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Good Morning! I would like to welcome the Members of the Alcorn County Electric Power Association to the 73rd Annual Meeting of their electric cooperative. It is my honor as the General Manager of your cooperative to report on the State of the Association and I am proud to report that the State of your Association is in excellent condition. This past fiscal year has truly made a 180 degree turn from the report I presented to you last year. No hurricanes, a rate decrease, and the report that Toyota was going to locate in Northeast Mississippi have given us all a feeling of optimism for our future. We are still dealing with many important topics that require immediate attention including volatile markets, a deficiency in generation, possible global climate change, and a growing demand for electrical energy. During this past year NRECA, TVA and TVPPA along with all the power distributors, including ACE, have formulated plans to keep the electrical industry successful and hopefully keep our rates reasonable. The nationwide plan for the success of our electric utility industry, led by NRECA, again begins in Washington D.C. where we must once again lobby the Congress. This time we are not lobbying concerning deregulation, but for a reasonable balance on the climate change issue. The focus in Congress is not on whether climate change is a problem, but what to do about it and when. As the Congress moves aggressively on legislation to curb green house gases, primarily carbon dioxide, legislators can't ignore the reality of energy supply and demand. We must convince them that the reality is that the surplus generating capacity that was built up over the years has now run out. This fact is true in the Tennessee Valley as well as the rest of the country. It is anticipated that in the next 10 to 15 years we will need to increase the generating capacity by 50 percent to meet the projected growth in coop service areas. Congress' answer to this crisis is renewable energy, but we believe it will take a combination of clean coal, renewables, combined cycle natural gas, energy efficiency programs, and nuclear energy. Coal is the most plentiful and affordable source of fuel today. But the clean coal technologies that we will be required to implement to reduce carbon dioxide emissions will be extremely expensive. The southeastern section of the United States is regretfully lacking in any viable, cost effective forms of renewable energy with the exception of water power. Nuclear energy is a clean and viable alternative to our dilemma, but its initial costs are tremendous. We have to convince Congress that there is no quick-fix solution of realistic possibilities to reduce carbon dioxide emissions. To get our point across we have to do a lot of straight talk and consistent lobbying to convince Congress to recognize the process will be neither easy nor cheap. We have to convince them that our duty is to first keep the lights on and second, to keep rate increases to a minimum and third, man-made carbon dioxide emissions do not only come from generating plants but from all sectors of the economy. We will support good legislation that will balance the electric bills of the consumers, the health of the economy, and the needs of the environment. On a regional basis the TVA Board led by CEO Tom Kilgore has set some lofty goals and is moving steadily toward these. The first was to get Browns Ferry I (1150MW) on line thus becoming the first nuclear unit in the United States to go on line in the past 20 years. Other parts of the TVA Board's Strategic Plan has possible plans for construction of new nuclear units at Watt Bar and at Bellafonte along with upgrades to a number of their coal plants to clean coal technologies, and a continued investment in Green Power initiatives.

In order for TVA to meet their immediate deficiency of approximately 3000 MW, they have been pursuing an addition to their generation fleet with the purchase of some combined cycle natural gas power plants. The TVA Board, in an unprecedented move, has proposed a joint venture with TVPPA for the distributors to be joint owners of some of these plants. This exciting new adventure began with TVPPA forming a Generation Cooperative and the Board of Directors of Alcorn County saw this venture as a way to: Help relieve the serious gap in TVA capacity Help control TVA's debt ceiling Give ACE a voice in asset planning and equity in valley assets Provide a hedge against privatization of TVA assets Keep rates low, maintain reliability, and closer tie TVA and Distributors; and Since the original Board of Alcorn County Electric Power Association had the foresight to organize and become the first electric cooperative in America and the first cooperative to become a TVA Distributor, the current Board of Directors of ACE wished to continue this progressive attitude by becoming the first TVPPA Member to join the TVPPA Generation Cooperative which is now known as Seven States Power Corporation and as your General Manager, I have been elected to serve on its first board of directors. This venture lends further evidence to the dedication of ACE's Board of Director's commitment for ACE to always be a leader and to continually be at the cutting edge of technology. Thus, the Board of Directors Resolution authorizing Alcorn County Electric Power Association to join the newly formed TVPPA Generation Cooperative on March 14, 2007, now becomes another infamous date in the history of America's First Rural Electric Cooperative. The Board of Directors and Management of Alcorn County Electric Power Association did not rest its laurels only on the Seven States Power Corporation initiative, but continues to set other strategic goals and plans for the Association. At the last board meeting of this fiscal year they approved for ACE to install a state of the art automated meter infrastructure (AMI) System developed by Hunt Technologies. This system called the TS2 system, the industry's most powerful and flexible two-way power line carrier (PLC) solution, will require the replacement of all the meters on ACE's system. This new metering initiative will provide us with endless powerful, flexible and accurate possibilities for our two-way AMI solutions for all of our members. For approximately the last eight years ACE has utilized an automated meter reading (AMR) system purchased from Hunt Technologies. This system has provided us with accurate meter reading for 4,000 of our most rural consumers. This venture proved to us that this type of technology worked and now a new generation named the TS2 System, has been developed that will not only read meters, but will communicate untold amounts of data to the ACE office. This stream of data coming constantly from each meter to the ACE office will for the first time in ACE's history allow ACE to communicate remotely with each of our meters. From meter readings, to remote connects and disconnects, to outage and restoration detection, to customer service assistance, to tamper and theft protection, and vast additional requested information; ACE will be at the cutting edge of a technology which will provide the consumer and the Association with a cost savings mechanism for our Association's future. In addition to these major decisions that your board and management were faced and struggled with during this past fiscal year, I would be amiss if I didn't report to you on the excellent and productive jobs that all of the Association's departments accomplished during this past year.

