2014 SECO Energy Annual Report

N A V I G AT I N G THE COOPERATIVE PURPOSE

2 0 14 S U M T E R E L E C T R I C C O O P E R AT I V E A N N UA L R E P O RT

Dear SECO members, rs, As you browse these e pages pages, you’ll notice ce ffamiliar amiliar landmarks and lakes that shape our service territory and our members’ lifestyles. Dense vegetation and weather challenges require SECO to proactively address service reliability. Keeping the lights on when storms blow through, maintaining stable rates and providing outstanding customer service are our highest priorities.

December 31, 2014 wrapped up another phenomenal year of smooth sailing, both financially and operationally. The co-op grew steadily while our employees ran a tight ship, conserving costs while maintaining stellar reliability and service that produced outstanding customer satisfaction.

On the financial front, operating revenue topped $363.7 million, an increase of about $2.2 million over our budget. Purchased power cost was $254 million, an increase of about $553,000 – representing almost 70 percent of total revenue.

The differential between revenue and power cost produced gross margins of $109.7 million. Total expenses of $99.5 million were $2.5 million less than budgeted, showcasing our employees’ cost-conscious dedication. The combination of improved gross margins and reduced expenses created a total margin of $18.9 million, an increase of $5.1 million over our budget.

Although growth slowed in late 2014, we added 4,470 new services to our system and ended the year with 189,058 accounts and utility plant investments of $735.8 million. Members consumed 2.982 billion kilowatt-hours of energy – equating to growth of about 5 percent.

Effective October 1, SECO’s residential rate restructuring produced rate decreases for about 75 percent of residential members. Learn how SECO’s rates stack up against other electric providers on page 9.

Rates and reliability are two key satisfaction drivers. In 2014, the average member experienced 1.39 outages, and those who experienced an outage lost power for roughly 50 minutes – equating to a 99.99% availability. Humbly, those statistics reflect a professionally designed, well built, and proactively maintained system with a right-of-way staff dedicated to minimizing tree-related outages.

Our 2014 member satisfaction survey earned SECO a tremendous ACSI (American Customer Satisfaction Index) score of 89. Read more about how SECO measures up against other providers on page 10.

The employees of SECO and our Board of Trustees recognize how important low-cost, reliable power is to our members. Thank you for your SECO membership.

It is our privilege to serve your energy needs.

Jim Duncan CEO & General Manager

Charting the Course: Our Purpose and Values

SECO is the second largest electric cooperative in the Sunshine State and also one of the largest in the nation. Thumbing through the pages of the 2014 Annual Report, you’ll notice a variety of familiar landmarks and bodies of water that shape our service territory and the lifestyles of our members. We’ve included these photos of land and lakes because the vegetation and bodies of water in this area require SECO to approach system design, construction and maintenance with a creative, proactive approach. Keeping the lights on for you when storms blow through, maintaining stable rates and providing outstanding customer service are our highest priorities.

Your member-elected board of trustees oversees SECO’s governance to ensure that we are charting our co-op’s course to deliver on our purpose of providing exceptional service to our customers, co-workers and communities.

Our Purpose: To provide exceptional service to our customers, co-workers, and communities.

Our Values:

to ; Commitment the Cooperative Purpose ; Honesty & Integrity ; Safety ; Strong Work Ethic ; Team Oriented ; Open Communication

Table of Contents Sumter Electric Cooperative, Inc. The Admirals (Board of Trustees) . . . . . . . 2-3

The Lay of the Land (Service Territory) . . . . . . . .4-5

The Captain and First Mates (Management Team) . . . . . . .6-7

The Crew in Action

Cooperative Highlights

(High Score/Low Rates) . . . 8-9

Light Up the Dark Operating Revenue . . . . . . . . . . . . . $363,727,345 Net Margins . . . . . . . . . . . . . . . . . . . $18,898,675

(Reliable Service). . . . . . . .10-11

The Bounty:

Total Assets . . . . . . . . . . . . . . . . . . $693,332,820 Independent Patronage Capital Distributed . . . $4,198,774

Auditors’ Report. . . . . . . . . . 12

Kilowatt-Hours Sold . . . . . . . . . . 2,982,645,174 Balance Sheets . . . . . . . . . . . 13

Miles of Energized Line . . . . . . . . . . . . . .11,980 New Services . . . . . . . . . . . . . . . . . . . . . . . . 4,470

Statements of Revenues and Patronage Capital . . . . 14

Active Accounts . . . . . . . . . . . . . . . . . . .189,058

Statements of Cash Flows . . . . . . . . . . . . . 15/16

Full-Time Employees . . . . . . . . . . . . . . . . . . . 401 Financial Statement Notes. . . . . . . .16-24

SECO’s Board of Trustees: A true form of democracy, SECO’s Board of Trustees is elected by the general membership of the cooperative to govern the organization and uphold the cooperative principles.

Cooperative Principles Cooperatives around the world generally operate according to the same core principles, and they trace these roots to the first cooperative founded in Rochdale, England in 1844.

This is considered the birth of modern cooperatives because of the principles and practices created to guide the co-op. The principles have evolved over the years, but no matter the industry, cooperative businesses today still adhere to these seven guiding principles: Voluntary and Open Membership—Cooperatives accept any person able to use our services who agrees to the responsibilities of membership.

Democratic Member Control—We are governed by our members. Those elected to the Board

1 2

of Trustees actively participate in setting policies.

Elected trustees answer to the members. In the name of equality, each member receives one vote at election time.

Members’ Economic Participation—Members contribute equally to, and democratically control, the capital of SECO. The cooperative returns margins to members in the form of capital credits.

Autonomy and Independence—Cooperatives are independent companies controlled by our members. If we enter into agreements with other organizations (including governments) or raise capital from external sources, we do so on terms that ensure continued democratic control by our members.

3 4

The Admirals Education, Training, and Information—We teach and train our members, Board of Trustees, management, employees and the general public.

Topics include industry issues, energy efficiency, community involvement, safety and more.

Cooperation Among Cooperatives—We serve our members best by strengthening the cooperative movement and working together through structured groups (such as our generation and transmission provider, Seminole Electric Cooperative, Inc., Florida Electric Cooperatives, Inc. and the National Rural Electric Cooperative Association).

Concern for Community—SECO employees live, work and play in the local communities of our service territory. We want to see these communities prosper and support quality of life in our area through community outreach.

