principal offices are located in Wisconsin, provides wholesale electric service to class A members engaged in the retail sale of electricity to member consumers located in Wisconsin, Minnesota, Iowa and Illinois, and provides electric and other services to class C, D and E members.

Principles of Consolidation-The consolidated financial statements include the accounts of Dairyland and Dairyland's wholly owned subsidiary, Genoa FuelTech, Inc. All intercompany balances and transactions have been eliminated in consolidation.

Accounting System and Reporting-The accounting records of the Cooperative are maintained in accordance with the uniform system of accounts prescribed by the Federal Energy Regulatory Commission as adopted by the Rural Utilities Service (RUS), the Cooperative's principal regulatory agency.

Electric Plant-The cost of renewals and betterments of units of property (as distinguished from minor items of property) includes contract work, direct labor and materials, allocable overhead, and allowance for funds used during construction, and is charged to electri.c plant accounts. Included in accumulated depreciation are nonlegal or noncontractual costs of removal components. As a result, the cost of units of property retired, sold or otherwise disposed of, plus removal costs, less salvage, is charged to accumulated depreciation and no profit or loss is recognized in connection with ordinary retirements of property units. A provision for these nonlegal or noncontractual costs of removal components is recognized based on depreciation rates determined by a third-party depreciation study completed in November 2016 and approved by RUS i.n 2017 for rates effective in 2017. The Cooperative is unable to obtain the information to separate the cumulative removal costs as of December 31, 2017 and 2016. Maintenance and repair costs and replacement and renewal of minor items of property are charged to operations.

Depreciation-Depreciation, which is based on the straight-line method at rates that are designecl to amortize the original cost of properties over their estimated useful lives, includes a provision for the cost of removing and decommissioning the properties. The provision for depreciation averaged 3.3% of depreciable plant balances for 2017 and 3.1%

for 2016.

Allowance for Funds Used During Construction-Allowance for funds used during construction (AFUDC) represents the cost of external and internal funds used for construction purposes, and is capitalized as a component of electric plant by applying a rate (3.715% in 2017 and 4.120% in 2016) to certain electric plant additions under construction. The amount of such allowance was $1,847 in 2017 and $3,055 in 2016. The borrowed funds component of AFUDC for 2017 and 2016, was $823 and $.1,464, respectively (representing 1.656% and 1.990% in 2017 and 2016, respectively). The equity component of AFUDC for 2017 and 2016 was $1,024 and $1,591, respectively, (representing 2.059% and 2.130% in 2017 and 2016, respectively). The borrowed funds components were included as a reduction of interest expense in the consolidated statements of revenues, expenses and comprehensive income.

Recoverability of Long-Lived Assets-The Cooperative accounts for the impairment or disposal of long-lived assets, such as property and equipment, whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.

An impairment loss is recognized when estimated undiscounted cash flows expected to result from the use of the asset, plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on quoted market prices or other valuation techniques. To date, management has determined that no impairment of these assets exists.

Investments-Investments in marketable debt and equity securities classified as available for sale are reported at fair value, with the interest, dividend income and realized gains reported in nonoperating margin. The Cooperative continually monitors the difference between cost and estimated fair value of its investments. If any of the Cooperative's investments experience a decline in value that the Cooperative believes is other than temporary, the Cooperative will realize the loss as a reduction in investment income on decommissioning funds. In 2017 and 2016, the Cooperative realized $167 and $1,189, respectively, of losses on these investments as a result of other-than-temporary impairment (OTT!).

Regulatory Assets and Liabilities-The Cooperative's accounting policies and the consolidated financial statements conform to accounting principles generally accepted in the United States of America applicable to electric cooperatives. During 2017, the Cooperative established a regulatory asset for the unrecovered plant balance and termination of the gas purchase agreement related to the discontinuation of landfill operations at the Seven Mile Creek site. The amount is being amortized through rates over 36 months beginning in July 2017. During 2015, the Cooperative established a regulatory asset for a contract termination fee related to a power purchase agreement. This is being amortized to purchased power expense over the five-year remaining term of the original contract beginning November 2015. During 2014, the Cooperative established a. regulatory asset related to unrecovered plant balances upon closure of the Alma 4&5 generating stations. This is being amortized through rates over 10 years beginning in 2015. The expected following year's portion of these regulatory assets is included in prepaid expenses and other at December 31, 2017 and 2016, respectively.

