Washington-St. Tammany Electric Cooperative, Inc ......Total utility plant, net 150,925.903 144.250.976 Investments and Other Assets Associated organizations 4.523.596 4.306.034 Current

Washington-St. Tammany Electric Cooperative, Inc.

Franklinton, Louisiana December 31, 2011

Table of Contents

Independent Auditor's Report Page 3

Financial Statements Balance Sheets Page 4 Statements of Operations Page 5 Statements of Changes in Patronage Capital Page 6 Statements of Cash Flows Page 7 Notes to Financial Statements Page 8

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Page 17

Schedule of Findings and Questioned Costs Page 19 Schedule of Prior Year Findings and Questioned Costs Page 20

HAWTHORN, WAYMOUTH & CARROLL, L.L.P.

LOUIS c. MCKNIGHT, HI, C.P.A. CHARLES R. PEVEY, JR., C,P.A. DAVID J. BRDUSSARD, C.P.A, NEAL D. KING, C.P.A. KARIN S. LEJEUNE, C.P.A.

ALYCE s. SCHMITT, CPA. CERTIFIED PUBLIC ACCOUNTANTS

8555 UNITED PLAZA BLVD., SUITE 2D0 BATON ROUGE, LOUISIANA 70B09

(225) 923-3000 • FAX (225) 923-300B

May 7, 2012

Independent Auditor's Report

The Officers and Board of Directors Washington-St. Tammany Electric Cooperative, Inc. Franklinton, Louisiana

We have audited the accompanying balance sheets of

Washington-St. Tammany Electric Cooperative, Inc. (A Non-Profit Organization)

Franklinton, Louisiana

as of December 31, 2011 and 2010, and the related statements of operations, changes in patronage capital, and cash flows for the years then ended. These financial statements are the responsibility of the Cooperative's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Washington-St. Tammany Electric Cooperative, Inc. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated May 7, 2012, on our consideration of the Cooperative's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

Yours truly.

Washington-St. Tammany Electric Cooperative, Inc. Balance Sheets

December 31, 2011 and 2010

Assets 2011 2010

Utility Plant — Electric plant in service $186,547,500 $165,779,613 Construction work in progress 9.184.240 22.048.237

195,731,740 187,827,850 Accumulated depreciation Y44.805.8371 143.576.8741

Total utility plant, net 150,925.903 144.250.976

Investments and Other Assets Associated organizations 4.523.596 4.306.034

Current assets Cash and cash equivalents 114,199 45,763 Consumer accounts receivable,

net of allowance for doubtful accounts of $387,479 in 2011 and $328,330 in 2010 4,446,734 5,280,900

Consumer accounts receivable - unbilled 3,102,836 3,054,815 FEMA receivable, net of allowance for unallowed

costs of $911,547 in 2011 and 2010 1,712,337 1,712,337 Other receivables 78,991 586,025 Materials and supplies 1,439,478 1,463,053 Prepaid expenses 686.585 601.911

Total current assets 11.581.160 12.744.804

Deferred Charges 15.280.770 17.244.354

Total assets 182.311.429 178.546.168 -

The accompanying notes are an integral part of these statements.

4

Liabilities and Equities 2011 2010

Equities Memberships $394,605 $393,900 Patronage capital 27.639.178 27.019.518

Total equities 28.033.783 27.413.418

Long-Term Debt, Net of current maturities 113.886.476 89.490.961

Current Liabilities Managed overdraft 1,060,490 Line of credit 6,000,000 28,385,429 Current portion of long-term debt 5,488,780 5,002,483 Accounts payable 8,459,455 7,373,617 Customer deposits 4,945,282 4,799,770 Accrued interest 215,752 393,760 Other accrued expenses 151.555 110.532

Total current liabilities 26.321.314 46.065.591

Deferred Credits Vacation and sick pay 2,956,256 2,798,698 Accrued post-retirement benefits 11.113.600 12.777.500

Total deferred credits 14.069.856 15.576.198

Total liabilities and equities 182.311.429 178.546.168

Washington-St. Tammany Electric Cooperative, Inc. Statements of Operations

Years Ended December 31, 2011 and 2010


5

2011 2010

Operating Revenue $80,517,330 $82,676,552

Operating Expenses Cost of power 49,078,992 49,453,901 Distribution - operations 5,554,537 4,615,496 Distribution - maintenance 9,476,037 6,766,497 Consumer accounts 2,961,371 3,116,248 Administrative and general 1,973,913 1,807,323 Depreciation and amortization 5,044,737 4,737,502