5

6 7

Dora Canal, Lake County

3

SECO’s Service Territory 27

41

Ocala

40

Ocala Service Center 75

Lake Weir 19

Umatilla

301

Inverness Service Center 41

Wildwood

Lake Griffin

44

Lake Panasoffkee

441

Leesburg

Lake Eustis

Lake Harris

Sumterville Service Center & Headquarters

Lake Apopka

35

50

Groveland Service Center 471

Eustis Service Center

Clermont

33

27

44

Sumter Electric Cooperative, Inc. (also known as SECO Energy) began serving the rural areas of Sumter County in Central Florida in 1938 as a not-for-profit electric cooperative. Over the years, our service area has expanded with the population growth to serve the needs of residents and business owners as far northwest as Levy County, as far north as Marion County and as far south as Pasco County. Lake, Citrus, Hernando and Sumter Counties fill in the middle of our territory – making SECO a vibrant, fiscally healthy part of the Central Florida economy.

No matter which county you call home, beautiful water views are a central theme throughout our service territory. SECO employees are proud to live and work in Central Florida. It is our privilege to serve SECO members and our responsibility to act as good stewards of the environment in this area. Improving the quality of life for those we serve is a key cooperative focus, and ensuring that our members receive low-cost, reliable electric service is our highest priority. Visit secoenergy.com for community outreach details.

Lake Harris, Lake County

5

The Management Team:

Jim Duncan, SECO’s CEO and General Manager, stands at the helm to oversee the leadership of SECO’s 400+ employees. Together with the Board of Trustees and his first mates pictured here, Mr. Duncan is the anchor of stability on our course to fulfill our cooperative purpose.

Nora Brown provides critical daily support to Mr. Duncan and the Board of Trustees.

Engineering: Ben Brickhouse oversees this department’s responsibilities of mapping, design and planning, land rights and permitting, material research and analysis, troubleshooting and more.

Planning for the future growth of the co-op is critical to ensuring an expertly designed system that holds up to the elements and provides stellar system reliability.

Engineering’s workgroups consist of GIS (Geographical Information System) Services, Substation & Transmission Design and Engineering Services. This department develops the pivotal foundation for system improvements and new construction.

Reliability & Operations: John LaSelva oversees this important department whose round-the-clock goal is to ensure electric service reliability.

R&O takes pride in the hard work they perform in all kinds of weather. The various workgroups that help the department to function as a cohesive team include: System Control, Transmission & Distribution, System Reliability, Technical Services, and Vegetation Management. Mr. LaSelva’s skilled employees recognize that electricity is essential to modern life and are committed to providing SECO members with the most reliable power possible. These employees come running when our members need us most – to restore power in the event of a rare service disruption.

Financial & Administrative Services: Gene Kanikovsky oversees the employees who ensure that our company’s finances are handled in an ethical and fiscally responsible manner. Members expect tangible benefits of the cooperative business model, and the financial department bears responsibility for administering the allocation and return of margins in the form of capital credits. Mr. Kanikovsky also holds oversight of Information Technology – an important part of delivering power more efficiently and reliably through technological advances. Workgroups include Accounting, Billing, Payroll, Information Technology, Telecommunications, Meter Reading, Revenue Recovery, Purchasing and Warehousing.

Corporate Communications & Energy Services: Barry Bowman’s oversight of this department includes many types of member engagement. From in-person member interactions to community presentations and

Captain and the First Mates

in-home energy audits, this workgroup educates on energy efficiency and what it means to be part of a not-for-profit electric cooperative. This department, lead by Bowman through 2014 and transitioning to Kathryn Gloria in 2015, also plays an active role in economic development committees/corporations, area chambers, community sponsorships and much more.

The employees of this workgroup also design and produce SECO News, member publications, telephone messaging, the website, social media outreach and more.

Human Resources & Corporate Services: Gregg Morrell oversees the area that nurtures our most important asset – our workforce. This department’s purpose is to recruit, hire, develop and retain SECO Energy talent. Managing employee benefits and developing a strong work ethic helps keep costs low and morale high. This department carries the responsibility of managing our customer service/call centers, administering an effective safety program, keeping the fleet rolling and ensuring our facilities remain in good condition. Specific workgroups include Human Resources, Safety & Risk Management, Facility Services, Fleet Services, Call Center, and Customer Service Centers.

Lake Sumter Landing, The Villages

7

2014 ACSI SCORE:89 Thank you, SECO members, for the high score!

SECO Energy customers (its members) rated the cooperative an 89 in overall customer satisfaction for 2014 according to the American Customer Satisfaction Index (ACSI). The ACSI queries customers about their view of an ideal utility, meeting expectations, likelihood of choosing SECO if given a choice and overall satisfaction.

The SECO score of 89 is renowned in the

2014

utility industry. Nationally, the largest cooperatives earned an average ACSI score of 82, and the largest municipal utilities earned a score of 76. The largest investor-owned utilities earned a score of 75.

SECO Energy’s Chief Executive Officer & General Manager Jim Duncan said, “The comparisons make it clear that SECO Energy is exceeding our members’ expectations by providing lowcost, reliable electric service.

Our residential rates are among the lowest in the state, and our ACSI score is a clear and humbling reflection that SECO employees are fulfilling our cooperative’s purpose - to provide exceptional service to our customers, co-workers and communities.”

Thank you, SECO Energy Investor Owned members, for rating us highly Utilities (IOU) and for the privilege of serving 75 as your electric provider.

American Customer Satisfaction Index ACSI Scores SECO Energy U. S. Electric Cooperatives

89

82

Municipal Utilities

76

Lake Harris, Lake County — January Sunrise

Members count on SECO for low rates SECO Energy is committed to providing members with reliable, low-cost electric service.

Competitive rates are one of the most important drivers of satisfaction, and to ensure your happiness with our cooperative, SECO employees are dedicated to controlling costs and delivering reliable service.

The financial pages that follow in this Annual Report provide granular details on SECO’s fiscal stability throughout 2014. The chart shows you how SECO stacks up in a statewide rate comparison of different utility types. SECO’s Director of Financial and Administrative Services Gene Kanikovsky oversees rate structures for the cooperative. He states, “It’s clear that SECO residential members pay less for their electric service on average compared to consumers of other Florida

cooperatives, municipalities and some investorowned utilities. That, along with stellar reliability, is the SECO difference.”