The noncurrent portion of regulatory assets as of December 31, 2017 and 2016, include the following:

Power purchase contract termination fee Alma 4&5 unrecovered plant balances Seven Mile unrecovered plant balance and termination fee Total regulatory assets 2017

$10,023 12,432 2,484 i24,939 2016

$15,491 14,504 i29,995 Deferred Charges-Deferred charges represent future revenue to the Cooperative associated with costs that will be recovered from customers through the rate-making process. As of December 31, 2017 and 2016, the Cooperative's deferred charges are being reflected in rates charged to customers, except the deferred nuclear litigation as noted below. If all or a separable portion of the Cooperative's operations become no longer subject to the provisions of regulatory accounting, a write-off of deferred charges would be required, unless some form of transition recovery (refund) continues through rates established and collected for the Cooperative's remaining regulated operations. In addition, the Cooperative would be required to determine any impairment to the carrying costs of deregulated plant and inventory assets. The noncurrent portion of deferred charges as of December 31, 2017 and 2016, include the following:

2017 2016 Pension prepayment

$10,759

$13,449 Deferred nuclear litigation 105 Other 6,682 3,460 Total deferred charges

$17,546

$16,909 The voluntary prepayment to the Cooperative's multiemployer defined-benefit pension plan to reduce future funding amounts is being amortized to benefits expense over 10 years beg.inning in 2013 as prescribed by RUS. Litigation expenses from the third nuclear contract damages claim against the United States government are being deferred pending.

the outcome of that litigation.

Cash and Cash Equivalents-Cash equivalents include all highly liquid investments with original maturities of three months or less. Cash equivalents consist primarily of commercial paper, stated at cost, which approximates market.

Fossil !Fuels and Materials and Supplies-Coal inventories, as well as materials and supplies inventories, are stated at the lower of average cost or net realizable value.

Nitrogen Oxide Emission Allowances-Beginning in 2009, the U.S. Environmental Protection Agency (EPA) requires power plants to hold sufficient allowances to cover emissions of nitrogen oxide. Under these requirements, the Cooperative is required to surrender one emission allowance per ton of nitrogen oxide emitted. Actual emissions during 2017 and 2016 did not require the Cooperative to purchase additional allowances beyond what was allocated under the program. As of December 31, 2017 and 2016, allowances are recorded in inventory at the lower of average cost or net realizable value.

The obligations to EPA to meet 2017 and 2016 emissions are $0. The transfer to EPA for the 2016 annual allowances occurred in June 2017. The transfer to EPA for the 2017 annual allowances is expected to occur in May or June 2018. The remaining allowances in inventory as of December 31, 2017, will be surrendered to EPA, as applicable, under the terms of the consent decree.

Deferr-ed Credits-Deferred credits represent both future revenue to the Cooperative associated with customer prepayments and noncurrent obligations and reserves related to operations. As of December 31, 2017, the Cooperative's deferred credits are being considered when determining rates charged to customers.

The noncurrent portion of deferred credits as of December 31, 2017 and 2016, include the following:

Unearned revenue-contract prepayment Other Total deferred credits 2017

$63,015 479

$63,494 2016

$68,744 519

$69,263 Unearned Revenue-Contract Prepayment-Revenue from the settlement payment received from Great River Energy (GRE) as discussed in Note 13, and is being recognized into revenue through 2029.

Sales oif Electric Energy-Revenues from sales of electric energy are recognized when energy is delivered. The class A wholesale rates approved by the Cooperative's board of directors (the "Board of Directors") have a power cost adjustment that allows for increases or decreases in class A member power billings based upon actual power costs compared to plan. For 2017 and 2016, the power cost adjustment to the class A members resulted in credits to sales billed of $(1,188) and $(5,450), respectively. These amounts are recorded in sales of electric energy in operating revenues on the consolidated statements of revenues, expenses and comprehensive income.

Other Operating Revenue-Other operating revenue primarily includes revenue received from transmission service and is recorded as services are provided.

Accounting for Energy Contracts-Contracts that did not meet the accounting definition of a derivative are accounted for at historical cost. The Cooperative's energy contracts that qualify as derivatives continue to be accounted for at fair value, unless those contracts meet the requirements of and have been designated as "normal purchase/normal sale."

The Cooperative does not have any energy contracts that are required to be accounted for at fair value as of December 31, 2017 and 2016.

Nonoperating Margin-The nonoperating margin for the years ended December 31, 2017 and 2016, includes the following:

2017 2016 Investment income

$ 7,841

$ 6,722 Investment income on nuclear decommissioning funds:

Net earnings 2,225 3,153 Realized gains 671 5,703 Realized losses and losses due to OTT!

(1,798)

(9,070)

Provision-recorded as estimated decommissioning liabilities (1,098) 214 Other 883 964 Nonoperating margin

$ 8,724

$ 7,686 Use of Estimates-The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of

- 11 "'.

assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates in the consolidated financial statements relate to inventory reserve, postretirement benefit obligations, asset retirement obligation liabilities, fixed-asset depreciable lives, and litigation and contingencies. Actual results could differ from those estimates.

AccumUJlated Other Comprehensive Income-Accumulated other comprehensive income is comprised solely of a postretirement health insurance obligation. See additional information in Note 11. The components for the years ended December 31, 2017 and 2016, are as follows:

2017 2016 Balance-beginning of year

$2,289

$2,415 Recognition in expense:

Amortization of prior service cost (102)

(102)

Amortization of unrecognized actuarial gain (126)

(131)

Actuarial assumption changes 336 107 Net other comprehensive gain (loss) 108 (126)

Balance-end of year

$2,397

$2,289 Concentration of Risk-Approximately 45% of the labor f9rce for the Cooperative is under a collective bargaining agreement that expires January 31, 2019.

