2007 Annual Report to the Members of
SUMTER ELECTRIC COOPERATIVE, INC. COOPERATIVE HIGHLIGHTS Operating Revenue . . . . . . . . . . . . . . . . . . . . . . .$274,151,535 Net Margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$7,718,604 Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$482,772,029 Patronage Capital Distributed . . . . . . . . . . . . . . . .$1,004,965 Kilowatt-Hours Sold . . . . . . . . . . . . . . . . . . . . . 2,677,553,749 Miles of Energized Line . . . . . . . . . . . . . . . . . . . . . . . . . 11,017 New Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,083 Number of Members . . . . . . . . . . . . . . . . . . . . . . . . . . 163,641 Full-Time Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .391
TABLE OF CONTENTS decades of service page 2 members count page 4 energy future page 6 board of trustees page 8 co-op operations page 10 independent auditors’ report page 12 financial statement page 13
SECO headquarters in 1941. Approved by the REA, the National Youth Administration offered up to $3,000 to construct the Sumterville business office to help bring power to rural Florida. This building is still in use today. In August 2000, SECO outgrows existing facilities and builds new headquarters across Highway 301.
In 1950, 1950 Drew McLay designed Willie Wiredhand for the National Rural Electric Cooperative Association as a symbol to portray rural electric service as the farmer’s hired hand. In 1951, the National Rural Electric Cooperative Association adopted Willie as their national symbol and took steps to copyright and protect him.
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s 2007 came to a close, Sumter Electric Cooperative was serving 163,641 members and their families. That makes the Co-op the third largest electric cooperative in the State of Florida and the seventh largest coop in the United States. Growth did slow down a bit from previous years. Still, SECO added another 7,000 members in 2007 and for most of the 900-plus electric cooperatives in the country that would be considered very significant growth indeed. Today SECO is not only one of the biggest cooperatives in the nation, it is also one of the most technologically advanced. It is a far cry from the Co-op’s humble beginnings when it sent the first power out over the lines to about 400 residents back in 1938.
S SECO celebrates it its 70th Anniv versary in 2008. W We’ve certainly c come a long way a that is a triband u to a very supute p portive members ship and a long li line of dedicated C Co-op leaders and e employees. We’ve c come a long way, b we have never but lo sight of what lost was important to the members in 1938 and is still their priority today. That is to provide them with a reliable source of electricity at a price they can afford and to put special emphasis on customer service. Providing good customer service is something that seems a lost art where most businesses are concerned these days. However, at SECO it is fundamental to our very existence. We take pride in the fact that our members are involved in their Cooperative and we pay attention to the feedback they give us. One of the ways in which we interact with members is our annual customer satisfaction survey. This comprehensive telephone survey is conducted on our behalf by the National Rural Electric Cooperative Association and it seeks member opinions on a wide range of topics related to the Co-op’s operations.
The entire workforce consisted of 23 people to operate Sumter Electric Cooperative in 1948. Sumter Electric Cooperative has since grown to 391 employees strong. Front row from left to right: Walter Boswell, Edwin (Shorty) Caruthers, Grady Turner, Crawford Traylor, J.G. Sparkman, Edward Sparkman, R.W. (Bob) Eldridge. Back row: Doc Tompkins, O’Neal Marsh, Tracy Mann, James West, Nina Proctor, Herman Sparks, Grace Parker, Harry Wood, Reba Hunt, Ray Robbins, Wanda Evans, James Williams and Esther Beck Mann. A team of SECO employees were recognized during the CEO’s fall quarterly breakfast for implementing Mobile Viewer. Because of their hard work installing the application, field personnel will have more accurate, up-to-date data on hand thus improving system reliablity. Left to right: Ben Coe, Tony Kazmin, Jeff Webb, Billy Ortiz, Charles White, Don Griffin, Dawn Stillion, Kent Sprague, Theresa Sampson, Gary Miller, Janet Cox, Bibi Larson, TJ Bryant, Robert Stevens, Vic Singer, Ken Lacasse behind Marc Webb, Rick Walsh, Matt Frassrand, Darrin Mancini and Seth Loomis.
SECO members got to voice their opinions on their Co-op’s performance again in the most recent survey conducted in November and December of 2007. And, again, SECO members gave the Co-op a great report card. A statistically valid sample of the membership in Citrus, Sumter, Lake and Marion counties was called. The results clearly indicated that members continue to think very highly of their Co-op with a mean overall satisfaction rating of 8.86 on a 10-point scale with seven in ten members giving ratings of 9 or perfect 10’s. That is a phenomenal rating considering the size of
the Co-op today, but it is indicative of the fact that we have never lost sight of why we were founded or who it is we are supposed to be serving. The Co-op scored very highly on such things as being environmentally sensitive, having courteous and friendly employees, providing accurate and understandable bills, supporting the local community, minimizing outages and restoring power quickly after an outage, keeping members informed and delivering good value for the money to name just a few of the categories.