December 2014 Investor Owned

$117.38

SECO Energy

$120.70

Florida Average

$123.21

Municipal

$124.22

Co-ops

$129.99 (per $/1,000 kWh)

Residential Rate Comparison of Florida Utilities

9

Depend on SECO for reliable Outage Duration

Average minutes of interruption in a year per member 160

SECO employees respond quickly to service disruptions, especially in adverse weather conditions. The reliability of your power is our highest priority, and we can prove it. Our system and consumer average interruption frequency and duration numbers are among the best in the state and across the nation.

As shown in the charts depicting the last decade of reliability indices, SECO members have experienced significant decreases in the number of minutes an outage lasts and the number of outages they experience. These improvements were also implemented during a decade of rapid growth when SECO added nearly 46,000 meters to our system.

140 120 100 80 60 40 20 0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

SAIDI: System Average Interruption Duration Index– average duration of an interruption for the system.

SECO Storm Center

www.secostormcenter.com

Storm Center Current Outages

Report Outages

Check Status

Outage Summary Outages History Zoom Control Overview County Detail Members Out

Total Members

Lake

0

51,940

Hernando

0

163

Pasco

0

32

Levy

0

1,438

County

http://www.secoenergy.com

Last Updated:12/31/2014 09:07:35 AM

Citrus

0

13,054

Marion

0

43,855

Sumter

0

45,310

Other

0

33,266

County

0

189,058

energy delivery Outage Frequency Average number of interruptions per year 3 2.5 2 1.5

SECO Energy’s Director of Reliability and Operations stated, “Over the last decade, SECO has made significant investments in system improvements that strengthen reliability.”

You can count on SECO employees to be there when you need us, whether you call, email or report an outage through Storm Center online. To help you prepare for extreme weather and save money on your bills, SECO can help you with easy and inexpensive home energy-efficiency measures that save both energy and money. Visit secoenergy.com, click “Energy” and select “Energy Saving Tips.” Take it a step further and request a free home audit with one of our energy services professionals. Email energyservices@secoenergy.com today to schedule a visit. You can also find SECO Energy on Facebook and Twitter to join the conversation – your voice is always welcome.

Lake Eustis, Wayfare Regatta

1 0.5 0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

SAIFI: System Average Interruption Frequency Index– the number of times the SECO system experiences an interruption.

11

INDEPENDENT AUDITORS’ REPORT Board of Directors Sumter Electric Cooperative, Inc. Sumterville, Florida Report on the Financial Statements We have audited the accompanying financial statements of Sumter Electric Cooperative, Inc. (the Cooperative), which comprise the balance sheets as of December 31, 2014 and 2013, and the related statements of revenues and patronage capital, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Cooperative, as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 6, 2015, on our consideration of the Cooperative's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Cooperative’s internal control over financial reporting and compliance.

Other Reporting Required by 7 CFR Part 1773 In accordance with 7 CFR Part 1773, Policy on Audits of Rural Utilities Service Borrowers, §1773.33 and clarified in the RUS policy memorandum dated February 6, 2015 (the regulatory requirements for electric borrowers), we have also issued our report dated February 6, 2015, on our consideration of the Cooperative's compliance with the terms, covenants, provisions, or conditions of their loan, grant, and security instruments as set forth in the regulatory requirements for electric borrowers, insofar as they relate to accounting matters enumerated therein. The purpose of that report is to describe the scope of our testing of the Cooperative’s compliance with the regulatory requirements for electric borrowers and the results of that testing, and not to provide an opinion on the Cooperative’s compliance with the regulatory requirements for electric borrowers. That report is an integral part of an audit in considering the Cooperative’s internal control over financial reporting and compliance.

Purvis, Gray and Company, LLP February 6, 2015 Ocala, Florida

Balance Sheets

December 31, 2014 & 2013 ASSETS 2014

2013

Electric Plant Distribution and Transmission Plant

$

Construction Work in Progress

707,809,361 $

678,825,865

28,001,667

24,295,830

735,811,028

703,121,695

(153,507,530)

(153,465,556)

582,303,498

549,656,139

63,781,444

56,714,152

3,267,124

2,251,843

10,954,021

10,390,124

Other Receivables

1,956,071

1,189,150

Unbilled Electric Revenues

8,943,451

9,929,584

12,099,129

12,543,035

199,395

402,234

37,419,191

36,705,970

9,828,687

10,594,731

693,332,820

653,670,992

829,990

809,379

218,247,571

203,547,670

2,638,856

2,632,933

221,716,417

206,989,982

384,880,930

371,036,133

Capital Lease Obligation

380,863

0

Deferred Compensation Liability

736,603

650,490

385,998,396

371,686,623

13,968,400

13,107,997

67,756

0

Accounts Payable

34,251,863

29,684,223

Consumer Deposits

13,939,509

14,131,472

Other Current or Accrued Liabilities

11,845,062

8,750,628

Total Current Liabilities

74,072,590

65,674,320

Deferred Credits

11,545,417

9,320,067

Total Electric Plant (Accumulated Provision for Depreciation and Amortization) Total Electric Plant - Cost Less Depreciation and Amortization Investments Investments in Associated Organizations and Other Special Funds Current Assets Cash and Cash Equivalents Accounts Receivable - Consumers (Less Provision for Doubtful Accounts 2014 - $1,203,007 2013 - $1,104,944)

Inventories Prepayments and Other Current Assets Total Current Assets Deferred Charges Total Assets EQUITIES AND LIABILITIES Equities Memberships Patronage Capital Other Equities Total Equities Noncurrent Liabilities Long-term Debt

Total Noncurrent Liabilities Current Liabilities Long-term Debt - Portion Due Within One Year Capital Lease Obligation - Portion Due Within One Year

Total Equities and Liabilities

$ See accompanying notes.

