2006 Annual Report

2006 SECO Annual Report

How to build a successful cooperative

What makes your cooperative a success?

A PASSION TO SATISFY OUR MEMBERS

2006 Annual report Cooperative Highlights Operating Revenue $271,193,068 Net Margins $6,665,222 s you joined the membership of Sumter Electric Cooperative, you became part of the SECO family at the same time. You also became part of the Co-op Nation of fellow members at the nearly 1,000 electric cooperatives serving the energy needs of Americans from coast to coast.

At a not-for-profit co-op, it isn’t about the drive to make as much money as possible. It surely isn’t about looking at customers as mere numbers in an accounting ledger. It’s not about insulating the decision makers in ivory towers. And, it’s darn sure not about providing only minimal meaningful communication to the people to whom you provide electricity.

In the co-op world the top priority is to provide the best care possible to each co-op member.

At SECO we have a corporate purpose that we pursue every day of the year. That purpose is to provide exceptional service to our customers, co-workers and communities. It is that simple.

The passion to go beyond our members’ expectations of us is something in which we take a great deal of pride. We feel that way because we are also co-op members, we live in the same communities and we share the same concerns about the quality of life in our part of Central Florida.

Since 1938, the members and employees of Sumter Electric have worked together to build and nurture their co-op. Today, the co-op is looked upon as one of the very best in the nation.

Total Assets $435,743,735 Patronage Capital Distributed $1,107,403 Kilowatt-Hours Sold 2,570,909,263 Miles of Energized Line 10,491 New Services 11,945 Number of Members 158,494 Full-Time Employees 381

1 2006 Sumter Electric Cooperative Annual Report

What makes your cooperative a success?

Providing Reliable, Competitively-priced Electricity In a Financially Sound Manner uilding a great cooperative takes many forms. Chief amongst them is the continuous effort to provide the members with reliable, competitively-priced electricity.

As this annual report is being compiled, SECO serves nearly 158,500 members and their families. It is one of the fastest growing and largest co-ops in the country. In 2006 alone we built 11,945 electric services for new members. We now maintain nearly 10,500 miles of power lines in a seven-county service territory the same size as the State of Delaware.

This year our growing membership called upon us to deliver much more power to them. In 2006, our kilowatt-hour sales increased by 145 million (about 6%) to 2.6 billion.

That kind of rapid fire growth can cause tremendous problems for any electric utility. Electric reliability can be adversely impacted because it is difficult to keep up with the maintenance and upgrades to facilities necessary to insure outages are kept to a minimum. The timeframe for the construction of new electric services can be delayed. The pressure often impacts the customer service side of the business. And, all of this eventually leads to serious erosion in overall customer satisfaction with the utility.

Happily, at SECO we’ve been able to effectively manage that explosive growth and have actually increased the reliability of the system overall keeping outages to a minimum. At the same time we’ve also increased the level of satisfaction our members have with their co-op.

How did it happen? Well, there were several key components to that success.

One major factor was the co-op’s ability to invest over $4 million every month during 2006 to build new services and infrastructure like substations to accommodate the many people moving into the service territory and to maintain and upgrade our facilities for existing members.

We are committed to keeping the SECO system as modern and as free from problems as humanly possible. We think our members, both new and old, have a right to expect that. That investment paid off because in 2006, on average, SECO members had unimpeded access to their electric supply 99.98 percent of the time.

Another factor was the investment in cutting edge technology that allowed SECO employees to work even more efficiently on your behalf and to greatly reduce the outage times, particularly during storm events like hurricanes and tornadoes.

2 2006 Sumter Electric Cooperative Annual Report

An example of that is the co-op’s state-of-the-art Global Information System. This new system, the envy of many in our industry, has many advantages and assists SECO’s employees in enabling them to work faster and smarter on the members’ behalf. The feature of most interest to members would be how it impacts outage restoration time. In a nutshell, it shortens outage time dramatically.

All of SECO’s facilities have now been logged into the co-op’s computer system using global positioning technology. Now every pole (and the equipment attached to it such as transformers), every substation, every underground switch cabinet, etc., in SECO’s 2,000-square-mile service territory can be instantaneously identified and the exact location determined at headquarters. That speeds system repairs.

