SUMTER ELECTRIC COOPERATIVE
2009 ANNUAL REPORT
TEA WORK
“If everyone is moving forward together, then success takes care of itself.” — Henry Ford
2009
Annual Report to Members
HIGHLIGHTS
Operating Revenue . . . . . . . . . . $325,848,329 Net Margins . . . . . . . . . . . . . . . . . . $15,247,921 Total Assets . . . . . . . . . . . . . . . . . $537,377,673 Patronage Capital Distributed. . .$1,442,861 Kilowatt-Hours Sold . . . . . . . . .2,714,230,212 Miles of Energized Line . . . . . . . . . . . . . 11,473
Number of Members . . . . . . . . . . . . . .169,169 Full-Time Employees. . . . . . . . . . . . . . . . . . . 391
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New Services . . . . . . . . . . . . . . . . . . . . . . . . 3,265
ACHIEVEMENT
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“Unless you try to do something beyond what you have already mastered, you will never grow.” — Ralph Waldo Emerson As the cover design of this year’s Annual Report to the Members suggests, it takes teamwork to keep your co-op moving towards the top where exceeding your expectations is concerned. Our sole focus is on trying to do the best job possible for the membership each and every day. That is a big job at a co-op that provides electricity to a service territory the size of the State of Delaware — nearly 11,500 miles of power lines — to more than 169,000 SECO members and their families. It takes a coordinated team approach to keep the delivery of your electricity at a consistently reliable level, keep you informed of the many programs available to you, and strive to provide you with the best in customer service. At SECO, and the over 900 other electric cooperatives in the nation, there is no profit motive. The members are the most important part of the co-op equation and the mission is simply to provide member/customers with the most reliable, competitively priced power possible. Like our members who have households to run on a budget — SECO, too, must operate in a fiscally responsible manner. And like our members, we saw the cost of just about everything we must purchase like transformers, electric wire, tools, etc. go up. As we all know, the general economic conditions in 2009 were challenging for just about everyone. Still, your co-op persevered as did our members. The bond between the members and their co-op remains strong. We know because of the thousands of positive letters, e-mails, telephone
calls, personal interactions and member survey results we received in 2009. Speaking of surveys, to get a sense of what the overall membership is thinking — an annual telephone survey is conducted on our behalf by the research arm of the National Rural Electric Cooperative Association each November. The results from the 2009 survey have been tabulated and the members have once again given us a great report card.
Overall, members continue to think very highly of their cooperative with a mean overall satisfaction rating of 8.92 on a 10-point scale with seven in ten members giving ratings of 9 or 10. The co-op scored very highly on: • having courteous and friendly employees. • having accurate and understandable bills. • supporting the local community. • being environmentally sensitive. • minimizing longer outages. • restoring power quickly after an outage. • keeping members informed — to name a few of the categories. Another measurement which was contained within the survey was a series of questions that compare SECO to other types of companies who seek to rate themselves on the nationally recognized American Customer Satisfaction Index (ACSI). Again, SECO’s ACSI score of 85 was one of the highest in the industry and ranked higher than the average for the nation’s Touchstone
We also scored higher than PepsiCo, Target Corporation, Nike, Verizon, DirecTV and others who are not in the electric industry. This kind of input from the members helps us stay on top of what is important to you. For our part, we pledge to continue to provide you with the most reliable and lowest cost electricity possible while not losing sight of the high premium you place on customer service. Speaking of your cost of electricity, we do everything we can to operate efficiently and effectively on your behalf and as a result, our rates continue to be very competitive. However, you may be surprised to know that approximately 70% of the money we receive from the members each year goes solely to pay for the power we purchase. Your co-op does not keep one penny of that 70%. That leaves only about 30% for your co-op to pay for operations, system maintenance, member services and the like. In fact, because we are a member-owned, not-for-profit utility we retain only 4 to 5% of the revenue paid to the co-op as margins each year. Our lenders require strong margins as a mortgage requirement. In addition, the margins help hold down borrowing. We keep this small percentage to insure the co-op’s financial stability and any excess is then credited to the members’ accounts each November. Those capital credit returns to the membership have been averaging over a million dollars each year.
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A statistically valid sample of members in Marion, Lake, Citrus and Sumter counties were surveyed.
Energy co-ops, the ranked investor-owned electric utilities in Florida, and was 13 points above the electric industry average of 72.
