florida keys electric cooperative 2018 annual financial report · florida keys electric cooperative...

FLORIDA KEYS ELECTRIC COOPERATIVE ASSOCIATION, INC.

Exhibit A

BALANCESHEETS

DECEMBER31,2018AND2017

2018 2017UTILITY PLANT AT COST

Electric plant in service 172,945,598$ 169,599,478$ Construction work in progress 29,428,058 26,443,283 Electric plant held for future use 287,597 287,597

202,661,253 196,330,358 Less - accumulated provisions for depreciation 45,370,156 45,214,876

157,291,097 151,115,482 OTHER PROPERTY AND INVESTMENTS - At Cost or Stated Value 6,542,638 6,123,469 CURRENT ASSETS

Cash - general 1,635,435 1,638,990 Accounts receivable (less allowance for uncollectibles

of $78,126 in 2018 and $89,187 in 2017) 4,626,738 4,199,752 Accrued utility revenue 3,340,393 2,588,167 Materials and supplies (at average cost) 3,345,587 3,862,351 Other current and accrued assets 1,584,857 784,410

14,533,010 13,073,670 DEFERRED CHARGES 4,056,820 4,734,561

TOTAL ASSETS 182,423,565$ 175,047,182$

EQUITIESPatronage capital 59,587,147$ 56,274,514$ Retired capital credit - unclaimed 3,543,483 3,947,223 Donated capital 216,240 216,240

63,346,870 60,437,977 LONG-TERM DEBT

CFC mortgage notes less current maturities 46,655,638 41,998,635 Mortgage notes under CFC management less current maturities 1,233,919 1,344,884 CoBank mortgage notes less current maturities 40,533,361 41,291,821

88,422,918 84,635,340 CURRENT LIABILITIES

Current portion of long-term debt 2,140,037 1,906,456 Lines of credit 15,000,000 15,000,000 Accounts payable - purchased power 3,597,969 3,195,470 Accounts payable - other 1,006,434 1,237,270 Consumer deposits 6,238,726 6,128,903 Accrued employee compensated absences 1,555,220 1,451,872 Other current and accrued liabilities 1,070,875 1,015,203

30,609,261 29,935,174 DEFERRED CREDITS 44,516 38,691

TOTAL EQUITIES AND LIABILITIES 182,423,565$ 175,047,182$

EQUITIES AND LIABILITIES

ASSETS

See accompanying notes and independent auditor’s report.

Florida Keys Electric Cooperative

2018 Annual Financial ReportThe following insert contains FKEC’s financial statements and notes for 2018. Additional information about the company’s improvements and work in 2018 can be found in the FKEC 2018 Annual Report.

The accompanying notes are an integral part of these financial statements.



Exhibit B

STATEMENTSOFREVENUEANDPATRONAGECAPITAL

FORTHEYEARSENDEDDECEMBER31,2018AND2017

Statement of Income and Patronage Capital page identifier – turn this text white after you insert it

IncreaseAmount % Amount % (Decrease)

OPERATING REVENUESResidential 46,457,103$ 57.1 44,210,516$ 56.2 2,246,587$ Commerical, industrial, and

public authorities 32,173,468 39.6 31,878,097 40.5 295,371 Rent from electric property 754,132 0.9 760,608 1.0 (6,476) Other electric revenue 1,982,023 2.4 1,828,585 2.3 153,438

Total operating revenues 81,366,726 100.0 78,677,806 100.0 2,688,920

OPERATING EXPENSESPower production 1,346,124 1.6 908,443 1.2 437,681 Cost of purchased power 45,934,528 56.4 47,301,664 60.1 (1,367,136) Transmission 2,029,774 2.5 1,826,707 2.3 203,067 Distribution - operation 2,612,209 3.2 2,585,923 3.3 26,286 Distribution - maintenance 5,471,254 6.7 5,216,563 6.6 254,691 Consumer accounts 2,196,459 2.7 2,222,142 2.8 (25,683) Customer service and information 562,786 0.7 520,996 0.7 41,790 Administrative and general 6,474,964 8.0 5,620,742 7.1 854,222 Depreciation and amortization 5,560,695 6.8 5,291,990 6.7 268,705 Taxes 1,102,691 1.4 1,152,932 1.5 (50,241) Other interest 451,468 0.6 44,151 0.1 407,317

