Wise Electric Cooperative Inc

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

“A business relationship exists between russell morgan and allen heugatter. They are both 50% co-owners of a limited liability company.”

“During 2016, the board of directors approved bylaw changes to article vii - nonprofit operation, sections 1 and 2. The changes are as follows: section 1 - nonprofit and cooperative operation was clarified to define terms used throughout the cooperative bylaws - "as used in these bylaws, the term "patron(s)" shall mean (a) members, and (b) non-members purchasing electric energy or other services from the cooperative on a patronage basis pursuant to authorized contractual authority." section 2 - patronage capital in connection with furnishing electric energy clarified various grammar errors while adding new terminology relating to the furnishing of electricity. Significant changes to paragraphs 2, 3, & 6 are as follows: paragraph 2 - "if the costs and expenses exceed the amounts received and receivable from and directly related to the furnishing of electric energy (hereinafter referred to as "loss"), then the board shall have the authority under accepted accounting practices and tax law to prescribe the manner in which such loss shall be handled." paragraph 3 - "all other amounts in excess of the costs and expenses received by the cooperative other than from and directly related to the furninshing of electric energy may, in the the discretion of the board and in so far as permitted by law, be (a) used to offset any losses incurred during the current or any prior fiscal year, (b) used to establish reserves and other capital not assignable to the patrons prior to the dissolution of the cooperative, or (c) to the extent not needed for these purposes, allocated to its patrons on a patronage basis and any amount so allocated shall be included as part of the capital credited to the accounts of patrons, as herein provided. Paragraph 6 - "subject to the right of offset for any amounts owed the cooperative, patrons may at any time irrevocably assign and contribute their outstanding capital credits to the cooperative as a contribution of capital. Such irrevocable assignment and contribution of capital shall not be allocated to the patrons and is distributable only upon dissolution of the cooperative pursuant to the property rights of patrons."”

“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. 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 at a regularly scheduled board meeting subsequent to filing.”

“On an annual basis, the cooperative will require the board of directors and officers to complete and sign a conflict of interest certification and disclosure form.”

“The board of directors use an independent consultant as well as a compensation survey when determining the compensation of the general manager. The survey shows comparative salaries for general managers from similarly situated cooperatives located in texas and the nation. The management compensation plan is approved by the board of directors.”

“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.”

“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. 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 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 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.”

“The accounting records of the cooperative are maintained in accordance with the rus uniform system of accounts as prescribed for electric borrowers of the rural utilities services (rus). The uniform system of accounts 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 total wages accrued and/or paid: total per lines 5-7 $ 3,446,566 less directors fees reported on 1099-misc (240,351) less employee officer benefits included in line 5 (117,297) plus salaries and wages allocated to nonoperating margin 137,262 plus salaries and wages capitalized directly to plant 937,755 plus salaries and wages capitalized/expensed indirectly through clearing and other accounts 105,828 total wages accrued and/or paid $ 4,269,763”

“Administrative and general expense is comprised of the following: supplies $ 329,654 outside services employed 157,924 property insurance 42,481 injuries and damage 21,721 safety and training expense 16,282 regulatory commission expense 83,157 advertising 132,202 dues and subscriptions 72,816 community relations 1,053 vehicle & cell phone expense 77,209 capital credits 40,866 rent expense 19,431 maintenance of general plant 156,447 miscellaneous general expense 271,797 total administrative and general expense per 990 $ 1,423,040”

“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 2016 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 grants and 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 grant, scholarship and/or donation made during the year was below the reporting threshold of schedule i, part ii.”

“The cooperative previously included lines of credit as components of other liabilities on line 25 of part x. However, for the 2016 calendar year, the cooperative began reporting these amounts on line 23. To increase consistency, lines of credit in the amount of $4,034,884 for the 2015 calendar year have been reclassed from line 25 to line 23.”

“Other expenses is comprised of the following: book keeping fees $ 100,921 wildblue expenses 124,161 other deductions 434 total other expenses per form 990, line 24e $ 225,516”

“Patronage capital assignable 3,427,449. Patronage capital retired - total -929,018. Patronage capital retired - discount 66,271. Net change in memberships 10,810. Post-retirement benefit valuation -197,000. Equity method income 130,557.”

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