Issuu on Google+

Sumter Electric Cooperative, Inc. 2005 Annual Report


“We have a choice to use the gift of our lives to make the world a better place.�

Jane Goodall


Sumter Electric Cooperative, Inc.

ANNUAL REPORT

2005

COOPERATIVE HIGHLIGHTS Operating Revenue $229,486,581 Net Margins $7,031,603 Total Assets $387,420,074 Patronage Capital Distributed $1,000,262 Kilowatt-Hours Sold 2,425,467,338 Miles of Energized Line 9,979 New Services 11,062 Number of Members 147,503 Full-Time Employees 365


Members First Philosophy

O Raptors are birds of prey and carnivores. Those found in Florida include: the hawks, eagles, ospreys, falcons, kestrels and kites. These birds usually have keen eyesight and hearing, strong feet with sharp talons for grasping prey and curved beaks for tearing their food. They are the only birds that hunt with their feet. Although the word raptor is usually associated with birds of prey that hunt in the daytime, owls may also be listed in this group.

ne of the most respected and customer focused business models is the cooperative business model. Why? It’s simple. Cooperatives are not-for-profit. An electric co-op’s membership elects who represents them on their utility’s board of trustees and approves any changes to the bylaws that govern how the co-op is run. Co-ops are actively involved in the communities they serve to better the human condition. They believe that open and honest communications with the members is essential. Electric cooperatives return excess margins, the money beyond what is necessary to operate the co-op, back to the members in the form of capital credits and more. Virtually everything that takes place in an electric co-op is done to benefit the membership in some way. That the membership is the number one priority is the reason why most members of a cooperative feel that the cooperative model is the right model. At Sumter Electric Cooperative we embrace the same co-op values and goals. We constantly strive to uphold the highest ethical and professional standards. And, we are as true to the “member first” philosophy today as we were when the Co-op was first created back in 1938. 2005 was an incredible year for your Co-op. The big story was the astonishing growth that SECO again experienced. Every year, it seems, we establish a new record for the number of new services added to the Co-op’s membership list. It was no different this year. In 2005 we added 11,062 new member services to the SECO system which broke the previous record of 10,973 established in 2004. At the end of the year, SECO had a total of 147,503 members. That makes the Co-op the eighth largest cooperative, out of the roughly 1,000 electric cooperatives, in the nation. As one can imagine, the record growth also resulted in a record demand for electricity. SECO members called on their Cooperative to deliver over 2.4 billion kilowatt-hours to them in 2005. That was 200 million kilowatt-hours of electricity more than in 2004.


One might assume that the explosive growth the Co-op has seen over the last ten years would have had an adverse effect on Co-op operations. However, that is not the case. SECO has been able to manage that growth with no degradation in electric system reliability or erosion in fiscal stability. Indeed, the average system reliability was 99.975 percent in 2005. Put another way, the average outage time for an individual SECO member throughout all of 2005 was only 2.2 hours. This is a major accomplishment for a utility with SECO’s growth factor and one which has nearly 10,000 miles of electric lines and 43 substations to maintain in a 2,000 square mile service territory spanning seven counties. It takes a dedicated board of trustees, a highly knowledgeable management team and hard working employees to make it happen. In addition, SECO is part of the Touchstone Energy Cooperative family. This is a national network of over 600 co-ops and our membership in it allows us to bring new programs to our member-owners and their families that would not be possible if we were not affiliated with this group of progressive electric providers.

The economies of scale we can now take advantage of have resulted in the launch of the Co-op Connections discount card for members, providing discounts at local and national businesses. Another Touchstone Energy initiative allowed SECO to provide middle schools in our service territory with Get Charged! education kits for the classroom. These kits satisfy the academic requirements for teaching about electricity using CD-ROMs, videotapes, teacher guides, student workbooks, etc. The kits are helping our students upgrade their science skills. Our ongoing relationship with Touchstone Energy Cooperatives will continue to reap benefits for SECO’s membership-atlarge well into the future.

When you care about the environment and its creatures, looking out for their well being becomes an important part of what you do. At least that’s the way it has always been for SECO.

