Northwestern Electric Cooperative Inc

“The cooperative was formed by the members to provide electric service at cost on a cooperative basis.”

“The members of the cooperative vote on the board of trustees. Elections are done on a one member one vote basis.”

“The following acts require approval of the members of the cooperative: 1. Dissolution/liquidation of the cooperative 2. Merger or consolidation of the cooperative with another organization 3. Disposal of a substantial portion of the cooperative's assets 4. Amendments to the articles of incorporation 5. Amendments to the bylaws”

“The cooperative has no committees with authority to act on behalf of the governing body. Therefore, and pursuant to form 990 instructions, the question has been answered "no".”

“Management presented a copy of the form 990 to the board for discussion and approval prior to filing. The discussion and review was performed at the board meeting immediately before filing the form 990.”

“The board of trustees and officers are required to review and be familiar with the policies outlined in the cooperative's conflict of interest policy. The board of trustees and officers are required to disclose any action or situation that might violate the policy to the full board of trustees as soon as possible. The conflict of interest policy is reviewed and redistributed to each employee, officer, and director at least annually.”

“The board of trustees use a compensation survey when determining the compensation of the ceo. The survey shows comparative salaries for ceos from similarly situated cooperatives located in oklahoma and the nation. Other than the ceo, the cooperative did not have any employees meeting the definition of officer or key employee. Therefore, and pursuant to form 990 instructions, line 15b has been answered "no".”

“The cooperative will provide a complete copy of its governing documents, external policies, and audited financial statements to any member who requests a copy of any such document. Annually, the cooperative provides the year end balance sheet and income statement to the members of the cooperative with the annual meeting notice and annual report. Additionally, an operating report which summarizes various financial statistics is published in and distributed to the members via monthly newsletter. The cooperative's bylaws are also made available on the cooperative's website.”

“The board of trustees considers the ceo to be both the top management official and the top financial official. Therefore, only the ceo is listed as an employee officer.”

“In order to provide retirement benefits to its employees, the cooperative has established a defined contribution plan under section 401(k) of the internal revenue code. Employer contributions to the plan are made pursuant to the plan document. Additionally, the cooperative participates in a multi-employer defined benefit plan. Contributions to this plan are based on the full funding limitation of such plan. Employer contributions for both plans are available to participating employees, including officers and highly compensated employees, meeting the eligibility requirements of such plans. The cooperative also provides health, dental and life insurance to all eligible employees through a qualified plan. The amounts reported on part vii, column (f) for the officer and highly compensated employees is comprised of actuarial increase in the defined benefit plan, the total amount contributed by the cooperative to the defined contribution plan and insurance paid on behalf of and for their benefit. In addition to the above benefit plans, the cooperative also provides post-retirement health insurance benefits through an unfunded welfare benefit plan. The value of these benefits has not been estimated.”

“Patronage dividends result from the purchase of wholesale power from a generation & transmission cooperative. Patronage dividends also result from the payment of interest from cooperative banks and the purchase of supplies and services from other cooperative organizations. The expenses associated with purchases from and payments to such cooperative organizations are a direct component of cost of the electric service provided by the organization to its members.”

“The cooperative fulfills its mission and exempt purpose by operating according to its member approved bylaws and board approved operating policies. The board and management strive to adhere to these documents in a fair and equitable manner for members, employees, and trustees.”

“For each year there is a net margin from the sale of electric energy to its members, the cooperative operates at cost by equitably allocating the net margins among the members pro rata on the basis of patronage. The pro rata allocation of the margins is then contributed by each member as capital to the cooperative in the form of a credit to an individual patronage capital account. The process of allocating the net margins to the members with a subsequent contribution by the members as capital to the cooperative is referred to under the federal tax law as a patronage dividend and is considered paid at the time of the allocation. For the 2017 calendar year, the cooperative incurred a net loss of $702,728 (part i, line 19) as a result of weather related events. In order to operate at cost with respect to this loss, the board of directors, through the bylaws of the cooperative, approved recovering the loss as a reduction of future patronage dividends. For the 2018 calendar year, the cooperative recognized an overall net margin from the sale of electric energy to its members in the amount of $1,846,061. Prior to the issuance of patronage dividends, this net margin is first offset and reduced by prior year net loss of $702,728 for a 2018 patronage dividend in the amount of $1,143,263. As noted in the preceding paragraph, this offset is pursuant to action taken by the board of directors in accordance with the cooperative's bylaws. It is the process by which the cooperative is operating at cost with respect the loss. In accordance with form 990 instructions, the cooperative reported the patronage dividend of $1,143,263 as an expense on part i, line 14 and part ix, line 4 "benefits paid to members". The impact of reporting the patronage dividends as an expense is to reduce the net book margins of $1,846,061 by a corresponding amount. Therefore, part i, line 19 "revenue less expenses" is $702,798, which is the approximate amount of the 2017 net loss recovered through the 2018 patronage dividend. The net loss reported on part i, line 19 for 2017 and the net income on part i, line 19 for 2018 illustrate that the cooperative has fully recovered the 2017 net loss and has, therefore, operated at cost with respect to the provision of electric energy for the loss year.”

