OLD DOMINION ELECTRIC COOPERATIVE Annual Report - Your Guide to Understanding ODEC

For those tracking the energy sector, understanding key players like OLD DOMINION ELECTRIC COOPERATIVE (ODEC) offers valuable insight into regional power dynamics. It's important to note upfront: ODEC is not a publicly traded company, so you cannot invest in it by purchasing shares.

ODEC operates as a not-for-profit wholesale power supply cooperative, owned by its member distribution cooperatives. Its core mission is to provide reliable, affordable, and sustainable electricity to its members, prioritizing service over generating profits for external shareholders. While direct stock investment is not an option, understanding ODEC's performance remains crucial for customers of its member cooperatives and anyone interested in the regional energy landscape.

This guide summarizes ODEC's performance for the fiscal year ending December 31, 2023, offering a clear, straightforward overview of its operations, financial health, and strategic direction.

What is OLD DOMINION ELECTRIC COOPERATIVE? (Business Overview)

Established in Virginia in 1948, ODEC is a wholesale power provider. It generates and buys electricity in bulk, then sells it to its 11 member distribution cooperatives and one municipal utility. These members, in turn, deliver power directly to homes and businesses.

In 2023, ODEC enabled its members to serve approximately 650,000 retail electric customers, impacting roughly 1.5 million people across rural, suburban, and recreational areas in Virginia, Maryland, and Delaware.

How ODEC Powers the Region (Business Overview)

ODEC maintains a diverse portfolio to ensure a reliable power supply, balancing its owned generation assets with purchased power agreements. While specific percentages fluctuate, its energy mix typically includes:

• Natural Gas: A significant component, offering flexibility and efficiency.
• Nuclear Power: Provides stable, carbon-free baseload electricity.
• Coal: Remains part of the mix, though ODEC actively transitions towards cleaner sources.
• Fuel Oil: Primarily used for peak demand or as a backup.
• Renewable Energy: ODEC increases investment in and procurement of renewable sources like solar and wind to meet evolving energy demands and environmental goals.

ODEC actively participates in the PJM Interconnection, one of North America's largest regional transmission organizations (RTOs). PJM manages the high-voltage electricity grid across 13 states and the District of Columbia, ensuring grid reliability and facilitating competitive wholesale electricity markets. ODEC's participation in PJM allows it to efficiently buy and sell power, optimize its generation resources, and maintain grid stability.

Who Owns ODEC? (Business Overview)

As a cooperative, ODEC is owned by its 11 member distribution cooperatives and one municipal utility. These members are the primary beneficiaries of ODEC's operations. Additionally, TEC Trading, Inc. (TEC), a taxable subsidiary also owned by these cooperatives, manages ODEC's market activities, including energy trading and hedging strategies to optimize costs and mitigate market risks.

Management's Discussion and Analysis (MD&A) Highlights

Management's discussion provides context and analysis of financial results, significant operational events, and known trends or uncertainties affecting the cooperative. For 2023, the MD&A would likely discuss:

• Revenue Drivers: Factors impacting operating revenues, such as wholesale power demand from members, changes in PJM market energy prices, and ODEC's diverse generation portfolio.
• Cost Management: Key operating expenses, including fuel costs, purchased power costs, and transmission expenses, and initiatives undertaken to manage these costs.
• Capital Expenditures: Significant investments made during the year in generation assets, transmission infrastructure, and technology upgrades, and how these align with strategic goals.
• Regulatory Environment: The impact of new or pending environmental regulations, energy policies, or PJM market rule changes on ODEC's operations and financial outlook.
• Operational Performance: Highlights of grid reliability, generation asset performance, and any significant operational challenges or successes during the year.

