LET THERE BE LIGHT
2016 ANNUAL REPORT
TABLE OF CONTENTS
5 6 8 District Map
Balance Sheets
1
CEO letter to Members
Purpose & Core Values
Statements of Revenues and Patronage Capital
9
Board of Trustees
7
4
Auditors’ Letter
10
Statements of Cash Flows
LETTER TO THE MEMBERS Dear SECO Energy Members, From the torch, to the oil lamp, to the Edison incandescent, to the CFL and LED, lighting has changed dramatically with the times. To “let there be light” today, SECO Energy must also change with the evolution of our industry, control costs and provide a high level of customer service. That’s what you expect and deserve, and we stand ready to serve your energy needs. Another year has come and gone, and I am proud and humbled to share strong fiscal results. Staying ahead of growing power demand is a challenge that is capital and expense intensive and a delicate balance of design, construction, maintenance and vegetation management. Illuminating your homes and powering your appliances and electronics is a 24/7 responsibility. “Storm Ready” is SECO’s motto when Hurricane Season converges on The Sunshine State on June 1. If a storm blows through and the lights do go out, you can bet that our crews and contractors are staged and on the move to restore power as soon as it’s safe. You can bet that your lights will be back on before any other utility in the state. Our Emergency Restoration Plan and investments in storm preparation ensure that you will not go without power for an extended period of time - sans truly catastrophic damage. Our dedication to you over the last decade of service improvements has manifested in SECO Energy earning two consecutive J.D. Power awards for highest customer satisfaction in the nation in our segment. The cooperative’s ACSI score improved this year to 89 – an outstanding rating, especially when compared to investor-owned and municipal utilities. What distinguishes SECO from other providers is called the cooperative difference and is made possible by our Board of Trustees’ governance, our executive team’s leadership and, most important, the dedication and hard work of the 400+ SECO Energy employees. Thank you, members, for rating SECO so highly and for your loyal patronage of our company. We are humbled and privileged to serve as your Central Florida energy provider.
Jim Duncan, CEO SECO ENERGY 2016 ANNUAL REPORT | 1
“ HIGHEST IN CUSTOMER
SATISFACTION IN 2015 AMONG MIDSIZE UTILITIES IN THE SOUTH AND HIGHEST IN CUSTOMER SATISFACTION IN 2016 AMONG COOPERATIVES NATIONWIDE ” For J.D. Power award information, visit jdpower.com.
2 | SECO ENERGY 2016 ANNUAL REPORT
20% 0
Customer Satisfaction Rating
72 Municipal Utilities
40%
76 Investor-owned Utilities
60%
77 Cooperative Utilities
80%
$113.50
$112.60
Oct 2016
$115.60
Dec 2015
June 2016
$116.20
Oct 2015
$117.20
$118.20
$120.70
$127.75
Aug 2015
$106
June 2015
$112
$100
89 SECO Energy
100%
$118
Nov 2014
It’s clear there is a difference when serving members in a not-for-profit environment – and it’s the SECO Energy cooperative difference.
$124
*Cost per 1,000 kilowatt hours
Jan 2014
CUSTOMER SATISFACTION
$130
LOWERING ENERGY COSTS Over the last three years, SECO has lowered the cost of energy 12 percent. In January 2014, 1,000 kilowatt hours cost a member $127.75. As of our last decrease on October 2016, members pay only $112.60 per 1,000 kilowatt hours. Learn more about SECO Energy rates at SECOEnergy.com>My Account. SECO ENERGY 2016 ANNUAL REPORT | 3
BOARD OF TRUSTEES
Scott D. Boyatt District 1
Dillard B. Boyatt District 2
Earl Muffett District 6
Richard J. Belles District 3
Richard Dennison District 4
Ray F. Vick District 5 President
Rob Henion District 7 Secretary-Treasurer
Bill James District 8
Jerry D. Hatfield District 9 Vice President
4 | SECO ENERGY 2016 ANNUAL REPORT
DISTRICT MAP
27
Levy
41
40
Ocala
200
75
Lake Weir 19
Marion
District 1 S Boyatt District 2 D Boyatt District 3 Belles District 4 Dennison District 5 Vick District 6 Muffett District 7 Henion District 8 James District 9 Hatfield
Citrus
Umatilla
301
44
Wildwood
Lake Griffin 441
Lake Panasoffkee
41
Lake
Leesburg
44
Lake Eustis
Lake Harris
Corporate Headquarters Sumterville
48
Lake Apopka 301
50
Hernando
Clermont 471
Pasco
Sumter
33
27
SECO ENERGY 2016 ANNUAL REPORT | 5
EXECUTIVE LEADERSHIP
OUR PURPOSE
To provide exceptional service to our customers, co-workers and communities.