Total operating expenses 73,742,952 90.6 72,692,253 92.4 1,050,699

OPERATING MARGINS - BEFOREFIXED CHARGES 7,623,774 9.4 5,985,553 7.6 1,638,221

FIXED CHARGESInterest on long-term debt 4,403,920 5.4 4,082,446 5.2 321,474

4,403,920 5.4 4,082,446 5.2 321,474

OPERATING MARGINS - AFTERFIXED CHARGES 3,219,854 4.0 1,903,107 2.4 1,316,747

Capital credits 750,542 0.9 647,227 0.8 103,315

NET OPERATING MARGINS 3,970,396 4.9 2,550,334 3.2 1,420,062

NONOPERATING MARGINSInterest income 163,985 0.2 87,570 0.1 76,415 Other nonoperating expense (328) 0.0 (21,121) 0.0 20,793

163,657 0.2 66,449 0.1 97,208

NET MARGINS 4,134,053 5.1 2,616,783 3.3 1,517,270$

PATRONAGE CAPITAL - BEGINNINGOF YEAR 56,274,514 54,679,545

ASSIGNABLE REALLOCATIONS 844,700 696,444

PATRONAGE CAPITAL RETIRED/DONATED - NET (1,666,120) (1,718,258)

PATRONAGE CAPITAL - END OF YEAR 59,587,147$ 56,274,514$

2018 2017



FKEC • 2018 Financial Statements

FKEC • 2018 Financial StatementsFLORIDA KEYS ELECTRIC COOPERATIVE ASSOCIATION, INC.

Exhibit C

STATEMENTSOFCASHFLOWS


Statement of Cash Flows page identifier – turn this text white after you insert it

!

2018 2017CASH FLOWS FROM OPERATING ACTIVITIES

Net margins 4,134,053$ 2,616,783$ Adjustments to reconcile net margins to net cash provided

by operating activitiesDepreciation 5,617,365 5,300,889 Capital credits (750,542) (647,227)

Decrease (increase) in:Accounts receivable and accrued utility revenue (1,179,212) (727,280) Materials and supplies 516,764 (606,811) Other current and accrued assets (800,447) 339,959 Deferred charges 677,741 712,448

Increase (decrease) in:Accounts payable and other current liabilities 440,506 47,233 Deferred credits 5,825 (6,378)

Cash flows provided by operating activities 8,662,053 7,029,616

CASH FLOWS FROM INVESTING ACTIVITIESAdditions to utility plant (12,059,715) (28,108,016) Plant removal costs in excess of salvage credits 266,735 (313,232) Other property and investments, net 331,373 385,651

Cash flows used by investing activities (11,461,607) (28,035,597)

CASH FLOWS FROM FINANCING ACTIVITIESLoan fund advances 6,000,000 9,000,000 Proceeds from lines-of-credit, net - 15,000,000 Payments on long-term debt (1,978,841) (1,743,392) Other equities (403,740) (158,438) Retirement of patronage capital - net (1,666,120) (1,718,258) Unclaimed patronage capital reallocated 844,700 696,444

Cash flows provided by financing activities 2,795,999 21,076,356 Net change in cash and cash equivalents (3,555) 70,375 Cash and cash equivalents - beginning of year 1,638,990 1,568,615 Cash and cash equivalents - end of year 1,635,435$ 1,638,990$

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the year for:

Interest on long-term debt 4,382,544$ 4,087,316$ Income taxes -$ -$




Exhibit C



INDEPENDENT AUDITOR'S REPORT

Board of Directors Florida Keys Electric Cooperative Association, Inc. Tavernier, Florida

Report on the Financial Statements

We have audited the accompanying financial statements of Florida Keys Electric Cooperative Association, Inc., which comprise the balance sheets as of December 31, 2018 and 2017, and the related statements of revenue 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.

Auditor’s 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. 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 auditor’s 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.

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

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Florida Keys Electric Cooperative Association, Inc. 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 of America.

