Nueces 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. Elections are done on a one member one vote basis.”

“The following acts require approval of the members of the cooperative: 1. The disposal of a substantial portion of the cooperative's assets; 2. The dissolution/liquidation of the cooperative; 3. The merger or consolidation of the cooperative with another organization; and 4. Changes to the articles of incorporation.”

“Executive session minutes from time to time the entire board will go into executive session for discussing items of a sensitive and confidential nature. When this occurs management and others in attendance are removed from the meeting room. Items discussed in executive session are not documented. However, actions taken by the board after executive sessions are adjourned are fully documented in the written minutes.”

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

“Officers, directors, and key employees are required to disclose immediately any relationships considered to be a possible conflict of interest.”

“The board of directors use the expertise of an independent compensation consultant and a compensation survey when determining the compensation of the general manager. The survey shows comparative salaries for general managers from similarly situated cooperatives located in texas and the nation. The board and the general manager use the expertise of an independent compensation consultant and a compensation survey 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 similarly situated cooperatives throughout texas and the nation.”

“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. Annually the cooperative provides a copy of the audited balance sheet and income statement to the members of the cooperative with the annual report. Additionally, the by-laws, articles of incorporation and annual financial reports may be found on the cooperative's website.”

“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. As part of the plan document, the cooperative provides a matching contribution of up to 3% to a participating employee's salary. 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, meeting the eligibility requirements of such plans. The cooperative also provides health, dental, vision and life insurance to all employees, including officers, through a qualified plan. The amounts reported on part vii, column (f) for the officer is comprised of the actuarial increase in the defined benefit plan for the officer, the total amount contributed to the 401(k) pension plan and the insurance premiums paid for the benefit of the 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 cooperative to its members.”

“The accounting records of the cooperative are maintained in accordance with the uniform system of accounts 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 uniform system of accounting does not record expenses in the general expense categories provided on part ix lines 1 - 23. The cooperative will break out 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 will be reported on line 24 under the expense categories required by the uniform system of accounts.”

“Salaries and wages are allocated to asset, liability, and expense accounts based on the accounting system described above. In an effort to explain why the amounts reported on lines 5-7 do not agree to the total wages accrued and/or paid the following reconciliation is provided. Total per lines 5-7 $ 3,532,175 less directors fees reported on 1099-misc (200,071) less employee officer benefits reported on line 5 (238,876) plus salaries and wages allocated to asset accounts 2,004,874 total wages accrued and/or paid $ 5,098,102”

“The following is a breakdown of the expenses reported as administrative and general expense on form 990, part ix, line 24 office and supplies $ 627,221 outside services 167,570 workmen's comp, general liability and other insurance 270,852 regulatory commission expenses 337,036 advertising 1,052,686 annual meeting expenses 194,090 maintenance of general plant 168,124 dues to associated organizations 93,639 memberships and dues 64,419 miscellaneous general and administrative 309,066 total administrative and general expense per 990 $3,284,703”

“The form 990 instructions specifically state that the amount of patronage dividends paid to the members (hereinafter referred to as patrons) should be reported on part ix, line 4 as "benefits paid to members". 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 basis 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 and is summarized as follows: (a) in order to induce patronage and to assure that the cooperative will operate on a nonprofit basis, the cooperative is obligated to account on a patronage basis to all its patrons for all amounts received and receivable from the furnishing of electric power and energy in excess of operating costs and expenses properly chargeable against such services (i.e. Margins from the provision of electric power and energy). (b) the margins from the provision of electric power and energy are received with the understanding that they are furnished by the patrons as capital. (c) the cooperative is obligated to pay by credits to a capital account for each patron for all such margins. And (d) all such amounts credited to the capital account of any patrons shall have the same status as though they had been paid to the patron in cash in pursuance of a legal obligation to do so and the patron had then furnished to the cooperative corresponding amounts of capital. 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 2013 calendar year. As noted above, such amounts are allocated subsequent to year-end in a fair and equitable manner on the basis of patronage (i.e. Purchases). The amounts allocated are representative of the margins from the provision of electric power and energy to the patrons and are done pursuant to the obligation that existed in the bylaws prior to the cooperative providing electricity to its patrons. Therefore, these amounts meet the definition of the term "patronage dividends paid". Please note, however, that because patronage dividends is 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 the amount of its 2013 margin that has been or is to be allocated to the patrons subsequent to year-end. Such amounts are an expense for form 990 reporting and is not an expense for financial statements prepared in accordance with generally accepted accounting principles. As a result, the difference between the cooperative's gaap basis financial statements and the revenue less expenses reported on part i, line 19 is the amount of patronage dividends reported as benefits paid to members.”

“The following is a breakdown of the expenses reported on form 990, part ix, line 24 as other expense distribution expense - other contract $1,125,695 property taxes 424,895 other deductions 57,588 total other expenses per form 990 $1,608,178”

“Net change in memberships 2,040. Gain on retired capital credits 64,622. Retirements of patronage capital -2,231,375. Patronage capital assignable 7,560,677.”

“The board of directors have assigned members to a finance committee to oversee the financial statement audit and select the independent financial statement auditor.”