SECO Energy's 2018 Annual Report

2018

SECO Energy 2018 Annual Report

1

Table of Contents

TABLE OF CONTENTS Letter To Members

3

About Us

4

Board of Trustees

6

District Map

7

Executives

8

Auditors’ Report

9

Balance Sheets

10

Statements of Revenues and Patronage Capital

11

Statements of Cash Flows

12

JIM DUNCAN 2

SECO Energy 2018 Annual Report

CEO

LETTER TO MEMBERS Dear Members, SECO Energy is the third largest cooperative in the state and the seventh largest in the nation. At the end of 2018, our not-for-profit cooperative was delivering power to 205,644 service locations, and we continue to grow.

The reliability of our $878.7 million electric system remains stellar. In 2018, we invested $3.3 million per month to extend facilities to new members and to improve reliability to existing members. SECO delivered and members consumed 3.4 billion kilowatt hours, representing a purchased power expense of $265.6 million. That consumption growth rate is 5.7 percent and tracks with growth in new services.

JIM DUNCAN

We are proud of the fact that SECO Energy is a fiscally sound utility and that the communities around us are growing. In 2018, our members indicated that SECO serves their energy needs well. Our ACSI (American Customer Satisfaction Index) score rose to 89, showing that our cooperative is a state and national frontrunner.

Thank you for your membership. It is our privilege to serve your energy needs.

Sincerely, JERRY HATFIELD JERRY HATFIELD JIM DUNCAN CEO

JERRY HATFIELD

President Board of Trustees

President

Board of Trustees

SECO Energy 2018 Annual Report

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ABOUT US CENTRAL FLORIDA NOT-FOR-PROFIT

COOPERATIVE

3rd

LARGEST IN

FLORIDA

ACSI

400+ EMPLOYEES

205,644 SERVICES

2.01

7th

$878.7

89 31.39% MEMBER EQUITY

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SECO Energy 2018 Annual Report

3.4 BILLION KWH

CONSUMED

LARGEST IN

NATION

TIER LEVEL

MILLION ELECTRIC SYSTEM

ACSI 89% THE COOPERATIVE

DIFFERENCE

In 2018, our members indicated that SECO serves their energy needs well. Our ACSI (American Customer Satisfaction Index) score rose to 89, showing that our cooperative is a state and national frontrunner.

SECO ENERGY

INVESTOR-OWNED

75% 75%

MUNICIPALS

OTHER CO-OPS

77%

Investor-owned and municipal utilities averaged 75. And cooperative utilities’ average score is 77. There is a difference when serving members in a not-for-profit environment – the cooperative difference.

SECO Energy 2018 Annual Report

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6

SECO Energy 2018 Annual Report

JERRY D. HATFIELD District 9 President

RICHARD DENNISON District 4 Vice President

BILL JAMES District 8 Secretary-Treasurer

SCOTT D. BOYATT District 1

DILLARD B. BOYATT District 2

VACANT District 3

RAY F. VICK District 5

EARL MUFFETT District 6

JOSEPH E. KUSIAK District 7

27

LEVY

DISTRICT MAP

41

40

Ocala

200

75

Lake Weir 19

MARION CITRUS

Umatilla

301

44

41

District 1 S. Boyatt District 2 D. Boyatt District 3 Vacant District 4 Dennison District 5 Vick District 6 Muffett District 7 Kusiak District 8 James District 9 Hatfield

Wildwood

Lake Griffin

Lake Eustis

441

Leesburg

Lake Panasoffkee

44

Lake Harris

48

Lake Apopka 301

50

HERNANDO

Clermont

471

LAKE PASCO

SUMTER

33

27

SECO Energy 2018 Annual Report

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EXECUTIVE LEADERSHIP

OUR PURPOSE

To provide exceptional service to our members, co-workers and communities.

JIM DUNCAN

Chief Executive Officer

OUR VALUES Commitment to the Cooperative Purpose Honesty & Integrity Safety Strong Work Ethic Teamwork Open Communication

BEN BRICKHOUSE VP of Engineering

NORA BROWN

Sr. Executive Assistant

GENE KANIKOVSKY JOHN LASELVA Chief Financial Officer 8

SECO Energy 2018 Annual Report

VP of Operations

KATHRYN GLORIA VP of Corporate Communications

GREGG MORRELL

VP of Corporate Services & Human Resources

INDEPENDENT AUDITORS’ REPORT

Board of Directors Sumter Electric Cooperative, Inc. Sumterville, Florida Report on the Financial Statements We have audited the accompanying financial statements of Sumter Electric Cooperative, Inc. (the Cooperative), which comprise the balance sheets as of December 31, 2018 and 2017, and the related statements of revenues and patronage capital, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.

Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Cooperative, as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 13, 2019, on our consideration of the Cooperative’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Cooperative’s internal control over financial reporting and compliance.