Warner Robins, Georgia February 19, 2019

1. Nature of Business and Summary of Significant Accounting Policies

Nature of Operations Florida Keys Electric Cooperative Association, Inc. (Cooperative) is a not-for-profit company organized to provide electric service at the retail level to primarily residential and commercial accounts in a designated service area extending from North Key Largo to Marathon, including Tavernier and Islamorada, Florida. The Cooperative purchases all of its power from Florida Power and Light Company (FPL) under a full requirements contract. Any revenues earned in excess of costs incurred are allocated to the members of the Cooperative and are reflected as patronage capital in the balance sheet.

System of Accounts The accounting records of the Cooperative are maintained in accordance with the Uniform System of Accounts as prescribed by the Federal Energy Regulatory Commission for Class A and B electric utilities.

Utility Plant, Maintenance, and Depreciation Utility plant is stated at the original cost of construction, which includes the cost of contracted services, direct labor, materials, and overhead items. Contributions from others toward the construction of utility plant are credited to the applicable plant accounts.

When property which represents a retirement unit is replaced or removed, the average cost of such property as determined from the continuing property records, is credited to utility plant and such costs, together with the cost of removal less salvage, is charged to the accumulated provision for depreciation.

Maintenance and repairs, including the replacement of minor items of plant not comprising a retirement unit are charged to the appropriate maintenance accounts, except that repairs of transportation and service equipment are charged to clearing accounts and redistributed to operating expense and other accounts.

Long-Lived Assets The Cooperative evaluates long-lived assets for impairment when events or changes in circumstances indicate the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on either a specific regulatory disallowance or an estimate of undiscounted future cash flows attributable to the assets, as compared with the carrying value of the assets. If an impairment has occurred, the amount of impairment recognized is determined by estimating the fair value of the assets and recording a provision for loss if the carrying value is greater than the fair value. For assets identified as held for sale, the carrying value is compared to the estimated fair value less selling costs to determine if an impairment provision is required. Until the assets are disposed of, their estimated fair value is reevaluated when circumstances or events change.

Accounting standards require the present value of the ultimate cost for an asset’s future retirement be recorded in the period in which the liability is incurred. The cost should be capitalized as part of the related long-lived asset and depreciated over the asset’s useful life. The Cooperative has no legal retirement obligations related to its utility plant; therefore, a liability for the removal of these assets will not be recorded. Management believes the actual cost of removal, even though not a legal obligation, will be recovered through rates over the life of the utility plant.

Inventories Materials and supplies inventories are valued at average unit cost.

Electric Revenues The Cooperative records electric revenues as billed to customers on a monthly basis. Revenue is accrued for power delivered but not billed at the end of each month.

The Cooperative’s tariffs for electric service include a power cost calculation under which electric rates charged to customers are adjusted to reflect changes in power costs.

Group Concentration of Credit Risk The Cooperative’s headquarters facility is located in Tavernier, Florida. The service area includes members located in an area which extends from North Key Largo to Marathon, including Tavernier and Islamorada, Florida. The Cooperative records a receivable for electric revenues as billed on a monthly basis.

To ensure financial integrity, an independent audit of the company’s records is conducted each year. This letter from Nichols, Cauley & Associates LLC verifies that FKEC’s financial statements for 2018 present fairly, in all material respects, the financial position of FKEC.


Exhibit C













Opinion















FKEC • Auditor’s Report and Notes to 2018 Financial StatementsFLORIDA KEYS ELECTRIC COOPERATIVE ASSOCIATION, INC.

Exhibit C













Opinion
















Exhibit C



The Cooperative may require a deposit from most of its members, which is applied to unpaid bills and fees in the event of default. As of December 31, 2018 and 2017, deposits on hand totaled $6,238,726 and $6,128,903, respectively.

At times during the year, cash balances exceeded Federal Deposit Insurance Corporation (FDIC) insurance limits.

Patronage Capital Certificates Margins are allocated to the members annually, based on billings and usage of electricity. Distributions to members are made at the discretion of the Board of Directors in accordance with the bylaws, subject to the restrictions contained in the long-term debt agreements. General distributions are made on a first-in, first-out basis.

Patronage capital from associated companies is recorded at the stated amount on the certificate.

Cash and Cash Equivalents For purposes of the statement of cash flows, cash and cash equivalents include cash and temporary cash investments, if any.

Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 reporting period. These estimates included assessing the collectability of receivables, the amount of accrued utility revenue, the capitalization of overhead costs, the use and recoverability of materials and supplies, the useful lives for depreciation of utility plant in service, and the recoverability of investments. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period they are determined to be necessary. Actual results could differ from those estimates.

