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

“Management presented a copy of the form 990 to the board for discussion and review prior to filing.”

“All directors, officers, and employees of the cooperative are required to annually certify that they have complied with the code of conduct and are not aware of any unreported violations of the code that may have occurred.”

“The ceo is subject to an annual evaluation by a compensation committee, which is comprised of the board of directors. A compensation survey, forms 990 of other cooperatives, and an independent compensation consultant are used when determining compensation of the ceo. The survey shows comparative salaries for ceos from similarly situated cooperatives, utilities, and other businesses located in the dallas/ft. Worth area, texas, and the nation. The ceo uses a wage and salary plan approved by the board, which is based on a compensation survey from similarly situated cooperatives, utilities, and other businesses located in the dallas/ft. Worth area, texas, and the nation when determining the compensation of the cooperative's other employees meeting the definition of officer and key employee, if any.”

“The by-laws and annual report, which include the condensed financial statements, can 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. 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 and highly compensated employees, meeting the eligibility requirements of such plans. The cooperative also provides health, dental, vision, longterm disability, accidental death & dismemberment and group term life insurance to all employees, including officers, through a qualified plan. The amounts reported on part vii, column (f) for the officers and highly compensated employees is comprised of the actuarial increase in the defined benefit plan, the total amount contributed to the 401(k) pension plan and employer paid insurance premiums. In addition to the above pension plans, the cooperative also provides post-retirement health insurance benefits through an unfunded welfare benefit plan for employees hired on or before april 1, 2020. The value of these benefits per individual has not been estimated.”

“W-2 wages resulting from section 457(f) non-qualified deferred compensation plan: mr. Donald clary participates in a section 457(f) non-qualified deferred compensation (nqdc) plan. The purpose of the nqdc plan is to compensate the plan participant for pension benefits that are subject to annual compensation limits and also subject to caps on the level of accrued benefits under the plan that may be earned as provided for by sections 401(a)(17) and 415(b) of the internal revenue code, respectively. But for these limitations, the benefits available under the pension plan are the same for all employees. Benefits accrue from the initial date of the nqdc plan and began vesting annually beginning 4 years before normal retirement age of 62. For each year of vesting, all benefits accrued under the nqdc plan since the prior vesting date, become fully vested, payable and reportable compensation to the plan participant. This occurred during 2024. Total vested benefits paid in 2024 were $314,416, and are reported in part vii, column (d) as a component of box 5, w-2 wages. Although the vested benefits are reportable compensation to the plan participant, annual expense of the plan is equal to the annual contributions and not the vested amount paid. The vested amount paid is due from the plan and is an ultimate reduction of plan assets rather than an expense to the cooperative in the year of payment. Total reportable compensation in part vii (columns d, e & f) for all officers, key employees, and directors is $4,753,403. However, since the $314,416 of vested benefits is recorded as a receivable due from the plan and is not a current expense to the cooperative, such payment is excluded from part ix, line 5 "compensation of current officers, directors, trustees and key employees". The net result is a part ix, line 5 expense of $4,438,987.”

“For 2024, patronage dividends result from the payment of interest to 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.”

“Revenue less expenses as reported on page 1, part i, line 19 differs from the total net margins reported on the cooperative's audited financial statements due to book to tax adjustments required to conform to the form 990 instructions. The first adjustment is for the equity method income recorded on the cooperative's books and included in total net margins. U.s. Gaap requires the cooperative to record on its books the equity method income from its wholly owned subsidiary. Equity method income is not income for irs form 990 purposes and as such has been reported as an other change in net assets. The second adjustment is for the patronage dividends allocated or to be allocated by the cooperative to members. Whereas the form 990 requires such amounts to be reported as an expense, patronage dividends allocated or to be allocated are an increase in capital and equity, specifically patronage capital, on u.s. Gaap basis financial statements.”

