Jackson Energy 2006 Load Forecast Prepared by : East Kentucky Power Cooperative, Inc. Forecasting and Market Analysis Department July 2006

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3 Table of Contents Introduction and Executive Summary 5 Narrative16 Key Assumptions22 Methodology and Results30 –Residential Forecast35 –Small Commercial40 –Large Commercial42 –Peak Day Weather Scenarios45 RUS Form Page Number

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5 Introduction Executive Summary Jackson Energy Cooperative, located in McKee, Kentucky, is an electric distribution cooperative that serves members in 15 counties. This load forecast report contains Jackson Energy Cooperative’s long-range forecast of energy and peak demand. Jackson Energy Cooperative and its power supplier, East Kentucky Power Cooperative (EKPC), worked jointly to prepare the load forecast. Factors considered in preparing the forecast include the national and local economy, population and housing trends, service area industrial development, electric price, household income, weather, and appliance efficiency changes. EKPC prepared a preliminary load forecast, which was reviewed by Jackson Energy Cooperative for reasonability. Final projections reflect a rigorous analysis of historical data combined with the experience and judgment of the manager and staff of Jackson Energy Cooperative. Key assumptions are reported beginning on page 22.

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7 Executive Summary (continued) The load forecast is prepared biannually as part of the overall planning cycle at EKPC and Jackson Energy Cooperative. Cooperation helps to ensure that the forecast meets both parties’ needs. Jackson Energy Cooperative uses the forecast in developing two-year work plans, long-range work plans, and financial forecasts. EKPC uses the forecast in areas of marketing analysis, transmission planning, generation planning, demand-side planning, and financial forecasting. The complete load forecast for Jackson Energy Cooperative is reported in Table 1-1. Residential and commercial sales, total purchases, winter and summer peak demands, and load factor are presented for the years 1990 through 2025.

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11 Executive Summary (continued) Overall Results Total sales are projected to grow by 2.0 percent a year for the period , compared to a 3.0 percent growth projected in the 2004 load forecast for the period Results shown in Table 1-2 and Figure 1-1. Winter and summer peak demands for the same period indicate annual growth of 2.3 and 1.8 percent, respectively. Annual peaks shown in Figure 1-2. Load factor remains steady at approximately 42% through the study period. See Figure 1-3.

12 Executive Summary Overall Results (continued)

13 Figure 1-1 Average Annual Growth in Sales

14 Figure 1-2 Peak Demand Forecast Winter and Summer

15 Figure 1-3 Annual System Load Factor

16 Narrative Jackson Energy Cooperative is located in McKee, Kentucky. It serves members in the rural areas of Jackson, Rockcastle, Laurel, Clay, Owsley, Lee, and Estill counties. It also serves small sections of Madison, Pulaski, Wolfe, Powell, Lincoln, Leslie, Breathitt, and Garrard counties. Jackson Energy Cooperative serves the major part of the rural areas, with Kentucky Utilities serving most of the towns and small rural sections along certain roads. Jackson Energy Cooperative’s service area boundaries are fixed, and are filed with Kentucky’s Public Service Commission. This service area is located in the heart of the Daniel Boone National Forest and also lies partly in Kentucky’s eastern coal fields.

17 Narrative (continued) Counties Served Jackson provides service to members in 15 counties. Most of the customers are in the following counties: Figure 1-4

18 Narrative (continued) Jackson Energy Cooperative ’ s largest area of growth continues to be in Laurel County. London is in the center of the county and Corbin is at its southern tip. These two cities, combined with I-75 running through the area, have acted to make Laurel County a crossroads area. The Daniel Boone Parkway begins at London and goes east to Hazard. The Cumberland Parkway, which runs from Somerset to Bowling Green, is linked to the Daniel Boone Parkway via a four-lane section of Kentucky Highway 80 between Somerset and London. The London-Corbin Airport serves the region. A bio-diesel facility, Green Earth, will be located in Estill County in the near future. In 1995, Jackson County was approved by the federal government to be included in the Empowerment Zones and Enterprise Communities, a pilot program designed to help revitalize distressed urban and rural areas. The effort of this Empowerment Zone has proven to be a vital growth initiative and has been one of the most successful Empowerment Zones in the country.

19 Narrative (continued) Jackson Energy Cooperative primarily services residential load. In 2005, residential customers accounted for 94 percent of total customers, and residential sales accounted for 75 percent of total retail kWh sales. Residential sales are expected to continue to grow due to the high percentage of all- electric homes and the decreasing use of wood stoves. Future customer growth should be steady. Historical growth in residential customers has generally been between 400 to 1400 customers, and growth of around 600 is expected in the long run. Small commercial sales have historically tracked residential sales. Small commercial customers provide goods and services for the residences in the region; as the population of an area grows, both residential and small commercial sales will increase.

20 Narrative (continued) Jackson Energy Members Demographic Information There is an average of 2.27 people per household. 51% of all homes are headed by someone age 55 or greater. 14% of homes have farm operations, with beef cattle most popular. 27% of all homes served are less than 10 years old.