Subsequent Events-The Cooperative considered events for recognition or disclosure in the consolidated financial statements that occurred subsequent to December 31, 2017, through March 28, 2018, the date the consolidated financial statements were available to be issued. All material subsequent events have been disclosed in these consolidated financial statements.

2.

RECENTLY ISSUED ACCOUNTING STANDARDS UPDATES Issued-In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance 1s that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-1, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year for all entities and permits early adoption on a limited basis.

ASU 2014-09 is effective for the Cooperative in 2019. Management is in the process of evaluating the guidance and has not yet determined if the adoption of this guidance will have a material impact on the Cooperative's consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The Cooperative is still in the process of evaluating the impact this guidance will have on the consolidated financial statements. This guidance is effective for the Cooperative in 2020.

In March 2017, the FASB issued new accounting guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost in financial statements. The new guidance requires components of net periodic pension cost and net periodic postretirement benefit costs that are currently aggregated and reported as part of compensation be disaggregated and reported separately. Only the service cost component may be reported as part of compensation, be included in income from operations and be eligible for capitalization. The other cost components must be reported separately in the income statement. The new guidance will be effective for the Cooperative in 2019.

Management believes. the adoption of this new guidance will not have a material impact on the consolidated financial statements and disclosures.

3.

INCOME TAXES The Internal Revenue Service has determined that Dairyland is exempt from federal income taxes under Section 501(c)(12) of the Internal Revenue Code. Accordingly, the Cooperative's utility operations are generally exempt from federal and state income taxes and no provision for such taxes is recorded in the consolidated financial statements.

4.

AVAILABLE-FOR-SALE INVESTMENTS Investments in the nuclear decommissioning trust (NDT) and under debt agreements are classified as available-for-sale, recorded at fair value, and include the following as of December 31, 2017 and 2016:

2017 Cash and cash equivalents U.S. government securities Corporate bonds Foreign obligations 2016 Cash and cash equivalents U.S. government securities Corporate bonds Foreign obligations NDT

$ 2,450 5,922 14,541 201

$23,114 NDT

$ 3,427 19,016 49,759 2,141

$74,343 Fair Value Debt Agreements

$2,631

$2,631 Fair Value Debt Agreements

$3,783

$3,783 Total

$ 5,081 5,922 14,541 201

$25,745 Total

$ 7,210 19,016 49,759 2,141

$78,126 Investments under debt agreements represent amounts arising from the sale of assets that are encumbered by mortgages and restricted by the RUS for use on future generation and transmission construction projects.

The contractual maturities of marketable debt securities, which include U.S. government securities, foreign obligations and corporate bonds, as of December 31, 2017, are as follows:

Due within 1 year Due after 1 year through 5 years Due after 5 years through 10 years Due after 10 years Fair Value 434 9,276 6,554 4,400 i20,664 Cost 890 9,287 6,533 4,519 i21,229 Information regarding the sale of available-for-sale marketable securities, including nuclear decommissioning trusts, for the years ended December 31, 2017 and 2016, is as follows:

Proceeds from sale of securities Realized losses 2017

$188,543 (960) 2016

$543,732 (2,178)

For the purposes of determining realized gains and losses, the cost of securities sold is based upon specific identification.

Securities in the portfolio are reviewed to determine whether they have been other-than-temporarily impaired. The Cooperative has recorded impairment write-downs of its investments of $167 and $1,189 in 2017 and 2016, respectively, as the Cooperative cannot represent that it has the intent and ability to hold securities until they recover in value, since that decision is outside of its sole control.

In accordance with restrictions enacted by the Nuclear Regulatory Commission, the Cooperative does not control the day-to-day management of nuclear decommissioning trust fund investments. The nuclear decommissioning trust of the Cooperative is managed by independent investment managers with discretion to buy, sell and invest to achieve the broad investment objectives set forth by the Cooperative. The Cooperative's policy is to provide additional funding of the nuclear decommissioning trust, as necessary, through rates and with future earnings, to ensure that the trust will be sufficient to cover final decommissioning expenses. Earnings on the nuclear decommissioning funds and the equivalent provision for nuclear decommissioning costs are recorded as nonoperating margins, since the plant is no longer in service.

Investment income included in nonoperating margin on the consolidated statements of revenues, expenses and comprehensive income is net of investment fees of approximately

$101 and $298 for the years ended December 31, 2017 and 2016, respectively.

5.