3


Dedicated Decision Makers

S

ECO’s members have entrusted the Board of Trustees to lead their Cooperative by empowering them to establish, review and revise corporate policies aimed at keeping member satisfaction high and maintaining a strong financial position in the industry. That trust stems from the This Snowy egret is one fact that the members get to vote of thirteen members of on who represents them on the the heron family which board every three years. They know that, like them, board memgrace our State. All are bers are also SECO customers and protected in Florida. These live right here in SECO’s service creatures can be found in territory. They also know that if both fresh and saltwater they have an inquiry, they have habitats where they hunt by access to their board representative. standing still and stabbing Board members come from prey with a long, sharp bill. a variety of backgrounds and bring a unique perspective to SECO’s Small prey is swallowed operations. They all have one thing alive and a bucket full of in common and that is a firm belief fish can be consumed within minutes. In addition to that they are privileged to represent fish, their diet includes frogs, lizards, snakes, small SECO’s members and they keep mammals and insects. what’s best for the members foremost in mind. Being a board member means much more than just attending a monthly meeting to conduct the Co-op’s business. There are also board workshops to attend and board members represent SECO at meetings of Seminole Electric Cooperative in Tampa and meetings of the Florida Electric Cooperatives Association in Tallahassee. cost per kWh They are also called upon to complete the course work necessary to receive their Credentialed Cooperative Director’s Certificate through the National Rural Electric Cooperatives Association.


Dillard B. Boyatt District 2

Wilson G. Sheppard

Ray F. Vick

Donald W. Santee

President District 8

Vice President District 5

Secretary-Treasurer District 1

The accreditation process is rigorous, but it helps insure that board members have the skills and knowledge to make the right decisions as they plan the Co-op’s future. As mentioned previously, the prime directives for the board are to insure that members have a high level of satisfaction with their Co-op and that SECO remains financially stable. The 2005 member satisfaction survey indicated, that despite the Co-op’s explosive growth, members still rated their electric utility very high where overall customer satisfaction is concerned. In fact, when SECO was compared with other major utilities on the American Customer Satisfaction Index (ACSI) the Co-op’s score was an impressive 85 on the 100 point scale. The next closest electric utility was Duke Energy which scored a 79. Southern Company, PPL Corporation and the Touchstone Energy Cooperatives, as a whole, all scored 78. The rest of

the ranked utilities were ten points or more below the SECO score with the industry average score being 72. This is an exceptional ACSI score. Still, there is always room for making improvements and we’ll continue to make sure our members are amongst the most satisfied of any utility in the country. Where financial stability is concerned, the board keeps a keen eye on this aspect of the business. They understand that the members want a strong, stable electric utility. SECO is just that. A look at the financial statements in the back of this annual report clearly shows the good health and stability of this organization. The overall work of a SECO board member can be quite extensive, but every member of the board will say that the reward is in making sure we are doing what is best for the people and the communities in our service territory.

Barry R. Evans District 3

James D. Holtz District 4

Earl Muffett District 6

Robert G. Gentry District 7

Jerry D. Hatfield District 9


Today, Gopher tortoises are being successfully relocated to nearby, suitable habitats by professional environmental permitting specialists, following proper permitting and licensing by the State. As Florida continues to grow, it is important that we make room for these unique creatures and give them every opportunity to remain a vital part of Florida’s diverse ecosystem.

S

ECO certainly strives to make a positive impact on the human condition in our area through programs like the SECO Angel Fund and the Co-op’s Gatekeeper program. We are also cognizant that our ecosystem and the creatures that live within it are very important. Their health and welfare enrich our environment and bring much pleasure to our members. Consequently, SECO has always placed a high priority on environmental issues, working to stay in harmony with nature. Since 1996, each issue of our customer newsletter SECO News has contained a special column called Nature’s Reflections. This column has won both local and national awards for its content highlighting the flora and fauna of Florida and eco-friendly topics like xeriscaping. The content is educational and useful for the members and they often write or e-mail us with compliments about it. It is so popular that, due to member requests, a special booklet of selected columns

has been created for sale with the proceeds benefiting the SECO Angel Fund. In 2005, our commitment to the environment was as strong as ever, with a new program for recycling our printer and copier ink cartridges. Not only do we recycle them, we also encourage our members to drop their cartridges off at any of our five local offices, as well. In addition, SECO recycles all of its retired power equipment, scrap steel, aluminum, copper, porcelain, light bulbs and batteries. It all helps save resources and protect this fragile globe we live on. Not visible to the members is yet another important initiative aimed at preventing oil spills. State-of-the-art spill containment systems are installed on all power transformers to avoid potentially harmful accidents. It’s another measure of respect for our part of central Florida. Our animal friends are of special concern to us. The burrowing Gopher tortoise is a threatened species in our state. Despite that, developers can actually pay a fee for a permit to eradicate these slow moving, harmless creatures from any property upon which they


