Hilco Electric Cooperative Inc

“During the year, the cooperative's bylaws were amended. The following is a summary of the changes: article 1, section 2, qualifications and obligation. The following addition was made: any person may become a member in the cooperative by: (a) making a written application, and, as a condition of membership and at no charge to the cooperative, granting, executing, and delivering to the cooperative: (iv) prior express consent to the cooperative using an automatic telephone dialing system, or an artificial or prerecorded voice, to address the cooperative's provision of a cooperative service or the member's use of a cooperative service. A complete copy of the bylaws can be found on the cooperative's website: www.hilco.coop.”

“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 directors. 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. Amendment to the articles of incorporation”

“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 review prior to filing.”

“On an annual basis, the cooperative requires the board of directors, principal officers, and committee members to complete and sign a conflict of interest certification and disclosure form. The board of directors also complete and sign the form 990 disclosure questionnaire. All individuals are required to disclose any action or situation that might violate the policy to the full board of directors as soon as possible. Additionally, periodic reviews are conducted to ensure compliance with the cooperative conflict of interest policies.”

“The board of directors utilize compensation surveys and studies, internally generated quantitative goals, information from other forms 990, and the general manager's self-appraisal when determining the compensation of the general manager. The compensation survey shows comparative salaries for general managers from cooperatives located in texas and the nation. The general manager periodically uses a compensation survey and independent consultant when determining the compensation of the cooperative's other employees meeting the definition of officers and key employees, if any. The survey includes salaries from similar cooperatives throughout texas and the nation. Annually, all officers and key employees are additionally required to have a performance appraisal administered by the general manager.”

“The cooperative provides a summarized copy of the audited financial statements to the members of the cooperative (1) at the annual meeting and (2) once annually in the member-provided co-op power magazine. The cooperative bylaws are also available on the cooperative's website. Additionally, a copy of the cooperative's conflict of interest policy is available upon request.”

“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 are available to participating employees, including officers, meeting the eligibility requirements of the plan. The cooperative also provides health and life insurance to all employees, including officers, through a qualified plan. The amounts reported on part vii, column (f) for the officers is comprised of the actuarial increase in the defined benefit plan and insurance paid on behalf of and for their benefit.”

“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 cooperative to its members.”

“In general, when an electric cooperative bases the patronage dividend calculation on its net book income/(loss), page 1, part i, line 19 - revenue less expenses - will be $0. For the current year, page 1, part i, line 19 reports net income of $241,083 is the income statement effect of the equity method income from the subsidiary. The following schedule is provided to further explain the impact of this transaction: (a) - net income on page 1, part i, line 19 $ 241,083 (b) - benefits paid to members (i.e. Patronage dividends), part i, line 14 $ 2,467,793 (c) - equity method income (loss) from subsidiary $ 281,025 2024 net margins per financial statements (a + b + c) $ 2,989,901”

“Although the cooperative is no longer an rus borrower, its accounting records are maintained in accordance with the rus uniform system of accounts (usoa) prescribed for 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 its 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.”

“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 $ 6,364,244 less: director fees reported on forms 1099-nec (225,074) less: officer employee benefits reported on line 5 (363,095) plus: salaries and wages allocated to nonoperating margin 433,679 plus: salaries and wages capitalized directly to plant 1,453,859 plus: salaries and wages capitalized/expensed indirectly through clearing and other accounts 183,224 total wages accrued and/or paid $ 7,845,796”

“Other expenses are comprised of administrative and general expenses and the following: administrative & general salaries, benefits & other $ 1,612,295 office supplies 610,889 outside services employed 106,889 insurances 350,994 regulatory commission 155,641 directors 227,119 maintenance of general plant 167,811 miscellaneous general 171,610 total admin & general exp per financial statements $ 3,403,248 less: reclass of donations to part ix, line 1 (41,144) less: reclass of director fees to part ix, line 5 (225,074) less: reclass of labor to part ix, lines 5 & 7 (1,135,991) less: reclass of benefits to part ix, lines 8-10 (595,983) total admin & general expense in other expenses $ 1,405,056 operating taxes 1,003,687 expenses reclassified from nonoperating margins 383,330 total other expenses per form 990, line 24e $ 2,792,814”

“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 2024 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.”

“Patronage capital allocated or to be allocated 2,467,792. Patronage capital retired -3,407,399. Equity method income(loss) from subsidiary 281,025. Net change in memberships -2,775. Net change in other equities 150.”

“The board of directors have assigned members to an audit committee to oversee the financial statement audit and select the independent financial statement auditor. No procedural changes occured.”