Karnes 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 directors at the annual meeting. 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 provided a copy of the form 990 to the board of directors for discussion and review prior to filing.”

“Each member of the board must complete and file with the board president a disclosure report detailing any possible conflicts of interest. The disclosure report must be completed within 30 days of becoming a board member and then annually thereafter. The disclosure report must be kept current by filing a supplemental report showing any change of personal or business relationship within 30 days after such relationship changes.”

“The board uses the expertise of a compensation survey when determining the compensation of the cooperative's officer. The survey includes salaries from similarly situated cooperatives throughout texas and the nation. Other than the general manager, 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, conflict of interest policy, and audited financial statements to any member who requests a copy of any such document. The cooperative provides annually a copy of the audited balance sheet and income statement to the members in the texas cooperative magazine that is mailed to each member, along with the notice of the annual meeting. Finally, the cooperative reviews the financial statements for the members of the cooperative at the annual meeting during the treasurer's report.”

“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 meeting the eligibility requirements of such plans. The cooperative also provides health 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.”

“The board of directors consider the general manager to be both the top management official and the top financial official. Therefore, only the general manager is listed as an employee officer.”

“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.”

“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 gain of $1,001,000, which is the income statement effect of accrued unbilled revenue. The gaap basis financial statements include an accrual for unbilled revenue because the cooperative's billing cycle does not end on the last day of the month. Therefore, it has revenue in december of each year that it has earned but will not bill until the first billing cycle of the following year. The cooperative estimates this revenue and records it as accrued unbilled revenue in order to match the revenue with the year earned. However, the cooperative allocates the revenue to members in the year it is billed rather than when accrued. This timing difference is fair and equitable because it matches the patronage dividend allocated with the billing records used to allocate the margins. Due to the timing of when the cooperative allocates accrued unbilled revenue, page 1, part i, line 19 annually reports net income equal to the net increase in accrued unbilled revenue or a net loss equal to the net decrease in unbilled revenue. The following schedule is provided to further explain the impact of this transaction: add: unbilled revenue 12/31/24 $ 9,684,000 less: unbilled revenue 12/31/23 (8,683,000) (a) net increase equals net income on page i, line 19 $ 1,001,000 (b) - benefits paid to members (i.e. Patronage dividends), part i, line 14 $ 8,117,263 total 2024 net margin (a + b) $ 9,118,263”

“The accounting records of the cooperative are maintained in accordance with the rus uniform system of accounts (usoa) as prescribed by the federal energy regulatory commission for class a and b electric utilities modified for electric borrowers of the rural utilities service (rus). 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.”

“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 $ 6,001,335 less: director fees reported on forms 1099-nec (150,184) less: employee officer benefits included in line 5 (52,442) plus: salaries and wages capitalized directly to plant 2,985,496 plus: salaries and wages capitalized/expensed indirectly through clearing and other accounts 267,336 total wages accrued and/or paid $ 9,051,541”

“Administrative & general expense is comprised of the following: administrative & general salaries, benefits, & other $ 1,453,280 office supplies 399,336 outside services 490,929 workmen's compensation and other insurances 347,939 employee benefits 143,927 employee training 391,225 regulatory 13,750 directors 177,586 institutional and goodwill advertising 70,593 dues to associated organizations 95,342 annual meeting 73,168 manager 12,899 miscellaneous general 816,237 maintenance of general plant 875,831 total admin & general exp per financial statements $ 5,362,042 less: reclass of donations to part ix, line 1 (52,074) less: reclass of scholarships to part ix, line 2 (7,500) less: reclass of director fees to part ix, line 5 (150,184) less: reclass of labor to part ix, lines 5 & 7 (1,832,882) less: reclass of benefits to part ix, lines 8-10 (893,069) total admin & general expense per form 990, part ix $ 2,426,333”

“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.”

“Other expenses is comprised of the following: abandoned work order expense $ 87,659 taxes 193,575 total other expenses per form 990, line 24e $ 281,234”

“Patronage capital allocated or to be allocated 8,117,263. Patronage capital retired - total -1,022,700. Patronage capital retired - discount 6,354. Net change in memberships -18,445.”