Environmental Stewardship might want to build a project. At SECO we take a dim view of that practice. We, too, have found tortoises on parcels of land where we needed to place things like substations to improve customer service and reliability. However, we recognize that this tortoise has a place in our world and we work with licensed specialists to humanely trap and then relocate these unique members of the animal kingdom. Of course, SECO continues to install osprey nesting dishes atop our utility poles when a pair of these magnificent birds appear to be trying to build a nest on pole cross arms. The dishes keep the adult raptors and their chicks safe from injury or electrocution. Being able to watch the upbringing of young ospreys is a favorite pastime of many SECO members. And, our squirrel guards that we install on our transformers protect a variety of animals from danger, including the squirrels. It’s about respect for the land and those that share it with us. Environmental stewardship is important and we can ill afford to ignore it. One of the other benefits that flow from being an environmentally conscious, member-owned business is the focus our employees have with regard to protecting our natural resources. A good example of that is the concern that is continually demonstrated by co-op workers for our indigenous wildlife. It goes well beyond the important tasks of saving gopher tortoises and creating safe nesting havens for ospreys. SECO employees are always on the lookout for animals and birds that may be injured, orphaned or distressed in some manner. When found, these creatures are saved and sent to certified wildlife rehabilitation experts. Our beautiful birds of prey seem to sustain more than their share of injuries and require very specialized handling to return them to health once injured. SECO employees have found literally dozens of raptors that needed a hand. Co-op workers have dealt with everything from Red-tailed hawks that have injured a wing to orphaned baby American kestrels. In addition, a variety of mammals and reptiles have also benefited from caring interactions with our employees. This caretaker role our employees have assumed is something in which our members can take a good deal of pride.

All they require is dry, sandy soil for their burrows, sufďŹ cient low growing plants for food, and open, sunny areas for nesting. Beyond that they just want to be left alone. The Gopher tortoise takes a long time to mature. Reaching adulthood at 10 to 15 years of age, when the shell length is about nine inches. They are thought to live in excess of forty years.

7


Customer Commitment

T

he big news in 2005 was the incredibly wild ride American consumers and power companies like SECO rode as it relates to the costs for all types of fuels. The rising price of coal, fuel oil, gasoline and, most notably, natural gas had a profound impact on everyone. To understand the full impact of rising fuel costs on the Cooperative, it’s helpful to know how power is generated, how it gets to your home and where the costs involved lie. SECO does not generate any electricity on its own. The electricity is produced at plants/generating facilities that use a variety of fuels to

power the turbines. The plants must pay the power marketers for that fuel. Once the turbines are turning at the power plant the electricity produced is sent out over large transmission lines which terminate at the start of SECO’s system, our 43 substations. SECO is a not-for-profit electric distribution cooperative. The transmission lines come into SECO substations where the high voltage is lowered and then distributed across the Co-op’s 10,000 miles of power lines for use in homes, stores, farms and industries. The Co-op has to reimburse the generating utility for the money spent to produce the electricity. The rates SECO charges our members have an estimated power cost component built in. Once we know the actual costs, we pass through the difference as the power cost adjustment. You may recognize this on your bill as the PCA. SECO doesn’t make a penny on the PCA charge. It is a straight pass through back to the generating utilities so SECO members will have the electricity they are calling upon their Co-op to deliver to them. The single biggest expense to the Co-op and its members is what we must pay the generating utilities for the wholesale power cost. A quick look at the pie chart on the next page will dramatically illustrate that fact. Nearly 70 percent of SECO’s total revenue