— Taxes 223.716 229.388 74.313.303 70.726.355

- Operating margins before fixed charges 6.204.027 11.950.197

Fixed Charges Interest on long-term debt 5,690,403 5,724,824 Other interest 293.914 470.166

5.984.317 6.194.990

— Operating margins after fixed charges 219,710 5,755,207

Capital Credits 488.900 387.365

Net Operating Margins 708,610 6,142,572

Nonoperating Margins Interest income 61.414 62.328

Net Margins 770.024 6.204.900

Washington-St. Tammany Electric Cooperative, Inc. Statements of Changes in Patronage Capital Years Ended December 31,2011 and 2010

2011 2010

Patronage Capital, beginning of year $27,019,518 $20,921,325

Net margins 770,024 6,204,900

Retirement of capital credits (150.364') (106.707')

Patronage Capital, end of year 27.639.178 27.019.518


6

Washington-St. Tammany Electric Cooperative, Inc. Statements of Cash Flows

Years Ended December 31, 2011 and 2010

Cash Flows From Operating Activities Net margins Adjustments to reconcile net margins to net cash

provided by operating activities Depreciation Amortization of deferred debits Capital credits received from associated organizations (Increase) decrease in consumer accounts receivable (Increase) decrease in other receivables (Increase) decrease in materials and supplies (Increase) decrease in prepaid expenses (Increase) decrease in deferred charges Increase (decrease) in accounts payable Increase (decrease) in accrued interest Increase (decrease) in other accrued expenses Increase in customer deposits Increase in vacation and sick pay

Net cash provided by operating activities

Cash Flows From Investing Activities Additions to utility plant, net Proceeds received on capital credits

Net cash used in investing activities

Cash Flows From Financing Activities Managed overdraft Net proceeds or payments on memberships Net change in line of credit Retirement of capital credits on deceased estates Proceeds from long-term debt Payments on long-term debt

Net cash provided by financing activities

Net Increase (Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents, begiiming of year

Cash and Cash Equivalents, end of year

Supplemental Schedule of Noncash Investing and Financing Activities Increase (Decrease) in accrued post-retirement benefits, deferred

in accordance with the regulated operations topic of the FASB - Accounting Standards Codification

Supplemental Disclosure of Cash Flow Information Cash paid during the year for;

Interest

2011 2010

$770,024 $6,204,900

5,044,737 248,234 (473,333) 786,145 507,034 23,575

(84,674) 51,450

1,085,838 (178,008)

41,023 145,512 157.558

4,737,502 230,478 (383,937) (402,266) (132,253)

57,811 (47,137) (39,569)

(1,405,858) 239,624 (138,469) 157,009 132.369

8.125.115 9.210.204

(11,719,664) (15,198,675) 255.771 200.215

(11.463.8931 (14.998.4601

1,060,490 705

(22,385,429) (150,364)

30,000,000 (5,118,188) 3.407.214

68,436

45.763

114.199

(14,640) 9,364,510 (106,707)

(4.801.701) 4.441.462

(1,346,794)

1.392.557

45.763

(1.663.9001 1.117.300

6.162.325 5.955.366


7

Washington-St. Tammany Electric Cooperative, Inc. Notes to Financial Statements

December 31,2011

Note 1-Organization and Summary of Significant Accounting Principles

A. Oreanization

Washington-St. Tammany Electric Cooperative, Inc. is an electric distribution cooperative. Its principal business activity is providing electric power to approximately 50,000 member-consumers in Southeast Louisiana and part of Mississippi. The Cooperative is subject to the jurisdiction of the Louisiana Public Service Commission (LPSC) regulations for rate-making.

B. Accounting and Records

The Cooperative maintains its records in accordance with RUS Bulletin 1767B-I, Uniform System of Accounts, prescribed for electric borrowers of the Rural Utilities Service.

C. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

D. Cash and Cash Equivalents

For purposes of the statement of cash flows, the Cooperative considers all highly liquid debt instruments purchased originally with a maturity of three months or less to be cash equivalents.

