Pedernales Electric Cooperative Inc

“The cooperative was formed by the members to provide electric service or energy 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 through use of single member voting districts voting methodology.”

“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 articles of incorporation additionally, pec bylaws provided to the membership the power to remove directors from the board by majority vote either by full membership or by district. If the vote is for the full membership, the petition must be signed by 5% of the membership. If the vote is limited to the director's district, then the petition must be signed by 15% of the members of the respective district.”

“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 audit committee for an initial review. Subsequent to audit committee presentation, a copy is provided to the board for final review and approval. This action was taken at the board meeting before filing the form 990.”

“The conflict of interest policy requires annual and ongoing completion of a conflict of interest certification and disclosure form by all directors, officials or disclosing employees of the cooperative, including officers and executives. The form, which is part of the policy, includes an affirmation that the individual will inform the board of any new conflict affecting themselves or any other person. Each year, these documents are solicited and gathered by the custodian of these records, which includes the board's secretary for board members and the cooperative's ethics and compliance officer and human resources department for applicable employees. Applicable persons who join the cooperative are subject to adhere to the policy and are required to file the form at the outset of their employment or directorship. The completed board of directors disclosure affirmations are formally accepted by the board president in a meeting open to the public and are part of the public minutes of the cooperative. The policy also requires annual training regarding conflicts of interests for the entire board of directors.”

“Compensation for the chief executive officer is annually reviewed and adjusted based on the ceo performance evaluation policy. Pursuant to the policy, the vice president of the board is delegated the responsibility for facilitating the annual performance evaluation process. Such annual process includes an evaluation by each director of the ceo's achievement of corporate metrics as defined in the cooperative's current strategic plan, the achievement of current year strategic initiatives and the fulfillment of his/her primary management responsibilities. The ceo also performs a self-assessment with respect to the same criteria. The vice president compiles and discusses the results with the board in executive session. The consensus arrived at following these discussions and the setting of goals for the ceo for the upcoming year are used for adjusting compensation. Compensation for the executives and senior leadership is established by written guidelines for executives and senior leadership established by the ceo or as consistent with objective third party assessments and benchmarking. The compensation for all other employees of the cooperative, including those meeting the definition of employee officer and key employee, is governed by the employee compensation policy and is set based on a comprehensive compensation assessment that is run annually to determine market value for the respective positions. The ceo is responsible for implementing the policy and may use outside consultants and experts to provide objective assessments and benchmarking comparisons to industry-wide compensation trends and surveys in order to set the market value of each respective position. Such benchmarking comparisons include other cooperatives, public utilities and privately-owned or investor-owned utilities as compared to the size and complexibility of the cooperative. Compensation is then targeted for 75% of a position's market value. Other factors for setting compensation include the nature and qualifications for the job, training, experience, individual performance with respect to performance metrics, financial resources of the cooperative and other relevant factors.”

“The cooperative's governing documents, conflict of interest policy, all other board operating policies and financial statements for the most recently completed calendar year are available to the public on the cooperative's website at https://www.mypec.coop/document-center. Members of the cooperative may be able to request existing records not posted on the website through the open records request process outlined on the cooperative's website.”

“In order to provide retirement benefits, the cooperative provides a defined benefit plan to employees meeting the eligibility requirements. However, the plan was closed to new participants after january 1, 2006. Contributions to this plan are based on the full funding limitation of such plan. Additionally, the cooperative participates in a defined contribution plan under section 401(k) of the internal revenue code. Employer contributions to the plan are available to participating employees, including officers and highly compensated employees, meeting the eligibility requirements of the plan. The cooperative also provides health, dental, vision, and life insurance to all eligible employees through a qualified plan. The amount reported on part vii column (f) for the officers and highly compensated employees is comprised of the actuarial increase associated with participation in the defined benefit plan, if applicable,the total amount contributed by the cooperative to the 401(k) plan and insurance paid on behalf of and for benefit of the officers and highly compensated employees. In addition to the above plans, the cooperative also provides eligible participants post- retirement medical benefits through an unfunded welfare benefit plan. The value of these benefits has not been estimated.”

