200,000 80 YEARS IN THE MAKING 2017 ANNUAL REPORT
TABLE OF CONTENTS
8 1 6 4 9 5 7 10 Letter to Members
40
200
trus
Ocala
Purpose & Core Values
Board of Trustees District Map
75
44
Lake Panasoffkee
48
Statements of Revenues and Patronage Capital
Lake Weir
19
Marion
Umatilla
301
41
Balance Sheets
Wildwood
Lake Griffin
Leesburg
441
Lake Harris
Corporate Headquarters Sumterville
Lake Eustis
Auditors’ Report 44
Statements of Cash Flows
2017 ANNUAL REPORT
Dear SECO Energy Members,
01
LETTER TO THE MEMBERSHIP
SECO Energy’s beginning was humble. Prior to President Franklin D. Roosevelt’s 1935 Rural Electric Act, also known as the REA, a home powered by electricity in rural Central Florida was only a dream. With low-interest loans from the REA, local farmers and ranchers formed Sumter Electric Cooperative, Inc. in 1938. A small group of original SECO employees started the utility from scratch, installing poles and stringing miles of electric line. On November 12, 1938, SECO turned on the lights to 400 rural homesteads in our service area. Before the close of 1938, additional homes in nearby areas were electrified. For these rural Floridians, quality of life changed dramatically. Over the last 80 years, SECO has grown alongside the communities it serves. We’ve morphed from a small, rural utility to one of the fastestgrowing cooperatives in the nation. SECO achieved a significant milestone in late 2017 when the cooperative energized its 200,000th meter. Today, SECO Energy is “200,000 Strong – 80 Years in the Making.” Not only have we grown significantly over the years, we’ve also vastly improved the quality of service we provide to our members. In 2017, we celebrated earning our third consecutive J.D. Power award for highest customer satisfaction in the nation in our segment. The cooperative’s ACSI (American Customer Satisfaction Index) score of 88 is a truly excellent score in the utility industry. Comparatively, the score puts SECO well above investor-owned and municipal utilities. Our reliable electric system and member satisfaction were put to the test last year with Hurricane Irma’s devastating effects. On September 10, Irma ravaged our service area with hurricane-force winds, buckets of rain and a confirmed tornado in Umatilla. Irma’s destruction of SECO’s system was more significant than we experienced during
Charley, Francis or Jeanne in 2004. After Irma’s exit, almost 140,000 members were left without power. SECO crews joined forces with hundreds of out-ofarea service crews and tree trimming contractors who worked around-theclock to restore service. This workforce battled flood waters, fuel shortages, downed trees, heat, exhaustion and unsafe conditions. The cooperative spirit prevailed. SECO Energy safely and successfully restored power to our members in less than a week. On behalf of the entire Board of Trustees, we are proud to report strong fiscal results for 2017. SECO is committed to meeting the demands of our growing communities through solid investments in designing, constructing and maintaining facilities with support from a vigorous vegetation management program. Our 2,000 square-mile service territory is home to 48 substations and 12,000 miles of line which represent an investment in electric facilities in excess of $839 million. The investment in SECO’s well-built, meticulously maintained system delivers power that is safe, reliable and affordable. Members, we are thankful for you and your loyal patronage.
Jim Duncan, CEO
Ray Vick, President
ABOUT US SECO ENERGY is a not-for-profit electric cooperative serving 200,000
families and businesses across seven counties in Central Florida, making SECO the third largest electric co-op in Florida and the sixth largest in the nation. One of the most important distinctions between other types of utilities and SECO is that we are member owned. Members have a voice in the co-op through representation. They elect a ninemember Board of Trustees who meet monthly to monitor the financial status of the Cooperative and make policy and governance decisions in the best interest of the membership. In both 2017 and 2016, SECO Energy was ranked “Highest in Customer Satisfaction among Cooperatives” in the J.D. Power Electric Utility Residential Customer Satisfaction Study. In 2015, SECO Energy was ranked “Highest in Customer Satisfaction among Midsize Utilities in the South” by J.D. Power. In 2017, your Board of Trustees approved a record $5.4 million return to members. Since inception, SECO Energy has returned (retired) $57.8 million to current and former members. SECO works to control costs, maintain healthy equity and returns excess margins like a true co-op should. SECO’s wholesale power provider is Seminole Electric Cooperative, Inc., one of the largest generation and transmission cooperatives in the nation, serving 1.6 million consumers in Florida. Seminole is owned by nine electric distribution cooperatives, and SECO is one of those nine member owners.