It is estimated that there are approximately 180 species of butterflies found in Florida. Many of those are rare or casual visitors migrating through Florida. Adult butterflies are capable of traveling considerable distances. Some are as big as your hand, while others could fit on the head of a tack. As opportunistic foragers, the Gray fox uses a variety of hunting techniques, stalking, pouncing, even jumping up to three feet above the ground and diving, front paws first, onto their prey. They are agile, fast, and can run 28 mph for short distances and can climb trees to escape predators, to rest, or to pursue prey. goes to pay for power costs. Add that to the other expenses the Co-op pays and you end up with only 2.2 percent that the Co-op actually retains as margins which is necessary to maintain the fiscal stability of the Cooperative. It’s a pretty Spartan operation, but that’s how electric co-ops are supposed to be run. And, any excess margins are returned to SECO members in the form of capital credits on their statements usually during the month of November. In 2005, despite rocketing fuel costs, the Co-op’s members received $1 million in capital credits. It is notable that Florida has no native source of fuel. All of our fuels must be imported and where coal is concerned, it costs as much to transport the coal to our power plants here as it does to actually buy the coal itself. A few might think that the massive growth SECO is experiencing translates into lots of additional profit. The fact is that growth brings with it an even larger bill for purchased power and more money that must be devoted to maintaining the existing electric system while building new infrastructure to provide electricity to those thousands of people moving into our service territory every year. As an example, our investment in total utility plant and equipment alone during 2005 was over $30 million. It has to be done to maintain the high level of service our existing members have come to rely on and our new members are entitled to expect. It’s an ongoing challenge that we’ll continue to meet with dedicated leadership and employees who have a strong work ethic.

9


Excellence In Performance

T Barry Bowman

Ben Brickhouse

Director of Public Affairs

Director of Engineering & Information Technology

Jack Canterbury

John Chapman

Director of Corporate Division

Director of Accounting & Finance

Mickey Gauldin

John LaSelva

Director of Customer Service

he challenges associated with managing the daily operations of one of the fastest growing electric cooperatives in the nation, while at the same time planning for its future, might be considered a daunting task by many. At SECO, however, the senior management staff simply views those challenges as opportunities to excel on behalf of our members and their families. One of the latest innovations launched in 2005 came about as a result of a partnership between SECO and General Electric. SECO senior staff worked with GE to custom design an outage management system that greatly assists SECO’s dispatchers in locating outages more easily and enhances the Co-op’s ability to send repair technicians to the locations identified even more rapidly. The GE PowerOn® system also helps SECO engineers target electric system improvements to reduce the frequency of outages. As we move into 2006, SECO members will enjoy improved reliability as a result. Not so obvious, perhaps, is the role SECO is playing with regard to protecting the interests and rights of our member-owners. This consumer advocacy paid big dividends during the national debate this year which led up to the passage of the Energy Policy Act of 2005. SECO, working through the National Rural Electric Cooperatives Association (NRECA), was able to help shape the most comprehensive energy legislation to be passed by Congress in 40 years. As is always the case with legislation, some folks are happy with it and others are not, but co-op members did well in the

Alex Markley

Jerry Sorensen

Director of Reliability Director of Human Resources, & Operations Safety & Training

Director of Operational Support Services


Jim Duncan

Chris Green

Chief Executive Officer & General Manager

Senior Executive Assistant

creation of the final legislation. NRECA and co-ops across the country worked hard to insure that co-ops and their members were not hurt by this legislation and we were successful. A couple of the Act’s features include expanded consumer protections against electric market abuses by prohibiting market manipulations schemes such as were used by ENRON. The reliability of the country’s electric grid has been increased by the creation of a single national industry-based reliability organization with the authority to establish and enforce national reliability standards. And, members were protected from a passage in the proposed legislation which would have forced co-op members to help pay for new transmission lines being built by other companies. Had this been included in the final

Act, it would have had a crushing effect upon SECO and could have meant higher utility bills for our members. The battles for rational energy related rules and regulations will continue, but thus far we’ve been able to strengthen the position of electric cooperatives in this country and to protect our members from unfair mandates and rule making that could have been catastrophic for us all. The escalating costs of all types of fuels in 2005 resulted in higher electric bills for all Americans and that includes SECO member-owners. In 2005, a concerted effort was made to help our members begin to manage their individual energy consumption so that they would have the ability to help bring their electric bills down. An award winning Home Energy

Management booklet was created and widely distributed. It is chock full of practical ways homeowners and others can really pare down their bills each month. Another innovation available to members is the on-line residential energy audit that homeowners can access on SECO’s Website, www. secoenergy.com. This do-it-yourself program allows members to get a very good picture of their energy usage at home and offers calculated advice on how to reduce their monthly electric statement. This is free, easy to use and is specifically designed for Central Florida homes. Assisting members to better manage their electric consumption and cost will again be a priority in 2006. As a not-for-profit electric cooperative, SECO has no profit motive. Our goal is simply to provide our members with the most reliable electric service and the lowest rate possible.