An example would be an incident where a motor vehicle knocks down a pole. Now, using the GIS technology, there is no need to first assess the on site damage before determining the materials that will be needed to make the repair. Instead, the pole is called up on the computer and the type and exact size of the pole plus a list of any equipment attached to the pole is automatically displayed.

That information is relayed to repair crews who are quickly dispatched to the job site armed with the exact materials needed to get the power back on expeditiously.

The combination of continuous enhancements to the co-op’s electric system, the smart use of new technology, the co-op wide emphasis on good customer service and the stability of rates in 2006 all contributed to high member satisfaction with their utility.

3 2006 Sumter Electric Cooperative Annual Report

SECO Scholarship Program

Day of Caring

Light the Night® Walk

r Life® o F y a l e R Sumter ooperative employees are often praised for the hard work they do on a daily basis for the membership. However, the commitment of SECO’s employees goes way beyond the normal work day.

If there is a youth ball team that needs a coach, a choir that needs a voice, a fundraiser that needs participants, or a child who needs a Christmas present, it is more than likely you’ll find a SECO employee lending a hand. Addi-

$65,000 for the area’s various 2007 United Way campaigns

tionally, SECO employees serve on a variety of boards and

to help those less fortunate. And, there are other causes

committees for chambers of commerce, economic develop-

that employees support including the American Cancer

ment councils and charitable organizations.

Society, Junior Achievement and many more.

Not only do the employees lend their time off and their

They do it because they firmly believe in looking out

talents to many worthwhile community projects, they also

for the welfare of their fellow man. Employees view fam-

lend a great deal of monetary support to critical causes. As

ily and community as integral to their lives as residents of

an example, in late 2006, SECO employees pledged nearly

Central Florida.

4 2006 Sumter Electric Cooperative Annual Report

What makes your cooperative a success?

Involvement In The COMMUNITY Beyond The Work Day Relay Fo r Life® – Citrus

Eus tis Beaut

ification Aw

ard

Ar t in the Park

Community Acknowledgement

SECO’s Angel Tree

Elemen ta

r y Scho ol Care er Day

5 2006 Sumter Electric Cooperative Annual Report

What makes your cooperative a success?

Intelligent Decision Making

Wilson G. Sheppard

Ray F. Vick

Jerry D. Hatfield

President District 8

Vice President District 5

Secretary-Treasurer District 9

Donald W. Santee

Dillard B. Boyatt

Barry R. Evans

District 1

District 2

District 3

James D. Holtz

Earl Muffett

Robert G. Gentry

District 4

District 6

District 7

6 2006 Sumter Electric Cooperative Annual Report

ecisions on how to guide the cooperative rest with the SECO Board of Trustees. The trustees establish, review and revise corporate policies aimed at keeping member satisfaction with the co-op high while simultaneously maintaining a strong financial position on behalf of the members.

Like you, SECO trustees are members of Sumter Electric. They have a deep understanding of how the cooperative business model works and they live in communities throughout SECO’s service territory. Board members come from a variety of professional backgrounds and their collective expertise is put to good use on behalf of the overall membership.

Trustees do much more than simply attend a monthly board meeting to conduct co-op business. They also represent SECO at regular meetings of Seminole Electric Cooperative in Tampa and the Florida Electric Cooperatives Association in Tallahassee. They attend workshops on specific co-op related issues and they are called upon to

Jim Duncan CEO & General Manager do the course work necessary to receive their Credentialed Cooperative Director’s Certificate through the National Rural Electric Cooperative Association.

Under their stewardship member equity in the co-op has increased to almost $117 million. Their dedicated work is in the finest tradition of the trustees who have come before and helped build and guide this co-op since it was first founded in 1938.

SECO’s CEO and General Manager is the man the Board of Trustees entrust to oversee the day-to-day operations of the co-op. He meets regularly with his senior staff and keeps the board apprised of program initiatives.

His frequent interactions with the co-op’s employee base assures that they are also informed about virtually every aspect of SECO’s business plan. His leadership helps keep the co-op’s purpose in the forefront of everyone’s mind and his business acumen makes for a steady hand on the helm.