SECO Energy is an equal opportunity provider and employer.
2017 ANNUAL REPORT
$114.90
$114.90
Jan 2018
$112.60
Oct 2016
July 2017
$113.50
$115.60
Dec 2015
June 2016
$116.20
Oct 2015
$117.20
Nov 2014
Jan 2014
0
Aug 2015
Responding to market indicators, SECO decreased the PCA credit slightly and as of July 1, members paid $114.90 per 1,000 kilowatt hours used. “Hot Bucks” may have cooled, but SECO rates remain stable. Since 1938, SECO has been a fiscally responsible, not-for-profit electric cooperative that is your energy partner for the future.
$118.20
20
72 Municipal Utilities
40
75 Investor-owned Utilities
60
78 Cooperative Utilities
80
88 SECO Energy
100
costs to offer members affordable energy that is safe and reliable. In January 2014, SECO members paid $127.75 for 1,000 kilowatt hours of energy used. Power costs began to steadily decline and SECO responded by increasing the Power Cost Adjustment (PCA) credit or “Hot Bucks.” Members continued to benefit from decreasing costs through June 2017 when the futures market indicated a rise in natural gas prices.
June 2015
Customer Satisfaction Rating
SECO’S MEMBER-FOCUSED APPROACH includes controlling
$120.70
It’s clear there is a difference when serving members in a not-for-profit environment – and it’s the SECO Energy cooperative difference.
RATE STABILITY
$127.75
CUSTOMER SATISFACTION
03
04
2017 ANNUAL REPORT
BOARD OF TRUSTEES
Scott D. Boyatt District 1
Dillard B. Boyatt District 2
Richard J. Belles District 3
Richard Dennison District 4
Earl Muffett District 6
Rob Henion District 7 Secretary-Treasurer
Bill James District 8
Jerry D. Hatfield District 9 Vice President
Ray F. Vick District 5 President
2017 ANNUAL REPORT 27
Levy
DISTRICT MAP
41
40
Ocala
200
75
Lake Weir 19
Marion Citrus
Umatilla
301
44
Lake Griffin 441
Leesburg
Lake Panasoffkee
41
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
Wildwood
44
Lake Eustis
Lake Harris Corporate Headquarters Sumterville
48
Lake Apopka 301
50
Hernando
Clermont
N
471
Pasco
Sumter
33
27
Lake
05
06
2017 ANNUAL REPORT
OUR PURPOSE
To provide exceptional service to our members, co-workers and communities.
Jim Duncan Chief Executive Officer
EXECUTIVE LEADERSHIP
OUR VALUES
• Commitment to the Cooperative Purpose • Honesty & Integrity • Safety • Strong Work Ethic • Teamwork • Open Communication
Ben Brickhouse VP of Engineering
Nora Brown Sr. Executive Assistant
Kathryn Gloria VP of Corporate Communications & Energy Services
Gene Kanikovsky Chief Financial Officer
John LaSelva VP of Operations
Gregg Morrell VP of Corporate Services & Human Resources
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, 2017 and 2016, 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, 2017 and 2016, 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 9, 2018, 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 Rural Utilities Service policy memorandum dated February 7, 2014 (the regulatory requirements for electric borrowers), we have also issued our report dated February 9, 2018, 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.