The Industrial Park “low profile” substation near Groveland is today’s norm in SECO’s engineering standards for substation design. The green vegetative buffer is young, but soon will provide a complete visual barrier concealing the necessary equipment in view from the road. Construction of the first line was completed in 1938 near Webster. The framework of this early style substation was built almost entirely out of wood. Here Willie Wiredhand stands sentry at this project of Sumter Electric Cooperative. nother measurement which was contained within the survey was a series of questions that compare SECO to other types of companies who seek to rank themselves on the nationally recognized American Customer Satisfaction Index (ACSI).
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SECO’s latest ACSI score of 83 was one of the highest in the electric industry and ranked higher than the average score for the nation’s 600-plus co-ops that are part of the Touchstone Energy alliance and the ranked investor-owned utilities including those in Florida. SECO’s score was also 11 points above the electric industry average of 72. Additionally, the Co-op scor scored Cor higher than Target Corporation, Nike, Verizon, Diw recTV and others who elect are not in the electric industry. The very high sco scores that SECO ret ceived in this surv latest survey
were very gratifying and the members’ impressions of their Co-op help us stay on top of what is important to them. It assures that we are still meeting their expectations when it comes to delivering reliable, affordable electric power and that we have not discounted the high premium our members place on real customer service. While the annual telephone survey is one form of communication between the members and their Co-op, it is by no means the only mechanism we rely upon to keep twoway communications going. There are the Co-op’s well regarded member newsletter SECO News, our comprehensive Internet site secoenergy.com, member e-newsletter and customer call center to name a few. In 2007, there was yet another very significant communication development. SECO launched a formal customer communications process. The process is aimed at dealing with specific segments of the Coop’s membership for timely notifications on planned power outages, new construction, system improvements and other customer impact projects or situations in their specific areas. The process details what communications method we use depending on the number of members affected, the time that is available to initiate communications and the nature of the impact to customers. The tools we are using include written letters, media advisories, automated outbound telephone calls, door hangers, road signs and in-person visits to members. The new process was used on multiple occasions in 2007 and the response to this effort from our members has been very positive. An informed membership is what we strive for daily. They want to know what is going on and we want to be able to tell them. The launch of the enhanced approach to customer communications goes a long way towards fulfilling that goal.
In 1942 an “airplane watch tower” was built on SECO property. Manned by Co-op volunteers this tower was used to spot the direction, markings and distance of airplanes in the area. The information was recorded and sent to the US government. We welcome home SECO employees Ryon Meyers and Jimmy Bedgood from their active duty overseas. Both men were called to duty by the US Armed Forces and were on assignment in the Middle East and Africa.
This group of S SECO employees (f (far left) had ttaken time off o on Christmas E Eve 1948 to take tthis photo. They w worked long and h hard in adverse w weather conditions tto keep the p power on. S Standing left to rright: Edward S Sparkman, R R. W. Eldridge, J. G. Sparkman. Kneeling from left to right: Crawford Traylor, James Williams, Ray Robbins, Herman Sparks, Grady Turner, Loren Mann, Harry Wood, O’Neal Marsh, Mitchell Mann, Troy Hudson, Doc Tompkins, Walter Boswell, Tracy Myles, and Edwin Caruthers. The Co-op experienced major growth during the 50’s and 60’s. Substations were being built, lines being added and number of members increasing. In 1940 Sumter Electric had 770 members, in 1950 there were 3,676 and by 1960 the number of services doubled to 8,475. Dedicated to providing reliable power, new transmission poles are being set by SECO line personnel to supply a new 230KV substation to meet the growing demand for electricity in the cement industry.
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arly in 2007 an issue, which should be of concern to all Floridians, came to the forefront. That issue is where are we headed with regard to our energy future here in this state.
Governor Charlie Crist adopted an extremely aggressive approach to the debate surrounding global warming. He issued Executive Orders that seek to radically reduce emissions in the state, which we are convinced will dramatically increase costs and erode the reliability of the electric system.
His orders effectively caused plans for four new coal fired power plants to be shelved by Florida’s investor-owned power companies. A fifth state-of-the-art plant proposed by our power supplier Seminole Electric Cooperative was also denied by the state. Seminole’s proposed plant had already received about 95 percent of the approvals needed for construction under former Governor Bush’s administration. The plant incorporated every known environmental safeguard including a demonstration carbon capture system. Even the Sierra Club chose not to oppose the plant because of its low emissions. Despite all of that, the plant was denied and at year’s end, Seminole was appealing that decision in court.