693,332,820 $

653,670,992

13

Statements of Revenues and Patronage Capital for the years ended December 31, 2014 & 2013 2014 Operating Revenues

$

2013

363,727,345 $

340,468,612

254,026,879

232,724,103

344,558

209,510

Distribution Expense - Operations

15,237,772

15,370,820

Distribution Expense - Maintenance

22,375,004

21,215,453

Consumer Accounts Expense

10,879,822

9,760,178

1,396,091

1,390,721

Administrative, General, and Other Expense

13,486,358

12,201,182

Depreciation Expense

22,491,045

21,884,622

67,193

64,205

0

2,220,972

242,795

383,803

(340,547,517)

(317,425,569)

23,179,828

23,043,043

(12,971,756)

(13,170,997)

10,208,072

9,872,046

G&T Cooperative Capital Credits

6,384,891

3,598,561

Other Capital Credits and Margins

1,625,247

1,051,676

8,010,138

4,650,237

18,218,210

14,522,283

Interest Income

503,042

116,667

Other Nonoperating Income

177,423

121,919

680,465

238,586

18,898,675

14,760,869

203,547,670

191,674,089

(4,198,774)

(2,887,288)

Operating Expenses Cost of Power Transmission Expense

Customer Service and Informational Expense

Taxes - Expense Impairment Loss Other Expense (Total Operating Expenses) Operating Margins Before Fixed Charges Fixed Charges Interest on Long-term Debt Operating Margins After Fixed Charges Other Margins

Total Other Margins Net Operating Margins Nonoperating Margins

Total Nonoperating Margins Net Margins Patronage Capital, Beginning of Year (Retirement of Capital Credits) Patronage Capital, End of Year

$ See accompanying notes.

218,247,571 $

203,547,670

Statements of Cash Flows

for the years ended December 31, 2014 & 2013 2014

2013

Cash Flows from Operating Activities Net Margins

$

18,898,675 $

14,760,869

Adjustments to Reconcile Net Margins to Net Cash Provided by (Used in) Operations: Capital Credits and Patronage Dividend Certificates Assigned

(8,010,138)

Depreciation

(4,650,237)

24,438,351

23,852,536

360,000

253,336

1,148,029

1,114,829

(704,685)

(1,207,821)

202,839

54,042

Deferred Charges

(381,985)

(11,515,393)

Accounts Payable

4,567,640

4,254,283

(191,963)

600,125

3,094,434

1,026,346

86,113

135,484

2,225,350

2,508,215

26,833,985

16,425,745

45,732,660

31,186,614

443,906

232,082

9,590,793

9,972,371

Proceeds from Disposition of Property

422,470

137,962

Proceeds from Redemption of Patronage Capital Certificate

809,076

582,345

Proceeds from Redemption of Other Investments

219,883

49,929

Purchase of Other Investments

(86,113)

(135,484)

(63,050,780)

(56,873,190)

(3,574,249)

(2,079,318)

(55,225,014)

(48,113,303)

Line of Credit (Net)

(2,211,965)

1,682,835

Proceeds on Long-term Debt

30,000,000

30,000,000

Payments on Long-term Debt

(13,082,834)

(12,551,293)

(25,326)

0

5,923

0

20,611

31,425

(4,198,774)

(2,887,288)

10,507,635

16,275,679

Net Increase (Decrease) in Cash and Cash Equivalents

1,015,281

(651,010)

Cash and Cash Equivalents, Beginning of Year

2,251,843

2,902,853

3,267,124 $

2,251,843

Provision for Uncollectible Accounts Amortization of Prepaid Pension Changes in Assets - Decrease (Incr) & Liabilities - Increase (Decr): Accounts Receivable Prepayments and Other Current Assets

Consumer Deposits Other Current Liabilities Deferred Compensation Liability Deferred Credits Total Adjustments Net Cash Provided by (Used in) Operating Activities Cash Flows from Investing Activities Change in Inventory - Net of Salvage Contributions in Aid of Construction Received

Extension and Replacement of Plant Plant Removal Cost Net Cash Provided by (Used in) Investing Activities Cash Flows from Financing Activities

Payments on Capital Lease Obligation Other Equities Membership Fees Retirement of Capital Credits Net Cash Provided by (Used in) Financing Activities

Cash and Cash Equivalents, End of Year

$ See accompanying notes.

15

Statements of Cash Flows

December 31, 2014 & 2013 2014

2013

Supplemental Disclosures of Cash Flow Information Cash Paid During the Year for: Interest

$

13,064,973 $

13,316,767

23,316,903 $

10,303,454

Supplemental Schedule of Noncash Investing and Financing Activities The Cooperative Retired Certain Assets from its Plant Records as Follows: Cost of Assets Retired

$

Plant Removal Costs

3,574,249

2,079,318

Material Salvaged

1,565,766

1,129,017

Net Reduction in Accumulated Depreciation

$

28,456,918 $

13,511,789

$

473,944 $

0

473,944

0

The Cooperative Financed Certain Equipment Using a Capital Lease: Amounts not Included in Proceeds from Capital Lease Obligation Amounts not Included in Extension and Replacement of Plant See accompanying notes.

Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies Sumter Electric Cooperative, Inc. (the Cooperative) is a nonprofit rural electric distribution cooperative organized under the Statutes of the State of Florida. The primary purpose of the Cooperative is to provide electricity to its members located in central Florida through wholesale purchase and subsequent distribution. The Accounting policies of the Cooperative conform to generally accepted accounting principles as applied to utility cooperatives and are in accordance with the accounting requirements of the Rural Utilities Service (RUS).

Receivables Receivables are shown at anticipated realizable value. Bad debts are recognized by use of the allowance method. Receivables consist primarily of uncollateralized amounts due from the sale of energy to commercial and residential members of the Cooperative and other related items. Receivables may be considered delinquent after thirty days and are written off after approximately one hundred twenty days past due.

Revenue Recognition and Cost of Power Electric revenues are recognized when billed and are adjusted for unbilled usage through year-end. Power costs are metered and recognized during the period of use. The Cooperative’s retail rates provide for recovery of all power costs incurred.

Utility Plant Electric plant is recorded at original cost with maintenance and repairs charged to expense as incurred. Additions to plant include costs of materials, labor, and certain overhead expenses. Depreciable plant replaced or retired is removed from the appropriate asset at average cost; cost being determined by a moving average for identifiable units of property. Such costs, plus removal costs less any salvage values, are charged to accumulated depreciation when normal retirements are made.

Notes to Financial Statements Depreciation Provision for depreciation of utility plant in service is based on straight-line composite rates. Depreciation rates are applied by primary account within the plant accounts. Depreciation on general plant assets is based on straight-line rates for specific assets as outlined by RUS ranging from three to fifteen years.

No provision for depreciation is made for construction work in progress until the construction has been completed and the plant is placed into service.

Materials and Supplies Materials and supplies inventories are stated at weighted average cost.

Cash and Cash Equivalents For purposes of the statements of cash flows, the Cooperative considers all cash and highly liquid investments as cash and cash equivalents. Such investments generally have maturities of three months or less. The Cooperative maintains accounts with several banks in central Florida. As of December 31, 2014 and 2013, accounts at each bank are fully insured by the FDIC up to $250,000.

