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5496 North U.S. Highway 85 Sedalia, CO 80135 December 2012 Watts & Volts 303-688-3100 www.intermountain-rea.

com
Accompanying this issue of Watts & Volts is notice of proposed rate changes to be effective in February 2013. These changes are intended to raise additional revenue and will increase rates for all classes of customers, although some customers will see lower bills depending upon their current monthly minimums and the amount of energy they use. A new pilot time-of-use rate structure will give a limited number of customers the opportunity to lower their bills if they are willing to use less power during on-peak periods. IREA last raised rates in November 2009, so by February 2013 we will have gone three years and three months without a rate increase. During that time our costs have increased significantly and we have seen minimal growth. Since November 2009 our two wholesale power and transmission providers have raised rates nine times. In 2013 our delivered wholesale power and power production costs per kWh will exceed 2009 costs by more than 22%. Our property tax expense has increased by more than $7 million since 2009. We have spent more than $2 million on federal regulatory compliance matters and those costs continue to mount. Increased fire risk, the need to improve reliability, and aging infrastructure have caused us to step up our tree trimming and maintenance programs. Of course, the other costs of business continue

FEBRUARY 2013 RATE CHANGE NOTICE


December 2012 Watts & Volts
to rise, such as expenses for vehicles, fuel, materials and insurance. In normal economic times, growth in our customer base would help us offset cost increases, but since 2009 our customer base has grown at less than 1% per year. We have taken steps to control costs. We have limited the size of our workforce which still has the lowest number of employees per customer of any electric cooperative in the country. Recent investments in improved business information and communications systems will help us improve our efficiency. We have reduced or eliminated some employee benefits, have reduced the size of our vehicle fleet, have cut consulting costs, and taken many other steps to control costs. Nevertheless, we project that to meet expenses, achieve compliance with our loan obligations, make needed investments in plant to maintain and improve reliability, and return capital to our members, we will require an 8.3% increase in revenue in 2013 over what we expect to receive in 2012. As part of its rate-making process, IREA performed a cost-of-service study to develop rates based on actual costs to serve each customer class so rates could be designed to fairly allocate costs among rate classes. As a result of this study, most commercial and industrial customers will see lower-than-average increases. The average residential customer, who uses about 950 kWh per month, should see a monthly increase of around $13.00 as a result of the rate changes. Other significant features of the rate changes include:

Service Charges
Most utilities have a service charge designed to cover some or all of the utilities fixed costs. Energy usage is billed in addition to the service charge. Such charges reduce risks associated with weather and are considered to be more fair because all customers contribute to the costs of maintaining the distribution system, metering, billing and customer service. The new rate design includes a $10.00 service charge for residential customers and service charges of varying amounts for other rate classes. The residential service charge will cover less than half the fixed residential service costs, but a charge designed to recover all fixed costs would result in too large an increase at this time for many customers.

Energy and Demand Charges


Energy and demand (for demand rates) will be charged separately from the service charge, based on the number of kilowatt-hours used. The increase in the per-kWh energy charge is smaller than it would be if there were no service charges because we will receive revenue from service charges to offset some of the margin we would otherwise collect

December 2012 Watts & Volts

Because we are moving to a service charge model of cost recovery, we are able to eliminate monthly minimum charges to the extent monthly minimum amounts now exceed the new service charge. As a result, some customers now paying monthly minimums will see a reduction in their bills.

Time of Use Rates


We intend to implement a pilot time-of-use rate program, limited to 500 residential customers and 50 customers in the other rate classes. The rate imposes a higher energy charge during on-peak hours (between 4:00 and 8:00 p.m.) and a lower energy charge during off-peak hours. The program is intended to give customers the opportunity to lower their costs by controlling the time they use electricity, while allowing us to lower our costs by reducing our peak demand. The new TOU rate is much more aggressive than the

current TOU rate in that the difference between on and off peak rates is much greater and the on-peak time period is much shorter under the new program. The program is offered on a pilot basis to allow us the opportunity to assess its impact on demand and revenues. Based on our assessment of actual implementation, the rate may be revised going forward. We know that there is no good time to increase rates and we have deferred this action for as long as we reasonably can. By waiting until the end of the year we have enabled our members to avoid the additional expense that would have resulted from higher rates during the extraordinarily hot summer this year. If we do not obtain additional revenue next year, however, it is likely we will have no margin and will in fact operate at a loss. We cannot allow that to happen.

from the sale of energy. Some commercial customers on demand rates will see no kWh rate increase, but will see an increase in demand charges.

