Financial Services

and Chief Financial Officer

Big Rivers Records Strong 2006

Big Rivers’ commitment to efficient operations and careful management of resources produced a strong financial performance in 2006. Record margins were established as the company significantly improved its revenue-to-power cost ratio, an important measurement of efficiency.
Record arbitrage sales, voluntary debt pre-payments and other key factors resulted in a more than 30 percent increase in net margins over 2005, enabling Big Rivers to continue to improve its cash position. The company ended 2006 with a notable increase in its overall “cushion” status and improved its negative equity position over the previous fiscal year.

Financial Highlights - 2002 through 2006

Net Margins

Big Rivers ended 2006 with net margins of $34.5 million, an $8.2 million increase over 2005. Arbitrage sales, which included the aluminum smelter Tier 3 and an industrial co-generator backup sales, reached record levels and led to a $9.4 million increase in sales margins as compared to 2005. Record power sales reflect Big Rivers’ efficiency in utilization of available power and the development of marketing strategies designed to take advantage of market opportunities to improve its revenue-to-power cost ratio.

Operating Revenue

The upward trend in power revenue continued in 2006 with Big Rivers reporting $200.7 million compared to $191.3 million in 2005 (up from $175.8 million in 2004). The lease revenue for 2006 was $57.9 million with total operating revenue for 2006 at $258.6 million, an increase of approximately $10 million over 2005.

Arbitrage Sales

Big Rivers exceeded its previous year arbitrage margins record by 36 percent, reporting $35.5 million in 2006. The average price for 2.1 million MWh of surplus power was $39.81 per MWh in 2006, compared to a rate of $35.58 per MWh for 2 million MWh in 2005.

Wholesale Member Sales

The average price for 3.2 million MWh of member power increased to $34.11 per MWh in 2006 from $33.84 per MWh in 2005. Member sales to rural loads were $35.58 per MWh in 2006, up from $35.19 in 2005. Large industrial sales reflected a slight decrease from the previous year. Big Rivers continued the 3.3 percent revenue discount during 2006 that resulted in the benefits of the April 2000 sale-leaseback being passed through to its members.
The slight decrease in member tariff load growth, -1.42 percent for 2006 vs. 3.32 percent in 2005, was due largely to more temperate weather conditions in 2006 and the closing of a small industrial customer. Heating and cooling degree-days for 2006 decreased by 3.6 percent and 13.1 percent, respectively, as compared to 2005.

Long-Term Debt

Voluntary prepayments on the Rural Utilities Service (RUS) promissory note led to a $1.7 million decrease in interest expense for 2006, compared to 2005. Pollution Control Bond interest expense reflects a $1.5 million increase over 2005 due to higher interest rates (3.49 percent for 2006 vs. 2.46 percent for 2005).

Big Rivers holds a line of credit with National Rural Utilities Cooperative Finance Corporation for $15 million as of December 31, 2006. This line of credit has an underlying $15 million master letter of credit facility for supporting off-system sales.

As of December 31, 2006, there was $5.95 million outstanding under the master letter of credit facility. Participation in the Midwest Independent System Operator Energy Market required a letter of credit in the amount of $1.0 million. Forward sales to Morgan Stanley, Fortis Energy Marketing and Constellation Energy required letters of credit in the amounts of $2.2 million, $2.5 million and $0.25 million, respectively.

Cash Flow

Higher net margins and efficient management of resources aided Big Rivers’ cash flow status in 2006. As of December 31, 2006, the company’s overall cushion stood at $130.9 million, an increase of more than $8 million over 2005. Cash and temporary cash investments amounted to $95.9 million, while voluntary prepayment of debt on the RUS notes totaled $35 million.

Focused Audits

In an effort to ensure that proper internal controls are maintained, the Big Rivers’ Board of Directors engaged the services of an outside auditor to perform a series of focused audits. The audits conducted in 2006 included purchasing and payroll cycles; cash management, debt and debt-related covenants; and power sales and load forecasting. Audit results indicated that proper internal controls were established and no irregularities were found to exist in those areas audited.