Investments Investments in capital term certificates are carried at cost, with cost determined by specific identification. Investments in associated cooperatives are accounted for at original cost plus patronage capital assigned less capital credits received.

Patronage Capital Accumulated net margins are credited to patronage capital. The net margins are assigned to individual cooperative members’ capital credit accounts based upon their contribution to total patronage capital for the year. Such amounts are assignable to members at year-end; the assignment of capital accounts takes place in subsequent years. Capital credits are returned to members in accordance with the Cooperative’s policies and bylaws.

Income Taxes The Cooperative is a nonprofit organization exempt from income taxes under the provisions of Internal Revenue Code Section 501(c)(12). Accordingly, there is no provision for income taxes in the financial statements. The Cooperative has adopted Accounting Standards Codification (ASC) 740, Accounting for Uncertainty in Income Taxes. The implementation of this standard had no impact on the Cooperative’s financial statements. The Cooperative does not believe it has taken any uncertain tax positions that would have a material effect on the financial statements. The Cooperative’s Form 990s for the past three years are open to examination by the Internal Revenue Service. For the years ended December 31, 2014 and 2013, the Cooperative filed Form 990T for unrelated rental income on communication towers. The amount paid or accrued was $3,767 and $2,089, respectively.

Compensated Absences Vacation is accrued monthly as it is earned, and sick pay is expensed as it is used or paid out in accordance with Board policy. Sick leave hours for employees who began employment prior to February 1998 are capped at 800 hours and are eligible for payout when the employee reaches age 55. These hours are accrued and expensed when they are eligible for payout. Between the ages of 55 and 64, such payouts are discounted by the same percentages that apply to early retirees of the pension plan.

Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Collective Bargaining Approximately 40% of the Cooperative’s workforce is covered by a collective bargaining agreement that expires in September 2015.

Subsequent Events Management has evaluated subsequent events through February 6, 2015, the date the financial statements were available to be issued.

17

Notes to Financial Statements Note 2 - Electric Plant and Depreciation Rates The following is a summary of the major classes of electric plant and depreciation rates as of December 31, 2014 and 2013: 2014 Transmission Plant

$

Distribution Plant Intangible Plant General Plant Total Electric Plant in Service Construction Work in Progress Total Electric Plant - at Cost Accumulated Depreciation Total Electric Plant – Net

$

2013

16,058,685 $

Depreciation Rates

16,366,134

2.75%

605,100,982

577,756,560

3.20%

229,168

310,023

86,420,526

84,393,148

707,809,361

678,825,865

28,001,667

24,295,830

735,811,028

703,121,695

(153,507,530)

(153,465,556)

582,303,498 $

N/A 2%-33.33%

549,656,139

Depreciation expense of $22,491,045 (2014) and $21,884,622 (2013) is net of $1,947,305 (2014) and $1,967,914 (2013) charged to clearing accounts, some of which is capitalized.

Impairment Loss During 2013, the Cooperative recorded a $2.2 million dollar capital asset impairment loss associated with meter equipment that was not fully functional. Management determined that the fair value using a cash-flow approach was not reasonably estimable.

Management estimated the fair value of the capital assets by determining the key system components, the importance of those components to the system as a whole, and the statistical success rates of those components, and then applied the combined percentage to the net book value. During 2014, these meters were retired and replaced.

Note 3 - Investments in Associated Organizations and Other Special Funds Investments in associated organizations and other special funds consist of the following: 2014

2013

Seminole Electric Cooperative, Inc. Patronage Capital Assigned

$

49,683,141 $

43,298,250

National Rural Utilities Cooperative Finance Corporation (CFC): Patronage Capital Certificates

1,993,925

1,935,339

Capital Term Certificates

3,269,534

3,489,416

GRESCO Utility Supply, Inc.

6,586,366

6,065,942

Investments in Other Associated Organizations

1,511,875

1,274,715

736,603

650,490

Special Funds Total Investments in Associated Organizations and Other Special Funds

$

63,781,444 $

56,714,152

CFC Capital Term Certificates are purchased as a condition of the mortgage agreements with CFC. At December 31, 2014 and 2013, they consist of the following: 2014 Certificates, 5% (Maturing 2070 to 2080)

$

2013

1,902,011 $

1,902,011

Certificates, 3% (Maturing 2020 to 2030)

471,400

471,400

Certificates, 0% (Maturing at Variable Dates)

896,123

1,116,005

Total

$

3,269,534 $

3,489,416

Notes to Financial Statements The patronage capital assigned by Seminole Electric Cooperative, Inc. and the patronage capital certificates with CFC are excluded from ASC 320, Investments—Debt and Equity Securities, as an investment accounted for under the equity method of accounting.

Capital term certificates are held to maturity under ASC 320 and are excluded from ASC 820, Fair Value Measurements and Disclosures. Investments in Other Associated Organizations includes memberships with related and trade organizations, and are accounted for under the equity method of accounting.

There were no assets recorded at fair value on a recurring basis at December 31, 2014, or December 31, 2013.

Note 4 - Account Receivables All of the Cooperative’s consumer account receivables are due from consumers in the central Florida area. Each new consumer pays a membership fee and may make a deposit when becoming a consumer. The membership fees and deposits can be retained by the Cooperative in the event of nonpayment of a billing for services. Once a residential consumer establishes a satisfactory credit history, the Cooperative may return the member’s deposit.

Other receivables include pole rentals due from other utilities, billings for projects performed for other utilities, and unpaid contribution in aid for construction bills.

Note 5 - Return of Capital Under provisions of the long-term debt agreements, unlimited patronage capital distributions to members are allowed, provided equities and margins equal or exceed 30% of total assets after distribution. Effective with the 1991 year, the Cooperative suspended for five years the general capital credit retirements. During 1995, the suspension was lifted and the Cooperative began making general retirements of patronage capital. The equities and margins of the Cooperative represent 31.98% and 31.67% of the total assets at December 31, 2014 and 2013, respectively. Capital credit retirements in the amount of $4,198,774 and $2,887,288 were paid in 2014 and 2013, respectively.