LINES OF CREDIT To provide interim financing capabilities, the Cooperative has arranged committed lines of credit with availability aggregating approximately $350,000. On November 30, 2015, a syndicated credit facility was executed with CoBank acting as lead arranger. This facility has a five-year term and provides funds both for short-term working capital requirements and for capital projects until permanent financing can be obtained. Some capital proJects will last longer than one year, but the intent is to pay down the line of credit as permanent funding is received. Compensating balance requirements and fees relating to the lines of credit were not significant in 2017 and 2016. Information regarding line of credit balances and activity for the years ended December 31, 2017 and 2016, is as follows:

2017 2016 Interest rate at year-end 2.56 %

1.76 %

Total committed availability at year-end

$350,000

$350,000 Total borrowings outstanding at year-end

$154,000

$108,000 Average borrowings outstanding during year

$151,231

$178,308 The Cooperative also allows member cooperatives to prepay their power bills and pays interest on these prepayments based on current short-term borrowing rates. Advances from member cooperatives totaled $12,461 and $13,274 at December 31, 2017 and 2016, respectively. Interest expense on member cooperative advances was $194 and $111 at December 31, 2017 and 2016, respectively. These amounts have been included in interest expense in the consolidated statements of revenues, expenses, and comprehensive income.

6.

LONG-TERM OBLIGATIONS Long-term obligations as of December 31, 2017 and 2016, consist of the following:

Federal Financing Bank obligations-1.93%-4.46%

Federal Financing Bank obligations-4.52%-6.80%

Total Federal Financing Bank RUS obligations-4.125% and grant funds CoBank notes-2.6%, 2.9%, 4.3%, 6.2%, and 7.4%

Private bonds placement obligations-3.42%

Long-term debt Less current maturities Total long-term obligations 2017

$393,223 307,675 700,898 4,423 25,123 84,166 814,610 (47,267)

~767,343 2016

$380,833 315,128 695,961 4,839 35,801 87,500 824,101 (51,140)

~772,961 Quarterly principal and interest payments on the long-term obligations to the Federal Financing Bank (FFB) extend through 2048. Long-term obligations to.FFB are net of deposits in the RUS debt prepayment program of $195,657 and $214,581 as of December 31, 2017 and 2016, respectively. These deposits earn 5% interest and are available solely for future principal and interest payments.

7.

Long-term obligations to the RUS are payable in equal monthly principal and interest installments through 2024. Payments on the CoBank 2.6%, 2.9%, 4.3%, 6.2%, and 7.4%

notes are due monthly or quarterly through 2023. The private bond placement is an amortizing 30-year term loan at an interest rate of 3.42%. Quarterly principal and interest payments on this obligation extend through 2043.

The Cooperative executed, filed and recorded an indenture of mortgage, security agreement and financing statement, dated as of September 13, 2011 (the "Indenture"),

between the Cooperative, as grantor and U.S. Bank National Association, as trustee. The perfected lien of the Indenture on substantially all of the Cooperative's assets secured equally and ratably all of the Cooperative's long-term debt with the exception of unsecured notes to CoBank (balances of $14,794 and $21,989 at December 31, 2017 and 2016, respectively). The Cooperative is required to maintain and has maintained certain financial ratios related to earnings in accordance with the covenants of its loan agreements as of December 31, 2017.

Scheduled maturities of the Cooperative's long-term obligations as of December 31, 2017, were as follows:

Years Ending December 31 2018 47,267 2019 46,737 2020 46,922 2021 46,280 2022 45,469 Thereafter 5811935 Total 8141610 LEASES Operating Leases-The Cooperative has entered into lease agreements under which it is the lessee on an operating lease for a Caterpillar coal dozer, six rail cars, and fleet vehicles. These transactions are covered in the master lease agreement and have lease terms ranging from four to 15 years. At the end of the leases, the Cooperative can either purchase the equipment at fair market value, continue to lease the assets, or return the equipment to the lessor. Rent expense was $500 and $590 in 2017 and 2016, respectively.

The schedule of future minimum lease payments as of December 31, 2017, is as follows:

Years Ending DecelTlber 31 2018 444 2019 345 2020 180 2021 49 2022 39 Thereafter 33 Total

$ 11090 Capital Leases-The Cooperative has entered into several capital lease agreements for work equipment and computer equipment. The transactions are covered in the master lease agreement with lease terms of four, five or nine years. At the end of the lease, the Cooperative can purchase the equipment for a bargain purchase price. The gross amount of the leases-was $3,305 and $4,137 as of December 31, 2017 and 2016, respectively. The accumulated amortization of the capital leases was $1,376 and $2,360 as of December 31, 2017 and 2016, respectively. The principal and interest payments were $2,461 and $1,991 in 2017 and 2016, respectively. The schedule of future minimum lease payments as of December 31, 2017, is as follows:

Years Ending Decennber 31 2018 2019 2020 2021 2022 Thereafter Total minimum lease payments Amounts representing interest Present value of minimum lease payments Current maturities Long-term capital lease obligations

8.