“Patronage dividends 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 net income reported on part i, line 19 includes an expense for patronage dividends allocated to the patrons based on net operating income(loss). In general, when an electric cooperative bases the patronage dividend calculation on its net operating income(loss), page 1, part i, line 19 - revenue less expenses - will reflect the amount of non-operating income(loss) not allocated. For the current year, page 1, part i, line 19, however, reports net income of $1,758,779, which includes the income statement effect of accrued unbilled revenue, unrealized gains/losses and the retainage of non-operating margins. 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 just and reasonable 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 plus non-operating margins retained. The following schedule is provided to further explain the impact of this transaction: add: accrued unbilled revenue 12/31/24 $ 29,042,447 less: accrued unbilled revenue 12/31/23 (31,311,163) add: non-operating margins 4,026,248 add: unrealized (gain)/loss 1,247 (a) - net income on page 1,part i, line 19 $ 1,758,779 (b) - benefits paid to members (i.e. Patronage dividends), part i, line 14 $ 53,263,337 (c) - unrealized gain/(loss) (1,247) 2024 net margin per financial statements (a + b + c) $ 55,020,869”

“The cooperative utilizes the uniform system of accounts (usoa) established by the rural utilities service (rus). In accordance with financial accounting standards board (fasb) accounting standards codification (asc) 980, regulated operations, the cooperative records certain assets and liabilities in accordance with the economic effects of the rate making process. The usoa does not record expenses in the general expense categories provided on part ix lines 1-23. For form 990 reporting purposes, the cooperative separately reports donations, salaries and wages, employee benefits and payroll taxes that are allocated in accordance with its accounting system. Other expenses described in lines 1-23, however, are reported on line 24 under the expense categories required by the usoa.”

“Administrative and general expenses are comprised of the following: administrative & general salaries, benefits & other $ 397,532 office supplies 355,958 professional services 100,776 injuries & damages 18,958 miscellaneous general 81,955 rents 1,100 sales 1,796,328 total admin & general exp per financial statements $ 2,752,607 less: reclass of director fees to part ix, line 5 (256,500) less: reclass of labor to part ix, lines 5 & 7 (1,236,149) less: reclass of benefits to part ix, lines 8-10 (370,799) total admin & general expense per form 990, part ix $ 889,159”

“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 just and reasonable 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 nonprofit operation article of the cooperative's bylaws. The amount reported on part ix, line 4 represents the amount of patronage capital that is 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.”

“The cooperative's wholesale power suppliers are the lower colorado river authority, aep energy partners inc., king creek wind farm 1 llc, luminant energy company llc, shell energy north america (us) l.p., morgan stanley capital group, wsc energy, sunbeam solar operations llc (luminace), and greenstreet energy partners through its subsidiaries pedernales solar energy iv llc, pedernales solar energy v llc, pedernales solar energy xiii llc, and pedernales solar energy xiv llc. The $546,612,559 of purchased power expense, reported on line 24a, is comprised of payments made to wholesale power suppliers and an allocation of power supply expenses.”

“Other expenses are comprised of the following: admin & general expense $ 2,752,607 taxes 1,477,821 total other expenses per financial statements $ 4,230,428 less: reclass of labor to part ix, lines 5-7 (1,492,649) less: reclass of benefits to part is, lines 8-10 (370,799) total other expenses per form 990, part ix, line 24e $ 2,366,980”

“Salaries and wages are allocated to asset, liability, and expense accounts based on the accounting system described above. The following schdule reconciles amounts reported on lines 5-7 to total wages accrued and/or paid: total per lines 5-7 $ 59,027,318 less: director fees reported on forms 1099-nec (256,500) less: employee officer and key employee benefits included in line 5 (914,817) plus: salaries & wages allocated to purchased power expense 859,519 plus: salaries & wages allocated to nonoperating margins 51,842 plus: salaries & wages capitalized directly to plant 37,551,231 plus: salaries & wages capitalized/expensed indirectly through clearing & other accounts 25,973,107 total wages accrued and/or paid $122,291,700”

“Patronage capital allocated 53,263,337. Patronage capital retired - total -67,637,675. Patronage capital retired - discount 49,507,042. Net change in memberships 845,274. Transfers to other equities 2,538,290.”

“The board of directors assigned members to an audit committee to oversee and recommend the financial statement audit and recommend selection of the independent financial statement auditor. The board additionally amended the audit committee charter to clarify the responsibilities of the committee, including coordination of the external independent financial audit effort with the cooperative's audit function.”