Monthly Minimums
Currently many IREA customers are billed a minimum amount each month regardless of how much energy they use. This arrangement was designed to ensure recovery of certain costs incurred by IREA in connection with extending service.

Residential Customer kWh Costs Since 1983


Cost increases remained significantly lower than the rate of inflation over the past 30 years. IREAs customer kilowatt hour costs held mostly steady between 1983 and 2004 largely as the result of growth on the Associations system. Much of the states coal fleet had been built by this time and large new generation investments were not being made. Kilowatt-hour costs shot up following a spike in natural gas prices in 2005 and began increasing steadily after the passage of the states Renewable Energy Standard in 2006. This statutory change required utilities to begin selling renewable energy as a growing percentage of their total power sales. This has meant a rise in energy costs and the construction of new infrastructure. In 2010 the Clean Air Clean Jobs Act was passed which began replacing coal plants with natural gas-fired plants in order to back up intermittent renewable energy sources. During this period of time, Intermountains growth has remained largely flat.

NOTICE

Date of Notice: December 1, 2012

NOTICE OF A CHANGE IN THE RATES, RULES, AND REGULATIONS OF INTERMOUNTAIN RURAL ELECTRIC ASSOCIATION (ASSOCIATION)
You are hereby notified that the above-named Association proposes to make the following changes in its Rates, Rules, and Regulations to become effective February 1, 2013.

SUMMARY OF CHANGES
The proposed changes to the Rates, Rules, and Regulations (1) incorporate a basic service charge into residential rate classes, (2) adjust kWh and kW rates for identified rate classes, (3) repeal the water heating service rate class, (4) separate the commercial E rate class into single-phase (E1) and three-phase (E3) service rate classes, (4) add a multiplier to all demand metered accounts with a low power factor, (5) implement a pilot time of use option, (6) repeal the construction allowance provision except as provided by the Rates, Rules, and Regulations, (7) repeal the system capacity charge, and (8) revise language in the Rates, Rules, and Regulations to reflect the proposed changes, accurately describe the Associations business practices, and delete obsolete language.

RATE CHANGES
Present Rate Residential Service (A) Basic Service Charge, Per Month Energy Charge, Per kWh $0.00 $0.11964 Proposed Rate (Effective February 1, 2013) Basic Service Charge, Per Month Energy Charge, Per kWh Basic Service Charge, Per Month Energy Charge, Per kWh Basic Service Charge, Per Month Demand Charge, Per kW, Per Month Energy Charge, Per kWh $10.00 $0.12310 $10.00 $0.11317 $10.00 $14.00 $0.06591 $10.00 $10.50 $0.06470

Residential Incorporated City or Town Service (CS) Basic Service Charge, Per Month $0.00 Energy Charge, Per kWh $0.10999 Residential - Demand Metered (C) Basic Service Charge, Per Month $0.00 Demand Charge, Per kW, Per Month $10.80 Energy Charge, Per kWh $0.06429

Residential Incorporated City or Town Service Demand Metered (CSD) Basic Service Charge, Per Month $0.00 Basic Service Charge, Per Month Demand Charge, Per kW, Per Month $8.23 Demand Charge, Per kW, Per Month Energy Charge, Per kWh $0.06255 Energy Charge, Per kWh Water Heating Service (W) Rate Repealed Energy Charge, Per kWh $0.11964 Small Industrial Service Demand Metered (S) Service Charge, Per Month $120.00 Demand Charge, Per kW, Per Month $14.90 Energy Charge, Per kWh $0.05344 Commercial Service Demand Metered (B) Service Charge, Per Month Demand Charge, Per kW, Per Month Energy Charge, Per kWh Rate Repealed Industrial Service Demand Metered (S) Basic Service Charge, Per Month Demand Charge, Per kW, Per Month Energy Charge, Per kWh