Federal Income Taxes The Cooperative is exempt from federal income taxes under Section 501(c)(12) of the Internal Revenue Code. More than 85.00% of the gross income is collected from members. On January 1, 2009, the Cooperative adopted the “uncertain tax positions” provisions of accounting principles generally accepted in the United States of America. The primary tax position of the Cooperative is its filing status as a tax exempt entity. The Cooperative determined that it is more likely than not that its tax positions will be sustained upon examination by the Internal Revenue Service (IRS), and that all tax benefits are likely to be realized upon settlement with taxing authorities. The Cooperative files its income tax return in the U.S. federal jurisdiction. The Cooperative is no longer subject to U.S. federal tax examinations by federal taxing authorities for years before 2015. The Cooperative recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. There were no penalties or interest recognized during the years ended December 31, 2018 and 2017.

Reclassifications Certain amounts in the prior year financial statements have been reclassified for comparative purposes to conform with the current year presentation.

Rate Matters In July 2007, the Cooperative adopted a Formula Revenue Requirement (rate rider), which is adjusted up or down on April 1st of each year to maintain a benchmark return on equity.

Allowance for Uncollectable Accounts The Cooperative uses the aging method to allow for uncollectible accounts receivable. During the year, management makes an evaluation of past due accounts to determine collectability. The delinquent accounts deemed uncollectible are written off upon approval by the Board of Directors.

New Accounting Standards In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) and in August 2015 issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. In 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying performance Obligations and Licensing, ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, and ASU 2016-12, Revenue from

Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. These amended existing guidance related to revenue from contracts with customers. This new guidance supersedes and replaces nearly all existing revenue recognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, this new guidance specifies the accounting for some costs to obtain or fulfill a contract with a customer. These amendments are effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance of ASU 2014-09. The amendments should be applied retrospectively to all periods presented or retrospectively with the cumulative effect recognized at the date of initial application. Management is currently evaluating the impact of this new accounting standard on the Cooperative’s financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amended existing guidance that requires lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date (1) A lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under ASU 2016-02, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. ASU 2016-02 is effective for nonpublic business entities for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Management is currently evaluating the impact of ASU 2016-02 on the Cooperative’s financial statements.

2. Assets Pledged

All assets are pledged as security for the long-term debt due CoBank and the National Rural Utilities Cooperative Finance Corporation (CFC).

3. Utility Plant

The major classes of utility plant are as follows:

!Construction work in progress at December 31, 2018 and 2017 includes expenditures relating to Hurricane Irma totaling $19,437,383 and $19,332,796, respectively. Management anticipates recovery of a substantial amount from the Federal Emergency Management Agency (FEMA) and other governmental agencies. These expenditures are subject to audit by these agencies, which could result in disallowance of expenditures.

2018 2017Production plant 11,411,116$ 14,220,298$ Transmission plant 30,653,380 30,631,595 Distribution plant 100,442,089 96,010,742 General plant 30,439,013 28,736,843

Electric plant in service 172,945,598 169,599,478 Construction work in progress 29,428,058 26,443,283 Utility plant held for future use 287,597 287,597

Total utility plant in service 202,661,253$ 196,330,358$

December 31,

FKEC • Notes to 2018 Financial Statement


Exhibit C



Provision for depreciation of utility plant is computed using straight-line rates as follows:

! Depreciation for the years ended December 31, 2018 and 2017, was $5,617,365 and $5,300,889, respectively, of which $5,305,706 and $5,040,350 was charged to depreciation expense and $311,659 and $260,539 was allocated to other accounts.

4. Other Property and Investments

Other property and investments are carried at cost or stated value and consisted of the following:

! 5. Inventories

Inventories consisted of:

! 6. Deferred Charges

Deferred charges included the following:

!Computer software is amortized over 60 months. Amortization expense for 2018 and 2017, was $71,545 and $68,196, respectively.