The five power plants mentioned would have produced enough electricity to serve three million homes. We need the power those plants would generate and we need it now. No practical alternatives have been offered to replace the electricity these plants would produce. The state has already warned that Florida utilities are too dependent upon natural gas with its price volatility and potential for supply interruptions. Solar power and wind generation have been shown to be decades away from contributing any appreciable amount of power to the grid. Decades, as well, for any new nuclear power plants that might be built in Florida. We already have very serious concerns about the power supply. The state issued a number of power capacity advisories and alerts in 2007. That means if the largest power generating unit on line at the time had suddenly gone out of service, there was not sufficient back-up power to replace it. Brownouts and rolling blackouts could have resulted. SECO embarked on an ongoing campaign to educate the Governor and state legislators about the need for new clean coal plants to assure the reliability of the power grid and to save consumers statewide from the predicted massive increases in their power bills. That campaign continues in 2008.
Randy Stiles, Florida Rock Plant Manager, and Barbara Shaw of SECO overlook a dredge in operation at Astatula Sand Mine. SECO provides power to the mine. Approximately 120 million tons of aggregate materials including crushed stone and high quality sand are mined throughout Florida each year and are processed for the construction of roads, bridges and buildings.
Levy County
Today Sumter Electric Cooperative provides power to over 163,500 members in seven counties just northwest of the Orlando area. The service territory is 2,000 square miles — roughly the same size as the State of Delaware.
Marion County
Citrus County Hernando County
Lake County Sumter County
Pasco County
T
he Sumter Electric Cooperative Board of Trustees plays a pivotal role on behalf of all of SECO’s members. The Board is charged with establishing, reviewing and revising the corporate policies under which the Cooperative operates. Board members also help insure that member satisfaction is a priority and that the Co-op maintains a strong financial position in the industry. This Board has major responsibilities for guiding one of the largest electric cooperatives in the nation that has operating revenue of over a quarter of a billion dollars. More simply put the Board is legally charged with the responsibility to govern this Co-op. That is a very serious endeavor.
Donald W. Santee District 1
Dillard B. Boyatt District 2
Earl Muffett
Barry R. Evans
District 6
District 3
Robert G. Gentry
In some types of businesses, boards function with limited duties and are more or less honorary in nature. That is not the ccase with the SECO Board. They have a w well defined mission that is essential to the Co-o Co-op business model and they work very hard on beh behalf of the members.
The Board must be aware of the issues facing cooperatives today such as rising costs, environmental challenges, rapid growth and more. They are acutely conscious of the legal, regulatory and political ramifications of their decisions. District 7
Jerry D. Hatfield District 9
Effective governance is no accident and SECO Board members are called upon to complete the course work necessary to receive their Credentialed Cooperative Director’s Certificate through the National Rural Electric Cooperative Association. The accreditation process is rigorous,
Wilson G. Sheppard
Ray F. Vick
James D. Holtz
President District 8
Vice President District 5
Secretary-Treasurer District 4
but when it comes to planning for the Co-op’s future it insures that our Board members have the skills and knowledge to accomplish the task. In addition to SECO’s monthly Board meetings, there are also comprehensive Board workshops that must be attended. Board members are also called upon to attend and serve at meetings of Seminole Electric Cooperative in Tampa and the Florida Electric Cooperatives Association in Tallahassee. All SECO Board representatives are elected to their positions by the very members they serve. They come from many backgrounds and know what is important to SECO members because they, too, are members. They bring a wealth of varied experiences with them, which proves very useful as they go about their ongoing chores on behalf of the Co-op.
These early pioneers worked tirelessly to convince their neighbors — they could have a better way of life with cooperative electricity. On January 22, 1938, the Board directed that the Articles of Incorporation be filed in the Florida Secretary of State’s Office and Sumter Electric became a reality. Pictured at the Sumter County Courthouse in Bushnell in 1938 from left to right: W. J. Platt, Jr. – county agent; O. W. Smith – trustee; A. P. Michaels – first engineer; J. C. Getzen – attorney; W. H. Proctor – trustee; J. H. Hughes – first president; J. G. Sparkman – secretary-treasurer and J. P. Lynch – trustee.
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anaging the day to day operations of an electric cooperative the size of SECO is complex and demands the full attention of the senior staff of the Co-op.
James P. Duncan CEO & General Manager
Chris Green Sr. Executive Assistant
As 2007 came to a close there were nearly 164,000 SECO members and their families living within the Co-op’s 2,000-square-mile service territory. The members had called upon their Co-op to deliver nearly 2.7 billion kilowatt hours of electricity to them across the 11,000 miles of power lines that must be maintained daily. They counted on SECO to provide them with a reliable power flow and to restore power quickly when the occasional outage did occur.
