MID-South Electric Cooperative

“Kenneth mcdougald, director, has a family relationship with michael mcdougald, employee officer. Aimee pavelock, director, has a family relationship with stacey forgason, employee.”

“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 will require the board of directors and its officers to complete and sign a conflict of interest certification and disclosure form. The board of directors will also complete and sign the form 990 disclosure questionnaire. The signed copies will be kept in the personnel file for each individual.”

“The board of directors use the expertise of an independent compensation consultant, a compensation survey and compare compensation reported on other cooperative's irs forms 990 when determining the compensation of the general manager/ceo. The survey shows comparative salaries for general managers/ceos from cooperatives located in texas and the nation. The general manager/ceo uses the expertise of an independent compensation consultant, a compensation survey and compare compensation reported on other cooperative's irs forms 990 when determining the compensation of the cooperative's other employees meeting the definition of officer and key employees, if any. The survey includes salaries from similar cooperatives throughout texas and the nation.”

“The cooperative will provide a complete copy of the audited financial statements, conflict of interest policy, or governing documents to any member who requests a copy.”

“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 and life insurance to all employees, including officers and highly compensated employees, through a qualified plan. The amounts reported on part vii, column (f) for the employee officers and highly compensated employees is comprised of the 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. All benefits are for employees only. The board of directors do not receive any of the benefits listed above.”

“Patronage dividends result from the payment of interest from cooperative banks and the purchase of supplies and services from 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 loss of $4,407,789, which is the income statement effect of accrued unbilled revenue and power cost and the retention of non-operating margins. The gaap basis financial statements include an accrual for unbilled revenue and power cost 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 and power cost, page 1, part i, line 19 annually reports net income equal to the net increase in accrued unbilled revenue and power cost or a net loss equal to the net decrease in unbilled revenue and power cost. The following schedule is provided to further explain the impact of this transaction: add: unbilled revenue 12/31/24 $ 8,129,316 less: unbilled revenue 12/31/23 (9,973,000) net decrease in unbilled revenue and power cost (1,843,684) add: retention of non-operating margins (2,564,105) (a) - net income on page 1, part i, line 19 $(4,407,789) (b) - benefits paid to members (i.e. Patronage dividends), part i, line 14 $ (0) 2024 net margin per financial statements (a + b) $(4,407,789)”

“The cooperative annually provides each director who served on the board during the year a questionnaire and time log. The completed questionnaires and time logs are used to complete the applicable questions on the form 990 pertaining to business relationships among directors, officers, and key employees, as well as to determine if there are any transactions which must be reported in detail on schedule l - "transactions with interested persons". If the cooperative was unable to obtain a completed questionnaire and/or time log, the cooperative relied upon the completed information for the prior year. Director pierce resigned from the board during 2024. The cooperative relied upon his prior year questionnaire while preparing the form 990. There were no known changes from 2023 to 2024.”

“Although the cooperative is no longer a rural utilities service (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 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 $ 8,799,416 less: director fees reported on forms 1099-nec (168,717) less: employee officer benefits included in line 5 (488,605) plus: salaries and wages allocated to purchased power 480,452 plus: salaries and wages capitalized directly to plant 6,604,552 plus: salaries and wages capitalized/expensed indirectly through clearing and other accounts 5,267,434 total wages accrued and/or paid $20,494,532”

“Administrative & general expense is comprised of the following: administrative & general salaries, benefits, & other $ 4,519,658 office supplies 277,516 outside services 252,958 directors 369,257 safety/training 1,689,234 meetings 258,200 regulatory commission expenses 213,511 maintenance of general plant 1,742,906 miscellaneous general expense 4,697,223 total admin & general exp per financial statements $14,020,463 less: reclass of tower expense to part viii, line 6b (677) less: reclass of director fees to part ix, line 5 (168,717) less: reclass of labor to part ix, lines 5 & 7 (2,798,263) less: reclass of benefits to part ix, lines 8-10 (1,212,117) total admin & general expense per form 990, part ix $ 9,840,689”

“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 are comprised of the following: internet expense - msec $ 29,654 sales 715,112 taxes 60,814 wire inventory adjustment 516,567 other deductions 832,575 total other expenses per from 990, line 24e $ 2,154,722”

“Net change in memberships 308,460. Net income from equity method investments -35,931. Other changes in equities 4.”

“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.”