At the December 2012 meeting of the Insurance and Financial Services (I&FS) Committee of the National Rural Electric Cooperative Association’s (NRECA) Board of Directors, the Committee approved an option to allow participating cooperatives in the Retirement Savings (RS) Plan to make a contribution prepayment and reduce future required contributions. The prepayment amount was a cooperative’s share, as of January 1, 2013, of future contributions required to fund the RS Plan’s unfunded value of benefits earned to date using RS Plan actuarial valuation assumptions. The prepayment amount typically equaled approximately 2.5 times a cooperative’s annual RS Plan required contribution as of January 1, 2013. After making the prepayment, for most cooperatives the billing rate was reduced by approximately 25%, retroactive to January 1, 2013. The 25% differential in billing rates is expected to continue for approximately 15 years. However, changes in interest rates, asset returns and other plan experience different from expected, plan assumptions changes and other factors may have an impact on the differential in billing rates and the 15 year period. In 2013, the Cooperative elected to participate in the NRECA R&S Prepayment. The Cooperative’s original contribution was $4,608,079 and is being amortized over 10 years. Amortization expense for the years ended December 31, 2018 and 2017 was $460,808.

In 2010, the Board of Directors acting as the rate making authority of the Cooperative approved a resolution to amortize the charges associated with the abandoned North Key Largo Substation project over a period of 20 years. Amortization expense for the years ended December 31, 2018 and 2017 was $183,444. Additionally, during fiscal year 2018, the Cooperative sold $22,500 of the abandoned North Key Largo Substation project.

7. Equities

Under provisions of the mortgage agreements, until the equities and margins equal or exceed 30% of the total assets of the Cooperative, the return to patrons of capital contributed by them is limited generally to 25% of patronage capital or margins received by the Cooperative in the prior calendar year. The equities and margins of the Cooperative represent 34.73% of the total assets at the balance sheet date. Net patronage capital totaling $1,666,120 and $1,718,258 was retired during the years ended December 31, 2018 and 2017, respectively. These retirements are within guidelines in the mortgage agreements pertaining to the return of capital.

The following is a summary of patronage capital and other equities at:

Patronage Capital

! Other Equities

! The Cooperative’s bylaws provide that capital credit retirements that remain unclaimed for five years are to be reallocated with current year margins on a patronage basis.

8. Mortgage Notes – CoBank

Long-term debt due CoBank consists of mortgage notes totaling $41,291,820, which mature at various times between 2019 through 2040. Interest rates range from 3.21% to 8.05%. $30,223,090 of these amounts are interest only and are payable quarterly and scheduled for repricing at various anniversary dates from 2019 to 2032. The principal of these respective notes may be paid at the interest repricing date. Payments of principal other than at interest repricing dates are subject to a prepayment penalty determinable at the time of payment. The remaining balance of $11,068,730 is two fixed rate notes, at 2.79% and 4.69%, and principal payments for the next five years are as follows:

!

Production plant 3.00%Transmission plant 2.75%Distribution plant 2.30% - 4.40%Structures and improvements 3.00%Office furniture and fixtures 10.00% - 16.70%Transportation equipment 10.00% - 20.00%Tools, shop, and garage equipment 6.00%Power operated equipment 8.50% - 10.00%Communication equipment 8.00%Miscellaneous equipment 6.00%

2018 2017CFC

Capital term certificates 1,612,325$ 1,612,325$ Patronage capital 838,881 742,083 Member capital security program 500,000 500,000

CoBankPatronage capital 2,934,261 2,891,064

Other 657,171 377,9976,542,638$ 6,123,469$

December 31,

2018 2017Generation fuel and supplies 530,950$ 663,369$ Construction materials and supplies 2,749,996 3,140,375 Transportation and resale materials 64,641 58,607

3,345,587$ 3,862,351$

December 31,

2018 2017Computer software 109,602$ 120,591$ RS prepayment 1,996,834 2,457,642 Unrecovered plant - North Key Largo Substation 1,950,384 2,156,328

4,056,820$ 4,734,561$

December 31,

2018 2017Assigned to date 105,361,587$ 102,048,219$ Assignable 5,005,576 3,343,505

110,367,163 105,391,724 Less: retired (50,780,016) (49,117,210)

Total 59,587,147$ 56,274,514$

December 31,

2018 2017Retired capital credits - unclaimed 3,543,483$ 3,947,223$ Donated capital 216,240 216,240

Total 3,759,723$ 4,163,463$

December 31,

Years Ending December 31,2019 758,459$ 2020 782,751 2021 808,096 2022 834,146 2023 504,243

2024 and thereafter 37,604,12541,291,820$



Exhibit C



9. Mortgage Notes – CFC, Including Those Under Management Only by CFC

Following is a summary of long-term debt due CFC and those under management by CFC, maturing at various times from 2019 to 2048:

! Unadvanced loan funds of $8,000,000 are available to the Cooperative on loan commitments from CFC.