FINANCIAL INSTRUMENTS

$2,519 2,178 1,837 1,259 676 231 8,700 (559) 8,141 (2,266)

$5,875 The fair value of the Cooperative's financial instruments other than marketable securities and short-term borrowings, based on the rates for similar securities and present value models using current rates available as of December 31, 2017 and 2016, is estimated to be as follows:

Assets:

Recorded Value Other property and investments

$ 11,627 Investments in capital term certificates of NRUCFC Liabilities-long-term obligations 9,176 814,610 2017 Fair Vailue 11,627 9,176 1,110,071 Recorded Value

$ 11,721 9,176 824,101 2016 Fair Value 11,721 9,176 1,149,059 Assets and Liabilities Measured at Fair Value-Accounting principles generally accepted in the United States of America establish a framework for measuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and provides for required disclosures about fair value measurements.

Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange.

A description of the inputs used in the valuation of assets and liabilities are as follows:

Level 1 inputs utilize observable market data in active markets for identical assets or liabilities. Level 2 inputs consist of observable market data, other than that included in Level 1, that are either directly or indirectly observable. Level 3 inputs consist of unobservable market data, which are typically based on an entity's own assumptions of what a market participant would use in pricing an asset or liability as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest-level input that is significant to the fair value measurement in its entirety. The Cooperative's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The following table summarizes the Cooperative's assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016, aggregated by the level in the fair value hierarchy within which those measurements fall:

2017 Assets-investments:

Nuclear decommissioning funds Investments under debt agreements-marketable securities Other property and investments Investments in capital term certificates of National Rural Utilities Finance Corporation Investment for deferred compensation Fair Value

$ 23,114 2,631 11,627 9,176 1,955 i 48,503 Fair Value Measurements Usin9 Quoted Prices in Significant Active Markets for Other Significant Identical Assets Observable Unobservable and Liabilities Inputs Inputs (Level 1)

(Level 2)

(Level 3)

$23,114 2,631 1,113 10,514 9,176 1,955

$24,227

$4,586

$19,690

f -

2016 Assets-investments:

Nuclear decommissioning funds Investments under debt agreements-marketable securities Other property and investments Investments in capital term certificates of National Rural Utilities Finance Corporation Investment for deferred compensation Fair Value

$ 74,343 3,783 11,721 9,176 1,679

$100,702 Fair Value Measurements Using Quoted Prices in Significant Active Markets for Other Significant Identical Assets Observable Unobservable and Liabilities (Level 1)

$74,343 1,373

$75,716 Inputs (Level 2) 3,783 1,679

E 5,462 Inputs (Level3) 10,348 9,176

£ 19,524 There were no significant transfers between Levels 1, 2 and 3 in 2017. The changes in Level 3 recurring fair value measurements using significant unobservable inputs for the years ended December 31, 2017 and 2016, are as follows:

Other property and investments:

Balance-beginning of year New investment and loans made Loan repayments received and current maturities Patronage capital allocations Refunds of deposits Balance-end of year 2017

$10,348 1,400 43 223 (1,500)

$10,514 2016

$ 9,740 2,850 (259) 267 (2,250)

$10,348 The valuation of these assets involved management's judgment after consideration of market factors and the absence of market transparency, market liquidity and observable inputs.

1, I,

r

9.

RETIREMENT OF CAPITAL CREDITS The Cooperative's Board of Directors has adopted a policy of retiring capital credits allocated to members on a first-in, first-out basis. As part of an equity development strategy adopted in 2003, patronage capital retired will be limited to no greater than 2% of the total assigned patronage capital balance as of December 31 of the prior year. This policy is subject to annual review and approval by the Board of Directors and the RUS, and no cash retirements are to be made which would impair the financial condition of the Cooperative or violate any terms of its agreements. Since 2003, the amount of nonoperating margins assigned to members each year is at the discretion of the Board of Directors. Any unassigned nonoperating margins will become unallocated reserves and part of permanent equity. Patronage capital amounts for the years ended December 31, 2017 and 2016, are as follows:

Assigned Unassigned Total Balance-December 31, 2015

$195,525

$58,740

$254,265 Retirement of capital credits (3,910)

(3,910)

Current year margins 13,869 9,277 23,146 Balance-December 31, 2016 205,484 68,017 273,501 Retirement of capital credits (4,110)

(4,110)

Current year margins 17,250 9,748 26,998 Balance-December 31, 2017

$218,624

$77,765

$296,389

10. COMMITMENTS AND CONTINGENCIES The Cooperative is a party to a number of generation, transmission and distribution agreements, under which costs and/or revenues are recognized currently based upon the Cooperative's interpretations of the provisions of the related agreements. Differences between the estimates used in the consolidated financial statements and the final settlements are recorded in the year of settlement.

The Cooperative has entered into various coal purchase contracts with one-to three-year terms. The estimated commitments under these contracts as of December 31, 2017, were

$84,420 in 2018, $63,217 in 2019, and $61,198 in 2020.

