Farmers Electric Cooperative Inc

“The cooperative was formed by the members to provide electric service at cost on a cooperative basis.”

“The cooperative was formed by the members to provide electric service at cost on a cooperative basis.”

“The members have the ability to elect the cooperative's nine member board of directors. The directors are elected "at large" at the annual meeting and serve staggered, three year terms so that each year three directors are elected. Directors are nominated by a nominating committee or by nominating petition from each of the nine director districts. Elections are done on a one member one vote basis.”

“The following acts require approval of the members of the cooperative: 1. Dissolution/liquidation of the cooperative 2. Merger or consolidation with another cooperative 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 of directors for discussion, review and approval prior to filing.”

“Conflicts of interest involving directors, officers, and employees are covered by both board and employee cooperative policies. The board of directors review and enforce conflicts of interest involving directors and the general manager. The general manager reviews and enforces conflicts of interest arising from employees.”

“The board of directors use professional salary surveys and compensation experts from the national rural electric cooperative association and a comparison of forms 990 of similarly situated electric cooperatives to determine the compensation (pay and benefits) of the ceo/general manager. The board strives to hire and retain a management team that is experienced in the industry and the best fit for the cooperative. The board places importance on longevity and experience. It believes that the recruitment and retention of all competent employees is critical to the long-term success and stability of the cooperative. Therefore, the board attempts to maintain a compensation structure for the ceo/general manager and management level staff that is in the third quartile among industry peers, where appropriate. The board also annually reviews the performance of the ceo/general manager. As part of its performance review, the board takes into consideration the employment market, experience of the ceo/general manager, stability of the base rates, employee/labor relations, stability and cost effectiveness of the wholesale power supply agreement by participation on the board of the respective generation & transmission cooperative, and involvement and leadership within the electric utility cooperative industry. The ceo/general manager also provides an annual self-evaluation and list of accomplishments achieved by the cooperative during the prior year(s). Key areas include member communications, operations, electric utility plant construction, meter growth, rates, finance, human resources, retirement of patronage capital, participation on board of other industry related organizations, and impact to wholesale power costs through participation on the board of the cooperative's wholesale power supplier cooperative. Key accomplishments include, low turnover of employees, an ongoing equity management plan for consistently retiring patronage capital, a decrease in power cost, and no change in the base electric rate since 2007. The ceo/general manager uses the expertise of an independent compensation consultant, a compensation survey, and compares compensation reported on other cooperatives' irs forms 990 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.”

“Cooperative documents are made available upon request of members, after review according to cooperative policy. The cooperative's annual financial statements are also provided to the members during the annual meeting.”

“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 are comprised of actuarial increases 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, 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 $811,359, which is the income statement effect of accrued unbilled revenue plus the retention 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 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/(loss) as follows: 1) net increase/(decrease) in accrued unbilled revenue plus 2) non-operating margins transferred to other equities. The following schedule is provided to further explain the impact of this transaction: add: unbilled revenue 12/31/24 $ 10,685,000 less: unbilled revenue 12/31/23 (10,157,000) net increase in accrued unbilled revenue $ 528,000 add: non-operating margins retained 283,359 (a) - net income on page, 1, part i, line 19 $ 811,359 (b) - benefits paid to members (i.e. Patronage dividends), part i, line 14 $ 11,981,616 total 2024 net margin (a + b) $ 12,792,975”

“Although the cooperative is no longer a rural utilities service (rus) borrower, the accounting records of the cooperative are maintained in accordance with the rus uniform system of accounts (usoa) as prescribed for electric borrowers of rus. The usoa does not record expenses in the general expense categories provided on part ix lines 1 - 23. The cooperative separetly 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 $13,979,158 less: director fees reported on forms 1099-nec (248,802) less: employee officer benefits included in line 5 (371,314) less: key employee benefits reproted in line 5 (404,684) plus: salaries and wages allocated to purchased power 655,876 plus: salaries and wages capitalized directly to plant 6,583,199 plus: salaries and wages capitalized/expenses indirectly through clearing & other accounts 543,135 total wages accrued and or paid $20,736,568”

“Administrative & general expense is comprised of the following: administrative & general salaries, benefits, & other $ 2,508,908 office supplies 161,970 sales 1,099,501 directors 309,320 associated dues 163,199 pensions & benefits 939,040 bank charges 873,314 miscellaneous general 2,785,143 utility commission 313,123 maintenance of general plant 972,276 total admin & general exp per financial statements $10,125,794 less: reclass of director fees to part ix, line 5 (248,802) less: reclass of labor to part ix, lines 5 & 7 (3,074,425) less: reclass of benefits to part ix, lines 8-10 (1,300,953) total admin & general expense per form 990, part ix $ 5,501,614”

“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 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.”

“Patronage capital allocated or to be allocated 11,981,616. Patronage capital retired - total -5,997,109. Patronage capital retired - discount 2,631,991. Net change in memberships 97,000.”

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