“The accounting records of the cooperative are maintained in accordance with the rural utilities service (rus) uniform system of accounts (usoa) as prescribed rus electric borrowers. The usoa does not record expenses in the general expense categories provided on part ix lines 1 - 23. The cooperative separately reports salaries and wages, employee benefits and payroll taxes that are allocated in accordance with their accounting system, but other expenses that are described in lines 1 - 23 are reported on line 24 under the expense categories required by the usoa.”

“All grants, donations, and/or scholarships are made to non-profit, civic organizations, and individuals that are located in the cooperative's service area. All donations are intended to improve the communities in which our members reside. Each grant, donation, and/or scholarship made during the year was below the reporting threshold of schedule i, parts ii & iii.”

“Pursuant to the form 990 instructions, the amount of patronage dividends paid to the members (hereinafter referred to as "patrons") should be reported on part ix, line 4. The phrase "patronage dividends paid" refers to the process, subsequent to year-end, by which the cooperative allocates patronage capital to and, therefore, operates at cost with its patrons. The cooperative's tax exempt purpose is to provide electricity to its patrons and to do so on a cooperative basis. Tax law defines "operating on a cooperative basis" as subordination of capital, democratic control, and operation at cost. The cooperative operates at cost through the allocation of true patronage dividends (also referred to as allocations of patronage capital) to its patrons. Patronage dividends are considered paid if the allocation is made (1) pursuant to a pre-existing obligation, (2) from the margins produced from the transactions done with or for patrons, and (3) in a fair and equitable manner on the basis of patronage (i.e. Purchases). Additionally, the allocation of patronage dividends should be made within a reasonable time period after the close of the cooperative's year-end of december 31. Each one of these requirements for a true patronage dividend is provided for in the non-profit operation article of the cooperative's bylaws. The amount reported on part ix, line 4 represents the amount of patronage capital that is either allocated or to be allocated to the patrons resulting from their purchase of electricity from the cooperative for the 2018 calendar year. Because patronage dividends are the process by which the cooperative operates at cost with its patrons and thereby a key component to accomplishing its exempt purpose, the cooperative has reported such amounts as an expense for form 990 reporting. Patronage dividends are not an expense for financial statements prepared in accordance with generally accepted accounting principles, however.”

“Salaries and wages are allocated to asset, liability, and expense accounts based on the accounting system described above. The following schedule reconciles amounts reported on lines 5-7 to total wages accrued and/or paid: total per lines 5-7 $ 3,632,262 less: trustee fees reported on forms 1099-misc (180,035) less: employee officer benefits included in line 5 (136,032) plus: salaries and wages capitalized directly to plant 876,538 plus: salaries and wages capitalized/expensed indirectly through clearing and other accounts 78,018 total wages accrued and/or paid $ 4,270,751”

“Administrative & general expense is comprised of the following: administrative & general $ 1,105,667 office supplies 271,266 outside services 213,958 employees 123,819 insurances 93,361 dues 104,228 donations 15,769 annual & district meetings 74,806 miscellaneous general 29,755 maintenance of general plant 22,407 total admin & general exp per financial statements $ 2,289,095 less: reclass of donations to part ix, line 1 (15,770) less: reclass of trustees fees to part ix, line 5 (180,035) less: reclass of labor to part ix, lines 5 & 7 (696,202) less: reclass of benefits to part ix, lines 8-10 (420,165) total admin & general expense per form 990, part ix $ 976,923”

“Patronage capital allocated or to be allocated 1,143,263. Patronage capital retired - total -1,334,658. Patronage capital retired - discount 44,013. Patronage capital retired - unclaimed 420,861. Net change in post-retirement benefit 109,159.”

“The board as a whole is responsible for overseeing the financial statement audit and selecting the independent financial statement auditor. Procedural changes did not occur during the year.”