Other Reporting Required by 7 CFR Part 1773 In accordance with 7 CFR Part 1773, Policy on Audits of Rural Utilities Service Borrowers, §1773.33 and clarified in the Rural Utilities Service policy memorandum dated February 7, 2014 (the regulatory requirements for electric borrowers), we have also issued our report dated February 13, 2019, on our consideration of the Cooperative’s compliance with the terms, covenants, provisions, or conditions of their loan, grant, and security instruments as set forth in the regulatory requirements for electric borrowers, insofar as they relate to accounting matters enumerated therein. The purpose of that report is to describe the scope of our testing of the Cooperative’s compliance with the regulatory requirements for electric borrowers and the results of that testing, and not to provide an opinion on the Cooperative’s compliance with the regulatory requirements for electric borrowers. That report is an integral part of an audit in considering the Cooperative’s internal control over financial reporting and compliance.

February 13, 2019 Ocala, Florida

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

SECO Energy 2018 Annual Report

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BALANCE SHEETS | DECEMBER 31, 2018 AND 2017 ASSETS

2018

2017

Electric Plant Distribution, Transmission, and General Plant

EQUITIES AND LIABILITIES

2018

Equities Memberships $

Construction Work in Progress Total Electric Plant

828,151,643

$

799,144,449

50,519,318

40,021,942

878,670,961

839,166,391

(Accumulated Provision for Depreciation and Amortization)

(198,127,664)

(187,386,750)

Total Electric Plant - Cost Less Depreciation and Amortization

680,543,297

651,779,641

$

Patronage Capital

257,504,864

887,185

248,116,609

(519,288)

(644,699)

Other Equities

5,216,724

4,568,024

263,113,825

252,927,119

475,610,909

419,171,264

2,806,272

2,580,846

1,555,821

1,658,555

479,973,002

423,410,665

17,333,663

17,081,698

1,032,088

745,278

Total Equities

Long-term Debt Deferred Compensation Liability

Investments in Associated Organizations and Other Special Funds

Total Noncurrent Liabilities 89,955,325

83,970,688

Current Liabilities Long-term Debt - Portion Due Within One Year

Current Assets Cash and Cash Equivalents 2,468,372 3,332,115 Accounts Receivable - Consumers (Less Provision for Doubtful Accounts 2018 - $1,293,251, and 2017 -$1,160,527) 10,808,496 10,960,847

Capital Lease Obligation - Portion Due Within One Year Line of Credit

0 26,926,599

Accounts Payable

20,912,606

18,712,956

Consumer Deposits

Unbilled Electric Revenues

9,937,438

5,422,376

Other Current or Accrued Liabilities

Inventories

17,107,723 15,753,466

Other Receivables

Prepayments and Other Current Assets

164,667

Total Current Assets Deferred Charges

SECO Energy 2018 Annual Report

$

Accumulated Other Comprehensive Income

Capital Lease Obligation

10

911,525

Noncurrent Liabilities

Investments

Total Assets

2017

61,399,302 6,261,486 $

838,159,410 $

137,941 54,319,701 7,353,728 797,423,758

Total Current Liabilities Deferred Credits Total Equities and Liabilities

34,821,115

32,173,934

17,395,843

16,467,174

11,629,114

14,992,199

82,211,823

108,386,882

12,860,760 $

838,159,410 $

12,699,092 797,423,758

STATEMENTS OF REVENUES AND PATRONAGE CAPITAL | DECEMBER 31, 2018 AND 2017

Operating Revenues

$

2018

392,699,934 $

2017 369,375,353

Operating Expenses Cost of Power Transmission Expense

265,587,987

251,742,596

228,289

220,320

5,100,000

Other Capital Credits and Margins

1,793,800 1,798,429 7,514,238

13,582,069

12,748,446

899,223

645,508

Other Nonoperating (Expense) Income 271,937

28,940

28,441,431

Nonoperating Margins

2,185,419

2,075,846

Administrative, General, and Other Expense

16,522,505

14,911,513

Depreciation Expense

25,487,271

24,668,434

Customer Service and Informational Expense

Taxes - Expense Other Expense (Total Operating Expenses) Operating Margins Before Fixed Charges

71,835 68,064

5,715,809

6,893,800

Distribution Expense - Maintenance 29,836,108

11,287,112

$

Total Other Margins Net Operating Margins

12,274,676

2017

G&T Cooperative Capital Credits $

16,648,210

Consumer Accounts Expense

2018

Other Margins

18,352,708

Distribution Expense - Operations

Interest Income Total Nonoperating Margins Net Margins

1,171,160

674,448

14,753,229

13,422,894

Patronage Capital, Beginning of Year 248,116,609 240,133,131

307,823

364,507

(Retirement of Capital Credits)

(370,854,621)

(350,428,033)

Patronage Capital, End of Year

(5,364,974) $

257,504,864

(5,439,416) $

248,116,609

21,845,313 18,947,320

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

(15,157,044)

(13,713,112)

6,688,269

5,234,208

SECO Energy 2018 Annual Report

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STATEMENTS OF COMPREHENSIVE INCOME DECEMBER 31, 2018 AND 2017

STATEMENTS OF CASH FLOWS DECEMBER 31, 2018 AND 2017

2018 2017

Net Margins

$

14,753,229

$

13,422,894

Other Comprehensive Net Margins

2018 2017

Cash Flows from Operating Activities Net Margins

$

14,753,229

13,422,894

Adjustments to Reconcile Net Margins to Net Cash Provided by (Used in) Operations:

