North Arkansas Electric Cooperative
2009 Annual Meeting
Report from the CEO
Opening
Today the lives of more than 35 million Americans are improved by over 1000 electric cooperatives serving their member owners. 48,000 cooperatives nationwide serve over 100 million customers and generate over 100 billion dollars in economic activity while enriching the communities they serve.
What makes cooperatives different? What makes North Arkansas Electric Cooperative different? –Our principles and our commitment to service excellence. We are all about service, not profit. Investors in electric cooperatives are the customers themselves. You elect the board, who are also consumer-members. Yes, electric cooperatives today are big business----large corporations serving more than just rural areas. But our mission remains the same: to improve the quality of life and the standard of living for you, by providing electric service at the lowest price, consistent with sound business principles. The cooperative difference boils down to putting people first….which is the heart of our culture.
Members of North Arkansas Electric Cooperative, our Board of directors, Employees of North Arkansas Electric Cooperative, and honored guests: tonight, we’ll take a short look back at truly a long year…… a year of major events.
Normally this report on the cooperative would cover many of our operational accomplishments, along with programs and services we offer. However…..in the interest of time we will not focus too much on operations….but on the serious issues before us.
North Arkansas Electric Cooperative must continually be committed to maintaining and upgrading our distribution infrastructure as growth requires. We continue to invest significant dollars annually in system maintenance and system improvements & upgrades. All of these investments, along with our dedicated personnel and operational policies, have given you the system reliability you have come to expect from NAEC.
The average outage time in 2008 for our customers was just under 3.2 hours….up from the year before due to the weather issues we faced in 2008….but still below regional averages.
We will continue to invest in the future of our electric system and improve services, and at the same time continue looking for internal efficiencies consistent with prudent fiscal responsibilities.
Recent surveys confirm our job performance, with over 85% of our members rating the cooperative….. 8…..9….. or a perfect 10.
Today, your cooperative is in good shape financially…..considering all that we have been through recently. We also continue to focus on our quality of service…and offering you the members the programs and services you need and desire. I would encourage all of you to look at the annual report we mailed out last month and you’ll see how the cooperative dollars were earned and spent, along with key statistics on the cooperative and its performance.
Railroad Crisis
Since 2005 we have talked about our problems with the railroads. Through the end of last year, members of North Arkansas Electric Cooperative have paid an additional 17 million dollars on their electric bills through the line-item called the power cost adjustment. This was not a rate increase…..it is a charge passed through from our power supplier to us, and shared by every member of the cooperative. This was our share of the 170 plus million dollars which was passed through to all 480,000 electric cooperative customers in Arkansas……all due to the curtailment of coal shipments by the railroads, and replacing coal generation with more expensive generation such as natural gas…..which had gone up in price some 700 percent. But the good news…coal shipments have returned to normal, and the price of natural gas is down…..resulting in an estimated 6.9 percent annual decrease in electric bills …….or the average 1000kwh monthly bill falling $7.12.
In response to the rail issues….cooperatives have been successful in moving legislation forward which would bring rail under federal antitrust laws, and will also work to strengthen the surface transportation board which regulates the railroads.
Energy Efficiency & Conservation
Current climate change legislation (which we will talk about in a minute) includes proposals for an energy efficiency mandate requiring all electric utilities to pursue programs and services that lowers their power demand by significantly over a period of years.
North Arkansas Electric has always fought to keep costs down, just like we fought in the early days to bring electricity to rural areas. Climate change legislation is pretty much in the hands of our elected officials, and will have a dramatic effect on your electric bill. Energy efficiencies and conservation…..good energy use habits…… is something we…the coop and members….have always partnered on to save energy and money. Policymakers need to realize that cooperatives….in particular and with emphasis…North Arkansas Electric……. have been promoting efficiencies and conservation for decades. Energy efficiency occurs when we replace or upgrade the essentials in our lives…such as appliances…lighting or insulation…allowing us to realize the same benefit with less energy consumption. Conservation is a life style change….and is achieved when we reduce our total consumption of electricity either with good habits such as turning off anything that consumes electricity when not needed….or the more radical approach which affects our comfort levels or changes our quality of life.
In 2006 the Arkansas public Service commission opened a docket on energy efficiency in Arkansas which in turn has required every electric utility in the state to document energy efficient programs and practices available to their members or consumers.
For years energy efficiency has been our priority because we are owned by the members we serve, we do what’s best for you . . . like providing free energy audits to give you tips on how to make your home more energy efficient . . . financing heat pumps for members at low interest so they can have the most efficient heating and cooling systems on the market . . . leasing and selling the most efficient water heaters available . . . and, giving members credit on their bills four months out the year so we can lower our demand during the summer months through a program called Load Management.
Energy efficiency comes naturally for electric cooperatives…..our not-for-profit business model encourages us to use all cost-effective methods of distributing electricity as efficiently as possible. Most of our members either have or can see striking reductions in energy usage when aggressive energy efficiency measures are applied. With the rising cost of new generation …….efficiency is the least-cost generation resource. And, with new federal programs in the energy bill, and stimulus package……energy efficiency measures can now be partially offset by federal tax credits and Weatherization Assistance Programs.