The American alligator, believed to be near extinction in 1967, is a common sight today. These reptiles prefer freshwater lakes, slow moving rivers and associated wetlands, but may be found in brackish water as well. They are opportunistic feeders. Their diet includes abundant and easily accessible prey such as fish, snakes, turtles, amphibians, small mammals and birds.


Independent Auditors’ Report

W

e have audited the accompanying balance sheets of Sumter Electric Cooperative, Inc. (the Cooperative) as of December 31, 2005 and 2004, and the related statements of revenue 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, 2005 and 2004, 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 2, 2006, 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. February 2, 2006 Gainesville, Florida


Balance Sheets For the years ended December 31, 2005 and 2004

Sumter Electric Cooperative Inc., Sumterville, Florida

ASSETS 2005 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 Current Assets Cash and Cash Equivalents Accounts Receivable - Consumers (Less Provision for Doubtful Accounts 2005 - $579,684; 2004 - $568,283) Other Receivables Unbilled Electric Revenues Inventories Prepayments and Other Current Assets Total Current Assets Deferred Charges Total Assets

$ 403,920,514 17,391,652 421,312,166

2004 $

361,557,505 28,220,754 389,778,259

(82,015,698)

(76,171,331)

339,296,468

313,606,928

17,606,060

15,909,967

1,429,935

324,196

10,253,239 1,396,818 5,226,153 9,623,905 360,792 28,290,842 2,226,704 387,420,074

8,949,687 15,415,943 1,486,297 7,149,784 218,347 33,544,254 5,077,737 368,138,886

EQUITIES AND LIABILITIES 2005 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.

2004

662,322 107,854,257 2,632,933 111,149,512

642,408 101,548,623 2,632,858 104,823,889

229,677,479

209,878,559

6,643,346 0 21,754,062 6,157,251 11,179,658 45,734,317 858,766 $ 387,420,074

6,066,083 11,665,309 21,931,328 5,095,574 6,621,077 51,379,371 2,057,067 368,138,886

$

13


Statement of Revenues and Patronage Capital For the years ended December 31, 2005 and 2004

Sumter Electric Cooperative Inc., Sumterville, Florida

2005 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)

2004

229,486,581

$

194,617,097

158,383,852 152,689 11,371,870 13,762,856 8,079,400 1,018,036 8,727,117 12,755,422 41,229 470,342 (214,762,813 )

129,876,358 294,063 9,627,724 15,617,333 7,055,762 913,023 7,775,564 11,544,431 (10,520) 457,457 (183,151,195)

Operating Margins Before Fixed Charges

14,723,768

11,465,902

Fixed Charges Interest on Long-term Debt

(9,672,796 )

(7,268,998)

Operating Margins After Fixed Charges

5,050,972

4,196,904

Other Margins G&T Cooperative Capital Credits Other Capital Credits and Margins Total Other Margins

981,612 999,019 1,980,631

382,562 628,053 1,010,615

Net Operating Margins

7,031,603

5,207,519

183,515 83,460 266,975

111,969 22,561 134,530

7,298,578

5,342,049

101,548,623

97,315,394

Nonoperating Margins Interest Income Other Nonoperating Income Total Nonoperating Margins Net Margins Patronage Capital, Beginning of Year (Retirement of Capital Credits)

(1,000,262 )

Reallocated Capital Credits

(1,121,953)

7,318

Patronage Capital, End of Year

$ See accompanying notes.