“Although no longer a borrower of the rural utilities service (rus), the accounting records of the cooperative are maintained in accordance with the uniform system of accounts (usoa) as prescribed for rus 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 its 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 the total wages accrued and/or paid: total per lines 5-7 $ 38,177,904 less: director fees reported on forms 1099-nec (281,090) less: employee officer benefits included in line 5 (1,142,063) plus: salaries and wages capitalized directly to plant 14,990,782 total wages accrued and/or paid $ 51,745,533”

“Administrative & general expense is comprised of the following: administrative & general salaries, benefits, & other $ 23,737,363 outside services employed 1,714,478 property insurance 1,908,421 loss/damages expense 416,058 miscellaneous general 8,865,417 rents 4,356,860 maintenance of general plant 12,249 total admin & general exp per financial statements $ 41,010,946 less: interdivisional eliminations (4,368,204) less: reclass of director fees to part ix, line 5 (281,090) less: reclass of labor to part ix, lines 5 & 7 (16,726,485) less: reclass of benefits to part ix, lines 8-10 (7,698,457) total admin & general expense per form 990, part ix $ 11,936,710”

“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 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 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 gaap, however.”

“Other expenses is comprised of the following: amortization of regulatory asset $ 9,124,790 consumer & sales expense 3,771,010 taxes 8,781,164 miscellaneous 1,246,402 total other expenses $ 22,923,366”

“Additional information pertaining to disregarded entity - coserv securitization 2022 llc (see schedule r, part i): the cooperative incurred extraordinary power costs during winter storm uri in february 2021. During 2022, the cooperative's power supplier billed the cooperative for these costs. Pursuant to state law pertaining to extraordinary costs caused by winter storm uri, the cooperative's board of directors approved a financing order on september 14, 2022; the purpose of which was to (1) create a regulatory asset and securitized property right equal to the extraordinary winter storm uri costs, and (2) authorize the issuance of bonds in order to pay such extraordinary costs through the right to bill and collect debt service and other related expenses through a monthly charge to the members of the cooperative, known as a securitization charge. In order to issue the bonds, the cooperative created a single member limited liability company, coserv securitization 2022 llc (the llc). Based on the financing order, the llc sold bonds to purchase the securitized property right from the cooperative. The proceeds were then used by the cooperative to pay the power supplier for the extraordinary winter storm uri costs. The securitized property right is related to the future collection of revenue from the members pursuant to state law. For purposes of the bonds, the llc is a separate legal entity. The bonds are paid for through the securitization charges billed to and collected form the members of the cooperative. The bonds are not a liability of the cooperative. Therefore, for stand alone financial statement reporting purposes, only the investment in the llc is reported. In general, this is also how form 990 is prepared. However, since the llc is a single member limited liability company and disregarded for federal income tax reporting purposes, including form 990, the form 990 has been prepared on a consolidated basis. Accordingly, the following assets and liabilities are included in the form 990, part x balance sheet as follows: line 2 cash - includes $25,540,664 line 9 prepaid and deferred charges - includes the securitized regulatory asset of $447,502,442 line 15 other assets - includes $92,625 line 17 accounts payable and accrued expenses - includes accounts payables accrued interest on securitized bonds of $9,155,125 line 23 secured mortgages and notes payable of unrelated third parties - includes securitized bonds of $451,019,148 line 25 other liabilities - includes $8,361,458 of deferred credits additionally, the form 990 includes $33,311,023 of revenue, including interest income, and $33,311,023 of operating expenses for a net margin of $0 from the securitization process. Of the operating expenses, $23,771,383 is interest expense associated with long-term debt, $9,124,790 is the amortization of the respective regulatory asset, and $414,850 were administrative & general in nature.”

“Patronage capital allocated 37,886,930. Patronage capital retired - total -23,540,294. Patronage capital retired - discount 11,355,050. Equity method income (loss) from subsidiary company 7,255,578. Net change in memberships 91,325. Other comprehensive income - post employment benefits & affiliates 3,035,910.”

“Pursuant to board policy, the board of directors is the audit committee and is responsible for overseeing the financial statement audit and selecting the independent financial statement auditor. Procedures remained unchanged during the year.”