Financial Health (Debt, Cash, Liquidity)

ODEC's financial health is crucial for its long-term ability to serve its members. A 10-K would detail:

• Liquidity: ODEC's ability to meet short-term obligations, including available cash and cash equivalents, working capital, and access to revolving credit facilities or other lines of credit. This section would also address ODEC's financial covenants with its lenders.
• Capital Resources: How ODEC funds its significant capital investment program, primarily through long-term debt issuances (e.g., bonds, term loans from the Rural Utilities Service or other financial institutions) and internally generated cash flow.
• Debt Structure: Details on debt instruments, maturity schedules, interest rates (fixed vs. variable), and any hedging strategies used to manage interest rate risk. ODEC's debt is typically secured by its assets and revenues.
• Equity (Member Equity/Patronage Capital): As a cooperative, ODEC does not have traditional shareholder equity. Instead, it accumulates "member equity" or "patronage capital" through margins retained from operations, which it eventually retires to its members. The 10-K would detail the balance and changes in this equity.

Key Risks and Challenges (Risk Factors)

ODEC, like all utilities, faces risks that could impact its operations and financial performance:

• Regulatory and Environmental Compliance: Changes in environmental regulations (e.g., emissions standards, renewable energy mandates) or utility commission rulings can significantly affect costs and operational strategies.
• Fuel Price Volatility: Fluctuations in natural gas, coal, and oil prices directly impact ODEC's power generation and procurement costs.
• Market Risk: Volatility in wholesale electricity prices within the PJM market can affect ODEC's purchased power costs and revenues.
• Infrastructure Investment and Reliability: Continuous investment in aging infrastructure and new technologies is needed to maintain grid reliability and resilience against extreme weather events.
• Cybersecurity Threats: Protecting critical infrastructure from cyberattacks is an ongoing and evolving challenge.
• Climate Change Impacts: Physical risks from severe weather events and the strategic challenge of transitioning to a lower-carbon energy portfolio.
• Counterparty Risk: Risks associated with the financial stability of ODEC's power suppliers, purchasers, and other contractual counterparties.

Strategic Priorities and Outlook (Future Outlook)

ODEC's strategy aims for long-term reliability, affordability, and sustainability for its members. Key strategic areas include:

• Energy Transition: Investing in and procuring more renewable energy sources (solar, wind) and exploring advanced energy technologies to reduce carbon emissions and diversify its portfolio. This includes developing new generation projects and securing long-term power purchase agreements.
• Grid Modernization: Upgrading transmission and distribution infrastructure to enhance reliability, integrate new technologies (e.g., smart grid components), and improve resilience against physical and cyber threats.
• Cost Management: Seeking efficiencies in operations and power procurement to keep electricity rates stable and affordable for its members, including optimizing its generation fleet and hedging strategies.
• Member Value: Enhancing services and support for member cooperatives to better serve their retail customers, including energy efficiency programs and demand-side management initiatives.
• Financial Prudence: Maintaining a strong financial position to support necessary capital investments, manage debt effectively, and ensure access to capital markets.

Competitive Position

As a wholesale power supply cooperative, ODEC's competitive position differs from investor-owned utilities. Its primary "competition" is not for retail customers, but rather in:

• Wholesale Power Procurement: ODEC competes with other market participants in PJM to secure the most cost-effective and reliable power supply for its members, whether through owned generation, bilateral contracts, or market purchases. Leveraging its diverse portfolio and PJM participation provides a key advantage.
• Value Proposition to Members: ODEC's competitive advantage lies in its cooperative structure, which prioritizes reliable and affordable power for its members over profit maximization. It aims to provide stable rates and long-term planning benefits that individual member cooperatives might not achieve on their own.
• Operational Efficiency: ODEC strives for operational excellence in its generation and transmission assets, maintaining a competitive cost structure compared to other wholesale power providers or potential self-generation options for its members.
• Strategic Flexibility: Its ability to adapt its generation portfolio and procurement strategies to evolving market conditions, regulatory changes, and technological advancements helps maintain its competitive edge in a dynamic energy landscape.

Why ODEC Files a 10-K

While ODEC does not have publicly traded stock, it files annual 10-K reports with the SEC due to its publicly held debt. Institutional investors purchase this debt (often bonds), triggering SEC reporting requirements for transparency. As a "Non-accelerated Filer," ODEC follows specific SEC reporting deadlines and disclosure requirements. While these may differ slightly from larger public companies, they still mandate comprehensive annual reporting.