Note 6 - Detail of Patronage Capital 2014 Assignable

$

Assigned (Retired/Adjusted in Current Year) (Cumulative Amount Retired in Previous Years) Total Patronage Capital

$

2013

18,898,675 $

14,760,869

241,219,679

226,458,810

260,118,354

241,219,679

(4,198,774)

(2,887,288)

(37,672,009)

(34,784,721)

218,247,571 $

203,547,670

Note 7 - Detail of Other Equities 2014 Operating Margins (Prior to 1957)

$

2013 32,092 $

32,092

Nonoperating Margins (Prior to 1964)

19,371

19,371

Capital Gains and Losses (Prior to 1964)

10,533

10,533

6,549

626

2,570,311

2,570,311

2,638,856 $

2,632,933

Donated Capital Discount on Retired Capital Credits Total Other Equities

$

19

Notes to Financial Statements Note 8 - Noncurrent Liabilities The Cooperative has the following unsecured lines of credit: 2014

2013

CoBank, ACB, Credit Line of $5,000,000 and $50,000,000 Variable Interest, 2.96% and 2.92% at December 31, 2014 and 2013, respectively

$

0 $

25,289,375

Bank of America, Credit Line of $3,000,000 Variable Interest, 1.91% at December 31, 2013, Payable on Demand

0*

1,063,276

24,140,686

0

Regions Bank, Credit Line of $55,000,000 Variable Interest, 1.06% at December 31, 2014, Payable on Demand Total

$

24,140,686 $

26,352,651

*The Bank of America Credit line was closed during 2014.

The Cooperative also has an available line of credit with CFC of $12,000,000 in 2014 and 2013, with no drawdowns or outstanding balances.

The Cooperative drew down $30,000,000 in long-term loan funds during 2013 and another $30,000,000 in January 2014 in approved long-term loan funds. As of December 31, 2014, the Cooperative had been approved for $110,000,000 in long-term loan funds. In accordance with ASC 470, Debt, the line of credit was classified as long-term debt in an amount not exceeding the previously approved, but undrawn loan funds.

The following is a summary of the Cooperative’s long-term debt payable to RUS, FFB, CFC, and CoBank: 2014

2013

RUS Mortgage Notes 1.000% to 5.070% Notes

$

(Current Portion) Long-term Portion - RUS Mortgage Notes

172,814,317 $ (4,832,310)

177,384,761 (4,475,435)

$

167,982,007 $

172,909,326

$

119,114,429 $

92,124,166

(3,427,368)

(3,009,737)

$

115,687,061 $

89,114,429

$

48,988,370 $

52,478,775

(3,616,835)

(3,610,576)

FFB Mortgage Notes - RUS Guaranteed 2.480% to 4.019% Notes (Current Portion) Long-term Portion - FFB Mortgage Notes CFC Mortgage Notes 2.930% to 5.300% Notes (Current Portion) Long-term Portion - CFC Mortgage Notes

$

45,371,535 $

48,868,199

$

33,791,528 $

35,803,777

(2,091,887)

(2,012,249)

CoBank Mortgage Notes 1.520% to 3.260% Notes (Current Portion) Long-term Portion - CoBank Mortgage Notes

$

31,699,641 $

33,791,528

Total Current Portion

$

13,968,400 $

13,107,997

Total Long-term Motgage Notes

$

360,740,244 $

344,683,482

Total Long-term Letters of Credit

24,140,686

26,352,651

Total Long-term Portion

$

384,880,930 $

371,036,133

Total Current and Long-term Portion

$

398,849,330 $

384,144,130

Notes to Financial Statements RUS mortgage notes are payable to the United States of America for thirty-five year periods each. Principal and interest are due in monthly installments. Certain notes have provisions for interest rate changes at future dates.

FFB mortgage notes are guaranteed by RUS and are payable quarterly to the United States of America with a maximum of up to thirty-five year periods each. Certain notes have provisions for interest rate changes at future dates.

CFC mortgage notes are payable to the National Rural Utilities Cooperative Finance Corporation for thirty-five year periods each.

Principal and interest are due in quarterly installments. Certain notes have provisions for interest rate changes at future dates.

Certain notes included above are serviced by CFC but have been sold to Farmer MAC. The Farmer MAC loans are payable semiannually. At December 31, 2014 and 2013, the balance of these notes was $18,908,730 and $19,321,905 respectively. There were no unadvanced CFC loan funds available to the Cooperative as of December 31, 2014 and 2013, respectively.

One CoBank mortgage note is fixed at a 3.26% interest rate for the remaining life of the loan and is paid monthly. The remaining CoBank mortgage notes are payable quarterly for thirty-five year periods each. Interest is calculated based on variable rates that change weekly.

Interest on long-term debt, all of which was charged to expense, follows: 2014 Lines of Credit

$

Capital Lease RUS Mortgage Notes FFB Mortgage Notes - RUS Guaranteed CFC Mortgage Notes CoBank Mortgage Notes Totals

$

2013 222,031 $

553,225

3,283

0

6,136,832

6,356,957

3,898,328

3,043,044

1,852,280

2,439,997

859,002

777,774

12,971,756 $

13,170,997

Long-term debt maturing within each of the five years subsequent to December 31, 2014, is as follows: Mortgage Notes December 31 2015

RUS $

CFC

CoBank

FFB

Total

4,832,310 $

3,616,835 $

2,091,887 $

3,427,368 $

13,968,400

2016

4,863,532

3,328,733

2,174,819

3,582,710

13,949,794

2017

5,028,370

3,463,995

2,261,187

3,599,293

14,352,845

2018

5,190,782

2,944,145

2,351,138

3,616,596

14,102,661

2019

5,366,945

2,695,356

2,444,829

3,634,435

14,141,565

147,532,378

32,939,306

22,467,668

101,254,027

304,193,379

172,814,317 $

48,988,370 $

33,791,528 $

119,114,429 $

374,708,644

Thereafter Total

$

Substantially all assets and revenues of the Cooperative are pledged as collateral for these notes. RUS debt covenants require the Cooperative to maintain certain ratios including a Times Interest Earned Ratio (TIER) of 1.25, a Debt Service Coverage (DSC) Ratio of 1.25 in two out of the last three years. As of December 31, 2014 and 2013, the Cooperative achieved a TIER of 2.48 and 2.17, respectively, a Debt Service Coverage Ratio of 2.10 and 1.96, respectively.

Cushion of Credit During 2014, the Cooperative began making advance payments on outstanding RUS debt under the RUS Cushion of Credit program. Deposits paid into the cushion of credit can only be used to pay future principal and interest payments on RUS loans. Under the program, deposits earn interest at a rate of 5% per year on the balance on deposit. As of December 31, 2014 and 2013, there were no amounts on deposit in the cushion of credit.

