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2023 ANNUAL REPORT Currents of Change — South Central Power Company

Ken Davis, Chairman, Board of Trustees

By the time you are reading this, connectSCP, our new fiber internet division, will have connected our first consumers in rural Highland and Belmont counties. While we see fiber internet as a natural extension of what we’ve done at South Central Power Company for 88 years — providing needed services to our communities — what you may not realize is the value our fiber internet network brings to each and every electric consumer-member of our cooperative.

You see, we are entering unprecedented times as an electric provider. It’s never been more challenging, not just for Ohio but all of North America, to provide the power that our growing and modernizing society demands. High-tech industries, electric vehicles, data centers, virtual reality and more — all these things we hear about every day are requiring more and more of the nation’s electric grid. And, unfortunately, this is happening at the same time that we as a country are determined to transform the way we generate and deliver power, turning away from a tried-and-true model that has served us well for over a century.

By most accounts, the changes are likely to translate into rising costs for you, our members, and for utility consumers across America. In fact, many of the largest electric companies in Ohio have seen rates rise much faster than we have experienced at South Central Power. At the same time, these changes will create new pressures on reliability that are largely outside of the control of typical distribution cooperatives like South Central Power.

To continue to provide you with the affordable, dependable service you expect, we are adapting to become an even more well-run and technologically advanced utility, ensuring that we are taking every step we can to protect you from unneeded expenses and improving our ability to control the delivery of power from our larger, multi-state power grid.

Earlier this year, we shared with you how our rate restructure — increasing our consumer charge instead of our kWh sales price — will help protect you as consumers as well as your cooperative from the extreme highs and lows in your bills. This change also ensures the cooperative recovers fixed costs related to making your power available, even as new technologies like solar power increasingly change how we must operate our system.

The best way a modern distribution utility can operate efficiently, controlling everything from voltage fluctuations to power restoration costs, comes down to our ability to monitor, control, optimize, and operate our entire system remotely. And, this requires the ability to move data over long distances, into rural areas and connect our substations and devices in the field to our 24/7 control center. How will we achieve this? The same fiber network that will provide internet through connectSCP will also power our next-generation smart grid initiatives starting in 2024, and for years to come. We are building not just an internet service provider, but a technology backbone that will insulate us against many of the challenges and pressures that will impact some of our industry peers.

Of course, while technology is important, it still won’t entirely replace the services we perform year in and year out — tree trimming to maintain rights-of-way and maintaining a ready workforce to respond when severe weather strikes. As we continue to ride the currents of change and adapt to rising costs in our industry, know that we won’t waver from doing what it takes — from the simple things to the technologically complex — to serve you well. Thanks for reading, and for being part of the South Central Power family.

Ken Davis

Chairman, Board of Trustees

Rick Lemonds, President and CEO

South Central Power Company was founded in 1936 and has weathered many challenges in our 88 years of service to the community. In 2023, the greatest challenge facing South Central Power was the same one facing the entire North American electric utility sector: How do we continue to provide reliable and affordable service while adapting to a rapidly changing regulatory landscape that is driving up costs while undercutting the availability of always-on, baseload power generation?

Our approach to overcoming this challenge is multifaceted. We continue to invest in technology to improve our ability to be efficient and safe in delivering power. We work with the best service providers in the industry to help maintain our lines, source equipment, harden our infrastructure and grid, and build and operate a world-class transmission and distribution system. We advocate for an orderly transition to new generation and transmission technologies and push back against the premature closure of the baseload generation plants that our electric grid needs to avoid unplanned outages. We champion the responsible use of electricity as a clean source of energy to power the next-generation economy here in Ohio, as technology-driven manufacturing and data centers are beginning to replace some of our legacy industries.

Perhaps most importantly, we continue to follow our mission, vision, and values to stay focused on what is most important to us as a cooperative – and that is you, our member-owners. As our mission states, we exist to add value to your lives by delivering safe and dependable service. While it may sound simple, it takes a lot of work behind the scenes to accomplish this, and maintaining our focus on doing so while staying committed to sound financial stewardship requires your cooperative to walk a fine line and strike a balance between managing costs and compromising reliability.