E. Accounts Receivable

The Cooperative uses the reserve method to account for uncollectible accounts. Accounts deemed uncollectible are written off against the reserve. Allowance for doubtful accounts is based on a percentage of revenue. The allowance is periodically reviewed and compared with past due accounts to insure the allowance is sufficient.

The Cooperative grants credit to its members. Payment terms are net 30 days with balance due in full. After 30 days, the accounts are considered past due. The Cooperative charges a 5% finance fee on all past due amounts.

P. Utility Plant

Utility plant is stated at original cost, net of contributions. Such cost includes applicable supervision and overhead costs. Expenditures for maintenance and repairs, which do not materially extend the life of assets, are included in operating expenses. Upon retirement or disposition, the recorded cost of depreciable plant and cost of removal, net of salvage, are charged to accumulated depreciation.

Depreciation is computed using straight-line composite rates based upon the estimated useful lives of the various classes of assets.


December 31, 2011

Note 1-Organization and Summary of Significant Accounting Principles (Continued)

G. Investments in Associated Organizations

Investments in capital term certificates and capital stock of associated organizations are stated at cost. Investments in patronage capital certificates of associated organizations are accounted for at cost plus allocated capital credits which are assigned to the Cooperative based on its patronage of the associated organization.

H. Amortization

The Cooperative amortizes various deferred debits using the straight-line method.

I. Income Taxes

The Cooperative is exempt from income taxes under Section 501 (c)(I2) of the Internal Revenue Code, since it receives more than 85% of its income from members.

The Cooperative has adopted the accounting guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. The Cooperative recognizes the effect of income tax positions only if the positions are more likely than not of being sustained. Recognized income tax positions are recorded at the largest amount that is greater than 50% likely of being realized. Changes in the recognition or measurement are reflected in the period in which the change in judgment occurs.

The Cooperation evaluated its position regarding the accounting for uncertain income tax positions and does not believe that it has any material uncertain tax positions. With few exceptions, the Cooperative is no longer subject to federal, state, or local tax examinations by tax authorities for years before December 31, 2008.

J. Revenue

The Cooperative accrues revenue related to energy consumed but not yet billed.

The Cooperative's rates include a power cost adjustment clause which enables the Cooperative to pass through to consumers all fuel and nonfuel power cost as approved monthly by the Louisiana Public Service Commission (LPSC). A fixed portion of the nonfuel component of the cost of power is included in the base rate with the remainder of the nonfuel power cost and fuel cost being recovered through the power cost adjustment.

K. Inventory

Inventory valuation is based on the average-cost method.

L. Advertising

Advertising costs are expensed as incurred. Advertising expense was $ 12,571 and $ 11,262 for the years ended December 31, 2011 and 2010, respectively.


December 31, 2011

Note 1-Organization and Summary of Significant Accounting Principles (Continued)

M. Impairment or Disposal of Long-Lived Assets

The Cooperative follows the provisions of the Impairment or Disposal of Long-Lived Assets topic of the FASB Accounting Standards Codification. The Impairment or Disposal of Long-Lived Assets topic requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeded the fair value of the assets. No such impairments were recognized during the years ended December 31, 2011 and 2010.

N. Reclassifications

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements.

Note 2-Utility Plant

Utility plant consisted of the following as of December 31, 2011 and 2010:

2011 2010

Distribution plant $158,956,464 $145,624,601 Transmission plant 18,392,474 11,104,566

_ General plant 9.198.562 9.050.446 186,547,500 165,779,613

Construction work in progress 9.184.240 22.048.237

— 195.731.740 187.827.850

Annual average composite rates of depreciation used by the Cooperative during 2011 — follows:

2011 2010

— Distribution plant 2% to 4.2% 2% to 4.2% Transmission plant 2.8% 2.8% General plant

~~ Structures and improvements 3% 3% Power operated equipment 15% 15% Transportation equipment 17% 17% Other 5% to 7.2% 5% to 7.2%

10


December 31,2011

Note 3-Investments in Associated Organizations

Investments in associated organizations consisted of the following as of December 31, 2011 and 2010:

2011 2010 Capital term certificates

National Rural Utilities Cooperative Finance Corporation $2,061,992 $2,077,559 Patronage capital certificates

National Rural Utilities Cooperative Finance Corporation 1,431,773 1,344,248 Other 907,801 831,822