That’s a challenge for SECO’s 391 employees, but all of the people at the Co-op who labor on behalf of the members view that challenge as an opportunity to deliver extraordinary customer service. Judging from SECO’s 2007 Customer Satisfaction Survey the challenge is being met and SECO members think highly of their Co-op and its workers. Of special note is the tragedy that struck thousands of SECO members when the killer tornadoes hit our area during the dark hours of Groundhog Day. When daylight finally came it became apparent that the devastation was extensive and many homes were simply erased from the landscape. The Co-op mobilized all its assets to help and also waived temporary electric service charges and connection fees. The employees were determined to provide relief for those members who were so severely impacted by an event which took lives, destroyed property and left many members in total shock. Damage to SECO’s system was extensive but the power restoration effort went on non-stop and every home that was still structurally sound had power back within eighteen hours. It was a remarkable feat and helped bring some sense of normalcy back to many of those affected by this horrifying weather event.
Mr. J. G. Sparkman became superintendent in 1939, when membership stock certificates were issued and a monthly minimum rate for electric usage was set at $2.40. Money was scarce and some members would read their own meters each day to be sure that they didn’t go over the limit for the minimum charge. In 1943, Mr. Sparkman was named manager of the cooperative.
Certainly when tragedy strikes SECO employees can be counted on to be heavily involved in supporting our various communities. They also dig deep into their own pockets annually to support the various United Way campaigns in our seven-county service territory. In 2007, $61,000 was pledged by employees to assist those less fortunate in our area. SECO’s Angel Fund also distributed thousands of dollars in assistance to SECO members who found themselves in difficult circumstances through no fault of their own. These are just a couple examples of SECO’s commitment to community.
Mickey Gauldin Director of Customer Service
Ben Brickhouse Director of Engineering & Information Technology
Barry Bowman
John LaSelva
Director of Corporate Communications & Energy E gy Services
Director of Reliability & Operations
John Chapman Director of Accounting & Finance
Alex Markley Director of Human Resources & Corporate Services
I NDEPE NDE N T AU DITOR S’ R EP ORT
Board of Directors Sumter Electric Cooperative, Inc SumterviIIe, Florida We have audited the accompanying balance sheets of Sumter Electric Cooperative, Inc. (the Cooperative) as of December 31, 2007 and 2006, and the related statements of revenues and patronage capital and cash flows for the years then ended. These financial statements are the responsibility of the Cooperative’s management. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our 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, 2007 and 2006, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. In accordance with Government Auditing Standards, we have also issued our report dated February 5, 2008, 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, 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 and should be read in conjunction with this report in considering the results of our audits.
Purvis, Gray and Company, LLP February 5, 2008 Gainesville, Florida
BALANCE SHEETS For the years ended December 31, 2007 and 2006
ASSETS 2007 Electric Plant Distribution and Transmission Plant Construction Work in Progress 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 2007 - $632,725; 2006 - $550,029) Other Receivables Unbilled Electric Revenues Inventories Prepayments and Other Current Assets Total Current Assets Deferred Charges Total Assets
$
493,522,764 27,201,660 520,724,424
2006 $
446,195,089 25,455,642 471,650,731
(95,648,064)
(88,516,496)
425,076,360
383,134,235
23,948,915
20,534,955
2,188,064
2,643,928
12,014,746 1,436,924 9,393,531 8,341,201 174,167 33,548,633 198,121 482,772,029
11,055,499 3,913,164 5,047,845 8,817,202 104,652 31,582,290 492,255 435,743,735
711,585 120,146,112 2,632,933 123,490,630
686,030 113,421,371 2,632,933 116,740,334
309,109,685
265,997,965
7,864,719 0 19,135,909 8,005,502 14,071,746 49,077,876 1,093,838 482,772,029
7,131,920 7,981,228 21,541,642 7,026,092 8,149,858 51,830,740 1,174,696 435,743,735
EQUITIES AND LIABILITIES Equities Memberships Patronage Capital Other Equities Total Equities Noncurrent Liabilities Long-term Debt Current Liabilities Long-term Debt - Portion Due Within One Year Line of Credit Accounts Payable Consumer Deposits Other Current or Accrued Liabilities Total Current Liabilities Deferred Credits Total Equities and Liabilities
See accompanying notes.