107,854,257

13,133 $

101,548,623


Statements of Cash Flows For the years ended December 31, 2005 and 2004

Sumter Electric Cooperative Inc., Sumterville, Florida

2005 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

$

7,298,578

2004 $

5,342,049

(2,027,619 ) 13,760,597 324,000

(1,010,615) 12,452,142 324,000

8,651,717 (142,445 ) 2,851,033 (177,266 ) 1,061,677 4,558,581 (1,198,301 ) 27,661,974 34,960,552

(16,508,475) (27,387) 2,101,684 4,942,739 808,059 (636,420) 1,252,534 3,698,261 9,040,310

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

(2,474,121 ) 9,089,999 83,531 523,419 85,326 (277,219 ) (46,977,700 ) (1,645,967 ) (41,592,732 )

(1,681,434) 5,107,533 134,550 398,500 37,993 (424,284) (50,432,197) (1,760,592) (48,619,931)

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 Increase in Other Equities Net Cash Provided by (Used in) Financing Activities

(40,697,089 ) 55,499,208 (6,091,245 ) 19,914 (1,000,262 ) 7,318 75 7,737,919

36,975,517 9,000,000 (5,893,836) 39,680 (1,121,953) 13,133 763 39,013,304

Net Increase (Decrease) in Cash and Cash Equivalents

1,105,739

Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year

324,196 $

See accompanying notes.

(566,317)

1,429,935

890,513 $

324,196


Statements of Cash Flows (concluded) For the years ended December 31, 2005 and 2004

Sumter Electric Cooperative Inc., Sumterville, Florida

2005

2004

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

$

9,752,575

$

7,187,105

8,040,451 1,645,967 (1,441,838 ) 8,244,580

$

6,573,384 1,760,592 (861,049) 7,472,927

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.

$


Notes To Financial Statements For the years ended December 31, 2005 and 2004

Sumter Electric Cooperative Inc., Sumterville, Florida

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, 2005 and 2004, the amount on deposit in two 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 by-laws.

17


Notes To Financial Statements (continued) For the years ended December 31, 2005 and 2004

Sumter Electric Cooperative Inc., Sumterville, Florida

Note 1 - Summary of Significant Accounting Policies (Concluded) 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. 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 56% of the Cooperative’s work force is covered by a collective bargaining agreement that expires in September 2006. 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, 2005 and 2004: Depreciation 2005 2004 Rates Transmission Plant Distribution Plant General Plant: Land and Land Rights Structures and Improvement 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

$

$

7,063,610 356,942,895 353,428 12,833,610 5,374,775 10,704,171 1,185,399 1,086,563 2,589,671 421,229 2,518,611 648,464 2,198,088 403,920,514 17,391,652 421,312,166

$

$

6,997,868 317,600,341

2.75% 3.20%

315,850 12,663,444 4,982,923 9,463,144 1,085,550 952,846 2,750,295 405,159 2,189,075 613,706 1,537,304 361,557,505 28,220,754 389,778,259

N/A 2.0% 10.0%-20.0% 10.0%-20.0% 7.6% 9.8% 4.2% 5.8% 10.0% 10.4% 20.0%

Depreciation expense of $12,755,422 (2005) and $11,544,431(2004) is net of $1,005,175 (2005) and $908,011 (2004) charged to clearing accounts, some of which is capitalized.


Notes To Financial Statements (continued) For the years ended December 31, 2005 and 2004

Sumter Electric Cooperative Inc., Sumterville, Florida

Note 3 - Investments in Associated Organizations Investments in associated organizations consist of the following: 2005 Seminole Electric Cooperative, Inc. Patronage Capital Assigned National Rural Utilities Cooperative Finance Corporation (CFC): Patronage Capital Certificates Capital Term Certificates Investments in Other Associated Organizations Total Investments in Associated Organizations

$

10,844,193

$

1,164,933 4,442,588 1,154,346 17,606,060

2004 $

9,926,058

$

1,169,723 4,205,597 608,589 15,909,967

CFC Capital Term Certificates are purchased as a condition of the mortgage agreements with CFC. At December 31, 2005 and 2004, they consist of the following: 2005 2004 Certificates, 5% (Maturing 2070 to 2080) Certificates, 3% (Maturing 2020 to 2030) Certificates, 0% (Maturing at Variable Dates) Total

$

$

1,902,010 556,400 1,984,178 4,442,588

$

$

1,902,010 556,400 1,747,187 4,205,597

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, 2005 and 2004, include approximately $486,697 and $486,505, respectively, relating to pole rentals due from other utility companies. In addition, other receivables at December 31, 2005 and 2004, include an estimated reimbursement of $305,354 for stop loss coverage from HCC Life Insurance Company and $13,612,667 from Federal Emergency Management Agency (FEMA) related to storm damages, respectively. 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 28.69% and 28.47% of the total assets at December 31, 2005 and 2004, respectively. Capital credit retirements in the amount of $1,000,262 and $1,121,953 were paid in 2005 and 2004, respectively.