$120.00 $17.25 $0.05344

$30.00 $11.60 $0.06363

Basic Service Charge, Per Month Demand Charge, Per kW, Per Month Energy Charge, Per kWh

$30.00 $14.00 $0.06363

Commercial Service (E) Service Charge, Per Month $12.00 Energy Charge, Per kWh $0.11309 Large Power Service Demand Metered (P) Service Charge, Per Month Demand Charge, Per kW, Per Month Energy Charge, Per kWh Large Power Service (FP) Service Charge, Per Month Energy Charge, Per kWh Irrigation Service (I) Service Charge, Per Month Energy Charge, Per kWh $120.00 $12.58 $0.06449 $120.00 $0.11538 $12.00 $0.11374

Commercial Service (E1) Single-Phase Basic Service Charge, Per Month Energy Charge, Per kWh Commercial Service (E3) Three-Phase Basic Service Charge, Per Month Energy Charge, Per kWh Basic Service Charge, Per Month Demand Charge, Per kW, Per Month Energy Charge, Per kWh Basic Service Charge, Per Month Energy Charge, Per kWh Basic Service Charge, Per Month Energy Charge, Per kWh

$21.00 $0.11309 $30.00 $0.11309 $120.00 $14.00 $0.06449 $120.00 $0.12355 $21.00 $0.11374

Lighting Schedule (L) Each 175W Mercury Vapor Light, Per Month $15.00 Each 150W Metal Halide Light, Per Month $15.00 Each 250W Metal Halide Light, Per Month $27.00 Each 100W High-Pressure Sodium Light, Per Month $19.00 Each 150W High-Pressure Sodium Light, Per Month $23.00 Each 200W High-Pressure Sodium Light, Per Month $30.00 Each 400W High-Pressure Sodium Light, Per Month $35.00 Interruptible Service (IS) Service Charge, Per Month $12.00 Energy Charge, Per kWh $0.08375 Construction Allowance by Service Class Embedded Cost Demand Portion Residential Schedule A $1,200.00 $0.00 Schedule C $950.00 $140.00/kW Commercial and Industrial Schedule B Demand $1,500.00 $160/kW Schedule P Demand $9,100.00 $160/kW Schedule S Demand $9,100.00 $160/kW Schedule FP Flat Rate $30,000.00 $0.00 Small Commercial Schedule E $750.00 $0.00 Irrigation Schedule I $4,500.00 $0.00 Optional High Load Factor Service Demand Metered (HLF) Basic Service Charge, Per Month $265.00 Demand Charge, Per kW, Per Month $20.00 Energy Charge, Per kWh $0.04418

Each 175W Mercury Vapor Light, Per Month* $18.00 Each 175W Metal Halide Light, Per Month* $18.00 Each 250W Metal Halide Light, Per Month* $32.00 Each 100W High-Pressure Sodium Light, Per Month* $26.00 Each 150W High-Pressure Sodium Light, Per Month* $31.50 Each 200W High-Pressure Sodium Light, Per Month* $41.00 Each 400W High-Pressure Sodium Light, Per Month* $48.00 *(or LED lights with similar lighting intensity and pattern) Basic Service Charge, Per Month Energy Charge, Per kWh Construction Allowance Construction allowances for all classes are repealed except as provided for in the proposed Rates, Rules, and Regulations $23.00 $0.10374

Basic Service Charge, Per Month Demand Charge, Per kW, Per Month Energy Charge, Per kWh

$265.00 $23.00 $0.04418

System Capacity Charge (SCC) Extension Regulation 1(b) Residential applications for new construction are subject to a non-refundable SCC, the amount of which is determined by the Association based on incremental investment in electric facilities.