$
$
S TAT E M E N T S O F R E V E N U E S A N D PAT RO N AG E C A P I TA L For the years ended December 31, 2007 and 2006 Operating Revenues
$
Operating Expenses Cost of Power Transmission Expense Distribution Expense - Operations Distribution Expense - Maintenance Consumer Accounts Expense Customer Service and Informational Expense Administrative, General and Other Expense Depreciation Expense Taxes - Expense Other Expense (Total Operating Expenses)
2007 274,151,535
$
2006 271,193,068
191,271,420 126,353 11,208,967 18,482,900 8,389,690 1,116,223 9,868,612 15,636,407 66,004 603,079 (256,769,655)
196,109,238 336,400 11,327,747 15,384,063 8,544,753 1,048,717 8,909,485 14,112,232 49,237 762,450 (256,584,322)
17,381,880
14,608,746
(14,085,036)
(11,679,907)
Operating Margins After Fixed Charges
3,296,844
2,928,839
Other Margins G&T Cooperative Capital Credits Other Capital Credits and Margins Total Other Margins
1,749,827 2,453,494 4,203,321
2,349,832 1,141,999 3,491,831
Net Operating Margins
7,500,165
6,420,670
240,313 (21,874) 218,439
121,221 123,331 244,552
7,718,604
6,665,222
113,421,371
107,854,257
(1,004,965)
(1,107,403)
11,102
9,295
Operating Margins Before Fixed Charges Fixed Charges Interest on Long-term Debt
Nonoperating Margins Interest Income Other Nonoperating (Loss) Income Total Nonoperating Margins Net Margins Patronage Capital, Beginning of Year (Retirement of Capital Credits) Reallocated Capital Credits Patronage Capital, End of Year
$ See accompanying notes.
120,146,112
$
113,421,371
S TAT E M E N T S O F C A S H F L OW S For the years ended December 31, 2007 and 2006 2007 Cash Flows from Operating Activities Net Margins Adjustments to Reconcile Net Margins to Net Cash Provided by (Used in) Operations: Capital Credits and Patronage Dividend Certificates Assigned Depreciation Provision for Uncollectible Accounts Changes in Assets - Decrease (Increase) and Liabilities - Increase (Decrease): Accounts Receivable Prepayments and Other Current Assets Deferred Charge Accounts Payable Consumer Deposits Other Current Liabilities Deferred Credits Total Adjustments Net Cash Provided by (Used in) Operating Activities
$
7,718,604
2006 $
6,665,222
(4,203,321) 16,910,205 543,090
(3,491,831) 15,267,756 324,000
(3,371,783) (69,515) 294,134 (2,405,733) 979,410 5,804,412 (80,858) 14,400,041 22,118,645
(3,464,298 ) 256,140 1,734,449 (212,420 ) 868,841 (3,029,800 ) 315,930 8,568,767 15,233,989
Cash Flows from Investing Activities Change in Inventory Contributions in Aid of Construction Received Proceeds from Disposition of Property Proceeds from Redemption of Patronage Capital Certificate Proceeds from Redemption of Other Investments Purchase of Other Investments Extension and Replacement of Plant Plant Removal Cost Net Cash Provided by (Used in) Investing Activities
476,001 8,614,250 100,705
806,703 17,517,269 128,016
844,900 151,937 (90,000) (65,498,940) (2,068,345) (57,469,492)
640,467 42,469 (120,000) (74,637,457) (2,113,351) (57,735,884)
Cash Flows from Financing Activities Line of Credit (Net) Proceeds of Long-term Debt Payments on Long-term Debt Membership Fees Retirement of Capital Credits Reallocated Capital Credits Net Cash Provided by (Used in) Financing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year
(46,085,875) 89,500,000 (7,550,834) 25,555 (1,004,965) 11,102 34,894,983 (455,864) 2,643,928 2,188,064
51,513,800 0 (6,723,512) 23,708 (1,107,403) 9,295 43,715,888 1,213,993 1,429,935 2,643,928
See accompanying notes.
$
$
S TAT E M E N T S O F C A S H F L OW S
concluded For the years ended December 31, 2007 and 2006 2007
2006
Supplemental Disclosures of Cash Flow Information Cash Paid During the Year for: Interest
$
14,057,028
$
11,251,622
9,073,613 2,068,345 (1,177,653) 9,964,305
$
7,609,123 2,113,351 (708,644) 9,013,830
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 Material Salvaged Net Reduction in Accumulated Depreciation
See accompanying notes.
$
$
$
N O T E S T O F I N A N C I A L S TAT E M E N T S 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. 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 account. Depreciation on general plant assets is based on straight-line rates for specific assets as outlined by RUS ranging from three to twelve 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 and accounts at each bank are insured up to $100,000 by FDIC. As of December 31, 2007 and 2006, the amounts on deposit in one or more accounts were in excess of the insured limits. 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. Compensated Absences Earned but unpaid vacation and vested sick pay are accrued as incurred.