DONALD W. SANTEE
DILLARD B. BOYATT
KENNETH JESSOP
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Getting back to the cost of power, it is important for you to know exactly what the Power Cost Adjustment (PCA) item is on your statement. The rates SECO must charge members have an estimated power cost built-in. Once we know the actual purchased power cost, we pass through the difference as a PCA charge, or credit, on your statement.
EARL MUFFETT 4
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Occasionally we hear from a member who wonders why the PCA charge doesn’t go down when the price of a gallon of gasoline goes down. The short answer is the price of gasoline has nothing to do with the PCA. The fuels used by Seminole Electric Cooperative to create the power they provide to SECO and nine other electric cooperatives include coal, natural gas, biomass and some nuclear power generation. Seminole, like SECO, has no profit motive and purchases fuel at the lowest cost possible using both spot market purchases and longer term contracts. In addition, the power cost also covers the costs of transporting the fuels purchased to the power plants. Those are significant cost factors, as well.
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In fact, where coal is concerned, it costs as much to transport it to our power plants as it does to buy the coal itself. Hopefully, this gives you a better understanding of how the power cost impacts your electric charge.
WILSON G. SHEPPARD %JTUSJDU
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LEADERSHI
It is a cost item over which we have little control except our presence on Seminole’s Board where we work with their management to try to control costs.
impact on your power costs. Once the energy audit is concluded, they will provide you with practical solutions to correct any problems they discover.
Helping you save money in your household is also a high priority for us. We have put a number of programs in place to assist you in doing just that.
This is a free service that can mean real savings for you.
SECO has a specially trained staff of energy services specialists who will come to your location and conduct a thorough examination of your house. They will check everything from the attic to the exterior of your home to pinpoint things that are wasting energy and having a negative
SECO also has an excellent speakers’ bureau that is available to do presentations for any organized group of 20 or more individuals. If you are a part of a church group, service club or other type of organization, just give us a call. We have a variety of presentation topics including several on energy efficiency. You’ll find them informative and useful.
RAY F. VICK
JERRY D. HATFIELD
BARRY R. EVANS
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“The journey may seem far, with many mountains and winding rivers. We may have the determination to succeed, but it is our perseverance that will overcome that what lies ahead.� — Unknown
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CUS OMER FOCUS
“Service is the lifeblood of any organization. Everything flows from it and is nourished by it. Customer service is not a department ... it’s an attitude.” — Unknown If you are a regular reader of our member newsletter SECO News you know that we often give tips and information on energy conservation measures you can take to lower your electric bills. Our free, full color Home Energy Management guide is packed with useful and easy tips that you can readily apply to your household. Likewise our Internet site at secoenergy.com is an incredible resource for members and loaded with similar information. One such feature is a home energy audit program that you can do right from your own home computer. Additionally, you can access our on-line energy store from the website. The store features a wide variety of energy saving devices for the home as well as storm preparation supplies. Best of all, you get a discount on all these products as a SECO member. We are proud of the fact that we now have employees who have been certified to help interested area builders construct homes which are truly green and energy efficient. And, we were the first co-op in the state to offer net metering for our members who wanted to place solar panels on their property.
We are heavily focused on helping you become more effective in how you use energy in the home. Not only does this help you manage your power bill, it also helps conserve resources. One of the largest issues facing American business and the American consumer is proposed cap and trade legislation. Being environmentally responsible is a good thing. Exaggerating environmental problems can be a very bad thing with enormous consequences. We think the advocates of catastrophic global warming have been exaggerating the problem which has led to a hurried push for cap and trade legislation. Cap and trade does nothing to clean up the environment, but it does give the government the opportunity for additional tax revenue and others the opportunity to get rich by trading carbon credits like you’d trade stocks on Wall Street. We are very much in favor of doing things that have a genuinely beneficial effect upon our environment and for which there is a proven need. We also believe that we must get the science right on climate change before taking actions that will take us down the road to economic ruin.