System Capacity Charge - Repealed The SCC for residential applications is repealed.

The proposed amendment implements a maximum number of members eligible for TOU rates as provided in the following table:

OPTIONAL TIME-OF-USE RIDER (TOU) CHANGES

Rate Class Rate Code Maximum Number of


Residential Service A Residential Incorporated City or Town Service CS Residential Service Demand Metered C Residential Incorporated City or Town Service Demand Metered CSD Industrial Service Demand Metered S

Pilot Program Participants


500 50

Commercial Service Demand Metered B Commercial Service Single-Phase E1 50 Commercial Service Three-Phase E3 Large Power Service Demand Metered P Large Power Service FP 50 Irrigation Service I 50 Optional High Load Factor Service Demand Metered HLF 50

Present TOU Rate Proposed TOU Rate (Effective February 1, 2013) Residential Service (A - TOU) Basic Service Charge, Per Month $0.00 Basic Service Charge, Per Month Administrative Charge, Per Month $5.00 Administrative Charge, Per Month* On-Peak Period Energy Charge, Per kWh $0.12958 On-Peak Period Energy Charge, Per kWh Off-Peak Period Energy Charge, Per kWh $0.08494 Off-Peak Period Energy Charge, Per kWh Residential Incorporated City or Town Service (CS - TOU) Basic Service Charge, Per Month $0.00 Administrative Charge, Per Month $5.00 On-Peak Period Energy Charge, Per kWh $0.12009 Off-Peak Period Energy Charge, Per kWh $0.07514 Commercial Service (E - TOU) Basic Service Charge, Per Month $0.00 Administrative Charge, Per Month $10.00 On-Peak Period Energy Charge, Per kWh $0.12238 Off-Peak Period Energy Charge, Per kWh $0.08279 Basic Service Charge, Per Month Administrative Charge, Per Month* On-Peak Period Energy Charge, Per kWh Off-Peak Period Energy Charge, Per kWh Commercial Service (E1) Single-Phase Basic Service Charge, Per Month Administrative Charge, Per Month* On-Peak Period Energy Charge, Per kWh Off-Peak Period Energy Charge, Per kWh

$10.00 $5.00 $0.30300 $0.07813 $10.00 $5.00 $0.27061 $0.07382 $21.00 $10.00 $0.28458 $0.07508

Commercial Service (E3) Three-Phase Basic Service Charge, Per Month $30.00 Administrative Charge, Per Month* $10.00 On-Peak Period Energy Charge, Per kWh $0.28458 Off-Peak Period Energy Charge, Per kWh $0.07508 Large Power Service (FP - TOU) Basic Service Charge, Per Month Administrative Charge, Per Month On-Peak Period Energy Charge, Per kWh Off-Peak Period Energy Charge, Per kWh Irrigation Service (I - TOU) Basic Service Charge, Per Month Administrative Charge, Per Month On-Peak Period Energy Charge, Per kWh Off-Peak Period Energy Charge, Per kWh $0.00 $10.00 $0.12240 $0.09024 $0.00 $10.00 $0.12215 $0.08613 Basic Service Charge, Per Month Administrative Charge, Per Month* On-Peak Period Energy Charge, Per kWh Off-Peak Period Energy Charge, Per kWh Basic Service Charge, Per Month Administrative Charge, Per Month* On-Peak Period Energy Charge, Per kWh Off-Peak Period Energy Charge, Per kWh $120.00 $10.00 $0.24645 $0.09282 $21.00 $10.00 $0.38670 $0.04550

Residential Demand Metered (C - TOU) Basic Service Charge, Per Month $0.00 Basic Service Charge, Per Month $10.00 Administrative Charge, Per Month $10.00 Administrative Charge, Per Month* $5.00 Peak Period Demand Charge, Per kW $6.86 On-Peak Period Demand Charge, Per kW $9.35 Basic Demand Charge, Per kW $4.01 Off-Peak Period Demand Charge, Per kW $4.65 Energy Charge, Per kWh $0.06429 Energy Charge, Per kWh $0.06591