7 2006 Sumter Electric Cooperative Annual Report

xceeding our members’ expectations of us as

Part of that survey ranks SECO against other types

an electric provider is what we consider the

of utilities on the American Customer Satisfaction Index

ultimate reward at SECO.

(ACSI). SECO scored an 86 out of 100 on the index which

Good customer service is hard to come by where most

is extremely high for an electric utility of any kind.

businesses are concerned in this day and age. At SECO it’s

That score was one of the highest in the country and it

just the opposite and we appreciate the members’ support

blew away the industry average score of 72. It was also much

of their co-op.

higher than specific scores for investor-owned utilities across

As noted earlier in this report, high growth usually

the country and higher than the average score for the 600

translates to lower customer satisfaction ratings. However,

electric cooperatives in the Touchstone Energy® network.

in late 2006 we conducted our annual telephone survey of

The annual survey helps us stay focused on what is impor-

the members to see how they felt about their co-op.

tant to the members and we are grateful for their approval.

8 2006 Sumter Electric Cooperative Annual Report

What makes your cooperative a success?

Building A Team of Hard Working Employees

Good customer service and high electric system reliability are certainly major factors in customer satisfaction.

lower cost throughout 2006 despite the many fluctuations in the fuel markets.

The third factor is competitively priced rates. Throughout

That is a significant accomplishment given the fact

2005 and early 2006, the cost of natural gas was out of

that over 70 percent of SECO’s annual revenue goes to-

control and the cost of coal and its transportation was on

ward purchasing electricity on behalf of the membership

the rise. As a result, nearly every electric utility in the state

that is generated primarily from natural gas and coal.

announced rate increases, some as high as 20 percent.

When you are able to build a great team of hard work-

However, in April of 2006 we stopped the statewide

ing employees, good things happen for the members. We

rate increase trend and actually announced a 5.3 percent

pledge to continue our ongoing effort to keep SECO one of

reduction in the members’ cost per thousand kilowatt-

the best electric utilities of any kind in the country.

hours of electricity. And, we managed to maintain that

9 2006 Sumter Electric Cooperative Annual Report

What makes your cooperative a success?

Planning for the Future

orecasting the future and planning to meet

restoration in this part of SECO’s service territory.

the challenges of tomorrow are tasks every-

As one can imagine, one of the critical parts of any

one at SECO takes very seriously. When you

electric business is keeping a well maintained fleet of ve-

are part of a co-op that breaks records for growth every

hicles ready for constructing new facilities and making sys-

year, it is absolutely imperative that you make sure the in-

tem repairs when necessary.

frastructure, rolling stock, equipment and technology are

SECO’s main fleet maintenance facility in Sumter-

there to insure you can provide the best electric service

ville in Sumter County is hopelessly outdated. Despite that

possible.

fact, the co-op’s vehicle maintenance staff has been able to

In 2006, SECO sought and received approval for a

cope with the less than ideal conditions to keep the fleet

new operations center and hurricane restoration complex

moving, but an improvement in the working environment

for Lake County and we expect to break ground in 2007.

is clearly needed.

In addition, a new customer service center was opened for Lake County residents on Ardice Avenue in Eustis.

With that in mind, planning began in 2006 to explore the construction of a new fleet facility that will make the

The old Eustis office on Route 441 had housed both

difficult job of keeping all of SECO’s vehicles in top shape

the operations and the customer service centers, but had

much more efficient and enable them to better respond to

become much too small to accommodate the rapidly ex-

any work related task. The new facility would fully satisfy

panding membership in the county. The new customer

the co-op’s fleet maintenance needs for years to come.

service center and the new operations center will greatly

New electric substations were built and many more up-

enhance member satisfaction, electric reliability and storm

graded throughout SECO’s seven-county service territory.

10 2006 Sumter Electric Cooperative Annual Report

Many miles of new line were constructed, much of it underground, and more will be built in 2007. The reliability of the electric system has been further enhanced as a result.