21 Narrative (continued) Jackson Energy Cooperative has active Industrial Development Authorities in each of the seven primary counties being served. There have been many success stories resulting from their efforts in the past five years. In summary, Jackson Energy Cooperative has experienced good growth over the past five years. This has been due to good customer growth, increased electric heat penetrations, and strong large power sales. These factors are not expected to appreciably change.

22 Key Assumptions Power Cost and Rates EKPC’s wholesale power cost forecast used in this load forecast comes from the following report: “Twenty-Year Financial Forecast, Equity Development Plan, ”, dated January 2006.

23 Key Assumptions (continued) Economic EKPC’s source for economic forecasts is DRI-WEFA.

24 Key Assumptions (continued) Share of Regional Homes Served Figure 1-5 Jackson Energy’s market share will increase for the forecast period.

25 Key Assumptions (continued) Household Income Members’ Greatest Sources Figure 1-6

26 Key Assumptions (continued) Appliance Saturations Room air conditioner saturation is declining due to customers choosing central air conditioning systems. Appliance efficiency trends are accounted for in the model. The data is collected from Energy Information Administration (EIA). See Figure 1-7.

27 Key Assumptions (continued) Saturation Rates Non HVAC Appliances Microwave Oven97% Electric Range93% Dishwasher40% Freezer44% Clothes Dryer94% Personal Computer45%

28 Key Assumptions (continued) All of the projections are very similar to what was used in the 2004 Load Forecast. However, the 2004 Load Forecast assumption was just below 8 by 2024 whereas this update shows the trend continuing above 8. Source: Energy Information Administration (EIA) Efficiency Trend Update, 2005 Figure 1-7

29 Key Assumptions (continued) Weather Weather data is from the Jackson weather station. Normal weather, a 30-year average of historical hourly temperatures, is assumed for the forecast years.

30 Methodology and Results Introduction This section briefly describes the methodology used to develop the load forecast and presents results in tabular and graphical form for residential and commercial classifications. Table 1-3 through Table 1-5 shows historical data for Jackson Energy Cooperative as reported on RUS Form 736 and RUS Form 5. A preliminary forecast is prepared during the first quarter depending on when Jackson Energy Cooperative experiences its winter peak. The first step is modeling the regional economy. Population, income, and employment are among the areas analyzed. The regional model results are used in combination with the historical billing information, appliance saturation data, appliance efficiency data, and weather data to develop the long range forecast.

31 Table 1-3

32 Table 1-4

33 Table 1-5

34 Methodology and Results (continued) The preliminary forecast was presented to Jackson Energy Cooperative staff, and reviewed by the Rural Utilities Services (RUS) Field Representative. Changes were made to the forecast as needed based on new information, such as new large loads or subdivisions. In some instances, other assumptions were changed based on insights from Jackson Energy Cooperative staff. Input from EKPC and Jackson Energy Cooperative results in the best possible forecast.

35 Methodology and Results (continued) Residential Forecast Residential customers are analyzed by means of regression analysis with resulting coefficients used to prepare customer projections. Regressions for residential customers are typically a function of regional economic and demographic variables. Two variables that are very significant are the numbers of households by county in each member system's economic region and the percent of total households served by the member system. Table 1-6 and Figure 1-8 report Jackson Energy Cooperative’s customer forecast. The residential energy sales were projected using a statistically adjusted end-use (SAE) approach. This method of modeling incorporates end-use forecasts and can be used to allocate the monthly and annual forecasts into end-use components. This method, like end-use modeling, requires detailed information about appliance saturation, appliance use, appliance efficiencies, household characteristics, weather characteristics, and demographic and economic information. The SAE approach segments the average household use into heating, cooling, and water heating end-use components. See Figure 1-9. This model accounts for appliance efficiency improvements. Table 1-6 reports Jackson Energy Cooperative’s energy forecast.

36 Table 1-6

37 Figure 1-8 Annual Change in Residential Customers

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39 Figure 1-9

40 Methodology and Results (continued) Small Commercial Forecast Small commercial sales are projected using two equations, a customer equation and a small commercial sales equation. Both are determined through regression analysis and utilize inputs relating to the economy, electric price, and the residential customer forecast. Small commercial projections are reported in Table 1-7.

41 Table 1-7

42 Methodology and Results (continued) Large Commercial Forecast Large commercial customers are those with loads 1 MW or greater. Jackson Energy Cooperative currently has eight customers in this class and is projected to increase to 12 customers by Large commercial results are reported in Table 1-8.

43 Table 1-8

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45 Methodology and Results (continued) Peak Day Weather Scenarios Extreme temperatures can dramatically influence Jackson Energy Cooperative’s peak demands. Table 1-9 and Figure reports the impact of extreme weather on system demands.

46 Table 1-9

47 Figure 1-10

48 RUS Form 341

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