A message from the chairman In this year when we celebrate 70 years of great service, ECE welcomed another 1,325 members who added new electric services to the co-op's lines. After holding the line on costs and resisting the pressure to increase rates in 2003 and 2004, we found it necessary to raise rates in 2005.We used this occasion to complete the merger process with the former Head of the Lakes Electric Cooperative and to unify rates across the ECE system. A larger than expected margin from Great River Energy, our power supplier, and strong electric energy sales enhanced our total $6.956 million margin.

While we are pleased with the margin realized in 2005, please note that we need a sizeable margin every year to meet the financial requirements in our mortgages.

After reviewing finances and determining that the cooperative is in sound fiscal condition, the Board of Directors authorized East Central Energy to return $1.4 million in capital credits to past and present members. Throughout the years, ECE has paid more than $48 million in capital credits to member-owners, more than any other electric cooperative in Minnesota.

In 2005 members were offered a new choice with capital credits.You could contribute them to charity.I'm proud that generous ECE members contributed $71,000 in the program's inaugural year.

As your board chairman, I continue to remember our major responsibility as a director -- to represent you, the member-owners of East Central Energy. As challenging as it can be to balance reliability, great service, financial stability and reasonable rates, I am gratified to serve a cooperative that provides such a critical service. Thank you for the privilege.

A message from the President & CEO As we celebrate East Central Energy's proud history of 70 years enhancing the quality of life for members, I commend ECE employees for continued work to make the best, better. Although great service has long been part of ECE's legacy, we constantly strive to improve. Despite continued cost increases for equipment, fuel and everything we buy, we're able to report that 2005 was a financially good year. While the number of members served grew from 54,407 to 55,732 in 2005, average residential use grew from 839 to 876 kilowatt-hours per month.

As a result, energy sales increased 6 percent from 838 million to 891 million kilowatt-hours. This combined with the 2005 rate increase raised total revenue from $71 million in 2004 to $77 million in 2005.

The more than $13.5 million ECE invested in 2005 for distribution plant will help us maintain and improve your co-op's 99.9 percent service reliability. Transformer upgrades were completed at four substations, 115 miles of new line were completed, 778 miles of right-of-way were cleared and 1,500 miles were treated with herbicide for vegetation control.

To help members deal with rising energy costs, our staff increased efforts to help members save energy and money. Early in the year we hosted four Super Saver Saturday events where members could learn to save energy and reduce the impact of higher energy costs.

During 2005 your ECE trusted energy advisors added 1,251 new controlled loads to our system by helping members implement programs such as cycled air, dual fuel, storage heat, peak-shave hot water and heat pumps.

Going forward, conservation and wise energy use will gain increased importance to save members money and fulfill our mission to enhance the quality of life and provide premier service.

Energy Services
East Central Energy offers a variety of energy-saving programs to help members conserve both money and natural resources. The ENERGY STAR® rebate program allows members to receive a rebate on standard appliances that use less energy. ECE also offered four Super Saver Saturdays in 2005. These EnergyWise® workshops featured presentations by energy experts, as well as exhibits about various energy issues.

Renewable power choices, such as wind power and biomass energy, are available to ECE members. The wind power and cow power subscription program allows members to support renewable energy production by buying blocks of renewable energy each month. Members are encouraged to choose the amount of renewable blocks that is right for their personal budget and level of commitment.

Member and community commitment
East Central Energy's mission is to enhance the quality of life in its communities and provide premier service to its customers. The Caring Members® program has helped the elderly, disabled and families in need pay for their winter utility bills. ECE also maintains fundraising efforts, such as Operation Round Up®, in which members contributed nearly $70,000 in 2005 to various community causes and has contributed nearly $700,000 since its inception eight years ago. The Watt's Cookin' cookbook raised almost $9,000, which brings us within $5,000 of
our $24,000 goal in support of the Pignon, Haiti electrification project.

ECE's Youth Tour program committee selected Chris Hernick, Amy Arends and Anna Neis as its 2005 award recipients. Safety is always first at ECE and employees live up to that motto everyday. In a nationwide safety accreditation program in 2005, ECE scored 95 out of 100, an increase of 10 points since the last audit. The National Arbor Day Foundation named East Central Energy a Tree Line USA utility in 2005. The award recognizes ECE for its quality tree care program, annual worker training in quality tree care practices and tree planting and public education programs. In the Green Touch program, ECE members and employees helped clean up state parks in both Minnesota and Wisconsin.