Today the co-op has increased its investment in total utility plant and equipment to almost $472 million. Over $50 million of that came in 2006 alone.

These are a few of the highlights – it’s all aimed at insuring that future remains bright for our current members and all those who will join us in years to come.

11 2006 Sumter Electric Cooperative Annual Report

What makes your cooperative a success?

Independent Auditors’ Report Board of Directors Sumter Electric Cooperative, Inc. Sumterville, Florida We have audited the accompanying balance sheets of Sumter Electric Cooperative, Inc. (the Cooperative) as of December 31, 2006 and 2005, 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, 2006 and 2005, 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 January 31, 2007 on our consideration of the Cooperative’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters.

The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audits.

Purvis Gray & Company January 31, 2007 Gainesville, Florida

12 2006 Sumter Electric Cooperative Annual Report

Balance Sheets

December 31, 2006 and 2005 Sumter Electric Cooperative, Inc., Sumterville, Florida ASSETS 2006

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 2006 - $550,029; 2005 - $579,684) Other Receivables Unbilled Electric Revenues Inventories Prepayments and Other Current Assets Total Current Assets Deferred Charges Total Assets

$

446,195,089 25,455,642 471,650,731 (88,516,496 ) 383,134,235

2005 $

403,920,514 17,391,652 421,312,166 (82,015,698) 339,296,468

20,534,955

17,606,060

2,643,928

1,429,935

11,055,499 3,913,164 5,047,845 8,817,202 104,652 31,582,290 492,255 435,743,735

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

686,030 113,421,371 2,632,933 116,740,334

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

265,997,965

229,677,479

7,131,920 7,981,228 21,541,642 7,026,092 8,149,858 51,830,740 1,174,696 435,743,735

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

EQUITIES AND LIABILITIES Equities Memberships Patronage Capital Other Equities Total Equities Noncurrent Liabilities Long-term Debt Current Liabilities Long-term Debt - Portion Due Within One Year Line of Credit Accounts Payable Consumer Deposits Other Current or Accrued Liabilities Total Current Liabilities Deferred Credits Total Equities and Liabilities

$

See accompanying notes.

13 2006 Sumter Electric Cooperative Annual Report

$

Statements of Revenues and Patronage Capital

December 31, 2006 and 2005

Sumter Electric Cooperative, Inc., Sumterville, Florida 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)

$

2006 271,193,068

$

2005 229,486,581

196,109,238 336,400 11,327,747 15,384,063 8,544,753 1,048,717 8,909,485 14,112,232 49,237 762,450 (256,584,322 )

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)

14,608,746

14,723,768

(11,679,907 )

(9,672,796)

Operating Margins After Fixed Charges

2,928,839

5,050,972

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

2,349,832 1,141,999 3,491,831

981,612 999,019 1,980,631

Net Operating Margins

6,420,670

7,031,603

121,221 123,331 244,552

183,515 83,460 266,975

6,665,222

7,298,578

107,854,257

101,548,623

Operating Margins Before Fixed Charges Fixed Charges Interest on Long-term Debt

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

(1,107,403 )

Reallocated Capital Credits Patronage Capital, End of Year

(1,000,262)

9,295 $

113,421,371

See accompanying notes.

14 2006 Sumter Electric Cooperative Annual Report

7,318 $

107,854,257

Statements of Cash Flow

December 31, 2006 and 2005 Sumter Electric Cooperative, Inc., Sumterville, Florida 2006

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 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 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 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year

$

$

6,665,222

2005 $

7,298,578

(3,491,831 ) 15,267,756 324,000

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

(3,464,298 ) 256,140 1,734,449 (212,420 ) 868,841 (3,029,800 ) 315,930 8,568,767 15,233,989

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

806,703 17,517,269 128,016

(2,474,121) 9,089,999 83,531

640,467 42,469 (120,000 ) (74,637,457 ) (2,113,351 ) (57,735,884 )

523,419 85,326 (277,219) (46,977,700) (1,645,967) (41,592,732)

51,513,800 0 (6,723,512 ) 23,708 (1,107,403 ) 9,295 0 43,715,888 1,213,993 1,429,935 2,643,928

(40,697,089) 55,499,208 (6,091,245) 19,914 (1,000,262) 7,318 75 7,737,919 1,105,739 324,196 1,429,935

See accompanying notes.