A consent decree (CD) between the Cooperative, the EPA, and the Sierra Club entered by the U.S. District Court in 2012 was modified in 2014. The CD requires the Cooperative to spend $5,000 on environmental mitigation projects within five years of EPA's April 2013 approval of the projects and includes participation in major solar projects. The Cooperative reflected the obligation of this requirement in deferred credits. During 2016, the remaining

$2,210 obligation for environmental mitigation projects was reduced by $1,441 spent on approved solar and other projects. During 2017, the remaining $769 obligation for environmental mitigation projects was reduced by $755 spent on approved solar and other projects. The estimated $14 cost for 2018 solar and other projects participation is included in accrued expenses.

The Cooperative* has been named as a defendant in various lawsuits and claims arising in the normal course of b1,1siness. Although the outcome of these matters cannot be determined at the present time, management and legal counsel believe these actions can be successfully defended or resolved without a material effect on the consolidated financial position, results of operations or cash flows of the Cooperative.

11. EMPLOYEE BENEFITS Multiemployer Defined-Benefit Pension Plan-Pension benefits for substantially all employees are provided through participation in the National Rural Electric Cooperative Association (NRECA) Retirement Security Plan ("RS Plan"). This is a defined benefit pension plan qualified under Section 401 and tax-exempt under Section 501(a) of the Internal Revenue Code. Pension benefits are funded in accordance with the provisions of the RS Plan and are based on salaries, as defined, of each participant. The Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendment Act of 1980, imposes certain liabilities on employers who are contributors to multiemployer plans in the event of a plan termination or an employer's withdrawal. These plans have not been terminated, nor has the Cooperative undertaken any plans to withdraw from participation. Since the RS Plan is a multiemployer plan for accounting purposes, all plan assets are available to pay benefits of any plan participant. Separate asset accounts are not maintained for participating employers. This means that assets contributed by one employer may be used to provide benefits to employees of other participating employers.

The Cooperative may be contingently liable for its share of the RS Plans' unfunded vested liabilities.

The Cooperative's contributions to the RS Plan in 2017 and 2016 represented less than 5%

of the total contributions made to the plan by all participating employers. In 2013, the Cooperative made a voluntary prepayment of $26,899 to this plan to reduce future contribution amounts. Expense for this pension plan was $11,619 in 2017 and $11,071 in 2016. The 2017 expense includes contributions to the plan of $8,929 and $2,690 of prepayment amortization. The 2016 expense includes contributions to the plan of $8,381 and $2,690 of prepayment amortization. There have been no significant changes that affect the comparability of 2017 and 2016 contributions.

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 both January 1, 2017 and 2016, 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.

Postretirement Health Insurance Obligation-Certain employees of the Cooperative retiring at or after age 55 are eligible to participate in a postretirement health care plan through age 65. Eligible dependents of the retired Cooperative employees are also eligible to participate in this plan through age 65. Retirees pay 100% of the premium amount for this coverage. The premium is based upon the combined medical claims experiences of all active employees and retirees. If premiums were determined based upon the medical claims experience of retirees only, the resulting premium for retirees would be higher. The difference between the premium paid by retirees and the potential actual premium amount is the basis for the postretirement benefit obligation. The Cooperative uses a December 31 measurement date for its plan. The postretirement health care plan is unfunded.

The accumulated postretirement benefit obligation (APBO) and the amounts recognized in the consolidated financial statements as of and for the years ended December 31, 2017 and 2016, are as follows:

Amount recognized in the consolidated balance sheets:

Total accrued qualified and nonqualified benefit obligation Less current portion included in accrued expenses-other Long-term portion Change in benefit obligation:

APBO-beginning of year Service cost Interest cost Actuarial loss Participant contributions Benefits paid APBO-end of year Funded status of plan-December 31 Accrued postretirement health insurance obligations recorded at year-end Change in plan assets:

Employer contribution Benefits paid Change in accumulated other comprehensive income:

Net income at prior measurement date Actuarial assumption changes Recognition in expense:

Amortization of prior service cost Amortization of unrecognized actuarial gain Accumulated other comprehensive income Components of net periodic postretirement benefit cost:

Service cost-benefits attributed to service during the year Interest cost on accrued postretirement health insurance obligation Amortization of prior service cost Amortization of unrecognized actuarial gain Net periodic postretirement benefit expense 2017

$ 4,769 (277)

$ 4,492

$ 4,956 262 175 (336)

(288)

$ 4,769

$(4,769)

$ 4,769 (288) 288

$ 2,289 336 (102)

(126)

$ 2,397 262 175 (102)

(126) 209 2016

$ 4,956 (287)

$ 4,669

$ 4,744 248 174 (107) 381 (484)

$ 4,956

$(4,956)

$ 4,956 (484) 484

$ 2,415 107 (102)

(131)

$ 2,289 248 174 (102)

(131) 189

Employer cash contributions expected to be made to the plan during the fiscal year ending December 31, 2018, is $277. The amount of accumulated other comprehensive income expected to be recognized during the fiscal year ending December 31, 2018, is an actuarial gain of $139 and amortization of prior service cost of $102.