Capital investments 122.030 52.405

4.523.596 4.306.034

Note 4-Deferred Charges

The following is a summary of amounts recorded as deferred charges as of December 31, 2011 and 2010:

2011 2010

Deferred interest $1,763,917 $1,984,971 Deferred post-retirement benefits 11,113,600 12,777,500 Unamortized conversion fee 181,199 208,379

M Regulatory assets - storm related 1,056,697 1,056,697 Regulatory asset - GIS,

net of amortization 1,133,082 1,107,363 Other 32.275 109.444

15.280.770 17.244.354

Deferred interest represents interest that was added back to the principal balances of debt from RUS and CFC. The deferred interest is accounted for in accordance with the Regulated Operations Topic of the FASB-Accounting Standards Codification, and the deferred cost will be amortized to expense when paid.

Deferred post retirement benefits are being accounted for in accordance with the Regulated Operations Topic of the FASB-Accounting Standards Codification. See Footnote 9 for information relating to the post-retirement benefit.

The Cooperative repriced its debt with the National Rural Utilities Cooperative Finance Corporation (NRUCFC) to lower its interest rates. The cost to reprice the debt is being amortized to expense over the repricing period. The total amount amortized was $27,180 for 2011 and 2010. Annual amortization expense over the next five years through December 31, 2016 is estimated to be $27,180 per year. Following is a summary:

11


December 31,2011

Note 4-Deferred Charges (Continued)

2011 2010

Original amount $460,292 $460,292 Accumulated amortization (279.093) (251.913)

Net book value 181.199 208.379

The regulatory asset consists of storm related expenses that were approved by the Public Service Commission which will be charged to members over a period of time.

The regulatory asset - GIS consists of expenses related to the Cooperative mapping out its utility plant. This asset is being amortized over twenty years. Amortization expense was $24,110 for the year ended December 31, 2011. There was no amortization in 2010 due to the survey being in progress. Annual amortization expense over the next five years through December 2016 is estimated to be $57,860 per year. Following is a summary:

2011 2010

Original amount $1,157,192 $1,107,363 Accumulated amortization (24.110)

Net book value 1.133.082 1.107.363

Note 5-Note Payable - Line of Credit

As of December 31, 2011, the Cooperative has $14,400,000 in two separate lines of credit with a financial institution of which $6,000,000 was drawn. Interest is variable at 3.20% at December 31, 2011. The lines of credit are secured by utility plant.

As of December 31, 2010, the Cooperative had $30,000,000 in two separate lines of credit with a financial institution of which $28,385,429 was drawn. Interest was variable at 3.67% at December 31,2010. The lines of credit are secured by utility plant.

Note 6-Long-Term Debt

Long-term debt as of December 31, 2011 and 2010 consisted of the following:

2011 2010 Rural Utilities Service (RUS) mortgage notes ranging from 4.43% to 4.68%, due in monthly and quarterly principal installments totaling approximately $2,000,000 per year. $35,734,726 $36,331,148

CFC 20-Year mortgage note at 5.9%, due in quarterly principal payments of approximately $300,000. 9.828.407 11.035.182

(Continued - amounts carried forward) 45,563,133 47,366,330

12


December 31, 2011

Note 6-Long-Term Debt (Continued) 2011 2010

(Continued - amounts brought forward) $45,563,133 $47,366,330 National Rural Utilities Cooperative Finance Cooperation (CFC) with a variable interest rate. At December 31, 2011 and 2009, the rates ranged from 2.90% to 4.65%, with quarterly principal installments of approximately $300,000. 15,479,586 16,656,774

CFC mortgage note with a variable rate of interest. At December 31, 2011 and 2010, interest was 3.20%, due in quarterly principal installments of approximately $50,000. 1,291,900 1,488,747

Federal Financing Bank loan with interest at 5.521%, due in quarterly principal installments of approximately $70,000. 12,277,821 12,606,351

Federal Financing Bank loan with interest at 2.858%, due in quarterly principal installments of approximately $200,000. 30,000,000

Conversion fees due to National Rural Utilities Cooperative Finance Corporation for repricing its debt in 2004, due in quarterly principal installments of approximately $6,795. 183,464 210,643

CoBank loan with interest at 4.61%, due in monthly and quarterly installments totaling approximately $1,600,000 per year through December 2028. 14.579.352 16.164.599

119,375,256 94,493,444 Less current maturities of long-term debt 5.488.780 5.002.483

Long-term debt, net of current maturities 113.886.476 89.490.961

All of the above notes are collateralized by the Cooperative's utility plant.