Amortization of Unrecognized Prior Service Costs and Unrecognized Actuarial (Loss) Gain

125,411 (81,254)

Capital Credits and Patronage Dividend Certificates Assigned

(6,893,800)

(7,514,238)

26,722,224

26,010,147

Depreciation Comprehensive Net Margins

$

$14,878,640 $13,341,640

Provision for Uncollectible Accounts Amortization of Prepaid Pension

227,150

277,200

1,148,029

1,148,029

Changes in Assets - Decrease (Increase) and Liabilities - Increase (Decrease):

STATEMENTS OF CHANGES IN COMPREHENSIVE INCOME DECEMBER 31, 2018 AND 2017

2018 2017

Accumulated Other Comprehensive Income (Loss)–Beginning of the Year $

(644,699)

Initial Unrecognized Prior Service Costs Amortization of Unrecognized Prior Service Costs and Unrecognized Actuarial (Loss) Gain Accumulated Other Comprehensive Income (Loss)–End of the Year

$

$

0

0

(563,445)

Accounts Receivable

(4,589,861)

(4,101,771)

Other Receivables

(2,199,650)

(15,834,417)

Prepayments and Other Current Assets

(26,726)

66,585

Deferred Charges

(55,787)

(611,041)

Accounts Payable

2,647,181

8,985,994

Consumer Deposits

928,669

849,497

(3,475,567)

(630,157)

Other Current Liabilities

Deferred Compensation Liability

9,748

840,235

161,668

2,636,942

Total Adjustments

14,603,278

12,123,005

Net Cash Provided by (Used in) Operating Activities

29,356,507

25,545,899

Change in Inventory - Net of Salvage (1,354,257)

342,956

Contributions in Aid of Construction Received 13,216,548 Proceeds from Disposition of Property 405,570

9,543,785 253,615

Deferred Credits 125,411

(519,288)

(81,254)

$

(644,699)

Cash Flows from Investing Activities

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SECO Energy 2018 Annual Report

STATEMENTS OF CASH FLOWS | DECEMBER 31, 2018 AND 2017

2018 2017

Proceeds from Redemption of Patronage Capital Certificate

684,927

426,675

Proceeds from Redemption of Other Investments

370,732

62,849

(146,496)

(43,984)

Extension and Replacement of Plant

(63,186,735)

(58,520,730)

Plant Removal Cost

(4,490,820)

(3,954,522)

(54,500,531)

(51,889,356)

Purchase of Other Investments

Net Cash Provided by (Used in) Investing Activities Cash Flows from Financing Activities Line of Credit (Net)

1,526,830

26,926,599

Proceeds on Long-term Debt

72,000,000

20,000,000

Payments on Long-term Debt

(18,647,399)

(16,999,227)

Payment to Cushion of Credit

(25,114,420)

2,194,787

(918,207)

(565,768)

774,111

183,850

24,340

17,350

(5,364,974)

(5,377,422)

2018 2017

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

$

16,778,074

$

13,672,315

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

$

14,701,232 4,490,820 (1,732,170)

$

10,559,432 3,954,522 (1,168,946)

$

17,459,882 $

13,345,008

The Cooperative Financed Certain Equipment Using a Capital Lease:

Payments on Capital Lease Obligation Other Equities Membership Fees Retirement of Capital Credits Net Cash Provided by (Used in) Financing Activities

Amounts not Included in Proceeds from Capital Lease Obligation $

1,430,443

$

1,841,620

Amounts not Included in Extension and Replacement of Plant $

1,430,443

$

1,841,620

24,280,281 26,380,169

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

$

(863,743)

36,712

3,332,115

3,295,403

2,468,372

$

3,332,115 SECO Energy 2018 Annual Report

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CENTER Outage Map INTERACTIVE MAP WITH ETR, CREW STATUS AND MORE!

Report/Status REPORT A NEW OUTAGE OR CHECK STATUS OF AN EXISTING OUTAGE.

Manage Notifications ENROLL IN EMAIL, TEXT AND VOICE NOTIFICATIONS.

LightFinder REPORT AN AREA LIGHT OUTAGE OR ISSUE.

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SECO Energy 2018 Annual Report

VISIT SECOENERGY.COM TODAY TO ENROLL IN NOTIFICATIONS, SET DO NOT DISTURB TIMES AND BOOKMARK YOUR ADDRESS ON THE MAP.

SECO Energy 2018 Annual Report

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“Highest in Customer Satisfaction among Cooperatives (2017 & 2016) and among South Midsize Utilities (2015)”

“

Highest in Customer Satisfaction among Cooperatives (2017 & 2016) and among South Midsize Utilities (2015) To learn more about SECO Energy visit us at secoenergy.com.

”

For J.D. Power award information, visit jdpower.com.

For J.D. Power award information, visit jdpower.com. | To learn more about SECO Energy visit secoenergy.com.

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SECO Energy 2018 Annual Report