Principal and interest installments on these notes are due quarterly. As of December 31, 2018, annual maturities of long-term debt due CFC, including those under management, for the next five years is as follows:

! 10. Short-Term Borrowing

The Cooperative has a $15 million line of credit with CFC and a $15 million line of credit with CoBank, limited to the total indebtedness of $15 million. Both lines of credit are at variable interest rates and are subject to automatic renewal. The Cooperative had a balance of $15,000,000 on the CFC line of credit and had no borrowings outstanding on the CoBank line of credit at December 31, 2018 and 2017.

11. Deferred Credits

Deferred credits included the following:

! 12. Pension Benefits

The Retirement Security (RS) Plan, sponsored by the National Rural Electric Cooperative Association (NRECA), is a defined benefit pension plan qualified under Section 401 and tax-exempt under Section 501(a) of the Internal Revenue Code. It is considered a multi-employer plan under the accounting standards. The RS Plan sponsor’s Employer Identification Number is 53-0116145 and the RS Plan Number is 333.

A unique characteristic of a multi-employer plan compared to a single employer plan is that all plan assets are available to pay benefits of any plan participant. Separate asset accounts are not maintained for participating employers. This means that assets contributed by one employer may be used to provide benefits to employees of other participating employers.

The Cooperative contributions to the RS Plan in 2018 and in 2017 represented less than five percent of the total contributions made to the RS Plan by all participating employers. The Cooperative made

contributions to the RS Plan of $1,644,036 in 2018 and $1,600,687 in 2017.

In the RS Plan, a “zone status” determination is not required, and therefore not determined, under the Pension Protection Act (PPA) of 2006. In addition, the accumulated benefit obligations and plan assets are not determined or allocated separately by individual employer. In total, the RS Plan was over 80% funded on January 1, 2018 and 2017 based on the PPA funding target and PPA actuarial value of assets on those dates.

Because the provisions of the PPA do not apply to the RS Plan, funding improvement plans and surcharges are not applicable. Future contribution requirements are determined each year as part of the actuarial valuation of the RS Plan and may change as a result of RS Plan experience.

The employees also participate in a 401(k) Plan, a defined contribution plan provided through NRECA. The Cooperative makes monthly contributions to the 401(k) Plan. The cost to the Cooperative was $396,353 and $377,213 for the years ended December 31, 2018 and 2017, respectively.

13. Commitments and Contingencies

Under its long-term agreement to provide capacity and energy by FPL to the Cooperative, the Cooperative is committed to purchase full requirements of capacity and energy from FPL. The agreement carries an initial term of 20 years through December 31, 2031 and will automatically be extended for an additional 20 year term. Either party may terminate the agreement on the last day of any calendar year after December 31, 2031 by giving the other party at least seven years written notice. The rates paid under the agreement are calculated annually pursuant to a formula that reflects FPL’s actual full resource production costs.

In January, 1992, the Cooperative and Keys Energy Services (KES) entered into a long-term joint transmission agreement extending through December 31, 2032, whereby the Cooperative and KES will share in the investment, operation, and maintenance costs of the transmission facilities located between the Dade/Monroe County line and the service territory boundary between the two utilities. Within the capacity of the transmission system, the Cooperative will be entitled to 60.00% of the transfer limit, and KES will be entitled to 40.00% of the transfer limit.

The investment share for each party is determined based upon their relative use of the transmission facilities, considering both the flow of power measured in megawatts and the length of the respective flows. The Cooperative's investment share is 43.50%, and KES's share is 56.50%. The investment of each respective party in this agreement is at parity.

14. Litigation

The Cooperative is involved in various instances of litigation, of which the ultimate outcome of these matters cannot be presently determined. However, in management’s opinion, the likelihood of any material adverse outcome is remote. Additionally, the Cooperative is fully insured with general liability and an excess coverage umbrella policy in the event of an unfavorable outcome that would cover any potential settlement.