The e-mails also showed that there was an effort to personally discredit scientists who had a different point of view and prevent their scientific papers from being printed in scientific journals. Lastly, there was evidence in these e-mails that the CRU tried to side step Freedom of Information requests asking for temperature data that supposedly supported the CRU’s position that the earth is warming and man is responsible. Professor Phil Jones who headed the CRU has had to step down from that position because of the on-going investigation into data tampering. The CRU is supposed to be one of the world’s leading bodies on climate change. Its data was used in creating the seriously flawed reports that have come out from the U.N. Intergovernmental Panel on Climate Change and others. The e-mail scandal has called its entire operation into question. And, subsequently, in an interview with the British Broadcasting Corporation (BBC), Professor Phil Jones made some startling admissions. After he stepped down as head of the CRU, he was asked what it means when some scientists say “the debate on climate change is over.” Jones said he did not believe the vast majority of
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How much do events like solar activity, volcanoes, etc. affect the climate? Does human activity have the disastrous influence on climate the consensus folks think it has? Is there really any significant warming or are we actually in a cooling period? We need solid scientific, peerreviewed answers to these questions. It seems the consensus on catastrophic climate change is breaking down and here’s why:
Climategate was the public exposure of troubling e-mails from scientists associated with the University of East Anglia in Britain. These 1,000 e-mails were sent to or from members of the University’s Climatic Research Unit (CRU) and indicate that there was a conscious attempt by these scientists to massage climate data to make it appear the earth was warming at a rapid rate.
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RE IABLE
“Promises are the uniquely human way of ordering the future, making it predictable and reliable to the extent that this is humanly possible.” — Hannah Arendt climate scientists think this. He went further and said, “This is not my view. There is still much that needs to be undertaken to reduce uncertainties, not just for the future, but for the … past as well.” He noted that there’s been no statistically significant warming since 1995. In addition, he told the BBC that the world may well have been warmer in medieval times than it is now. In other words, Jones who spearheaded the global warming advocacy did a virtual 180 on the issue of whether consensus had been reached. Following the startling and revealing e-mails at East Anglia, Russian scientists complained that they thought Russian climate data had been tampered with at the Hadley Center for Climate Change, also in Britain. These scientists were concerned that the Hadley group had cherrypicked temperature data from Russian urban areas where it is warmer and largely ignored the colder data from rural areas and Siberia. This would totally skew the data Hadley supplies to the U.N., NASA, NOAA and others making it look like there is a greater warming trend than actually exists. Now scientists and others from Canada, China
and elsewhere are saying that temperature recording stations in more rural, colder areas of their countries have been ignored by the U.N. and others in favor of temperature stations in more urban, warmer areas to make it appear as if there is a marked warming trend. The United Nations Intergovernmental Panel on Climate Change (IPCC) reports have been used by Al Gore and others to reinforce the case that global warming is real, man is the culprit, and we must do something right now to reverse it. The IPCC had insisted that all the conclusions in its reports were based entirely on solid, peerreviewed research. That claim of pure, peerreviewed research has been proven fraudulent through a series of recent scandalous revelations that call all the reports from the IPCC into question. The IPCC pronounced that the Himalayan mountain glaciers would disappear by 2035. Did they base that on peer-reviewed research? The answer is no. They simply made up this conclusion based on a news story that interviewed a single Indian glaciologist in 1999. What kind of science is that? To make matters worse, the glaciologist
interviewed said he was misquoted by the news media and he provided them with no data to support the claim the glaciers would disappear. In other words, the IPCC simply made up this doomsday prediction.
The IPCC made very aggressive claims that extreme weather-related events like Hurricane Katrina were linked to global warming suggesting that these events would continue and be catastrophic in nature. The IPCC based this assertion on yet another report that was not peer reviewed and whose author has now criticized the IPCC for being “completely misleading” in its interpretation of that report. These are just a few of the errors and manipulations that have been discovered in the IPCC reports thus far. The U.N. Intergovernmental Panel on Climate Change says that reports are important because they have been the basis for the claims by Al Gore, President Obama, the Congress, the EPA and others that climate ruin is inevitable unless the world reorganizes its economies with huge new taxes on carbon. What we have now discovered is that the IPCC reports are sloppy, shoddy, political (not scientific) documents intended to drive the global warming lobby’s agenda.
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The IPCC stated that up to 40% of the Amazon rain forest was at risk because of global temperatures. Again, the IPCC cited no scientific studies to support this. Instead, the IPCC took a non-scientific report from The World Wildlife Fund, which is an activist green lobby group, and used it to come to that conclusion. The Wildlife Fund’s report itself was a misrepresentation of a study in the journal Nature. The Nature study had nothing in it that would support the erroneous contention that problems in the Amazon are a result of global warming. The study actually indicated that deforestation in the Amazon was more likely a result of human activity like logging and burning. Once again, the IPCC twisted the information to support its own preconceived conclusions about global warming.