February 9, 2018 Ocala, Florida
BALANCE SHEETS | DECEMBER 31, 2017 AND 2016 ASSETS
2017
2016
Electric Plant $799,144,449
$775,318,760
Construction Work in Progress
40,021,942
23,109,232
839,166,391
798,427,992
Total Electric Plant
(187,386,750)
(173,316,057)
651,779,641
625,111,935
Total Electric Plant - Cost Less Depreciation and Amortization Investments Investments in Associated Organizations and Other Special Funds
3,332,115
3,295,403
10,960,847
9,482,401
Other Receivables
18,712,956
2,878,539
248,116,609
240,133,131
Accumulated Other Comprehensive Income
(644,699)
0
Other Equities
4,568,024
3,677,479
252,927,119
244,680,445
419,171,264
412,687,235
Capital Lease Obligation
2,580,846
1,618,985
Deferred Compensation Liability
1,658,555
818,320
423,410,665
415,124,540
17,081,698
18,370,167
745,278
431,287
Line of Credit
26,926,599
0
Accounts Payable
32,173,934
23,187,940
Consumer Deposits
16,467,174
15,617,677
Other Current or Accrued Liabilities
14,992,199
15,622,356
108,386,882
73,229,427
12,699,092
10,062,150
$797,423,758
$743,096,562
Patronage Capital
Total Equities Noncurrent Liabilities Long-term Debt
5,422,376
3,076,251
15,753,466
14,254,802
137,941
204,525
54,319,701
33,191,921
7,353,728
7,890,716
$797,423,758
$743,096,562
Long-term Debt - Portion Due Within One Year Capital Lease Obligation - Portion Due Within One Year
Unbilled Electric Revenues Inventories Prepayments and Other Current Assets
08 | 2017 ANNUAL REPORT
$869,835
76,901,990
Accounts Receivable - Consumers (Less Provision for Doubtful Accounts 2017 - $1,160,527, and 2016 - $1,011,038)
Total Assets
$887,185
Memberships
Current Liabilities
Cash and Cash Equivalents
Deferred Charges
2016
Total Noncurrent Liabilities 83,970,688
Current Assets
Total Current Assets
2017
Equities
Distribution, Transmission, and General Plant
(Accumulated Provision for Depreciation and Amortization)
EQUITIES AND LIABILITIES
Total Current Liabilities Deferred Credits Total Equities and Liabilities
STATEMENTS OF REVENUES AND PATRONAGE CAPITAL | DECEMBER 31, 2017 AND 2016
Operating Revenues
2017
2016
$369,375,353
$362,719,481
2017
2016
$5,715,809
$4,800,000
1,798,429
1,320,964
7,514,238
6,120,964
12,748,446
10,529,331
645,508
819,088
28,940
(31,853)
674,448
787,235
13,422,894
11,316,566
Patronage Capital, Beginning of Year 240,133,131
233,902,330
Other Margins G&T Cooperative Capital Credits
Operating Expenses Cost of Power
Other Capital Credits and Margins 251,742,596
246,703,836
220,320
396,369
Distribution Expense - Operations
16,648,210
16,237,784
Distribution Expense - Maintenance
28,441,431
28,029,177
Consumer Accounts Expense
11,287,112
11,164,827
2,075,846
1,876,032
Administrative, General, and Other Expense
14,911,513
15,679,518
Depreciation Expense
24,668,434
23,845,708
68,064
66,965
364,507
458,527
(350,428,033)
(344,458,743)
Transmission Expense
Customer Service and Informational Expense
Taxes - Expense Other Expense
(Total Operating Expenses) Operating Margins Before Fixed Charges
Total Other Margins Net Operating Margins Nonoperating Margins Interest Income Other Nonoperating (Expense) Income
Total Nonoperating Margins Net Margins
(Retirement of Capital Credits) 18,947,320
18,260,738
(13,713,112)
(13,852,371)
5,234,208
4,408,367
Patronage Capital, End of Year
(5,439,416)
(5,085,765)
$248,116,609 $240,133,131
Fixed Charges Interest on Long-term Debt
Operating Margins After Fixed Charges
2017 ANNUAL REPORT | 09
STATEMENTS OF COMPREHENSIVE INCOME DECEMBER 31, 2017 AND 2016 2017 Net Margins
STATEMENTS OF CASH FLOWS DECEMBER 31, 2017 AND 2016 2016
$13,422,894 $11,316,566
Other Comprehensive Net Margins Amortization of Unrecognized Prior Service Costs and Unrecognized Actuarial (Loss) Gain Comprehensive Net Margins
2017 Cash Flows from Operating Activities
Net Margins
(81,254)
0
$13,341,640 $11,316,566
STATEMENTS OF CHANGES IN COMPREHENSIVE INCOME DECEMBER 31, 2017 AND 2016 2017
Initial Unrecognized Prior Service Costs Amortization of Unrecognized Prior Service Costs and Unrecognized Actuarial (Loss) Gain Accumulated Other Comprehensive Income (Loss)–End of the Year
$13,422,894 $11,316,566
Adjustments to Reconcile Net Margins to Net Cash Provided by (Used in) Operations: Capital Credits and Patronage Dividend Certificates Assigned
(7,514,238)
(6,120,964)
Depreciation
26,010,147
25,416,233
277,200
(259,880)
1,148,029
1,148,029
Provision for Uncollectible Accounts Amortization of Prepaid Pension
Accumulated Other Comprehensive Income (Loss)–Beginning of the Year
2016
2016
$0
$0
(563,445)
0