15. Fair Value of Financial Instruments

The Fair Value Measurements Topic of the FASB Accounting Standards Codification (ASC), requires disclosure of fair value information about financial instruments. Many of the Cooperative’s financial instruments lack an available market as characterized by a normal exchange between a willing buyer and a willing seller. Accordingly, significant assumptions, estimations, and present value calculations were used for purposes of this disclosure.

The following assumptions were used to estimate fair value of each class of financial instrument for which estimation is practicable.

Patronage Capital from Associated Organization – The right to receive cash is an inherent component of a financial instrument. The Cooperative holds no right to receive cash since any payments are at the discretion of the governing body for the associated organizations. As such, Patronage Capital from Associated Organizations is not considered a financial instrument.

CFC Capital Term Certificates – It is not practicable to estimate fair value for these financial instruments given the lack of a market and their long holding period.

Cash and Temporary Cash Investments – Carrying value, given the short period to maturity.

Long-Term Debt Fixed Rate – Estimated by computing the present value by individual note to maturity, using currently quoted or offered rates for similar issues of debt. The year-end CFC fixed interest rate for long-term

2018 20172.95% CREB bond note 375,000$ 437,500$ 3.55% note 4,714,772 4,876,910 3.65% note 956,258 976,141 3.70% note 3,897,903 4,084,942 3.90% note 1,318,984 1,352,155 4.16% note under management by CFC 1,344,884 1,451,373 4.30% note 3,671,059 3,748,443 4.35% note 978,809 995,853 4.40% note 6,248,020 6,391,891 4.45% note 7,453,165 7,603,664 4.55% note 2,793,664 2,848,527 4.60% note 987,961 - 4.65% note 976,081 - 4.75% note 976,268 - 4.85% note 2,866,943 2,917,380 4.90% note 3,372,660 1,407,758 5.05% note 988,883 - 6.85% note 2,349,821 2,422,622 6.90% note 3,000,000 3,000,000

49,271,135 44,515,159 Less: current maturities 1,381,578 1,171,640

Total long term 47,889,557$ 43,343,519$

December 31,

Years Ending December 31,2019 1,381,578$ 2020 1,439,613 2021 1,500,291 2022 1,563,736 2023 1,630,081

2024 and thereafter 41,755,836 49,271,135$

2018 2017Other 44,516$ 38,691$

December 31,



Exhibit C



debt repricing every seven years was used in the calculation for all fixed rate long-term debt. These are the only financial instruments of the Cooperative that have a difference in fair value and carrying value. The carrying value of the Cooperative’s fixed rate debt was $90,562,955 and $86,541,796 at December 31, 2018 and 2017, respectively. The estimated fair value was calculated to be $94,830,000 and $91,450,000 at December 31, 2018 and 2017, respectively, and is Level 2 as defined below.

Fair Value Hierarchy

The Fair Value Measurements Topic of the FASB ASC establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Inputs are unobservable inputs for the asset or liability.

16. Leases

The Cooperative has entered into operating leases for various vehicles. Lease expense for 2018 and 2017 was $610,100 and $565,144, respectively. Future minimum required lease payments are as follows:

! 17. Subsequent Events

The Cooperative’s management has evaluated subsequent events through February 19, 2019, the date which the financial statements were available for issue.

Amount2019 442,194$ 2020 379,184 2021 227,145 2022 189,224 2023 131,951

1,369,698$

Years Ending December 31

FKEC ranks among the highest of the nation’s cooperatives when it comes to returning capital credits to our members. In 2018, FKEC returned $1.6 million in capital credits to members from the year 2000. Amongst Florida co-ops, we are ranked 2 out of 16 in cumulative capital credits retired as a percent of total capital credits. We’ve retired nearly 44.8% of our capital credits versus the state median of 28.1%. And out of cooperatives nation wide we rank 55 overall out of 709. As a not-for-profit cooperative utility, FKEC takes all the annual revenues it earns in excess of the cost of doing business (called margins) and allocates the money back to the members – these allocations are called “capital credits.” Margins are retained by FKEC for a number of years to develop and improve the electric system and to help keep electric rates low. Learn more at www.fkec.com/AccessAct/capital-credit.cfm.


FKEC Capital Credits

Members Should Know...

Member Capital Credits are your piece of FKEC’s success,

both today and in the future.

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