Annual maturities of long-term debt for the next five years are as follows:

Year Ending December 31,

2012 $5,488,780 2013 4,706,859 2014 4,567,179 2015 4,680,045 2016 4,451,321

RUS and CFC loan covenants require a 1.025 Times Interest Earned Ratio (TIER) and a 1.0 Debt Service Coverage (DSC). The Cooperative must meet these requirements in two out of the three most recent calendar years. The Cooperative met its TIER and DSC covenant requirements for the ye£ir ended December 31, 2011 and December 31, 2010.

CoBank loan covenants require total equity as a percentage of total assets to be 12.00% or greater, a debt service coverage ratio of 1.20 to 1.0, and a total debt to EBITDA ratio of less than 11.0. The Cooperative was in compliance with these loan covenants for the year ended December 31, 2011.

13


December 31,2011

Note 7-Fair Value of Financial Instruments

The Financial Instruments Topic of the FASB Accounting Standards Codification requires disclosure of fair value information about certain financial instruments, whether or not recognized on the balance sheet. Where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In addition, the Financial Instruments Topic of the FASB Accounting Standards Codification excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Therefore, the aggregate fair value amounts presented do not purport to represent and should not he considered representative of the underlying "market" or franchise value of the Cooperative.

The methods and assumptions used to estimate the fair values of each class of the financial instruments are described as follows.

Cash and Cash Equivalents

The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value.

Investments in Associated Organizations

The investments in associated organizations are accounted for at cost. These investments are in non-publicly traded companies which have no quoted market prices; therefore, a reasonable estimate of fair value could not be made.

Long-Term and Short-Term Debt

The carrying amounts of the Cooperative's borrowings under its short-term debt arrangements approximate their fair values. The fair values of the Cooperative's long-term debt have been based upon market quotations for similar debt instruments or estimated using discounted cash flow analyses based upon the Cooperative's current incremental borrowing rates for similar types of borrowing arrangements.

The estimated fair value of the Cooperative's financial instruments are as follows:

2011 2010 Carrying Fair Carrying Fair Amount Value Amount Value

Cash and cash equivalents $114,199 $114,199 $45,763 $45,763 Investment in associated

organizations 4,523,596 4,523,596 4,306,034 4,306,034 Long-term and short-term debt 125,375,256 139,166,534 122,878,873 136,395,549

Note 8-Pension Plan

The Cooperative has a Defined Contribution Plan available to all employees which provides for matching contributions at specified percentages of compensation. Employer contributions to the Plan for the years ended December 31, 2011 and 2010 amounted to $446,560 and $422,326, respectively.

14


December 31, 2011

Note 9-Post-Retirement Benefits Other Than Pensions

The Cooperative continues to fund benefit costs principally on a pay-as-you-go basis. The benefit provided by the Cooperative is certain health insurance coverage for retired employees. Substantially, all of the Cooperative's employees may become eligible for these benefits if they reach normal retirement age while working for the Cooperative. Such benefits are provided through an insurance company whose premiums are based on the benefits paid during the year. The total premiums paid were $250,363 and $137,236 for 2011 for 2010.

The following is summary information on the Cooperative's plan.

Accumulated post-retirement benefit obligation as of December 31, 2011 and 2010:

2011 2010

Retirees and dependents $2,262,800 $2,589,900 Fully eligible active plan participants 778,000 1,385,600 Active plan participants not yet eligible 8.072.800 8.802.000

Accrued post-retirement benefit cost njJ3j6TO 12.777.500

The components of net periodic post-retirement benefit cost are as follows:

Service costs benefits attributed to employee service during the year 680,700 514,600 Interest cost on accumulated post-retirement benefit obligation 776,100 599,500 Amortization of actuarial net loss 2.601.600 208.400

Net periodic post-retirement benefit cost 4.058.400 1.322.500

The discount rate used in determining the APBO was 5.15% and 5.25% for 2011 and 2010. The assumed health care cost trend rate used in measuring the accumulated post-retirement benefit obligation was 9.0% for medical, 9.0% for drugs, and 5.0% for dental in 2011 and 2010, and continues at rates ranging from 9.0% to 5.0% per year thereafter. The accumulated post-retirement benefit obligation as of December 31, 2011 and 2010 was $11,113,600 and $12,777,500 respectively.