N O T E S T O F I N A N C I A L S TAT E M E N T S
continued
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 46% of the Cooperative’s work force is covered by a collective bargaining agreement that expires in September 2010. 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, 2007 and 2006: Depreciation 2007 2006 Rates Transmission Plant $ 7,508,168 $ 7,115,765 2.75% Distribution Plant 436,009,055 394,318,697 3.20% Intangible Plant 317,909 317,909 N/A General Plant: Land and Land Rights 1,485,463 353,428 N/A Structures and Improvements 14,866,596 14,019,501 2.0% Office Furniture and Fixtures 6,668,152 5,935,155 10.0%-20.0% Transportation Equipment 14,139,507 12,299,402 10.0%-20.0% Shop Equipment 1,651,442 1,370,237 8.4% Laboratory Equipment 1,203,580 1,154,229 10.0% Communications Equipment 2,602,107 2,593,643 4.2% Stores Equipment 436,200 428,758 5.9% Surge Protection Equipment 3,049,210 2,830,113 10.0% Miscellaneous Equipment 749,486 677,192 10.5% Software 2,835,889 2,781,060 20.0% Total Electric Plant in Service 493,522,764 446,195,089 Construction Work in Progress 27,201,660 25,455,642 Total Electric Plant - at Cost $ 520,724,424 $ 471,650,731 Depreciation expense of $15,636,407 (2007) and $14,112,232 (2006) is net of $1,274,452 (2007) and $1,155,524 (2006) charged to clearing accounts, some of which is capitalized.
N O T E S T O F I N A N C I A L S TAT E M E N T S
continued
Note 3 - Investments in Associated Organizations and Other Special Funds Investments in associated organizations and other special funds consist of the following: 2007 Seminole Electric Cooperative, Inc. Patronage Capital Assigned $ 14,873,121 National Rural Utilities Cooperative Finance Corporation (CFC): Patronage Capital Certificates 1,265,313 Capital Term Certificates 4,458,181 Investments in Other Associated Organizations 3,234,825 Special Funds 117,476 Total Investments in Associated Organizations and Other Special Funds $ 23,948,916
2006 $
13,123,294
1,214,034 4,520,119 1,677,508 0 $
20,534,955
CFC Capital Term Certificates are purchased as a condition of the mortgage agreements with CFC. At December 31, 2007 and 2006, they consist of the following: 2007 2006 Certificates, 5% (Maturing 2070 to 2080) $ 1,902,010 $ 1,902,010 Certificates, 3% (Maturing 2020 to 2030) 471,400 556,400 Certificates, 0% (Maturing at Variable Dates) 2,084,771 2,061,709 Total $ 4,458,181 $ 4,520,119 Note 4 - Accounts Receivable All of the Cooperative’s consumer accounts receivable are due from consumers in the central Florida area. Each new consumer pays a membership fee and makes 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 returns the member’s deposit. Other receivables at December 31, 2007 and 2006, include approximately $413,432 and $530,230, respectively, relating to pole rentals due from other utility companies. In addition, other receivables at December 31, 2007 and 2006, include an estimated reimbursement of $0 and $132,926, respectively, for stop loss coverage from HCC Life Insurance Company. 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 25.59% and 26.79% of the total assets at December 31, 2007 and 2006, respectively. Capital credit retirements in the amount of $1,004,965 and $1,107,403 were paid in 2007 and 2006, respectively.
N O T E S T O F I N A N C I A L S TAT E M E N T S
continued
Note 6 - Detail of Patronage Capital Assignable Assigned (Retired in Current Year) Reallocated Capital Credits (Cumulative Amount Retired in Previous Years) Total Patronage Capital
$
$
2007 7,718,604 136,608,379 144,326,983 (1,004,965) 11,102 (23,187,008) 120,146,112
$
$
2006 6,665,222 129,933,862 136,599,084 (1,107,403) 9,295 (22,079,605) 113,421,371
Note 7 - Detail of Other Equities 2007 Operating Margins (Prior to 1957) Nonoperating Margins (Prior to 1964) Capital Gains and Losses (Prior to 1964) Donated Capital Discount on Retired Capital Credits Total Other Equities
$
$
2006
32,092 19,371 10,533 626 2,570,311 2,632,933
$
$
32,092 19,371 10,533 626 2,570,311 2,632,933
Note 8 - Noncurrent Liabilities The Cooperative has the following unsecured lines of credit: 2007 SunTrust, N.A.; Credit Line of $35,000,000, Variable Interest Based Upon Bank’s Announced Rate, 5.9025% at December 31, 2006, Payable on Demand Bank of America, Credit Line of $40,000,000 in 2007 and $20,000,000 in 2006, Variable Interest, 3.56% at December 31, 2007, Payable on Demand Total Lines of Credit
2006
$
0
$
7,395,353 7,395,353
$
33,481,229
$
20,000,000 53,481,229
The Cooperative also has an available line of credit with CFC of $12,000,000 in 2007 and 2006. There were no amounts outstanding on these lines at year-end. The Cooperative had approved, but undrawn long-term loan funds available in the amount of $26,000,000 and $45,500,000 as of December 31, 2007 and 2006, respectively. In accordance with Statement of Financial Accounting Standards (SFAS) Statement No. 6, the line of credit has been classified as long-term debt in an amount not exceeding the available undrawn loan funds. The amount, if any, in excess of undrawn loan funds is classified as a current liability.