JIM DUNCAN
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Chief Executive Officer
INTEGRITY
“Integrity is the uncompromising adherence to a code of moral values and principles. It requires soundness of ethical strength.” — Unknown
A number of scientists associated with the IPCC itself are calling for reform, as are others around the world. Indeed, the past chairman of the IPCC, Robert Watson, said the IPCC must take responsibility for correcting errors and that the panel is losing credibility. Watson is the United Kingdom’s highest level environmental scientist. Despite the fact that the so-called “consensus” on climate change is evaporating, the U.S. Environmental Protection Agency (EPA) has used the same flawed data to push through their own agenda by doing an end run Sr. Executive Assistant around Congress. They are attempting to force Congress to pass a cap and trade bill through the inappropriate use of the Clean Air Act. Meanwhile, both Republicans and Democrats seem increasingly opposed to a cap and trade bill.
NORA BROWN
Just before President Obama’s trip to the U.N. Climate Control conference in Copenhagen, the EPA came up with what is called an endangerment finding declaring that all greenhouse gases are dangerous to human health, including carbon dioxide (CO2). This finding would allow the EPA to regulate greenhouse gases, including CO2, without the pesky input of the American people or their elected representatives. Carbon dioxide (CO2) is, of course, the gas animals and humans exhale with every breath after inhaling oxygen. The EPA’s finding is based on science that has now been called into serious question. One of the main authors of the most recent version of the Clean Air Act, U.S. Representative John Dingell (Democrat from Michigan) has warned that using the Clean Air Act to regulate carbon dioxide was never intended by Congress when the Act was passed, and will, in his words, result in a “glorious mess”. Disregarding Congress’ original intent when it passed the Act, the EPA subsequently issued a finding that included carbon dioxide among other emissions that endanger public health and welfare.
BEN BRICKHOUSE
JOHN LASELVA
Director of Corporate Communications Director of Engineering & Information Technology & Energy Services
Director of Reliability & Operations
BARRY B BA ARRY R BOWMAN
Because the EPA has disregarded Congress’ original intent when it passed the Act, several members in the U.S. House and Senate have introduced bipartisan proposals to stop EPA from using the Clean Air Act in this way. If cap and trade as we know it is passed in the Congress or if the EPA takes control of the economy — the cost of your power will “skyrocket” according to President Obama. Not only will electric bills across the country skyrocket if cap and trade legislation is passed, the cost of just about everything else that is manufactured and purchased by consumers will cost much more.
Director of Human Resources & Corporate Services
TED PURSER Director of Accounting & Finance
That is why it is so vitally important to really get the science settled before taking any precipitous actions at the federal level. Then, if it turns out there are some things we should be doing — we can address any issues in a responsible and unified way.
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ALEX A AL EX MA MARKLEY M ARKLE LEY
INDEPENDENT AUDITORS’ REPORT Board of Directors Sumter Electric Cooperative, Inc. Sumterville, Florida
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We have audited the accompanying balance sheets of Sumter Electric Cooperative, Inc. (the Cooperative), as of December 31, 2009 and 2008, 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, 2009 and 2008, 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 16, 2010, 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 important for assessing the results of our audits.
Purvis, Gray and Company, LLP February 16, 2010 Gainesville, Florida
BALANCE SHEETS December 31, 2009 and 2008
ASSETS 2009 $
554,840,925 21,322,958 576,163,883
2008 $
529,104,957 19,547,384 548,652,341
(114,654,031)
(104,185,819)
461,509,852
444,466,522
32,519,244
26,553,427
2,754,326
4,418,486
12,075,378 1,051,650 12,223,176 12,746,513 2,111,834 42,962,877 385,700 537,377,673
12,044,397 1,767,405 11,907,237 13,199,340 3,499,308 46,836,173 340,651 518,196,773
734,189 142,401,596 2,632,933 145,768,718
724,069 128,596,536 2,632,933 131,953,538
337,709,422
332,952,323
9,145,403 26,027,122 10,659,950 7,158,880 52,991,355 908,178 537,377,673
8,512,513 27,651,304 8,752,627 7,457,835 52,374,279 916,633 518,196,773
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 Accounts Payable Consumer Deposits Other Current or Accrued Liabilities Total Current Liabilities Deferred Credits Total Equities and Liabilities
$
See accompanying notes.