Changes in Assets - Decrease (Increase) and Liabilities - Increase (Decrease): Accounts Receivable
(4,101,771)
3,389,360
(15,834,417)
141,736
66,585
(37,630)
Deferred Charges
(611,041)
(334,994)
Accounts Payable
8,985,994
(9,622,204)
849,497
715,724
(630,157)
7,136,167
840,235
156,435
2,636,942
251,416
12,123,005
21,979,428
25,545,899
33,295,994
342,956
1,188,051
9,543,785
8,855,308
253,615
306,562
Other Receivables Prepayments and Other Current Assets
Consumer Deposits Other Current Liabilities Deferred Compensation Liability
(81,254)
0
$(644,699)
$0
Deferred Credits
Total Adjustments Net Cash Provided by (Used in) Operating Activities Cash Flows from Investing Activities Change in Inventory - Net of Salvage Contributions in Aid of Construction Received
10 | 2017 ANNUAL REPORT
Proceeds from Disposition of Property
STATEMENTS OF CASH FLOWS | DECEMBER 31, 2017 AND 2016 2017
2016
Proceeds from Redemption of Patronage Capital Certificate
$426,675
$372,003
Proceeds from Redemption of Other Investments
62,849
60,431
(43,984)
(16,006)
(58,520,730)
(45,733,812)
(3,954,522)
(4,435,924)
(51,889,356)
(39,403,387)
Purchase of Other Investments Extension and Replacement of Plant Plant Removal Cost
Net Cash Provided by (Used in) Investing Activities
Line of Credit (Net)
26,926,599
0
Proceeds on Long-term Debt
20,000,000
131,886,392
Payments on Long-term Debt
(16,999,227)
(115,828,276)
Payment to Cushion of Credit
(2,194,787)
(4,091,857)
(565,768)
(379,099)
183,850
665,803
17,350
17,600
Retirement of Capital Credits
(5,377,422)
(5,085,765)
Net Cash Provided by (Used in) Financing Activities
26,380,169
7,184,798
Other Equities Membership Fees
Net Increase (Decrease) in Cash and Cash Equivalents
36,712
1,077,405
Cash and Cash Equivalents, Beginning of Year
3,295,403
2,217,998
Cash and Cash Equivalents, End of Year
$3,332,115 $3,295,403
2016
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for: Interest
$13,672,315 $12,111,345
Supplemental Schedule of Noncash Investing and Financing Activities The Cooperative Retired Certain Assets from its Plant Records as Follows: Cost of Assets Retired
Cash Flows from Financing Activities
Payments on Capital Lease Obligation
2017
10,559,432
17,553,657
Plant Removal Costs
3,954,522
4,435,924
Material Salvaged
1,168,946
1,532,710
$15,682,900
$23,522,291
Net Reduction in Accumulated Depreciation
The Cooperative Financed Certain Equipment Using a Capital Lease: Amounts not Included in Proceeds from Capital Lease Obligation
1,841,620
1,247,916
Amounts not Included in Extension and Replacement of Plant
1,841,620
1,247,916
2017 ANNUAL REPORT | 11
12
2017 ANNUAL REPORT
HURRICANE
HURRICANE IRMA was the biggest, baddest, meanest named storm SECO Energy members had seen in a long time. Irma wreaked havoc as she traveled directly through SECO’s service territory as a 400-mile wide Category 2 to 3 hurricane. The damage our system sustained was even more significant than the 2004 hurricane season. Power outages began Sunday night September 10, and members continued to lose power into Monday. From Irma’s onset until winds subsided Monday afternoon, approximately 139,000 members reported outages. Restoration began at noon when winds died down on Monday, September 11. We placed an emphasis on communicating with members that restoration stops when winds are over 35 mph. By Monday's end, crews restored just over 27,000 members – or about 19% of the total outages. On Tuesday and Wednesday, more than 300 out-ofstate line and tree crews arrived to assist. Crews participated in a safety briefing and then got to work. Crews made excellent progress on Tuesday and Wednesday. In less than three days, crews restored almost 75,000 members—or about 54%. At the end of the day Friday, 87% of members were restored after Hurricane Irma. Sunday evening, 99.9% of outages were restored —a six-and-a-half-day recovery. This was a shorter restoration than any other Central Florida major utility, and is a tribute to our hardworking SECO employees.
Member outreach during restoration touched the hearts and bellies of our employees and contractors. Letters of gratitude, food deliveries, thank you signs and other gifts arrived in droves.
2017 ANNUAL REPORT
RE A DY
13
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Highest in Customer Satisfaction among Cooperatives (2017 & 2016) and among South Midsize Utilities (2015) To learn more about SECO Energy visit us at secoenergy.com.
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For J.D. Power award information, visit jdpower.com.