For measurement purposes, a 3.32% and 3.64% discount rate was assumed for 2017 and 2016, respectively, to determine net periodic benefit cost. The 2017 and 2016 annual health care cost increase assumed is 6.80% and 6.90%, respectively, decreasing gradually to 4.95% for 2040 and thereafter. A one percentage point increase in the assumed health care cost trend rates would increase the total of service and interest cost components by

$73 and the end-of-year APBO by $514. A one percentage point decrease in the assumed health care cost trend rates would decrease the total of service and interest cost components by $60 and the end-of-year APBO by $439.

Estimated future benefit payments from the plan as of December 31, 2017, are as follows:

Years Ending December 31 2018 2019 2020 2021 2022 2023-2027 277 337 325 302 282 1,582 Defined-Contribution Plan-Dairyland has a qualified tax-deferred savings plan for eligible employees. Eligible participants may make pretax contributions, as defined, with the Cooperative matching up to 2.5% of the participants' annual compensation.

Contributions to this plan by the Cooperative were $1,242 and $1,098 for 2017 and 2016, respectively.

Other Plans-The Cooperative offers key employees deferred compensation plans available through NRECA. The plans permit qualifying employees to defer a portion of their salary until future years. The accumulated deferred compensation balance is not available to employees until termination, retirement or death.

All amounts of compensation deferred under the plans and all income attributable to those amounts (until paid or made available to the employee or other beneficiary) are solely the property and rights of the Cooperative (not restricted to the payment of benefits under the plan), subject only to the claim of general creditors. Participants' rights under the plans are equal to those of general creditors of the Cooperative in an amount equal to the fair market value of the deferred account for each participant. The related assets and liabilities, totaling $1,955 and $1,678 as of December 31, 2017 and 2016, respectively, are reported at contract value, which approximates fair value.

The Cooperative also provides employees with medical insurance coverage, vision and dental insurance coverage, short-term and long-term disability, and life insurance, which are funded by employer and employee contributions. The Cooperative's costs related to these benefits were $9,248 and $9,077 for 2017 and 2016, respectively. The liability for these plans of $45 and $848 as of December 31, 2017 and 2016, respectively, are recorded in accrued expenses. *

12. RELATED-PARTY TRANSACTIONS The Cooperative provides electric and other services to its class A members. The Cooperative received revenue of $363,603 and $351,491 in 2017 and 2016, respectively, for these services. The Cooperative has accounts receivable from its class A members of

$37,892 and $34,420 as of December 31, 2017 and 2016, respectively.

The Cooperative has advances from class A members of $12,444 and $13,274 as of December 31, 2017 and 2016, respectively, related to the prepayment program. Class A members have the option of paying their electric bill in advance, and in turn, the Cooperative pays the members' interest income. The Cooperative's interest expense related to the prepayment program was $194 and $111 as of December 31, 2017 and 2016, respectively.

The Cooperative has interest-bearing loan receivables from class A members of $132 and

$246 as of December 31, 2017 and 2016, respectively. These loan receivables, which are recorded as part of other assets, are related to the economic development program, wherein class A members can borrow funds from the Cooperative, which the members, in turn, loan to economic development projects in their service territories. These loans are typically repaid to the Cooperative over 10 years. The Cooperative recorded interest income related to the economic development program of $6 and $16 as of December 31, 2017 and 2016, respectively.

13. LONG-TERM POWER AGREEMENTS During 2015, the Cooperative and GRE reached settlement terms amending a power agreement which shared costs and benefits of the Cooperative owned 345-megawatt coal-fired generating unit ("Genoa Station #3") located in Genoa, Wisconsin. The settlement terms allowed GRE to end its purchase of power and energy under the agreement as of June 1, 2015, upon prepayment by GRE of $83,543 for certain obligations under the agreement. GRE is no longer entitled to any output from the unit. GRE will remain responsible for its share of eventual decommissioning costs and of any liability for disposal of coal combustion byproducts. The transaction received required approval from RUS during 2015.

The prepayment by GRE was recorded in deferred credits and is being recognized into operating revenues on a straight-line basis through 2029, the approximate time frame over which the prepayment amounts would have been billed. The amounts recognized as revenue were $5,729 during both 2017 and 2016. Energy charges to GRE under the original agreement were $17,411 during 2015. Advances from GRE for required deposits under the original agreement were refunded as part of the settlement terms.