$
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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 2009 - $798,142; 2008 - $642,053) Other Receivables Unbilled Electric Revenues Inventories Prepayments and Other Current Assets Total Current Assets Deferred Charges Total Assets
STATEMENT OF REVENUES AND PATRONAGE CAPITAL For the years ended December 31, 2009 and 2008
Operating Revenues
$
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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)
2009 325,848,329
$
2008 313,900,724
228,817,265 169,954 12,859,824 18,536,778 9,756,685 1,430,390 11,734,353 17,878,696 53,750 543,809 (301,781,504)
219,840,120 118,049 12,215,156 22,047,623 9,373,666 1,251,323 10,726,088 16,943,081 51,754 595,459 (293,162,319)
Operating Margins Before Fixed Charges
24,066,825
20,738,405
Fixed Charges Interest on Long-term Debt
(15,217,117)
(14,659,237)
Operating Margins After Fixed Charges
8,849,708
6,079,168
Other Margins G&T Cooperative Capital Credits Other Capital Credits and Margins Total Other Margins
4,647,203 1,597,028 6,244,231
1,869,385 1,442,360 3,311,745
15,093,939
9,390,913
153,495 487 153,982
129,503 87,770 217,273
15,247,921
9,608,186
128,596,536
120,146,112
(1,442,861)
(1,157,762)
Net Operating Margins Nonoperating Margins Interest Income Other Nonoperating Income Total Nonoperating Margins Net Margins Patronage Capital, Beginning of Year (Retirement of Capital Credits) Reallocated Capital Credits Patronage Capital, End of Year
0 $ See accompanying notes.
142,401,596
0 $
128,596,536
STATEMENT OF CASH FLOWS December 31, 2009 and 2008 2009 $
15,247,921
$
9,608,186
(6,244,231) 19,617,707 901,204
(3,311,745 ) 18,725,844 774,552
(532,369) 1,387,474 (45,049) (1,624,182 ) 1,907,323 (434,918) (8,455 ) 14,924,504 30,172,425
(3,648,390) (3,325,141) (142,530) 8,515,395 747,125 (6,630,972) (177,205) 11,526,933 21,135,119
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
452,827 3,067,060 240,319
(4,858,139) 4,186,574 90,117
433,133 81,244 (100,000) (37,531,543) (2,436,873) (35,793,833)
673,549 50,745 0 (40,205,912) (2,186,785) (42,249,851)
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 Net Cash Provided by (Used in) Financing Activities
13,995,358 0 (8,605,369) 10,120 (1,442,861) 3,957,248
6,404,647 26,000,000 (7,914,215) 12,484 (1,157,762) 23,345,154
Net Increase (Decrease) in Cash and Cash Equivalents
(1,664,160)
2,230,422
Cash and Cash Equivalents, Beginning of Year
4,418,486
2,188,064
Cash and Cash Equivalents, End of Year
$ See accompanying notes.
2,754,326
$
4,418,486
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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 Charges Accounts Payable Consumer Deposits Other Current Liabilities Deferred Credits Total Adjustments Net Cash Provided by (Used in) Operating Activities
2008
STATEMENT OF CASH FLOWS December 31, 2009 and 2008 2009
2008
Supplemental Disclosures of Cash Flow Information Cash Paid During the Year for: Interest
$
15,189,786
$
14,659,248
9,037,963 2,436,873 (1,808,727) 9,666,109
$
9,604,716 2,186,785 (1,230,513) 10,560,988
Supplemental Schedule of Noncash Investing and Financing Activities The Cooperative Retired Certain Assets from its Plant Records as Follows: $
$
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Cost of Assets Retired Plant Removal Costs Material Salvaged Net Reduction in Accumulated Depreciation
See accompanying notes.
$
NOTES TO FINANCIAL STATEMENTS December 31, 2009 and 2008 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.
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 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. As of December 31, 2009 and 2008, accounts at each bank are insured by the FDIC for all money on deposit. Effective November 21, 2008, under the Transaction Account Guarantee Program, which is part of the Temporary Liquidity Guarantee Program, there is unlimited coverage for noninterest-bearing checking deposit accounts. 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 by-laws.