We have prepared this report to provide you with more information on our efforts to do so in 2023, as well as share the financial outcomes, and also to give you a preview into how we will continue to manage these challenges into the future, this year and beyond.

Thank you for your interest as a member of South Central Power Company. We value your engagement and hope to see you at one of our several meetings and events at some point this year.

Rick Lemonds

President & CEO

“We exist to add value to your lives by delivering safe and dependable service.”

INVESTING IN YOUR COOPERATIVE

By investing in building our infrastructure, we are investing in you, our members, to improve reliability, keep costs as low as possible, and add value to your lives. Major projects to build and modernize substations as well as transmission lines will result in a more reliable and resilient grid in the years ahead. These investments won’t go far without maintaining our system, including trimming trees around our rights-of-way, so that’s an area of continuing focus. Here is a snapshot of some of these investments.

VEGETATION MANAGEMENT

At South Central Power, one of our largest annual expenses is our vegetation management program, an important investment to ensure reliability. At times, this may involve tree trimming or cutting. In 2023, with a budget of $13.8 million, our tree contractors cleared 1,415 miles and removed 7,803 trees within the power line corridor. When trimming or cutting trees, South Central Power follows generally accepted industry guidelines and best practices to ensure minimal impact on the environment.

SMART GRID TECHNOLOGIES

We’re connecting our substations with fiber to improve reliability and enhance cybersecurity and benefit our company and our members. Over the next five years, we are updating/improving the protection control systems on our transmission network, which will involve minor upgrades to about 55 substations along with about 300 miles of fiber optic line installed.

SUBSTATIONS

Substations are crucial to the safe distribution of electricity. They’re the main hub as electricity moves from the point of generation to the homes, farms, schools and businesses on our power lines. In 2023, we energized two new substations to help better serve our members and improve reliability: Ghormley in Fayette County and Paint Creek in Ross County. Each new substation costs around $2.9 million, with upgrades costing around $1.5 million each. We plan to build, rebuild, or upgrade many substations in the coming years, including five in 2024 in Fairfield, Pickaway, Pike, and Ross counties, and 10 in 2025-27 in Fairfield, Franklin, Harrison, Pickaway, and Vinton counties.

TRANSMISSION AND DISTRIBUTION LINES

In 2023, we designed more than 175 miles of distribution for substation exits, system improvements, new services and road projects. We completed approximately 20 miles of new transmission line rebuild and designed an additional 20.5 miles of transmission for 2023-25 construction. These projects are in several locations, including parts of Adams, Harrison, Highland, Hocking, Pike, and Ross counties, as well as Lancaster, Lockbourne, Obetz, Pickerington and Rickenbacker. Our goal is to build 15 to 25 miles of transmission lines per year.

BY THE NUMBERS

FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES

THE ROAD AHEAD

Because we are a not-for-profit electric cooperative, the only way to recover the rising costs of purchasing and supplying power to you is to pass on those costs on your power bill.

Essentially, the cost to power your home breaks down into two main categories:

1. The cost to generate and transmit your power, including everything from the cost of fuel such as coal and natural gas, and the cost of operating the power generation plants, to the cost of moving that power to locations where it can be distributed to you, and;

2. The cost of making that power available to you at the flip of a switch any time, 24/7, regardless of factors like weather, or how much energy you actually consume.

The cost of having power available is passed along to you in what we refer to as the consumer charge on your bill. As of April, 2024, the consumer charge for residential members is currently set as a fixed charge of $27, and it is intended to cover some of the costs to maintain our business operations, like the ability to deploy line workers, as well as assets like meters, poles, wires and substations. As the overall cost of doing business continues to rise, so, likely, will the consumer charge in years to come.

Based on industry forecasts and national trends, we expect to see rising costs on the generation and transmission side of our business as well. The overall costs associated with generation and transmission are expected to rise about 10% this year, and as those charges are reflected as components of your bill, you can expect to see the monthly balance due increasing accordingly.

Despite these rising costs, South Central Power trustees and employees take seriously the challenge of providing you with the best, reliable power at the lowest possible cost. Stay tuned to Ohio Cooperative Living in the months ahead to learn more about what we’re doing to keep costs in check, and your bills as low as possible.

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