Bailey County Electric Cooperative Association

“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. Amendments to the articles of incorporation; 2. Disposal of a substantial portion of the cooperative's assets; 3. Dissolution/liquidation of the cooperative; and 4. Merger or consolidation of the cooperative with another organization.”

“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.”

“All new employees and directors are required to sign a conflict of interest certification when they begin employment with the cooperative. All employees, directors and officers are required to review and be familiar with the policies outlined in the cooperative's conflict of interest policy and are required to disclose any action or situation that might violate the policy to the full board of directors as soon as possible. The president/ceo regularly the monitors and enforces this policy.”

“The board of directors use a compensation survey when determining the compensation of the general manager. The survey shows comparative salaries for general managers from cooperatives located in 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 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. A copy of the cooperative by-laws are provided (1) to every new member at the time of their membership 2) to all members when an admendment is made to the cooperative by-laws, and (3) are available on the cooperative's website. 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.”

“The cooperative has 7 board members; all 7 are allowed to vote, however the board president votes only in the case of a tie.”

“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, meeting the eligibility requirements of such plans. The cooperative also provides health and life insurance to all eligible 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, the total amount contributed by the cooperative to the defined contribution plan and insurance paid on behalf of and for their benefit.”

“The board of directors consider the president/ceo to be both the top management official and the top financial official. Therefore, only the president/ceo is listed as an employee 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.”

“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 as prescribed for rus electric borrowers. The uniform system of accounting 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 uniform system of accounts.”

“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 the total wages accrued and/or paid: total per lines 5-7 $2,224,667 less directors fees reported on 1099-misc (115,401) less employee officer benefits included in line 5 (91,502) plus salaries and wages capitalized directly to plant 435,766 plus salaries and wages capitalized directly/expensed indirectly through clearing & other accounts 617,177 total wages accrued and/or paid $3,070,707”

“Administrative and general expense is comprised of the following: outside services employed $ 79,220 office and supplies 102,160 directors' expense 37,399 annual meeting expenses 46,068 institutional and goodwill advertising 17,067 member education and youth program 24,968 dues to associated organizations 40,770 utility commission related expense 78,692 maintenance of general plant 30,745 total administrative and general expense per 990 $ 457,089”

“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 2015 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.”

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

“Other expenses is comprised of the following: transmission expense $105,262 other deductions 2,750 total other expenses per form 990, line 24e $108,012”

“The cooperative previously included accrued expenses (comprised of (1) accrued compensated absences and (2) accrued interest") as components of other liabilities on line 25 of part x. However, for the 2015 calendar year, the cooperative began reporting these amounts on line 17. To increase consistency, accrued expenses in the amount of $670,754 for the 2014 calendar year have been reclassed from line 25 to line 17.”

“Patronage capital retired -1,140,385. Net decrease in memberships -140. Net change in other equities -6,732. Patronage capital held by cooperative retired 71,456. Patronage capital assignable 339,088. Reclassification of custodial scholarship and energy efficiency accounts 4,450.”

“Audited financial statements were prepared by an independent accountant for the cooperative's fiscal year end of september 30th. The tax return has been and continues to be prepared based on a calendar year end of december 31. The board as a whole is responsible for overseeing the financial statement audit and selecting the independent financial statement auditor.”