Residential Incorporated City or Town Service Demand Metered (CSD - TOU) Basic Service Charge, Per Month $0.00 Basic Service Charge, Per Month $10.00 Administrative Charge, Per Month $10.00 Administrative Charge, Per Month* $5.00 Peak Period Demand Charge, Per kW $5.72 On-Peak Period Demand Charge, Per kW $6.94 Basic Demand Charge, Per kW $2.57 Off-Peak Period Demand Charge, Per kW $3.56 Energy Charge, Per kWh $0.06255 Energy Charge, Per kWh $0.06470 Small Industrial Service Demand Metered (S - TOU) Industrial Service Demand Metered (S - TOU) Basic Service Charge, Per Month $0.00 Basic Service Charge, Per Month $120.00 Administrative Charge, Per Month $20.00 Administrative Charge, Per Month* $10.00 Peak Period Demand Charge, Per kW $8.36 On-Peak Period Demand Charge, Per kW $10.03 Basic Demand Charge, Per kW $6.63 Off-Peak Period Demand Charge, Per kW $7.22 Energy Charge, Per kWh $0.05344 Energy Charge, Per kWh $0.05344 Commercial Service Demand Metered (B - TOU) Basic Service Charge, Per Month $0.00 Basic Service Charge, Per Month $30.00 Administrative Charge, Per Month $20.00 Administrative Charge, Per Month* $ 10.00 Peak Period Demand Charge, Per kW $7.45 On-Peak Period Demand Charge, Per kW $8.09 Basic Demand Charge, Per kW $4.22 Off-Peak Period Demand Charge, Per kW $5.91 Energy Charge, Per kWh $0.06363 Energy Charge, Per kWh $0.06363 Large Power Demand Metered (P - TOU) Basic Service Charge, Per Month $0.00 Basic Service Charge, Per Month $120.00 Administrative Charge, Per Month $20.00 Administrative Charge, Per Month* $10.00 Peak Period Demand Charge, Per kW $6.65 On-Peak Period Demand Charge, Per kW $7.73 Basic Demand Charge, Per kW $6.00 Off-Peak Period Demand Charge, Per kW $6.27 Energy Charge, Per kWh $0.06449 Energy Charge, Per kWh $0.06449 Optional High Load Factor Demand Metered (HLF - TOU) Basic Service Charge, Per Month $0.00 Basic Service Charge, Per Month $265.00 Administrative Charge, Per Month $100.00 Administrative Charge, Per Month* $10.00 Peak Period Demand Charge, Per kW $11.48 On-Peak Period Demand Charge, Per kW $13.68 Basic Demand Charge, Per kW $8.63 Off-Peak Period Demand Charge, Per kW $9.32 Energy Charge, Per kWh $0.04418 Energy Charge, Per kWh $0.04418 *In addition to Basic Service Charge, per month. Copies of the proposed rate schedules and the exact language of the proposed changes to the Rates, Rules, and Regulations are available online at www.intermountain-rea.com and at each of the following Association offices: Main Office Strasburg Office 5496 North U.S. Highway 85 Colfax and Main Sedalia, Colorado 80135 Strasburg, Colorado 80136 Conifer Office Woodland Park Office 13404 Old U.S. Highway 285 800 North Highway 67 Conifer, Colorado 80433 Woodland Park, Colorado 80863 Customers who have questions concerning any of the proposed changes may call the Association at (303) 688-3100 ext. 358. Anyone who desires to complain about the proposed changes shall file a written complaint with the Association at P.O. Drawer A, Sedalia, CO 80135-0220, at least fifteen (15) days before the proposed effective date. The Association may hold a hearing to determine what changes will be authorized. The changes ultimately authorized may or may not be the same as those proposed and may include changes different from those Rates, Rules, and Regulations proposed or currently in effect. Anyone who desires to receive notification of hearing, if any, shall submit a written request to the Association at the above address at least ten (10) days before the proposed effective date.

/S/ Patrick B. Mooney


General Manager