OUR VALUES
• Commitment to the Cooperative Purpose • Honesty & Integrity • Safety STANDING (L to R)
John LaSelva, VP of Operations; Nora Brown, Sr. Executive Assistant; Kathryn Gloria, VP of Corporate Communications & Energy Services; Gene Kanikovsky, Chief Financial Officer SITTING (L to R)
Ben Brickhouse, VP of Engineering; Jim Duncan, Chief Executive Officer; Gregg Morrell, VP of Corporate Services & Human Resources
6 | SECO ENERGY 2016 ANNUAL REPORT
• Strong Work Ethic • Team Oriented • Open Communication
INDEPENDENT AUDITORS’ REPORT
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. INDEPENDENT AUDITORS’ REPORT Board of Directors Sumter Electric Cooperative, Inc. Sumterville, Florida Report on the Financial Statements We have audited the accompanying financial statements of Sumter Electric Cooperative, Inc. (the Cooperative), which comprise the balance sheets as of December 31, 2016 and 2015, and the related statements of revenues and patronage capital, and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
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, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 13, 2017, on our consideration of the Cooperative's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Cooperative’s internal control over financial reporting and compliance. Other Reporting Required by 7 CFR Part 1773 In accordance with 7 CFR Part 1773, Policy on Audits of Rural Utilities Service Borrowers, §1773.33 and clarified in the RUS policy memorandum dated February 7, 2014 (the regulatory requirements for electric borrowers), we have also issued our report dated February 13, 2017, on our consideration of the Cooperative's compliance with the terms, covenants, provisions, or conditions of their loan, grant, and security instruments as set forth in the regulatory requirements for electric borrowers, insofar as they relate to accounting matters enumerated therein. The purpose of that report is to describe the scope of our testing of the Cooperative’s compliance with the regulatory requirements for electric borrowers and the results of that testing, and not to provide an opinion on the Cooperative’s compliance with the regulatory requirements for electric borrowers. That report is an integral part of an audit in considering the Cooperative’s internal control over financial reporting and compliance.
SECO ENERGY 2016 ANNUAL REPORT | 7
BALANCE SHEETS | DECEMBER 31, 2016 AND 2015 ASSETS
2016 2015
Electric Plant
Distribution, Transmission, and General Plant
2016
2015
869,835
852,235
240,133,131
233,902,330
3,677,479
3,011,677
244,680,445
237,766,242
412,687,235
404,581,883
1,618,985
1,001,878
818,320
661,885
415,124,540
406,245,646
18,370,167
14,509,260
431,287
179,576
Accounts Payable
23,187,940
32,810,144
Consumer Deposits
15,617,677
14,901,953
Other Current or Accrued Liabilities
15,622,356
8,486,189
73,229,427
70,887,122
10,062,150
9,810,734
$743,096,562
$724,709,744
Equities $775,318,760
$742,178,283
23,109,232
32,886,891
798,427,992
775,065,174
(173,316,057)
(166,792,787)
625,111,935
608,272,387
Construction Work in Progress Total Electric Plant
(Accumulated Provision for Depreciation and Amortization)
EQUITIES AND LIABILITIES
Total Electric Plant - Cost Less Depreciation and Amortization
Current Assets
Cash and Cash Equivalents
76,901,990
71,197,453
3,295,403
2,217,998
Accounts Receivable - Consumers (Less Provision for Doubtful Accounts 2016 - $1,011,038, and 2015 -1,367,924)
9,482,401
9,549,371
Other Receivables
2,878,539
2,669,564
Unbilled Electric Revenues
3,076,251
6,489,472
14,254,802
15,442,853
204,525
166,895
33,191,921
36,536,153
7,890,716
8,703,751
743,096,562
724,709,744
Inventories Prepayments and Other Current Assets
Total Assets
8 | SECO ENERGY 2016 ANNUAL REPORT
Other Equities Total Equities Noncurrent Liabilities Long-term Debt
Capital Lease Obligation Total Noncurrent Liabilities
Investments in Associated Organizations and Other Special Funds
Deferred Charges
Patronage Capital
Deferred Compensation Liability
Investments
Total Current Assets
Memberships
Current Liabilities
Long-term Debt - Portion Due Within One Year Capital Lease Obligation - Portion Due Within One Year
Total Current Liabilities Deferred Credits
Total Equities and Liabilities
STATEMENTS OF REVENUES AND PATRONAGE CAPITAL | DECEMBER 31, 2016 AND 2015 Operating Revenues Operating Expenses
2016 2015 $362,719,481
$374,436,200
246,703,836
261,329,112
396,369
364,064
Distribution Expense - Operations
16,237,784
15,118,744
Distribution Expense - Maintenance
28,029,177
22,287,657