15 2006 Sumter Electric Cooperative Annual Report

$

Statements of Cash Flow (concluded)

December 31, 2006 and 2005 Sumter Electric Cooperative, Inc., Sumterville, Florida 2006

2005

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

$

11,251,622

$

9,752,575

$

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

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

$

$

7,609,123 2,113,351 (708,644 ) 9,013,830

See accompanying notes.

16 2006 Sumter Electric Cooperative Annual Report

$

Notes to Financial Statements

December 31, 2006 and 2005 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, 2006 and 2005, the amounts 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 2006 Sumter Electric Cooperative Annual Report

Notes to Financial Statements (continued)

December 31, 2006 and 2005 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 51% of the Cooperative’s work force is covered by a collective bargaining agreement that expires in September 2010.

Note 2 - Electric Plant and Depreciation Rates The following is a summary of the major classes of electric plant and depreciation rates as of December 31, 2006 and 2005: Depreciation 2006 2005 Rates Transmission Plant $ 7,115,765 $ 7,063,610 2.75% Distribution Plant 394,318,697 356,942,895 3.20% General Plant: Land and Land Rights 353,428 353,428 N/A Structures and Improvements 14,019,501 12,833,610 2.0% Office Furniture and Fixtures 5,935,155 5,374,775 10.0%-20.0% Transportation Equipment 12,299,402 10,704,171 10.0%-20.0% Shop Equipment 1,370,237 1,185,399 8.4% Laboratory Equipment 1,154,229 1,086,563 10.0% Communications Equipment 2,593,643 2,589,671 4.2% Stores Equipment 428,758 421,229 5.9% Surge Protection Equipment 2,830,113 2,518,611 10.0% Miscellaneous Equipment 677,191 648,464 10.5% Software 2,781,060 2,198,088 20.0% Total Electric Plant in Service 445,877,179 403,920,514 Construction Work in Progress 25,455,642 17,391,652 Total Electric Plant - at Cost $ 471,332,821 $ 421,312,166 Depreciation expense of $14,112,232 (2006) and $12,755,422 (2005) is net of $1,155,524 (2006) and $1,005,175 (2005) charged to clearing accounts, some of which is capitalized.

18 2006 Sumter Electric Cooperative Annual Report

Notes to Financial Statements (continued)

December 31, 2006 and 2005 Sumter Electric Cooperative, Inc., Sumterville, Florida

Note 3 - Investments in Associated Organizations Investments in associated organizations consist of the following: 2006 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

$

13,123,294

$

1,214,034 4,520,119 1,677,508 20,534,955

2005 $

10,844,193

$

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

CFC Capital Term Certificates are purchased as a condition of the mortgage agreements with CFC. At December 31, 2006 and 2005, they consist of the following: Certificates, 5% (Maturing 2070 to 2080) $ 1,902,010 $ 1,902,010 Certificates, 3% (Maturing 2020 to 2030) 556,400 556,400 Certificates, 0% (Maturing at Variable Dates) 2,061,709 1,984,178 Total $ 4,520,119 $ 4,442,588 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, 2006 and 2005, include approximately $530,230 and $486,697, respectively, relating to pole rentals due from other utility companies. In addition, other receivables at December 31, 2006 and 2005, include an estimated reimbursement of $132,926 and $305,354, respectively, for stop loss coverage from HCC Life Insurance Company.

Note 5 - Return of Capital Under provisions of the long-term debt agreements, unlimited patronage capital distributions to members are allowed provided equities and margins equal or exceed 30% of total assets after distribution. Effective with the 1991 year, the Cooperative suspended for five years the general capital credit retirements. During 1995, the suspension was lifted and the Cooperative began making general retirements of patronage capital. The equities and margins of the Cooperative represent 26.79% and 28.69% of the total assets at December 31, 2006 and 2005, respectively. Capital credit retirements in the amount of $1,107,403 and $1,000,262 were paid in 2006 and 2005, respectively.