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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 December 31, 2009 and 2008 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. For the year ended December 31, 2009, the Cooperative 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 990 has not been examined by the Internal Revenue Service within the last three years. Compensated Absences Vacation is accrued monthly as it is earned and sick pay is expensed as it is taken. 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.
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Collective Bargaining Approximately 45% of the Cooperative’s work force is covered by a collective bargaining agreement that expires in September 2010. Subsequent Events Management has evaluated subsequent events through February 16, 2010, the date the financial statements were available to be issued. 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, 2009 and 2008:
2009 Transmission Plant Distribution Plant Intangible Plant General Plant: Land and Land Rights Structures and Improvements Office Furniture and Fixtures Transportation Equipment Shop Equipment Laboratory Equipment Communications Equipment Stores Equipment Surge Protection Equipment Miscellaneous Equipment Software Total Electric Plant in Service Construction Work in Progress Total Electric Plant - at Cost
$
$
8,704,963 481,599,350 346,899 1,485,463 21,704,614 9,008,254 17,758,907 2,276,077 1,214,204 2,737,023 476,904 3,376,392 1,002,976 3,148,899 554,840,925 21,322,958 576,163,883
2008 $
$
Depreciation Rates
7,900,363 462,666,982 317,909
2.75% 3.20% N/A
1,485,463 20,041,723 7,235,399 15,876,365 1,904,239 1,214,204 2,737,023 462,306 3,218,225 895,857 3,148,899 529,104,957 19,547,384 548,652,341
N/A 2.9% 10.0%-20.0% 10.0%-20.0% 14.5% 8.2% 4.2% 6.5% 10.0% 9.1% 20.0%-33.3%
Depreciation expense of $17,878,696 (2009) and $16,943,081 (2008) is net of $1,739,011 (2009) and $1,782,763 (2008) charged to clearing accounts, some of which is capitalized.
NOTES TO FINANCIAL STATEMENTS December 31, 2009 and 2008 Note 3 - Investments in Associated Organizations and Other Special Funds Investments in associated organizations and other special funds consist of the following: 2009 Seminole Electric Cooperative, Inc. Patronage Capital Assigned $ 21,389,709 National Rural Utilities Cooperative Finance Corporation (CFC): Patronage Capital Certificates 1,483,719 Capital Term Certificates 4,326,192 Investments in Other Associated Organizations 5,049,124 Special Funds 270,500 Total Investments in Associated Organizations and Other Special Funds $ 32,519,244
2008 $
16,742,506
1,307,373 4,407,436 3,961,575 134,537 $
26,553,427
CFC Capital Term Certificates are purchased as a condition of the mortgage agreements with CFC. At December 31, 2009 and 2008, they consist of the following: 2009 2008 Certificates, 5% (Maturing 2070 to 2080) $ 1,902,011 $ 1,902,010 Certificates, 3% (Maturing 2020 to 2030) 471,400 471,400 Certificates, 0% (Maturing at Variable Dates) 1,952,781 2,034,026 Total $ 4,326,192 $ 4,407,436
ASC 820, among other things, requires the Cooperative to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the company’s market assumptions. ASC 820 defines the following fair value hierarchy based on these two types of inputs: ■
Level 1 — Quoted prices for identical instruments in active markets.
■ Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which all significant inputs and significant value drivers are observable in active markets. ■
Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable.
Fair values of assets measured on a recurring basis at December 31, 2009 are as follows:
Special Funds
$
Fair Value 270,500
Quoted Prices in Active Markets for Identical Assets (Level 1) $ 270,500
Significant Other Observable Inputs (Level 2) $
Significant Unobservable Inputs (Level 3) 0
$
0
19
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.