East Central Energy sponsors Arrowhead Alpine Club youth event at
Mont du Lac Snowsports, Superior, Wisconsin.

Reliability Investments
Investment minimizes service interruptions.
During 2005 East Central Energy invested more than $13.5 million in system upgrades to assure reliable and safe electric energy for members. With more than 7,900 total miles of power lines, ECE continually upgrades poles, lines and substations. Your co-op also invested $3.5 million in 2005 to clear and control right-of-way vegetation.

New technologies offer more cost-effective energy.
Great River Energy's power plant at Coal Creek Station, where most of ECE's electricity is produced, continues to discover more ways to use energy cleanly and efficiently.

Innovations include:

• Blue Flint Ethanol Plant to capture waste heat from the coal-fired generators
• A new coal drying process to increase the efficiency of coal
• Clear diesel fuel extracted from coal
• Fly ash sold to the concrete industry, transformed a costly waste product into a marketable resource

Additionally, Great River Energy is building a gas-fired peaking plant near Cambridge, Minn. to supplement power needed during periods of peak electrical power use.

Customer Service

Great service - guaranteed means that East Central Energy promises members high quality services. ECE is so serious about this commitment that in 2003 we began our formal service guarantee program. We promise to provide great service, and if we fail, we give our members monetary credit on their bill.

Customer service continues to improve - guaranteed. Our attention to quality service is illustrated in the numbers. We strive to achieve 100 percent, and we'll strive to continue with our 99 + percent performance. In 2005, East Central Energy employees handled nearly 22,000 work orders and service inquiries with only 51 payouts on our guarantees.

Answers to power concerns: At ECE, Great service - guaranteed also means that we try to answer all member concerns. ECE employees are available to respond to member concerns about low voltage, neutral-to-earth voltage, electric and magnetic fields, and power quality. If you have a concern, please call, toll-free, 1-800-254-7944.

Great Service Creates Financial Strength

Energizes Operations

East Central Energy's Mission
"To enhace the quality of life and provide premier service to our customers."

"A service system as this has not just happened. It has been built on sound business principles, comprehensive planning, strategic action and unrelenting determination to provide our membership with the best service possible at the lowest possible cost for area coverage.We, as members, have the obligation to protect and look with pride to our member-owned organization. Many problems are yet to be solved, obstacles overcome, and goals reached. Continuance of action, principle and forethought will enhance and ensure our Association's existence to continue to serve the needs of our membership with determination and steady irresistible drive."
--From the "Forward" East Central Electric Association's 25th Anniversary annual report, published in 1961


Great Service ... Our Legacy

East Central Energy celebrates its 70th year of serving members. Our history is as rich as our commitment is deep.We began as a mere idea and grew into the third largest electric cooperative in Minnesota.

It all began in 1935 when the Rural Electrification Administration (REA) was formed to begin bringing electric power to the un-served rural areas of the nation. Electric cooperatives, with member ownership, were the only way to get the needed power to the less-populated areas. Investor-owned utilities found it unprofitable to serve anything but the more densely populated cities.

East Central Energy was the first electrical cooperative established in Minnesota. A series of mergers has expanded our service territory from infancy in 1936 to more than 55,700 customers and nearly 8,000 miles of electric lines in 2005.

The recent decade was very busy. ECE became a Touchstone Energy Partner in 1997 and construction of our $2.4 million customer service response center addition to the Braham headquarters was begun in 1998. East Central Electric, which had merged with North Pine Electric Cooperative in 1995, became East Central Energy in 1999. In 2002, members of ECE and Head of the Lakes Electric Cooperative voted their approval to merge.

Great Service ... Our Commitment
Our five service guarantees make promises that few are willing to offer. Here are our guarantees with credits that will be issued if we fail to meet our promise:

1. Billing questions will be handled within three days - or a $10 credit will be given.
2. Appointments will be kept - or you receive a $25 credit.
3. Security light repairs will be made within three days - or a $7 credit will be given.
4. Electric meter problems will be investigated within seven business days - or $10 will be credited.
5. An existing service will be connected within 24 hours - or $25 will be credited to the account.