Note 6 - Detail of Patronage Capital Assignable Assigned

$

(Retired in Current Year) Reallocated Capital Credits (Cumulative Amount Retired in Previous Years) Total Patronage Capital

$

2006 6,665,222 129,933,862 135,932,562 (1,107,403 ) 9,295 (22,079,605 ) 113,421,371

19 2006 Sumter Electric Cooperative Annual Report

$

$

2005 7,298,577 122,627,967 129,926,544 (1,000,262) 7,318 (21,079,343) 107,854,257

Notes to Financial Statements (continued)

December 31, 2006 and 2005 Sumter Electric Cooperative, Inc., Sumterville, Florida

Note 7 - Detail of Other Equities 2006 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

$

$

2005

32,092 19,371 10,533 626 2,570,311 2,632,933

$

$

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: 2006 SunTrust, N.A.; Credit Line of $35,000,000, Variable Interest Based Upon Bank’s Announced Rate, 5.9025% at December 31, 2006, Payable on Demand CFC, Credit Line of $12,000,000, Variable Interest Based, Payable on Demand Bank of America, Credit Line of $20,000,000 in 2006 and $10,000,000 in 2005, Variable Interest Based, 5.8175% at December 31, 2006, Payable on Demand Total Lines of Credit

$

$

2005

33,481,229

$

1,967,428

0

0

20,000,000 53,481,229

0 1,967,428

$

The Cooperative had approved, but undrawn long-term loan funds available in the amount of $45,500,000 and $45,500,000 as of December 31, 2006 and 2005, respectively. In accordance with Statement of Financial Accounting Standards (SFAS) Statement No. 6, the line of credit has been classified as long-term debt in an amount not exceeding the available undrawn loan funds. The amount, if any, in excess of undrawn loan funds is classified as a current liability.

The following is a summary of the Cooperative’s long-term debt payable to RUS and CFC: 2006 RUS Mortgage Notes 1.750% Notes $ 0 2.000% Notes 23,828 2.125% Notes 3,966,610 2.250% Notes 8,083,797 2.375% Notes 1,878,762 2.500% Notes 1,901,158 2.750% Notes 9,905,302 2.875% Notes 0 3.000% Notes 8,064,948 3.125% Notes 8,944,204

20 2006 Sumter Electric Cooperative Annual Report

2005 $

4,000,000 168,249 4,063,835 8,253,520 1,925,584 1,947,523 10,123,265 5,000,000 11,645,861 9,260,060

Notes to Financial Statements (continued)

December 31, 2006 and 2005 Sumter Electric Cooperative, Inc., Sumterville, Florida

Note 8 - Noncurrent Liabilities (Continued) 2006 RUS Mortgage Notes 3.250% Notes 3.500% Notes 3.625% Notes 3.750% Notes 3.875% Notes 4.000% 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

$

$ $

$

2,671,531 23,921,123 10,955,265 14,260,847 1,507,920 3,629,315 9,711,786 36,793,227 5,303,644 151,523,267 (3,765,426 ) 147,757,841 435,257 0 542,839 762,903 1,453,966 2,683,420 1,682,486 9,479,713 725,746 29,259,466 28,818,551 262,269 76,106,616 (3,366,494 ) 72,740,122

2005 $

$ $

$

2,724,470 15,215,581 11,100,080 14,451,364 3,505,649 0 8,000,000 38,214,535 5,412,654 155,012,320 (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

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 $24,500,000 were available to the Cooperative as of December 31, 2006 and 2005, 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 $21,000,000 were available to the Cooperative as of December 31, 2006 and 2005, respectively.