NOTES TO FINANCIAL STATEMENTS December 31, 2009 and 2008 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 at December 31, 2009 and 2008, include approximately $293,425 and $499,718, respectively, relating to pole rentals due from other utility companies. 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 27.13% and 25.46% of the total assets at December 31, 2009 and 2008, respectively. Capital credit retirements in the amount of $1,442,861 and $1,157,762 were paid in 2009 and 2008, respectively. Note 6 - Detail of Patronage Capital
20
Assignable Assigned (Retired in Current Year) (Cumulative Amount Retired in Previous Years) Total Patronage Capital
$
$
2009 15,247,921 153,935,169 169,183,090 (1,442,861) (25,338,633) 142,401,596
$
$
2008 9,608,186 144,326,983 153,935,169 (1,157,762) (24,180,871) 128,596,536
Note 7 - Detail of Other Equities 2009 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
$
$
32,092 19,371 10,533 626 2,570,311 2,632,933
2008 $
$
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: 2009 CoBank, ACB. Credit Line of $50,000,000, Variable Interest, 3.14% at December 31, 2009, Payable on Demand and a Credit Line of $40,000,000, - Variable Interest, 3.17% at December 31, 2008
$
27,795,358
2008
$
13,800,000
The Cooperative also has an available line of credit with CFC of $12,000,000 in 2009 and 2008. The Cooperative also had approved, but undrawn long-term loan funds available in the amount of $68,500,000 as of December 31, 2009. In accordance with ASC 470, Debt, the line of credit has been classified as long-term debt in an amount not exceeding the undrawn loan funds. The amount, if any, in excess of undrawn loan funds is classified as a current liability.
NOTES TO FINANCIAL STATEMENTS December 31, 2009 and 2008
CFC Mortgage Notes 4.250% Notes 4.550% Notes 4.950% Notes 5.150% Notes 5.250% Notes 5.300% Notes 6.028% Notes 6.150% Notes 6.198% Notes 6.250% Notes Total CFC Mortgage Notes (Current Portion) Long-term Portion
$
$
44,455 300,310 28,417,269 1,895,083 1,314,718 8,004,106 20,429,884 501,551 23,249 25,693,254 86,623,879 (3,494,052) 83,129,827
2008 $
$
$
$
0 1,802,143 4,782,796 1,781,722 26,000,000 0 9,451,011 9,239,311 7,003,848 2,560,359 13,058,982 13,343,699 27,588,880 1,433,718 3,469,200 33,230,901 33,728,905 44,000,000 5,066,854 237,542,329 (5,013,885) 232,528,444
217,654 461,534 1,072,271 2,171,417 1,443,754 8,522,088 20,668,134 28,170,211 595,191 26,800,253 90,122,507 (3,498,628) 86,623,879
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. 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. At December 31, 2009 and 2008, the balance of these notes was $20,931,435 and $21,263,324, respectively. There were no unadvanced CFC loan funds available to the Cooperative as of December 31, 2009 and 2008, respectively.
21
The following is a summary of the Cooperative’s long-term debt payable to RUS and CFC: 2009 RUS Mortgage Notes 1.000% Notes $ 1,743,728 1.875% Notes 0 2.125% Notes 4,646,256 2.375% Notes 1,731,521 2.550% Notes 25,706,151 2.625% Notes 3,534,084 2.750% Notes 9,214,374 3.000% Notes 7,533,477 3.125% Notes 8,308,796 3.250% Notes 2,502,005 3.500% Notes 12,795,922 3.625% Notes 13,095,145 3.750% Notes 23,469,721 3.875% Notes 1,394,405 4.000% Notes 3,384,211 4.125% Notes 32,659,981 5.000% Notes 32,078,080 5.070% Notes 43,699,395 5.500% Notes 4,938,336 Total RUS Mortgage Notes 232,435,588 (Current Portion) (5,651,351) Long-term Portion $ 226,784,237
NOTES TO FINANCIAL STATEMENTS December 31, 2009 and 2008 Interest on long-term debt, all of which was charged to expense, follows: 2009 Lines of Credit RUS Mortgage Notes CFC Mortgage Notes Totals
$
$
786,888 9,284,375 5,145,854 15,217,117
2008 $
$
419,742 8,880,113 5,359,382 14,659,237
Long-term debt maturing within each of the five years subsequent to December 31, 2009, is as follows:
22
December 31 2010 2011 2012 2013 2014 Thereafter Total
$
$
Mortgage Notes RUS 5,651,351 $ 5,940,977 6,156,411 6,463,102 6,154,095 202,069,652 232,435,588 $
CFC 3,494,052 3,560,219 3,561,464 3,773,824 3,608,008 68,626,312 86,623,879
$
$
Total 9,145,403 9,501,196 9,717,875 10,236,926 9,762,103 270,695,964 319,059,467
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 and a Debt Service Coverage (DSC) Ratio of 1.25 in two out of the last three years. As of December 31, 2009 and 2008, the Cooperative achieved a Times Interest Earned Ratio of 2.06 and 1.67, respectively and a Debt Service Coverage Ratio of 2.06 and 1.84, respectively. 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 $2,682,148 and $2,307,240 related to the NRECA Plan during 2009 and 2008, respectively. All employees of the Cooperative meeting age and service requirements can elect to participate in a 401(k) savings plan (the 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 $826,668 and $800,202 in 2009 and 2008, respectively. Effective January 2006, the Cooperative adopted an executive compensation plan that allows eligible participants to defer compensation under Internal Revenue Code Section 457. There is no matching employer contribution. This plan is administered by the Cooperative and plan assets are subject to the Cooperatives creditors in the event of bankruptcy or insolvency. Plan assets totaled $270,500 and $134,537 at December 31, 2009 and 2008, respectively.