N O T E S T O F I N A N C I A L S TAT E M E N T S
continued
The following is a summary of the Cooperative’s long-term debt payable to RUS and CFC: 2007 RUS Mortgage Notes 2.000% Notes $ 0 2.125% Notes 3,867,297 2.250% Notes 0 2.375% Notes 1,830,816 2.500% Notes 1,853,619 2.750% Notes 9,681,266 3.000% Notes 7,893,066 3.125% Notes 8,738,907 3.250% Notes 2,616,844 3.500% Notes 13,312,974 3.625% Notes 14,630,745 3.750% Notes 28,184,481 3.875% Notes 1,471,534 4.000% Notes 3,550,849 4.125% Notes 33,778,691 5.000% Notes 35,299,165 5.070% Notes 44,000,000 5.500% Notes 5,188,484 Total RUS Mortgage Notes 215,898,738 (Current Portion) (4,306,913) Long-term Portion $ 211,591,825 CFC Mortgage Notes 3.550% Notes 4.250% Notes 4.550% Notes 4.950% Notes 5.150% Notes 5.250% Notes 5.300% Notes 6.000% Notes 6.028% Notes 6.150% Notes 6.198% Notes 6.250% Notes 7.000% Notes Total CFC Mortgage Notes (Current Portion) Long-term Portion
$
$
147,662 383,683 615,627 1,267,812 2,433,967 1,566,233 9,013,503 0 20,892,646 28,731,453 683,285 27,840,683 103,759 93,680,313 (3,557,806) 90,122,507
2006 $
$
$
$
23,828 3,966,610 8,083,797 1,878,762 1,901,158 9,905,302 8,064,948 8,944,204 2,671,531 23,921,123 10,955,265 14,260,847 1,507,920 3,629,315 9,711,786 36,793,227 0 5,303,644 151,523,267 (3,765,426) 147,757,841
435,257 542,839 762,903 1,453,966 2,683,420 1,682,486 9,479,713 725,746 0 29,259,466 0 28,818,551 262,269 76,106,616 (3,366,494) 72,740,122
N O T E S T O F I N A N C I A L S TAT E M E N T S
continued
RUS mortgage notes are payable to the United States of America for thirty-five-year periods each. Principal and interest are due in monthly or quarterly installments. Certain notes have provisions for interest rate changes at future dates. Unadvanced RUS loan funds of $26,000,000 and $24,500,000 were available to the Cooperative as of December 31, 2007 and 2006, respectively. 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. Unadvanced CFC loan funds of $0 and $21,000,000 were available to the Cooperative as of December 31, 2007 and 2006, respectively. Interest on long-term debt, all of which was charged to expense, follows: Lines of Credit RUS Mortgage Notes CFC Mortgage Notes Totals
$
$
2007 1,131,302 7,532,648 5,421,086 14,085,036
$
$
2006 1,485,913 5,720,290 4,473,704 11,679,907
Long-term debt maturing within each of the five years subsequent to December 31, 2007, is as follows: Mortgage Notes December 31 RUS CFC Total 2008 $ 4,306,913 $ 3,557,806 $ 7,864,719 2009 4,765,096 3,498,628 8,263,724 2010 5,253,184 3,494,052 8,747,236 2011 5,488,280 3,560,219 9,048,499 2012 5,721,558 3,561,464 9,283,022 Thereafter 190,363,707 76,008,144 266,371,851 Total $ 215,898,738 $ 93,680,313 $ 309,579,051 Substantially all assets and revenues of the Cooperative are pledged as collateral for these notes. Note 9 - Employee Benefit Plan 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 Program administered by the NRECA is a defined benefit, multi-employer plan qualified under Section 401 of the Internal Revenue Code and exempt from federal income tax under Section 501(a) of the Internal Revenue Code. The transferred net assets have been recognized in the accounts of the NRECA Plan as of July 1, 2003. The Cooperative incurred past service costs in the amount of $9,191,107 due to the transfer to the NRECA Plan. The total past service cost has been fully amortized. The Cooperative incurred pension expense totaling $2,037,217 and $1,794,786 related to the NRECA Plan during 2007 and 2006, respectively. All employees of the Cooperative meeting age and service requirements can elect to participate in a 401(k) savings plan of the National Rural Electric Cooperative Association. Employees may make contributions to the plan up to the maximum percentage outlined in the 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 plan are funded biweekly. The Cooperative’s contributions to the plan were $697,851 and $527,692 in 2007 and 2006, respectively. Self-insured Medical Benefits The Cooperative provides a self-insured medical benefits plan for active and retired employees, trustees and their dependents. Participants that select dependent or additional coverage are required to pay part of the cost of the plan.