Capital Lease The Cooperative entered into a capital lease in 2014 for a heavy-duty bucket truck, with the lease expiring in the year 2020. The asset and liability under the capital lease are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The asset is amortized over the lower of its related lease terms or its estimated productive life. Amortization of the asset under capital lease is included in depreciation expense for 2014.

The following is a summary of property held under capital leases: 2014 Vehicles

$

(Accumulated Amortization) Net Carrying Value

473,944 (19,253)

$

454,691

21

Notes to Financial Statements The following is a schedule of the future minimum lease payments under the capital lease agreements together with the present value of the net minimum lease payments as of December 31, 2014: Year Ending December 31 2015

Total Payments $

78,674

2016

85,826

2017

85,826

2018

85,826

2019

85,826

2020

64,372

Total Minimum Lease Payments

486,350

(Amount Representing Interest)

(37,731)

Total

$

448,619

$

67,756

The Capital Lease is classified as follows on the Balance Sheet: Current Liabilities - Capital Lease Obligation - Portion Due Within One Year Noncurrent Liabilities - Capital Lease Obligation Total Capital Lease Obligation

380,863 $

448,619

Note 9 - Employer Benefit Plans The group pension plan for employees was merged into the Retirement and Security Program of the National Rural Electric Cooperative Association (NRECA) effective July 1, 2003. The Retirement and Security Plan (RS Plan), administered by the NRECA, is a defined benefit, multi-employer pension plan qualified under Section 401 and exempt from federal income tax under Section 501(a) of the Internal Revenue Code. The plan sponsor’s Employer Identification Number is 53-0116145 and the Plan Number is 333.

A unique characteristic of a multi-employer plan compared to a single employer plan is that all plan assets are available to pay benefits of any plan participant. Separate asset accounts are not maintained for participating employers. This means that assets contributed by one employer may be used to provide benefits to employees of other participating employers.

The Cooperative’s contributions to the RS Plan in 2014 and 2013 represented less than 5% of the total contributions made to the plan by all participating employers. The Cooperative made contributions to the RS Plan totaling $3,672,542 and $14,993,410 in 2014 and 2013, respectively. Contributions in 2013 are significantly higher than those in 2014 due to the Cooperative electing to participate in the prepayment option offered to participating employers, as described below.

On February 28, 2013, the Cooperative made a prepayment of $11,480,292 to the NRECA RS Plan, which was recorded as a Deferred Charge. The Cooperative is amortizing this Deferred Charge over 10 years. The unamortized balance of this Deferred Charge is described in Note 10.

In the RS Plan, a “zone status” determination is not required, and therefore not determined, under the Pension Protection Act (PPA) of 2006. In addition, the accumulated benefit obligations and plan assets are not determined or allocated separately by individual employer. In total, the RS Plan was over 80% funded at January 1, 2014 and 2013, based on the PPA funding target and PPA actuarial value of assets on those dates.

Because the provisions of the PPA do not apply to the NRECA Plan, funding improvement plans and surcharges are not applicable.

Future contribution requirements are determined each year as part of the actuarial valuation of the plan and may change as a result of plan experience.

All employees of the Cooperative meeting age and service requirements can elect to participate in a 401(k) savings plan (the 401(k) Plan) of the National Rural Electric Cooperative Association. Employees may make contributions to the 401(k) Plan up to the maximum percentage outlined in the 401(k) Plan and the Cooperative will match the employee contributions up to 4.0% of the employee’s salary. Both employee and employer contributions to the 401(k) Plan are funded biweekly. The Cooperative’s contributions to the 401(k) Plan were $1,163,241 and $1,116,828 in 2014 and 2013, respectively.

Effective January 2006, the Cooperative adopted an executive compensation plan that allows eligible participants to defer compensation under Internal Revenue Code Section 457(b). There is no matching employer contribution. This plan is administered by the Cooperative and plan assets are subject to the Cooperative’s creditors in the event of bankruptcy or insolvency. Plan assets totaled $736,603 and $650,490 at December 31, 2014 and 2013, respectively.

Notes to Financial Statements Self-insured Medical Benefits The Cooperative provides a self-insured medical benefit plan for active full-time employees and their dependents. Active full-time employees that select dependent or additional coverage are required to pay a premium to cover part of the cost of the coverage they select. In connection with the plan, the Cooperative maintains specific stop loss for claims that exceed $175,000 for any covered individual and aggregate stop loss for claims that exceed the aggregate deductible with a maximum aggregate benefit of $1,000,000. The aggregate deductible is the number of employee only elections multiplied by the employee aggregate factor of $483.09 for 12 months and the number of family elections multiplied by the family aggregate factor of $1,227.15 for 12 months.

The Cooperative’s IBNR liability for active employees and part of the employees’ coverage for their dependents as of December 31, 2014 and 2013, is as follows: 2014 Beginning Balance Claims Incurred Claims Paid Ending Balance

2013

$269,899

$390,345

4,265,294

3,606,929

(4,326,278)

(3,727,375)

$

208,915 $

269,899

Note 10 - Related Party Transactions The Cooperative is one of nine members of Seminole Electric Cooperative, Inc., an electric generating and transmission cooperative. Seminole Electric Cooperative, Inc. is the sole supplier of electricity to the Cooperative and has entered into an agreement to supply power to the Cooperative through 2045. Seminole Electric Cooperative, Inc. has pledged the power supply agreement of its members to secure certain of its notes and mortgages. The following is a summary of all significant transactions between the Cooperative and Seminole Electric Cooperative, Inc.: Purchased Power Cost

$

254,026,879 $

232,724,103

Accounts Payable - Power Cost, December 31

$

21,888,496 $

19,728,762

Patronage Capital Assigned

$

6,384,891 $

3,598,561

Patronage Capital, December 31

$

49,683,141 $

43,298,250

Other Accounts Receivable, December 31

$

1,342,599 $

0

Note 11 - Deferred Charges and Credits A schedule of deferred charges and credits are as follows: 2014

2013

Deferred Charges Unamortized: Prepayment of Pension

$

9,184,235 $

10,332,264

Unamortized Debt Issuance Costs

370,912

0

Deposits on Sales and Use Tax

184,134

169,261

Dues

79,603

79,027

Other

9,803

14,179

Total Deferred Charges

$

9,828,687 $

10,594,731

$

4,015,787 $

2,579,629

7,000,865

6,216,990

Other Deferred Amounts

416,923

405,730

Customer Benevolent Fund

111,842

117,718

Deferred Credits Unclaimed Capital Credits Customer Advances for Construction

Total Deferred Credits

$

11,545,417 $

Amortization Deferred charges are amortized over periods of one or more years.