NOTES TO FINANCIAL STATEMENTS December 31, 2009 and 2008 Self-insured Medical Benefits The Cooperative provides a self-insured medical benefits plan for active and retired employees, trustees, and their dependents. Active employees that select dependent or additional coverage are required to pay a premium to cover part of the cost of the coverage they select. Retired employees and trustees are required to pay a premium to cover the full cost of the coverage they select. In connection with the plan, the Cooperative maintains specific excess insurance for claims that exceed $175,000 for any covered individual up to the maximum lifetime reimbursement of $1,825,000 and $1,000,000 aggregate excess insurance for claims that exceed $3,791,544 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., 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.:
$
2008 219,840,120
$
Accounts Payable - Power Cost, December 31
$
19,905,389
$
21,033,088
Patronage Capital Assigned
$
4,647,203
$
1,869,385
Patronage Capital, December 31
$
21,389,709
$
16,742,506
Note 11 - Deferred Charges and Credits A schedule of deferred charges and credits are as follows: 2009 Deferred Charges Unamortized: Dues Deposits on Sales and Use Tax Other Total Deferred Charges Deferred Credits Unclaimed Capital Credits Unpaid Billings for Contribution in Aid of Construction Other Deferred Amounts Customer Benevolent Fund Total Deferred Credits Amortization Deferred charges are amortized over periods of one or more years.
$
2008
$
$
152,904 168,000 64,796 385,700
$
147,411 194,581 (1,341) 340,651
$
502,298
$
568,790
$
4,127 270,792 130,961 908,178
$
3,109 211,452 133,282 916,633
ď ¨23ď §
Purchased Power Cost
2009 228,817,265
NOTES TO FINANCIAL STATEMENTS December 31, 2009 and 2008 Note 12 - Financial Instruments In accordance with ASC 825, Financial Instruments, the following is a summary of the book and current values of the Cooperative’s financial instruments: Book Current Financial Instruments Value Value RUS Long-term Debt $ 232,435,588 $ 263,327,098 CFC Long-term Debt 86,623,879 88,991,074 CFC Subscription Capital Term Certificate and Interest-bearing Loan Capital Term Certificates 2,373,411 1,477,986 CFC Loan Capital Term Certificates 1,412,792 762,372 Lines of Credit 27,795,358 27,795,358 Total $ 350,641,028 $ 382,353,888 Discount Rates
24
RUS Loans: ■
5% loans discounted at the RUS insured loan rates for the corresponding maturity dates. The rates range from 2.75% to 3.875%.
■
The RUS variable rate loans are discounted at the RUS insured loan rates as of January 1, 2010, for the corresponding maturity date. The maturity dates range from 1 year to 32 years and the rates range from 0.5% to 4%.
CFC Loans: ■
Fixed rate loans discounted at December 31, 2009, CFC fixed rate using corresponding maturity dates for each loan. The maturity dates range from 1 year to 30 years and the rates range from 3.5% to 7.9%.
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 7.0% to 7.95%.
■
Subscription CTC’s were discounted using the corresponding interest rates for the years remaining on the CTC.
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.
VISION
“I find the great thing in this world is not so much where we stand, as in what direction we are moving – we must sail sometimes with the wind and sometimes against it – but we must sail, and not drift, nor lie at anchor.” — Oliver Wendell Holmes
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
SECO HEADQUARTERS 330 South US Highway 301 Sumterville, FL 33585 (352) 793-3801 www.secoenergy.com