14. ASSET RETIREMENT OBLIGATIONS An asset retirement obligation (ARO} is the result of legal or contractual obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, or development and/or the normal operation of a long-lived asset. The Cooperative determines these obligations based on an estimated asset retirement cost adjusted for inflation and projected to the estimated settlement dates and discounted using a credit-adjusted risk-free interest rate. Upon initial recognition of a liability for ARO, the Cooperative capitalizes the asset retirement cost by increasing the carrying amount of the related long-lived asset by the same amount as the liability. The Cooperative allocates that asset retirement cost to expense using the straight-line method over the remaining useful life of the related long-lived asset. The accretion of the obligation is recognized over time up to the settlement date. Any future change in estimate will be recognized as an increase or a decrease in the carrying amount of the liability for an ARO and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset.

The Cooperative determined that it has AROs related to future removal and disposal of asbestos at its power plants. There are no assets legally restricted for purpose of settling the ARO related to future removal and disposal of asbestos.

The Cooperative has established a decommissioning trust to accumulate the estimated amounts necessary to decommission a nuclear power plant that the Cooperative formerly operated and the related Independent Spent Fuel Storage Installation (ISFSI). The assets of this trust in the amount of $23,114 and $74,343 as of December 31, 2017 and 2016, respectively, are outside the Cooperative's administrative control and are available solely to satisfy the future costs of decommissioning.

Nuclear decommissioning and other asset retirement obligations as of December 31, 2017 and 2016, are as follows:

Nuclear Other Total Balance-December 31, 2015

$ 88,114

$ 9,116

$ 97,230 Accretion in ARO 33 33 (Decrease) in estimated obligation (2,444)

(2,444)

Incurred costs on projects (11,327)

(2,112)

(13,439)

Balance-December 31, 2016 74,343 7,037 81,380 Accretion in ARO 19 19 Increase in estimated obligation 1,265 1,265 Incurred costs on projects (52,494)

(1,556)

(54,050)

Balance-December 31, 2017

$ 23,114

$ 5,500

$ 28,614 The Cooperative did not record a conditional ARO related to the dismantlement of the dam and drainage reservoir for the hydro generation plant at Flambeau, the restoration of land to preexisting condition at Genoa Station #3 site related to the land rights permit, and the removal of transmission lines in various corridors, because the Cooperative does not have sufficient information to estimate the fair value of the ARO.

15. NUCLEAR REACTOR License-The La Crosse Boiling Water Nuclear Reactor (LACBWR) was voluntarily removed from service by the Cooperative effective April 30, 1987. The intent was to terminate operation of the reactor, and a possession-only license was obtained from the Nuclear Regulatory Commission (NRC) in August 1987. LACBWR will remain in safe storage status (SAFSTOR) until the final stage of decommissioning of LACBWR, involving dismantlement and decontamination, can be completed. In May 2016, the NRC approved transfer of the license to La CrosseSolutions LLC (Solutions), a subsidiary of EnergySolutions LLC.

Solutions will temporarily hold the license and assumes responsibility for the decommissioning of the site. The license will revert back to the Cooperative following completion of decommissioning activities. While Solutions undertakes decommissioning, the Cooperative retains a license for its continued ownership of the spent fuel.

Nuclear Waste Policy Act of 1982 (NWPA)-Under the NWPA, the United States government is responsible for the storage and disposal of spent nuclear fuel removed from nuclear reactors. By statute and under contract, the United States government was to have begun accepting spent fuel in January 1998, but has not yet licensed and established a repository.

The Cooperative filed an initial breach of contract damages claim against the United States government in the United States Court of Federal Claims to recover its costs generally incurred after 1998 through 2006 related to spent fuel remaining at LACBWR. In January 2013, the Cooperative received a damages award payment of $37,659 from the government for this claim.

The Cooperative filed a second contract damages claim in December 2012 to recover its costs generally incurred from 2007 through 2012. The Cooperative and the government agreed to settle the second claim in October 2016. Settlement proceeds of $73,500 were received from the government in November 2016, and at the direction of the Board of Directors, were recorded as a regulatory liability due to Class A members. The nuclear related regulatory asset of $16,700 and deferred charges for nuclear related litigation and plant costs of $9,164 were recovered from the regulatory liability as these amounts had not been collected in rates yet. The remaining net amount of $47,636 was refunded to Class A members in February 2017.

Subsequent damages claims will be filed to recover the continuing costs arising from the presence of the spent fuel.

ISFSI-The Cooperative completed the temporary dry storage facility project located on the LACBWR site and completed the move of the LACBWR spent nuclear fuel to this ISFSI facility in September 2012. The spent nuclear fuel will remain at the ISFSI until it is able to be transferred to the government. Annual ISFSI costs are recorded on an as incurred basis and incorporated into the annual budget and rate making process.

Decommissioning-The Solutions decommissioning plan anticipates completion of decommissioning LACBWR, not including the ISFSI, by the end of 2019. The estimated costs of decommissioning the nuclear generating facility are based on the Solutions cost study and decommissioning plan filed with the NRC as part of the license transfer. Costs incurred for decommissioning projects are charged against the decommissioning liability.

As costs are incurred, Solutions submits requests for withdrawals to the Cooperative for release of funds from the nuclear decommissioning trust.