The Cooperative expects to contribute approximately $150,000 to the plan in 2012. Benefits expected to be paid in each of the next five years, and in the aggregate for the next five years thereafter, are approximately as follows:

2012 $145,900 2013 160,700 2014 174,600 2015 205,100 2016 262,000

Aggregate for the five years thereafter 1,926,100

15


December 31, 2011

Note 10-Patronage Capital

At December 31, 2011 and 2010, patronage capital consisted of:

2011 2010

Prior year margins assignable $6,260,429 Prior year non-operating margins ($16,632,483) (17,082,180) Patronage capital assigned 43,501,637 31,636,370 Current year operating margins 219,710 5,755,206 Current year non-operating margins 550.314 449.693

27.639.178 27.019.518

Under the provisions of the Mortgage Agreement, until the equities and margins equal or exceed forty percent of the total assets of the Cooperative, the return to patrons of contributed capital is generally limited to twenty-five percent of the patronage capital or margins received by the Cooperative in the prior calendar year.

Note 11-Commitments and Contingencies

The Cooperative is committed under a wholesale power agreement to purchase all of its electric power and energy requirements from Louisiana Generating, L.L.C., and Southwestern Power Administration through March 31,2014. The Cooperative has assigned its receivables to Louisiana Generating, L.L.C. as security for its contractual obligations.

The Cooperative is a litigant in several lawsuits. Management, on the advice of legal counsel, believes that such proceedings and contingencies will not have a material effect on the Cooperative. The ultimate outcome of these matters cannot presently be determined and no provision for any liability or asset that may result from the claims has been made in the financial statements.

Note 12-Concentration of Credit Risk

The Cooperative's future operating results may be affected by a number of factors. The Cooperative is dependent upon a number of major suppliers and contractors. If a supplier or contractor had operational problems or ceased making materials available or providing services to the Cooperative, operations could be adversely affected.

The Cooperative has over $16,771,000 in debt at variable interest rates. A significant change in interest rates could adversely affect the Cooperative.

Note 13-Subsequent Events

The Cooperative evaluated all subsequent events through May 7,2012, the date the financial statements were available to be issued.

16.

HAWTHORN, WAYMOUTH & CARROLL, L.L.P.

LOUIS c. MCKNIGHT, III, C.P.A. CHARLES R. PEVEY, JR., C,P.A, DAVID J. BRDUSSARD, C.P.A. NEAL 0. KING, C.P.A. KARIN S. LEJEUNE, C.P.A. ALYCE S. SCHMITT, C.P.A.

CERTIFIED PUBLIC ACCOUNTANTS 8555 UNITED PLAZA BLVD., SUITE 200

BATON ROUGE, LOUISIANA 70B09 (225) 923-3000 • FAX (225) 923-300B

May 7, 2012

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements

Performed In Accordance With Government Auditing Standards

The Officers and Board of Directors Washington-St. Tammany Electric Cooperative, Inc. Franklinton, Louisiana

Officers and Members of the Board:

We have audited the financial statements of Washington-St. Tammany Electric Cooperative, Inc. as of and for the year ended December 31,2011, and have issued our report thereon dated May 7,2012. We conducted our audit in accordance with auditing standards generally accepted in the LFnited States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered Washington-St. Tammany Electric Cooperative, Inc.'s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Organization's internal control over financial reporting.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis..

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.

17

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Washington-St. Tammany Electric Cooperative, Inc.'s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

This report is intended solely for the information and use of Washington-St. Tammany Electric Cooperative, Inc. 's management and Board of Directors, others within the organization, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Yours truly.

18

Washington-St. Tammany Electric Cooperative, Inc. Schedule of Current Year Findings and Questioned Costs

Year Ended December 31, 2011

Findings - Financial Statement Audit

None.

19

Washington-St. Tammany Electric Cooperative, Inc. Schedule of Prior Year Findings and Questioned Costs

Year Ended December 31, 2011

Findings - Financial Statement Audit

None.

20

Documents

Washington-St. Tammany Electric Cooperative, Inc ......Total utility plant, net 150,925.903 144.250.976 Investments and Other Assets Associated organizations 4.523.596 4.306.034 Current