South Texas Electric Cooperative Inc

“The cooperative was formed by the members to provide wholesale power and transmission services at cost on a cooperative basis. The cooperative currently has nine (9) members; all of which purchase power from the cooperative pursuant to wholesale power contracts.”

“The cooperative is governed by an eighteen (18) member board of directors, who are elected annually and serve a term of one year. Each of the nine (9) member distribution cooperatives elects two representatives to serve on the board and fills the vacancy created if one of their designated representatives resigns or is unable to serve.”

“In addition to board of director elections, the following acts require approval of the members of the cooperative: 1. Amendment to the articles of incorporation 2. Disposal of a substantial portion of the cooperative's assets 3. Merger or consolidation of the cooperative with another organization 4. Dissolution/liquidation of the cooperative”

“Management presented a copy of the form 990 to the finance and audit committee and the full board of directors prior to filing.”

“On an annual basis, officers and employees are required to complete and sign a conflict of interest certification and disclosure form. If policies need to be updated, they are drafted and then reviewed with legal counsel before presentation to the board of directors for their review and approval.”

“The board of directors use a compensation survey when determining the compensation of the cooperative's general manager. The survey includes salaries from similarly situated cooperatives throughout texas and the nation. The board and the general manager use 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 annual report is listed on website each year that also included stec's annual financial statements. Governing documents and conflict of interest policy are available upon request.”

“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. Employer contributions are available to participating employees, including officers and highly compensated employees, meeting the eligibility requirements of the plan. The cooperative also provides health, dental, and life insurance to all eligible employees through a qualified plan. The amounts reported on part vii, column (f) for the officers and highly compensated employees is comprised of the total amount contributed by the cooperative to the defined contribution plan and insurance paid on behalf of and for their benefit.”

“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 cooperative annually provides each director and employee officer 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.”

“The accounting records of the cooperative are maintained in accordance with the uniform system of accounts (usoa) as prescribed by the federal energy regulatory commission. 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.”

“Administrative & general expense is comprised of the following: admin & general salaries expense $ 6,833,296 office supplies 389,862 outside services 3,921,890 insurance 2,512,845 injuries & damages 610,405 managers meeting & travel expense 32,957 annual meeting 83,502 directors 393,420 dues & subscriptions 421,954 miscellaneous general expense 419,580 events, training & education 442,638 total admin & general expense $16,062,349 less: reclass of director fees to part ix, line 5 (291,800) less: reclass of labor to part ix, lines 5&7 (4,750,057) less: reclass of benefits to part ix, lines 8-10 (606,479) total admin & general expense per form 990 $10,414,013”

“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 $25,327,616 less: director fees reported on forms 1099-nec (291,800) less: employee officer benefits included in line 5 (404,466) less: key employee compensation reported in line 5 (337,415) plus: salaries and wages capitalized directly to plant 5,170,153 plus: salaries and wages capitalized indirectly through clearing and other accounts 908,176 total wages accrued and/or paid $30,372,264”

“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. 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: customer accounts & sales expense $ 369,773 general plant maintenance 1,769,131 distribution expense 6,768,892 transmission expense 17,274,268 total other expenses per financial statements $26,182,064 less: reclass of labor to part ix, lines 5&7 (10,979,089) less: reclass of benefits to part ix, lines 5&7 (8,349,431) total other expenses per form 990, part ix, line 24e $ 6,853,544”

“All grants, sponsorships, and/or donations are made to non-profit and civic organizations that are located in the cooperative's service area, and are intended to improve the communities in which our members reside. Each grant, sponsorship, and/or donation made during the year was below the reporting threshold of schedule i, part ii.”

“Patronage capital assignable 49,702,731. Equity method income from subsidiary -1,111.”

“The board of directors have assigned members to a finance and audit committee to oversee the financial statement audit and select the independent financial statement auditor. Procedural changes did not occur during the year.”