Sulphur Springs Valley Electric

“During 2024, the cooperative made amendments to its bylaws. These included: article i, membership, section 1.01, eligibility, has been revised to say, "membership shall be deemed to be held jointly by those recognized as married by law unless the cooperative is advised in writing to the contrary by either of the parties." article ii, membership expulsion and termination, section 2.03, transfer and termination of membership, has been revised to say, "upon the legal separation or divorce of the holders of a joint membership, such membership shall cease and new, separate memberships will be opened for each member who continues to reside within the cooperative's service territory. Both individuals shall continue to be jointly and severally liable for the joint membership debts due the cooperative." article iii, meetings of members, section 3.05, voting, has been revised to say, "if members hold a joint membership they shall jointly be entitled to one (1) vote and no more upon each matter submitted to a vote by mail or at a meeting of the members." article iv, directors, section 4.02, qualifications and tenure, has been revised to say, "(1) only natural persons that have the capacity to enter into legally binding contracts shall be eligible to become or remain on the board of directors. An individual shall be considered "incapacitated and disqualified from service on the board due to an inability to enter legally binding contracts if, while seeking election, appointment or seated on the board, the individual becomes a ward of the court (i.e. Subjected to an order appointing a guardian or conservator), or is under the care or supervision of a third party for more than 30 days due to a mental ailment that a medical doctor has determined is likely to persist for another 30 days or more. Should the individual demonstrate at a subsequent date that the incapacity has been resolved, that person will no longer be considered incapacitated. (2) no member shall be eligible to become or remain a director: (a) who is not a bona-fide resident of the particular district from which the director is elected. A bona fide resident of a district shall mean: (i) a member of the cooperative; and (ii) the member establishes residence and physically resides within the district for at least one (1) continuous year before the date of assuming the seat on the board; and (iii) the director maintains a residence and physically resides within the district during the entire term of service on the board, (b) who is in any way employed by the cooperative or has been employed by the cooperative in the five-year period prior to their being elected; (c) who is employed by or has a substantial financial interest in a competing enterprise or business selling electric energy, or electrical supplies to the cooperative, or a business primarily engaged in selling electrical appliances, fixtures or supplies to members of the cooperative. A substantial financial interest shall mean more than a 10% financial stake in the enterprise or business (d) who is the incumbent of, or candidate for, an elective public office in connection with which a salary is paid; (e) who is a close relative of an employee or existing director of the cooperative. "close relative" is defined by the cooperative board nepotism policy; (f) who has been convicted of any felony or convicted of a misdemeanor involving a crime of moral turpitude, as defined by law; (g) who has had a criminal judgment entered against him/her based on fraud, theft, deceit, misrepresentation, conspiracy, breach of trust, breach of fiduciary duty, or insider trading; (h) who is not a member in good standing of the cooperative. "good standing" means the director has no more than two (2) delinquencies in the sixty (60)-month period preceding the date of the election or, if a member for less than sixty (60) months, no more than two delinquencies during the period of membership; (i) who has made a material misrepresentation of fact”

“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 5. Amendment to the bylaws”

“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 and the paid preparer review drafts of form 990 prior to e-filing. The board reviews annual filings at monthly meetings.”

“The directors review the conflict of interest policy annually, and immediately address any questions or concerns if they arise. The board of directors and officers are also required to disclose any action or situation that might violate the policy to the full board of directors as soon as possible.”

“The board of directors use the expertise of an independent compensation consultant when determining the compensation of the ceo. The board and the ceo use the expertise of an independent compensation consultant when determining the compensation of the cooperative's other employee officers.”

“Annualy, the cooperative mails its annual report to members of the cooperative which contains a summarized copy of the audited financial statements. The cooperative also provides copies of their current and past annual reports and governing documents on their 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.”

“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 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 to the 401(k) pension 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.”

“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 $1,297,270, 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. The following schedule is provided to further explain the impact of this transaction: add: unbilled revenue 12/31/24 $ 2,351,688 less: unbilled revenue 12/31/23 (2,389,028) net decrease in unbilled revenue $ (37,340) add: non-operating margins retained 592,704 add: ft. Huachuca settlement 743,019 (a) - net income on page 1, part i, line 1 $ 1,297,270 (b) - benefits paid to members (i.e. Patronage dividends), part i, line 14 $ 155,293 total 2024 net margin (a + b) $ 1,452,563”

“The accounting records of the cooperative are maintained in accordance with the uniform system of accounts (usoa) as prescribed by the federal energy regulatory commission for class a and b electric utilities. 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.”

“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.”

“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 $16,371,281 less: director fees reported on forms 1099-nec (317,384) less: employee officer benefits included in line 5 (1,279,799) plus: salaries and wages allocated to nonoperating margins 1,685 plus: salaries and wages capitalized directly to plant 4,508,645 plus: salaries and wages capitalized/expensed indirectly through clearing and other accounts 1,887,081 total wages accrued and/or paid $21,171,509”

“Administrative & general expense is comprised of the following: administrative & general salaries, benefits & other $ 7,862,633 office supplies 511,166 outside services 485,007 injuries & damages 1,654 directors 511,666 dues to associated organizations 330,836 fort huachuca administrative & general 201,187 miscellaneous general 523,251 capital credits 3,997 maintenance of general plant (2,181) total admin & general exp per financial statements $10,429,216 less: reclass of director fees to part ix, line 5 (317,384) less: reclass of labor to part ix, lines 5 & 7 (4,405,533) less: reclass of benefits to part ix, lines 8-10 (2,019,614) total admin & general expense per form 990, part ix $ 3,686,685”

“Other expenses is comprised of the following: consumer accounts $ 1,840,629 customer service & information 474,638 internet 113,040 sales 568,717 transmission 380,896 other deductions 229,895 total other expenses per form 990, line 24e $ 3,607,815”

“Patronage capital allocated or to be allocated 155,293. Patronage capital retired - total -1,226,365. Patronage capital retired - discount 106,778. Net change in memberships 1,950. Other comprehensive income - provision for pensions and benefits 76,272.”

“The board as a whole is responsible for overseeing the financial statement audit and selecting the independent financial statement auditor.”