21 2006 Sumter Electric Cooperative Annual Report

Notes to Financial Statements (continued)

December 31, 2006 and 2005 Sumter Electric Cooperative, Inc., Sumterville, Florida

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

$

$

2006 1,485,913 5,720,290 4,473,704 11,679,907

$

$

Long-term debt maturing within each of the five years subsequent to December 31, 2006, is as follows: Mortgage Notes December 31 RUS CFC 2007 $ 3,765,426 $ 3,366,494 $ 2008 4,000,676 3,340,727 2009 4,144,966 3,268,128 2010 4,303,105 3,249,302 2011 4,476,525 3,300,338 Thereafter 130,832,569 59,581,628 Total $ 151,523,267 $ 76,106,617 $

2005 1,248,915 4,651,762 3,772,119 9,672,796

Total 7,131,920 7,341,403 7,413,094 7,552,407 7,776,863 190,414,197 227,629,884

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 $1,794,786 and $1,551,439 related to the NRECA Plan during 2006 and 2005, 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 $527,692 and $464,272 in 2006 and 2005, respectively.

Self-insured Medical Benefits The Cooperative provides a self-insured medical benefits plan for active and retired employees, trustees and their dependents. Participants that select dependent or additional coverage are required to pay part of the cost of the plan. In connection with the plan, the Cooperative maintains $875,000 specific excess insurance for claims that exceed $125,000 for any covered individual and $1,000,000 aggregate excess insurance for claims that exceed $5,425,000 in the plan year. Based upon the results of a recently completed actuarial review the Cooperative does not have a liability related to its coverage of retired employees.

22 2006 Sumter Electric Cooperative Annual Report

Notes to Financial Statements (continued)

December 31, 2006 and 2005 Sumter Electric Cooperative, Inc., Sumterville, Florida

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: 2006 2005 Purchased Power Cost $ 196,109,238 $ 158,383,852 Accounts Payable - Power Cost, December 31

$

13,814,695

$

15,860,859

Patronage Capital Assigned

$

2,349,832

$

981,612

Patronage Capital, December 31

$

13,123,294

$

10,844,193

Note 11 - Deferred Charges and Credits A schedule of deferred charges and credits are as follows: 2006 Deferred Charges Unamortized: Pension Cost Dues Deposits on Sales and Use Tax Deposit on Transformer Other Total Deferred Charges Deferred Credits Debt Costs Unclaimed Capital Credits Special Equipment Installation Costs Unpaid Billings for Contribution in Aid of Construction Other Deferred Amounts Customer Benevolent Fund Total Deferred Credits

$

$ $

$

0 133,591 131,502 208,875 18,287 492,255 237,500 321,777 368,920 41,536 85,637 119,326 1,174,696

2005

$

$ $

$

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

23 2006 Sumter Electric Cooperative Annual Report

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

Notes to Financial Statements (concluded)

December 31, 2006 and 2005 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:

Financial Instruments RUS Long-term Debt CFC Long-term Debt CFC Subscription Capital Term Certificates and Interest-bearing Loan Capital Term Certificates CFC Loan Capital Term Certificates Lines of Credit Total

$

$

Book Value 151,523,268 76,106,617

2,458,411 1,143,336 53,481,229 284,712,861

$

$

Current Value 154,401,877 68,697,056

1,623,912 641,403 53,481,228 278,845,476

Discount Rates RUS Loans: ■ 2% loans discounted at the RUS insured loan rates for the corresponding maturity dates. The rate is 3.375%.

■ 5% loans discounted at the RUS insured loan rates for the corresponding maturity dates. The rates range from 3.3875% to 4.125%.

■ The RUS variable rate loans are discounted at the RUS insured loan rates as of January 1, 2007, for the corresponding maturity date. The maturity dates range from 1 year to 34 years and the rates range from 3.50% to 4.125%.

CFC Loans: ■ Fixed rate loans discounted at January 1, 2007, CFC fixed rate using corresponding maturity dates for each loan.

The maturity dates range from 1 year to 29 years and the rates range from 6.90% to 7.30%.

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 7.10% to 7.30%.

■ Subscription CTC’s were discounted using the thirty-year long-term rate of 7.30%.

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.

24 2006 Sumter Electric Cooperative Annual Report

Customer Service Centers 293 South U.S. Highway 301 Sumterville, Florida 33585-0301 610 South U.S. Highway 41 Inverness, Florida 34450-6030 50 West Ardice Avenue Eustis, Florida 32726 850 North Howey Road Groveland, Florida 34736-2234 4872 Southwest 60th Avenue Ocala, Florida 34474-4316 www.secoenergy.com