In ACE's accounting department one will find a group of women and men who have the patience and dedication to deal personally with each member of this Association. I know that from time to time the answers that our customer service personnel and cashiers have to relate to our members are not the exact answer the member wants to hear, but I can promise to you that our employees will continue to listen to members complaints and attempt to provide all members with the information and documentation that formed the basis for their response. It takes a special talent to deal with the public and I believe ACE has been blessed with some talented individuals to perform these tasks for your Association. The Accounting Department's Management was faced with its normal heavy workload during this past year in dealing with our $53 million plus business which was fine-toothed audited by TVA, the State of Mississippi, an independent auditing firm, and the Securities and Exchange Commission. All audits found your Association to be using sound financial procedures in compliance with approved accounting standards. The financial books of Alcorn County Electric Power Association revealed that for the past fiscal year the Association collected $47,892,251 in revenue and TVA billed ACE $37,037,841 in power cost, this revenue less power cost left ACE $10,854,410 which was reinvested in ACE's system. Anyone who has made any trips along Shiloh Road or other areas just on the outskirts of downtown Corinth can readily see where the Operating and Engineering Departments have invested a tremendous amount of the revenue less power costs funds. These two projects have been works in progress for a considerable amount of time and they are both ones that will greatly enhance the electrical utility infrastructure of ACE. The Shiloh Road project was part of a project to construct a 795 MCM ACSR tie line between Corinth District Substation located on Cox Street near the old Federal Compress and Northeast Corinth Substation located on Kendrick Road near the Corinth-Counce Railroad yard. The completion of this project this spring, now provides ACE with a strong tie line between two of our major substations. This important line can now be utilized to provide reliable service to the heavily loaded North Corinth area during emergency situations. As I previously mentioned, ACE's Operating and Engineering Departments are also involved in a massive reconstruction project in the areas of Corinth that immediately bound downtown Corinth. This project is a continuation of the downtown Corinth reconstruction project that our crews completed a couple of years ago. This project has been a slow, expensive, yet rewarding experience. We are not just creating a stronger infrastructure with this project, but we are also doing necessary maintenance on the section of Alcorn County Electric Power Association's system that was part of the first facilities that ACE took possession of 73 years ago. The ultimate goal of this project is that when we have all of these circuits reconstructed, we will be able to convert our 4 KV system to a 13 KV system thus reducing our line losses to help pay back the cost of this needed project. In ACE's ongoing substation maintenance and upgrade project, we have completed renovation to our Glen Substation during this past year. This upgrade was complete in time to provide adequate service to the new Kingsford Plant and increase reliability to eastern areas of Alcorn County. Alcorn County Electric Power Association's Engineering and Operating Departments not only dedicated their time and energy to these aforementioned large projects during this past year, but they continued to meet their responsibilities of providing safe and reliable electric service to all new and existing members of the Association. ACE's Engineering and Operating work force is truly blessed to have such an experienced and dedicated group of men and women to meet our obligations of service to this community.

Lastly, our Marketing Department has devoted its time this year to telling Alcorn County Electric Power Association's story of our commitment to the people of Alcorn County. Whether it be over our website, meetings, media, or personal visits and phone calls; these employees have worked to help our members use the electric service we provide in the most efficient and safest ways possible. As I mentioned earlier in my report, energy efficiency programs are going to be one of the necessary vehicles for our country to utilize in meeting the growing demands of electricity and to hopefully help curb the climate change issue. My report on the State of your Association has revealed its excellent condition along with the many varied challenges facing ACE, TVA and our country's electric utility industry as well as the plans for our future. Rest assured, because all of these issues are not problems. They are only opportunities due to the fact we are blessed with the knowledge of those who have gone before us. ACE's true plan for success really began over 73 years ago when an insightful group of men in Corinth, Mississippi took a chance and decided that they needed to be at the cutting edge of technology. Thus became the birth of Alcorn County Electric Power Association and the birth of the Rural Electric Cooperatives in the United States of America. Respectfully submitted,

James D. Nanney, Jr.

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