EVERYTHING IN OUR POWER 2015 Annual Report

A Message from
our chairman
and president

Everything in our power — that’s the mindset we adopt every day. Our Participants focus on doing everything to enhance their communities’ health and viability, while the staff at MEAG Power strives to make certain that reliable and competitive wholesale electricity is generated and transmitted to their local utilities day after day.

Throughout 2015, we saw our Participant communities attract new businesses and help existing companies expand. They strengthened their infrastructure and educational initiatives and often worked together to promote the positives of their area — desirable logistics, skilled labor, construction-ready sites and more.

Plant Vogtle Units 3&4 Expansion Progresses

In 2015, MEAG Power made advances in the financial management of the expansion at nuclear Plant Vogtle. In June, we moved closer to fully funding our share of the capital expenditure related to the project by obtaining $1.1 billion in initial loan advances guaranteed by the U.S. Department of Energy (DOE).

The DOE loan provides beneficial 30-year financing for the Project at extremely low interest rates. When compared with MEAG Power’s projected borrowing costs in the public market, this loan will result in an approximate debt service savings of $2 billion over the course of the 30-year loan. Most importantly, these savings will substantially offset MEAG Power’s share of the additional costs resulting from the schedule delay incurred at the Project. Accordingly, MEAG Power’s current cost projections for the output of this Project remain consistent with our original cost estimates in 2008, when MEAG Power and its Participants first committed to this Project.

We understand that there are many challenges that must be overcome in order to achieve the Project’s current projected commercial operation dates of June 2019 and 2020. The independent monitor for the Georgia Public Service Commission has expressed his opinion that there is a substantial likelihood of further delays. However, Georgia Power Company, our agent for this Project, believes that the current dates are challenging, but remain achievable.

We also continue to advocate for legislation at the federal level that would allow us to monetize our Production Tax Credits (PTCs). We have been allocated our pro rata share of such credits, but as a tax exempt entity, MEAG Power cannot itself utilize the allocated PTCs. The proposed legislative fix would allow us to sell the PTCs to third-party taxable entities who have had some involvement with the Project.

On December 31, 2015, another important milestone was reached for the Vogtle Project. On that day, MEAG Power, along with the Project’s co-owners and the Project’s contractor, entered into a definitive settlement agreement between the various parties. The agreement settled all disputed claims with the contractor, including those claims that were the subject of litigation between the parties, reaffirmed the current in-service dates, included additional contractual protections to limit the contractor’s ability to seek further cost increases and positioned Westinghouse Electric Company as the primary contractor over the project. We believe this agreement is extremely important as it has cleared the way for all parties to be singularly focused on project execution.

When finished, the expansion at Plant Vogtle will make our mix of delivered energy even more attractive in terms of being reliable, emissions-free generation. MEAG Power already has a strong track record, with a majority of our delivered energy being emissions-free. Indeed, 2015 was the seventh consecutive year that our total delivered wholesale electric power mix has been over 50 percent emissions-free. This is an attractive sustainability position with potential value to domestic and international businesses concerned with the environment.

Our Participants must be satisfied with our performance, and we must do everything in our power to help them prosper.”

- Steve A. Rentfrow, Chairman

Solar and Carbon Emissions in the News

In March 2015, the Georgia House and Senate passed a law allowing state property owners to use third parties to finance solar facilities installed on their premises. The law also requires that any power not consumed at the property be sold back to the host utility. This law is an example of the move toward more retail-level distributed generation that has the potential to impact local utilities’ revenues. Without proper rate treatment, the addition of distributed generation could result in costs being unjustly shifted to non-solar customers. To date, rooftop solar installations in Georgia have not dramatically increased, but we continue to monitor the events affecting public power utilities in other parts of the country. This allows us to take advantage of their lessons learned and be ready to support our Participants as they plan for distributed generation on their systems.

Throughout the year, MEAG Power, along with our Participant communities, voiced concern about regulatory proposals developed by the U.S. Environmental Protection Agency (EPA). Presently, EPA rules creating multiple new regulatory requirements for both new and existing power plants are in various stages of development. Some are directed to coal ash and wastewater management, while others speak to cross-state air pollution or CO2 emissions.

The most comprehensive EPA regulation aimed at reducing carbon emissions from existing generating units was published on August 3, 2015. Entitled the Clean Power Plan (CPP), it has as its goal a 32 percent reduction in carbon dioxide emissions nationwide by 2030. The timetable and targets set out by the EPA are overly ambitious, and the CPP itself exceeds EPA’s legal authority. Moreover, the CPP has not fully considered the increased energy cost implications such a rule would ultimately impose on businesses and citizens, as the economics of fossil-fueled baseload generation are significantly more challenged. Also, in MEAG Power’s case, the CPP makes no allowance for our investment in existing carbon-free nuclear resources. Presently, the CPP is under a U.S. Supreme Court-ordered stay, so implementation of the rule has been halted. We are hopeful that the courts will address the inequities and legal deficiencies of the CPP and, at a minimum, require changes to the CPP to make it a more reasonable regulation.

Fuel diversity has always been a focus of MEAG Power, and our investment in 2004 in a combined cycle, natural gas facility is a key example. In 2015, this unit operated at record levels due to low natural gas prices. This switch to natural gas generation from coal generation has provided lower cost energy as well as a reduction in emissions. Continued low gas prices and the impact of the CPP are both factors that could limit utilization of our coal plants in the future. Fortunately, if use is limited, the impact should be minimized, as the coal facilities’ original fixed costs debt service will be paid off in 2018. Any debt service costs thereafter will be related to the emissions controls we have funded in the last 10 years.

A New CEO and New Industry Dynamics

At the end of 2015, MEAG Power said goodbye to Robert Johnston, who retired as the Authority’s President and CEO. During his 17 years as CEO, Bob helped build a strong, active MEAG Power that is recognized as a leader in the public power industry. To fill the organization’s leadership position, the Board unanimously appointed James E. Fuller, MEAG Power’s Senior Vice President and Chief Financial Officer, to the office.

The electric power industry is changing — load growth is relatively flat, energy efficiency is increasing, emissions-free fuels have found favor and distributed generation is a reality. We are confident that within this new framework, MEAG Power is in a good position. Our wholesale costs are competitive. Our fuel diversity protects us from price volatility. A majority of our original debt service will soon be paid off. And MEAG power has invested in new emissions-free generation in Plant Vogtle that will provide a reliable and stable cost of power for many years to come.

In the meantime, MEAG Power understands that we must get the basics right — operational efficiency and reliability must take priority, and costs must be controlled. Our Participants must be satisfied with our performance, and we must do everything in our power to help them prosper.

Steve A. Rentfrow

Chairman

James E. Fuller

President and Chief Executive Officer

July 7, 2016

Everyone at MEAG Power is Doing Their Part

We are a dedicated, diversified group working every day to ensure our Participant communities have reliable, competitively priced wholesale electricity. Each of our departments from finance to operations focuses on providing the best solutions and employing the best practices. Many of us have been with MEAG Power for many years including the members of the executive staff who together account for 66 years working for the Authority.