19


Notes To Financial Statements (continued) For the years ended December 31, 2005 and 2004

Sumter Electric Cooperative Inc., Sumterville, Florida

Note 6 - Detail of Patronage Capital 2005 Assignable Assigned (Retired in Current Year) Reallocated Capital Credits (Cumulative Amount Retired in Previous Years) Total Patronage Capital

$

$

7,298,577 122,627,967 129,926,544 (1,000,262 ) 7,318 (21,079,343 ) 107,854,257

2004 $

$

5,342,049 117,401,793 122,743,842 (1,121,953) 13,133 (20,086,399) 101,548,623

Note 7 - Detail of Other Equities 2005 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

2004 $

$

32,092 19,371 10,533 626 2,570,236 2,632,858

Note 8 - Noncurrent Liabilities The Cooperative has the following unsecured lines of credit: 2005 SunTrust, N.A.; Credit Line of $35,000,000, Variable Interest Based Upon Bank’s Announced Rate, Payable on Demand CFC, Credit Line of $12,000,000 in 2005 and $27,000,000 in 2004, Variable Interest Based, Payable on Demand Total Lines of Credit

2004

$

1,967,428

$

30,664,516

$

0 1,967,428

$

12,000,000 42,664,516

The Cooperative had approved, but undrawn long-term loan funds available in the amount of $45,500,000 and $30,999,208 as of December 31, 2005 and 2004, 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 remaining $0 and $11,665,309 line of credit has been classified as a current liability at December 31, 2005 and 2004, respectively. The following is a summary of the Cooperative’s long-term debt payable to RUS and CFC: 2005 RUS Mortgage Notes 1.625% Notes 1.750% Notes 2.000% Notes 2.125% Notes 2.250% Notes 2.375% Notes 2.500% Notes 2.625% Notes

$

0 4,000,000 168,249 4,063,835 8,253,520 1,925,584 1,947,523 0

2004 $

5,000,000 0 4,342,514 4,159,018 3,344,662 1,971,308 1,992,745 4,756,199


Notes To Financial Statements (continued) For the years ended December 31, 2005 and 2004

Sumter Electric Cooperative Inc., Sumterville, Florida

Note 8 - Noncurrent Liabilities (continued) 2005 RUS Mortgage Notes 2.750% Notes 2.875% Notes 3.000% Notes 3.125% Notes 3.250% Notes 3.500% Notes 3.625% Notes 3.750% Notes 3.875% Notes 4.125% Notes 5.000% Notes 5.500% Notes Total RUS Mortgage Notes (Current Portion) Long-term Portion CFC Mortgage Notes 3.550% Notes 4.200% Notes (Variable) 4.250% Notes 4.550% Notes 4.950% Notes 5.150% Notes 5.250% Notes 5.300% Notes 6.000% Notes 6.150% Notes 6.250% Notes 7.000% Notes Total CFC Mortgage Notes (Current Portion) Long-term Portion

$

$

$

$

2004

10,123,265 5,000,000 11,645,861 9,260,060 2,724,470 15,215,581 11,100,080 14,451,364 3,505,649 8,000,000 38,214,535 5,412,654 155,012,230 (3,408,796 ) 151,603,434

$

712,866 0 695,407 903,664 1,631,183 2,920,429 1,792,832 9,922,012 810,547 29,756,217 29,737,616 458,394 79,341,167 (3,234,550 ) 76,106,617

$

$

$

10,335,323 0 10,181,563 7,338,106 1,834,879 3,294,762 1,125,042 6,123,539 3,575,661 0 39,566,660 5,515,843 114,457,824 (2,948,280) 111,509,544

980,834 48,910,400 841,660 1,038,200 1,799,893 3,145,615 1,897,570 10,341,624 890,445 0 0 641,370 70,487,611 (3,117,803) 67,369,808

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 $24,500,000 and $18,999,208 were available to the Cooperative as of December 31, 2005 and 2004, 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 $21,000,000 and $12,000,000 were available to the Cooperative as of December 31, 2005 and 2004, respectively.

