Southwest Texas Electric

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

“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 prior to filing.”

“The cooperative's legal counsel must annually review the conflict of interest policy with all officers and directors. Each officer and director must annually complete and sign the conflict of interest certification and disclosure form, which is attached to the conflict of interest 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. The survey includes salaries from similarly situated cooperatives throughout texas and the nation.”

“The cooperative provides a copy of the audited balance sheet and income statement to the members of the cooperative at the annual meeting. The cooperative will provide a copy of it's organizing documents, conflict of interest policy and audited financial statements to any member who requests a copy. Finally, a copy of the bylaws is mailed to all new members.”

“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 for the plan are available to participating employees, including officers, 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 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 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 a net gain of $231,000 which is the income statement effect of accrued unbilled revenue. 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 equal to the net increase in accrued unbilled revenue or a net loss equal to the net decrease in unbilled revenue. The following schedule is provided to further explain the impact of this transaction: add: unbilled revenue 12/31/24 $ 1,096,000 less: unbilled revenue 12/31/23 (865,000) (a) - net income(loss) on page 1, part i, line 19 $ 231,000 (b) - benefits paid to members (i.e. Patronage dividends), part i, line 14 $ 5,476,991 total 2024 net margin (a + b) $ 5,707,991”

“Although the cooperative is no longer an rus borrower, its accounting records are maintained in accordance with the rus uniform system of accounts (usoa) prescribed for rus electric 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 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 the total wages accrued and/or paid: total per lines 5-7 $ 2,525,921 less: director fees reported on forms 1099-nec (142,617) less: employee officer benefits included in line 5 (61,194) plus: salaries and wages allocated to nonoperating margins 71,492 plus: salaries and wages capitalized directly to plant 1,258,448 plus: salaries and wages capitalized/expensed indirectly through clearing and other accounts 311,918 total wages accrued and/or paid $ 3,963,966”

“Administrative & general expense is comprised of the following: administrative & general salaries, benefits, & other $ 1,342,676 office supplies 153,563 outside services 99,477 insurances and damages 14,652 employee benefits & training 114,817 regulatory commission 48,675 directors 179,597 dues and subscriptions 40,462 misc general exp 135,748 rents payable 84,973 maintenance of general plant 236,739 total admin & general exp per financial statements $ 2,451,379 less: reclass of director fees to part ix, line 5 (142,617) less: reclass of labor to part ix, lines 5 & 7 (751,758) less: reclass of benefits to part ix, lines 8-10 (350,602) total admin & general expense per form 990, part ix $ 1,206,402”

“Other expenses is comprised of the following: customer service & information $ 83,903 other deductions 70,170 sales 8,293 transmission 36 total other expenses per form 990, line 24e $ 162,402”

“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 calendar tax 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.”

“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 allocated or to be allocated 5,476,991. Patronage capital retired - total -1,633,993. Patronage capital retired - discount 94,576. Net increase in memberships 135. Audited financial statements were prepared by an independent accountant for the cooperative's financial statement audit year-end of september 30th. The tax return has been and continues to be prepared based on a calendar tax year-end of december 31.”

“The board as a whole is responsible for overseeing the audit and selecting the cpa who will perform the audit. Procedural changes did not occur during the year.”