Consumer Accounts Expense
11,164,827
11,704,114
1,876,032
1,493,882
Administrative, General, and Other Expense
15,679,518
14,343,236
Depreciation Expense
23,845,708
22,674,846
Taxes - Expense
66,965
68,396
Other Expense
458,527
619,528
(344,458,743)
(350,003,579)
Cost of Power
Transmission Expense
Customer Service and Informational Expense
(Total Operating Expenses) Operating Margins Before Fixed Charges Fixed Charges
Interest on Long-term Debt
Operating Margins After Fixed Charges
18,260,738
24,432,621
(13,852,371)
(13,254,866)
4,408,367
11,177,755
2016 2015
Other Margins
G&T Cooperative Capital Credits
4,800,000
6,650,621
Other Capital Credits and Margins
1,320,964
1,569,487
6,120,964
8,220,108
10,529,331
19,397,863
Interest Income
819,088
728,422
Other Nonoperating (Expense) Income
(31,853)
113,917
787,235
842,339
11,316,566
20,240,202
233,902,330
218,247,571
(Retirement of Capital Credits)
(5,085,765)
(4,585,443)
Patronage Capital, End of Year
$240,133,131
$233,902,330
Total Other Margins Net Operating Margins Nonoperating Margins
Total Nonoperating Margins Net Margins Patronage Capital, Beginning of Year
SECO ENERGY 2016 ANNUAL REPORT | 9
STATEMENTS OF CASH FLOWS | DECEMBER 31, 2016 AND 2015 Cash Flows from Operating Activities Net Margins
2016 2015
$11,316,566
$20,240,202
Adjustments to Reconcile Net Margins to Net Cash Provided by (Used in) Operations:
2016 2015
Proceeds from Redemption of Patronage Capital Certificate
372,003
671,265
Proceeds from Redemption of Other Investments
60,431
58,116
(16,006)
74,718 (49,918,717)
Purchase of Other Investments
Capital Credits and Patronage Dividend Certificates Assigned (6,120,964)
(8,220,108)
Extension and Replacement of Plant (45,733,812)
Depreciation
25,416,233
24,575,062
Plant Removal Cost
Provision for Uncollectible Accounts
(259,880)
378,400
Amortization of Prepaid Pension
1,148,029
1,148,029
Changes in Assets - Decrease (Increase) and Liabilities - Increase (Decrease): Accounts Receivable
(4,435,924)
(3,530,281)
(39,403,387)
(52,240,902)
0
(24,140,686)
Proceeds on Long-term Debt
131,886,392
60,000,000
Payments on Long-term Debt
(115,828,276)
(13,882,483)
Payment to Cushion of Credit
(4,091,857)
(1,735,019)
(379,099)
(109,838)
665,803
372,821
17,600
22,245
Retirement of Capital Credits
(5,085,765)
(4,585,443)
Net Cash Provided by (Used in) Financing Activities
7,184,798
15,941,597
Net Cash Provided by (Used in) Investing Activities Cash Flows from Financing Activities Line of Credit (Net)
3,531,096
2,766,736
(37,630)
32,500
(334,994)
(23,093)
(9,622,204)
(1,441,719)
715,724
962,444
7,136,167
(3,358,873)
Deferred Compensation Liability
156,435
(74,718)
Deferred Credits
251,416
(1,734,683)
21,979,428
15,009,977
33,295,994
35,250,179
Net Increase (Decrease) in Cash and Cash Equivalents
1,077,405
(1,049,126)
Change in Inventory - Net of Salvage
1,188,051
(3,343,724)
Contributions in Aid of Construction Received
Cash and Cash Equivalents, Beginning of Year
2,217,998
3,267,124
8,855,308
3,490,233
306,562
257,488
Cash and Cash Equivalents, End of Year
$3,295,403
$2,217,998
Prepayments and Other Current Assets Deferred Charges Accounts Payable Consumer Deposits Other Current Liabilities
Total Adjustments Net Cash Provided by (Used in) Operating Activities Cash Flows from Investing Activities
Proceeds from Disposition of Property
10 | SECO ENERGY 2016 ANNUAL REPORT
Payments on Capital Lease Obligation Other Equities Membership Fees
STATEMENTS OF CASH FLOWS | DECEMBER 31, 2016 AND 2015
2016 2015
Supplemental Disclosures of Cash Flow Information Cash Paid During the Year for: Interest
$12,111,345
$13,281,329
Supplemental Schedule of Noncash Investing and Financing Activities The Cooperative Retired Certain Assets from its Plant Records as Follows: $17,553,657
$12,434,856
Plant Removal Costs
4,435,924
3,530,281
Material Salvaged
1,532,710
1,538,969
$23,522,291
$17,504,106
Cost of Assets Retired
Net Reduction in Accumulated Depreciation
The Cooperative Financed Certain Equipment Using a Capital Lease: Amounts not Included in Proceeds from Capital Lease Obligation
$1,247,916
$842,674
Amounts not Included in Extension and Replacement of Plant
1,247,916
842,674
SECO ENERGY 2016 ANNUAL REPORT | 11
J.D. POWER AWARDS – EARNED BY THE EMPLOYEES OF SECO ENERGY
“HIGHEST IN CUSTOMER SATISFACTION IN 2015 AMONG MIDSIZE UTILITIES IN THE SOUTH AND HIGHEST IN CUSTOMER SATISFACTION IN 2016 AMONG COOPERATIVES NATIONWIDE” For J.D. Power award information, visit jdpower.com. 12 | SECO ENERGY 2016 ANNUAL REPORT
RE A DY SECO Energy is an equal opportunity provider and employer.