San Bernard Electric Cooperative Inc

“The cooperative had 9 board members at year end; all 9 are allowed to vote, however, the board chairman votes only in the case of a tie.”

“During the year the cooperative's bylaws were amended. The following is a summary of the changes: article vi officers; miscellaneous section 6.12 compensation was removed and replaced with the following. "section 6.12. Compensation; indemnification; insurance. Section 6.12a. Compensation. The compensation, if any, of any officer, agent or employee who is also a director or close relative of a director shall be determined as provided in section 4.10 of these bylaws, and the powers, duties and compensation of any other officers, agents and employees shall be fixed or a plan therefore approved by the board of directors. Section 6.12b. Indemnification. As determined by the board:(a)indemnification director or officer. The cooperative shall indemnify:(1) an individual who is or was a director or officer (including the ceo/general manager), employee, agent, or representative ("cooperative official");(2)an individual who, while a director or officer, is or was serving at the cooperative's request as a director, officer, partner, trustee, employee, or agent of another entity; or (3) the estate or personal representative of such an individual (collectively, "indemnification director or officer") in defending a threatened, pending, or completed action, suit, or proceeding whether civil, criminal, administrative, or investigative, and whether formal or informal ("indemnification proceeding") to which the indemnification director or officer was, is, or is threatened to be made a named defendant or respondent ("indemnification party") because the indemnification director or officer is or was a director or officer. This indemnification is against reasonable expenses, including attorney fees ("indemnification expenses") incurred by the indemnification director or officer in connection with the indemnification proceeding.(b) indemnification individual. The cooperative shall indemnify an individual who is or was a cooperative official ("indemnification individual") and was made, because the indemnification individual is or was a cooperative official, an indemnification party to an indemnification proceeding other than an indemnification proceeding:(1) by or in the right of the cooperative in which the indemnification individual was adjudged liable to the cooperative, except for reasonable expenses incurred in connection with the indemnification proceeding if it is determined that the indemnification individual met the indemnification standard of conduct; or (2) charging, and in which the indemnification individual was adjudged liable for receiving, improper personal benefit or financial benefit to which the indemnification individual was not entitled, whether or not involving action in the indemnification individual's official capacity. This indemnification is against reasonable indemnification expenses incurred in connection with an indemnification proceeding by or in the right of the cooperative; or against the obligation to pay a judgment, settlement, penalty, fine, or reasonable expense, including attorney fees, actually incurred in connection with any other indemnification proceeding, if the indemnification individual: (1) acted in good faith; (2) reasonably believed: (a) for conduct as a cooperative official, that the indemnification individual's conduct was in the cooperative's best interest; and (b) for all other conduct, that the indemnification individual's conduct was not opposed to the cooperative's best interests; and (3) in the case of any criminal indemnification proceeding, had no reasonable cause to believe the indemnification individual's conduct was unlawful (collectively, "indemnification standard of conduct"). To provide this indemnification, a majority vote of the director quorum, excluding directors currently indemnification parties to the indemnification proceeding ("indemnification director quorum"), must determine: (1) that the indemnification individual met the indemnification standard of conduct; and (2) reasonable”

“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 per district.”

“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.”

“The board of directors and officers are required to review and be familiar with the policies outlined in the cooperative's conflict of interest policy. The board of directors and officers are required to disclose any action or situation that might violate the policy to the full board of directors as soon as possible. The conflict of interest policy is reviewed on an annual basis. Form 990, part vi, section b, line 14: the cooperative does not have a written document retention and destruction policy in place, but follows the rus recommendations regarding document retention and destruction.”

“The board of directors and a compensation committee compare forms 990 of other cooperatives and use a compensation survey when determining the compensation of the ceo/gm. The survey shows comparative salaries for general managers from cooperatives located in texas and the nation. The ceo/gm utilizes an independent compensation consultant, forms 990 of other cooperatives, and a compensation survey when determining the compensation of 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 provides a summarized copy of the audited financial statements to the members of the cooperative at the annual meeting. 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. Finally, the cooperative's financial statements and bylaws can be found on its 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. 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, key employees and highly compensated employees, meeting the eligibility requirements of such plans. The cooperative also provides health, dental, vision and life insurance to all eligible employees through a qualified plan. The amounts reported on part vii, column (f) for the officers, key employees 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. In addition to the above pension plans, the cooperative also provides post-retirement health insurance benefits through an unfunded welfare benefit plan. The value of these benefits has not been estimated.”

“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 $63,324, 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 $ 1,438,762 less: unbilled revenue 12/31/23 (1,375,438) (a) - net increase equals net income on page i, line 19 $ 63,324 (b) - benefits paid to members (i.e. Patronage dividends), part i, line 14 $10,566,472 total 2024 net margin (a + b) $10,629,796”

“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) as 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 $ 6,050,133 less: directors fees reported on form 1099-nec (209,669) less: officer & key employee benefits included in line 5 (344,350) plus: salaries & wages allocated to power 52,658 plus: salaries & wages allocated to nonoperating margins 1,070 plus: salaries & wages capitalized directly to plant 3,961,318 plus: salaries & wages capitalized/expensed indirectly through clearing and other accounts 433,720 total wages accrued and/or paid $ 9,944,880”

“Other expenses is comprised of the following: taxes - property & other $ 489,714 transmission 204,355 total other expenses per form 990, line 24e $ 694,069”

“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 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 such amounts as an expense for form 990 reporting. Patronage are not an expense for financial statements prepared in accordance with generally accepted accounting principles, however.”

“Administrative & general expense is comprised of the following: administrative & general salaries, benefits, & other $ 1,299,366 office supplies 263,047 outside services employed 74,119 regulatory commission 167,177 duplicate charges (credit) (96,254) directors 300,268 dues paid to associated organizations 100,374 miscellaneous general 663,241 maintenance of general plant 302,687 total admin & general exp per financial statements $ 3,074,025 less: reclass of donations to part ix, line 1 (59,826) less: reclass of director fees to part ix, line 5 (209,669) less: reclass of labor to part ix, lines 5 & 7 (1,268,690) less: reclass of benefits to part ix, lines 8-10 (582,608) total admin & general expense per form 990, part ix $ 953,232”

“Patronage capital allocated or to be allocated 10,566,472. Patronage capital retired - total -2,681,588. Patronage capital retired - discount 544,013. Net change in memberships -1,575. Other comprehensive income-provision for post-retirement benefit obligation 135,270.”