N O T E S T O F I N A N C I A L S TAT E M E N T S
continued
In connection with the plan, the Cooperative maintains $875,000 specific excess insurance for claims that exceed $125,000 for any covered individual and $1,000,000 aggregate excess insurance for claims that exceed $5,425,000 in the plan year. Based upon the results of a prior actuarial review the Cooperative does not have a liability related to its coverage of retired employees. Note 10 - Related Party Transactions The Cooperative is one of ten members of Seminole Electric Cooperative, Inc. (Seminole), an electric generating and transmission cooperative. Seminole is the sole supplier of electricity to the Cooperative and has entered into an agreement to supply power to the Cooperative through 2045. Seminole 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:
Purchased Power Cost
$
2007 191,271,420
$
2006 196,109,238
Accounts Payable - Power Cost, December 31
$
13,313,625
$
13,814,695
Patronage Capital Assigned
$
1,749,827
$
2,349,832
Patronage Capital, December 31
$
14,873,121
$
13,123,294
Note 11 - Deferred Charges and Credits A schedule of deferred charges and credits are as follows: 2007 Deferred Charges Unamortized: Dues Deposits on Sales and Use Tax Deposit on Transformer Other Total Deferred Charges Deferred Credits Debt Costs Unclaimed Capital Credits Special Equipment Installation Costs Unpaid Billings for Contribution in Aid of Construction Other Deferred Amounts Customer Benevolent Fund Total Deferred Credits
$
$
$
$
58,089 148,384 0 (8,352) 198,121
0 52,889 295,072 35,209 583,645 127,023 1,093,838
2006
$
$
$
$
Amortization Amortization of deferred charges ranges from one to thirty years depending upon the individual item.
133,591 131,502 208,875 18,287 492,255
237,500 321,777 368,920 41,536 85,637 119,326 1,174,696
N O T E S T O F I N A N C I A L S TAT E M E N T S
concluded
Note 12 - Financial Instruments In accordance with SFAS Statement No. 107 of the Financial Accounting Standards Board, the following is a summary of the book and current values of the Cooperative’s financial instruments:
Financial Instruments RUS Long-term Debt CFC Long-term Debt CFC Subscription Capital Term Certificates and Interest-bearing Loan Capital Term Certificates CFC Loan Capital Term Certificates Lines of Credit Total
$
$
Book Value 215,898,738 93,680,313
2,373,411 1,100,414 7,395,353 320,448,229
$
$
Current Value 217,199,580 84,989,321
1,592,021 654,655 7,395,353 311,830,930
Discount Rates RUS Loans: 5% loans discounted at the RUS insured loan rates for the corresponding maturity dates. The rates range from 3.3875% to 4.125%. The RUS variable rate loans are discounted at the RUS insured loan rates as of January 1, 2008, for the corresponding maturity date. The maturity dates range from 1 year to 33 years and the rates range from 3.25% to 4.375%. CFC Loans: Fixed rate loans discounted at January 1, 2008, CFC fi xed rate using corresponding maturity dates for each loan. The maturity dates range from 1 year to 29 years and the rates range from 5.65% to 7.20%. CFC Capital Term Certificates (CTC’s): Loan CTC’s are discounted based on the corresponding maturity dates of the CFC long-term fixed rates. The rates range from 6.70% to 7.20%. Subscription CTC’s were discounted using the thirty-year long-term rate of 7.25%. Farmer MAC Loans: Fixed rate loans discounted at January 1, 2008, CFC fi xed rate using corresponding maturity dates for each loan. The maturity dates range from 6 years to 32 years and the rates range from 6.20% to 7.25%. Note 13 - Contingency The Cooperative has been identified as a potentially responsible party in a transformer superfund site. While it is not possible to predict the outcome of this matter, its resolution is not expected to have a material effect on the accompanying financial statements.