Prepayment of Pension As more fully described in Note 9, the Prepayment of Pension Deferred Charged is being amortized over 10 years.

9,320,067

23

Notes to Financial Statements Note 12 - Financial Instruments The following is a summary of the book and current values of the Cooperative’s financial instruments for 2014: Financial Instruments RUS Long-term Debt

Book Value $

Current Value

172,814,317 $

192,528,922

FFB Long-term Debt

119,114,429

149,737,683

CFC Long-term Debt

48,988,370

48,693,393

CoBank Long-term Debt

33,791,528

24,266,871

2,373,411

2,153,455

596,133

485,384

24,140,686

24,140,686

CFC Subscription Capital Term Certificates and Interest-bearing Loan Capital Term Certificates CFC Loan Capital Term Certificates Lines of Credit

The following is a summary of the book and current values of the Cooperative’s financial instruments for 2013: Financial Instruments RUS Long-term Debt

Book Value $

177,384,761 $

Current Value 189,314,085

FFB Long-term Debt

92,124,166

114,387,736

CFC Long-term Debt

52,478,775

45,851,004

CoBank Long-term Debt

35,803,777

24,789,964

2,373,411

1,823,820

CFC Loan Capital Term Certificates

816,015

500,937

CFC Member Capital Security

100,000

164,260

26,352,651

26,352,651

CFC Subscription Capital Term Certificates and Interest-bearing Loan Capital Term Certificates

Lines of Credit Discount Rates RUS Loans: ■ The RUS variable rate loans are discounted at the RUS insured loan rates as of January 1, 2015 and 2014, for the corresponding maturity date. The maturity dates range from 1 to 27 years (2014) and 1 to 28 years (2013). The rates range from 0.125% to 3.75% (2014) and 0.25% and 4.38% (2013).

FFB Loans: FFB loans are discounted at the Treasury rates as of January 1, 2015 and 2014, for the corresponding maturity dates. The maturity dates range from 3 to 33 years (2014) and 4 to 33 years (2013). The rates range from 1.275% to 2.545% (2014) and 1.24% and 3.92% (2013).

■ The

CFC Loans: ■ The CFC loans are fixed rate loans discounted at January 1, 2015 and 2014, CFC fixed rate using corresponding maturity dates for each loan. The maturity dates range from 1 to 25 years (2014) and 2 to 26 years (2013). The rates range from 2.85% to 5.35% (2014) and 2.55% to 6.50% (2013).

CoBank Loans:

■ The CoBank loans include a variable rate loan and a fixed rate

loan. The variable rate loan was discounted at the variable rate of 2.92% as of January 1, 2015 (2014) and 2.92% as of January 1, 2014 (2013). The fixed rate loan was discounted at 2.89% as of January 1, 2015 (2014) and 3.26% as of January 1, 2014 (2013). The maturity dates range from 6 to 24 years (2014) and 7 to 25 years (2013).

CFC Capital Term Certificates (CTC’s):

■ The Loan CTC’s are discounted based on the corresponding maturity dates of the CFC long-term fixed rates. The rates range from 3.65% to 5.20% (2014) and 4.10% to 6.40% (2013).

■ The subscription CTC’s were discounted using the corresponding

interest rates for the years remaining on the CTC ranging from 4.20% to 5.45% (2014) and 4.85% to 6.55% (2013).

CFC Member Capital Security: ■ The CFC member capital security is discounted at the thirtyyear Treasury bond rate of 3.92% (2013). The CFC member capital security was cashed in during 2014.

Note 13 - Contingency The Cooperative is exposed to various risks of loss related to torts, theft, damage, and destruction of assets, errors and omissions, injuries to employees and the public and damage to property of others in the normal course of business. In addition, the Cooperative enters into contracts with third parties, some of whom are empowered to act as its agents in order to carry out the purpose of the contracts. The Cooperative has purchased commercial insurance that is adequate to cover these various risks and that is in compliance with Federal Register Rule 7 CFR, Part 1788, RUS Fidelity and Insurance Requirements. The Cooperative is not aware of any contingencies that are expected to have a material effect on the financial statements.

Support Candidates at the Federal Helm The Action Committee for Rural Electrification (ACRE®) is the federal Political Action Committee (PAC) of SECO Energy’s national trade association — National Rural Electric Cooperative Association (NRECA).

Founded in 1966 by approximately 1,000 consumer-owned, not-for-profit electric cooperatives, ACRE supports U.S. House and Senate candidates — those in office now and running — who will speak for, and protect the interests of, electric cooperatives and you, their consumer-owners.

ACRE contributions to candidates are backed by over 30,000 eligible members — like you — across 47 states with an average contribution of just $53, making it truly a grassroots PAC.

NRECA motivates its 42 million consumer-owners to be politically active through the ACRE Co-op Owners for Political Action® program. Over 8,000 of its members are electric co-op consumer-owners who have joined this program.

toward a sound national energy policy that doesn’t damage our economy and still provides for reasonable environmental measures. It’s all about balance. We need your help, your voice, and a few dollars in support.

In the past, SECO’s employees and members have generated the highest ACRE participation in the state — and even the country. We would like to reestablish that firm foundation and ask for your help.

Please consider enrolling by completing the enclosed authorization form. Mail the form in the business reply envelope or drop off at SECO. Your contribution can be conveniently deducted from your electric bill or you are welcome to enclose a check in any amount.

Now, more than ever, electric co-ops need the support of legislators to apply pressure to the EPA (Environmental Protection Agency) to prevent irrational, ineffective regulation. Most important, we need our legislators to chart a course

For more information on the ACRE program or eligibility to participate, please contact Kathy Judkins, SECO Deputy Director for Community Affairs (352) 569-9783 or kathy.judkins@ secoenergy.com.

Customer Service Centers EUSTIS 50 West Ardice Avenue (352) 357-5600

; GROVELAND 850 North Howey Road (352) 429-2195

; INVERNESS 610 South US Highway 41 (352) 726-3944

; OCALA 4872 SW 60th Avenue (352) 237-4107

; SUMTERVILLE 293 South US Highway 301 (352) 793-3801

Corporate Office 330 South US Highway 301 Sumterville, Florida 33585 (352) 793-3801

;

www.secoenergy.com