21


Notes To Financial Statements (continued) For the years ended December 31, 2005 and 2004

Sumter Electric Cooperative Inc., Sumterville, Florida

Note 8 - Noncurrent Liabilities (concluded) Interest on long-term debt, all of which was charged to expense, follows: 2005 Lines of Credit RUS Mortgage Notes CFC Mortgage Notes Totals

$

$

1,248,915 4,651,762 3,772,119 9,672,796

2004 $

$

443,773 4,156,273 2,668,952 7,268,998

Long-term debt maturing within each of the five years subsequent to December 31, 2005, is as follows: December 31 2006 2007 2008 2009 2010 Thereafter Total

$

$

Mortgage Notes RUS CFC 3,408,796 $ 3,234,550 4,036,029 3,366,494 4,166,253 3,340,727 4,324,985 3,268,128 4,494,253 3,249,302 134,581,914 62,881,966 155,012,230 $ 79,341,167

Total 6,643,346 7,402,523 7,506,980 7,593,113 7,743,555 197,463,880 $ 234,353,397 $

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 cost is to be amortized for a period not to exceed thirty years. The Cooperative incurred pension expense totaling $1,551,439 and $1,230,229 related to the NRECA Plan during 2005 and 2004, 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 3.50% of the employee’s salary. Both employee and employer contributions to the plan are funded biweekly. The Cooperative’s contributions to the plan were $464,272 and $400,893 in 2005 and 2004, 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 coverages are required to pay part of the cost of the plan. In connection with the plan, the Cooperative maintains $875,000 specific excess insurance for claims that exceed


Notes To Financial Statements (continued) For the years ended December 31, 2005 and 2004

Sumter Electric Cooperative Inc., Sumterville, Florida

Note 9 - Employee Benefit Plan (concluded) $125,000 for any covered individual and $1,000,000 aggregate excess insurance for claims that exceed $5,328,302 in the plan year. Based upon the results of a recently completed 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: 2005 2004 Purchased Power Cost

$

158,383,852

$

129,876,358

Accounts Payable - Power Cost, December 31

$

15,860,859

$

13,559,613

Patronage Capital Assigned

$

981,612

$

382,562

Patronage Capital, December 31

$

10,844,193

$

9,926,058

Note 11 - Deferred Charges and Credits A schedule of deferred charges and credits are as follows: 2005 Deferred Charges Unamortized: Pension Cost Dues Deposits on Sales and Use Tax 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

$

$ $

$

2,030,950 54,289 114,544 26,921 2,226,704 0 295,290 381,580 30,179 35,079 116,638 858,766

2004

$

$ $

$

4,799,348 52,305 98,116 127,968 5,077,737 150,002 287,266 394,780 1,091,772 24,033 109,214 2,057,067

Amortization Amortization of deferred charges ranges from one to thirty years depending upon the individual item.

23


Notes To Financial Statements (concluded) December 31, 2005 and 2004

Sumter Electric Cooperative Inc., Sumterville, Florida

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: Book Value

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

$

$

155,012,228 79,341,168

2,458,411 1,185,806 1,967,428 239,965,041

Current Value $

$

136,640,003 74,155,436

1,722,010 664,468 1,967,428 215,149,345

Discount Rates RUS Loans: ■ 2% loans discounted at the RUS insured loan rates for the corresponding maturity dates. The rates range from 3.25% to 3.375%. ■ 5% loans discounted at the RUS insured loan rates for the corresponding maturity dates. The rates range from 4.25% to 4.50%. ■ The RUS variable rate loans are discounted at the RUS insured loan rates as of January 1, 2006, for the corresponding maturity date. The maturity dates range from 1 year to 26 years and the rates range from 3.25% to 4.50%. CFC Loans: ■ Fixed rate loans discounted at January 1, 2006, CFC fixed rate using corresponding maturity dates for each loan. The maturity dates range from 1 year to 31 years and the rates range from 6.40% to 6.85%. CFC Capital Term Certificates (CTC’s): ■ Subscription CTC’s discounted at 6.85%. ■ Loan CTC’s discounted at rates ranging from 6.65% to 6.80%. 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.


“The greatness of a nation and its moral progress can be judged by the way its animals are treated.� Mohandas Gandhi

Special thanks to Reg Garner from Sanford, Florida for ten of the nature photographs used in this Annual Report including the Great egret on the cover. Other nature photos were furnished by the SECO Public Affairs staff.


SECO is...


2005 Annual Report