Rates, Power Supply, Renewable Energy & Climate Change
As I said earlier…we are very pleased that member electric bills will be lower this year…..but it is a constant struggle….given all the pressures. Normal coal shipments, and the depressed global energy prices….especially natural gas….have really helped bills to come down over the last few months. But…several factors remain on the horizon which will have an effect on wholesale electricity prices. Cooperatives in Arkansas are nearing an end of excess electricity generation…which means to avoid brownouts or blackouts…….very expensive generating plants must be constructed….which all Arkansas cooperative members must pay for. Arkansas Electric Cooperative Corporation is a major partner in what might be the last coal-fired generating plant built in Arkansas..…thanks largely in part to national and state government’s gross over-reaction to carbon emissions from coal plants…..and their underestimation of the electricity needs of this country…and your willingness to pay exorbitant prices for more expensive generation. That plant should be on line within 3 or 4 years…..then after that natural gas plants will be about the only option for generation. The construction expense alone runs in the billions of dollars…..and we expect to see a small wholesale rate increase this year which will have an effect on all of us. As for retail rates…..they have remained constant since our last rate increase in 2005. And when you compare our rates….which are virtually no different than they were in the late 80’s…… to other utility services…and especially other forms of energy….our track record is pretty good.
Our plans were to look at a small rate increase in 2011…..which would have been 6 years since the last. The recent Ice Storm costs are expected to approach 35 million dollars. While a significant amount of the expense will be reimbursed to us by FEMA and the state…..we estimate we could be responsible for as much as 8 million dollars. North Arkansas Electric will NOT be filing for any special recovery of these dollars….and we have eliminated approximately 2 million dollars from our expense and capital budget to help make up for the difference. Also…in response to the impact on our financial condition….for the first time since 1990 the cooperative will not retire patronage this year. To date we have returned over 20 million dollars in capital credit refunds, and hope next year to resume with our normal patronage retirements.
The ice storm will have an effect on the bottom line, equity, and interest payments on debt. By absorbing our share of the ice storm costs…the time frame for a future retail increase may be earlier than 2011. Management and the board will monitor the financial situation and should have a decision by mid-summer. Our goal has and will continue to be to keep service & reliability as a number one priority…and keep electric bills affordable. Which brings me to climate change, and the current national debate.
The single largest challenge the electric industry has faced since 1939 is the debate over climate change. Climate change refers to the average weather, with natural changes that occur over decades. Human activities such as the use of fossil fuels contribute to climate change……through greenhouse gas emissions. Carbon dioxide and methane gasses are released into the atmosphere when fossil fuels are burned, during the production and utilization of coal, natural gas, and oil…..and agricultural practices. Scientists agree that these gasses warm the earth and are accumulating as a result of human activities. Human activities account for only 3.2% of CO2 emissions. What they do not agree on is the impact of these gasses on the earth’s climate. As I stated last year…..North Arkansas Electric and the other cooperatives nationwide are not going to get involved in the debate over the science of global warming. We are not climatologists, and only climatologists have the credentials to argue either side of the science debate. But we do have the credentials to debate electric energy.
The generation of electricity accounts for one third of the carbon emitted into the environment. Automobiles a third, and everything else makes up the difference. And, our cheapest, most efficient resource to generate electricity….coal……emits the most carbon……about twice as much as natural gas generation. So, the electric utility industry is very much under the microscope, and with our obligation to keep the lights on and the rates down…..we have a vested interest in the outcome of the debate. We are already good stewards of the environment. What we must do, and will do is continue to inject some common sense into this debate.
Just the debate over climate change has all but eliminated any new generation from our least cost fuel source….coal. Low cost financing has dried up….. hardware is being shipped overseas for coal plant construction in developing countries….. radical environmental groups are filing lawsuits against any proposed coal plant construction…..and state governments are making it harder to gain necessary approval. There is a reality gap in this climate change debate. National and State policymakers really don’t understand the electricity needs of this country…..especially when they tell us those needs can be met with renewable energy. Electric cooperative demand for power has grown and continues to expand at twice the national average for utilities….over 2% per year, and we must provide that power. Over the next 20 years, electric utilities must increase generating capacity by 30 to 50 percent just to keep up with projected demand. The excess capacity we enjoyed for decades has been used up. At the same time that lawmakers address climate change they need to address an impending electricity shortage, which in some parts of the country could be here as soon as 2011.
Cooperatives have worked for years to increase our renewable generating capacity…….and nationally all coops get about 11% of our energy from renewable sources. But……significant renewable resources such as wind, solar, & bio-mass are not readily available, and certainly not affordable…..therefore cannot help meet the capacity needs. And….recent surveys by a national polling group…..well respected polling group used by congress……….. tell us two important facts….and this is very important……electric consumers of all utilities in this country are not willing to pay the necessary dollars on their electric bill for expensive renewable generation.
And, more important…..when asked about all the issues we have before us today……healthcare and the national economy lead their concerns……with global warming at the very bottom of their list.
As we have said many times before….there is no silver bullet…….. the technology does not exist today to supply our nation’s electric needs without coal and CO2 emissions. The other option is what many environmental extremists are publicly stating as their goal….making electricity so unaffordable that you can’t afford to use it…..returning us to a time long ago when electricity was a luxury…available and affordable only by the few.
President Kennedy observed that the great enemy of truth is very often not the lie—deliberate, contrived, and dishonest………..but instead the myth—persistent, persuasive, and unrealistic. Many enjoy the comfort of opinion….without the discomfort of thought.
Over the past 30 years…the issue of Climate Change has been an issue on our national agenda. Lawmakers have discussed it. And, certainly the news media has focused on it. And, over the past few years it has taken on mythical proportions as people discuss it back and forth.
The reality is that we have experts who are voicing their opinions on both sides. The reality is that no one can prove their position. So what we are left with are experts stating theories which are really opinions.
But, we do have some facts before us today: the United States Supreme Court has ruled that the Environmental Protection Agency, under the Clean Air Act, today has the authority to regulate carbon emissions in this country.
What can be proven is that the President has stated his intention to regulate carbon emissions, but has asked the congress to address this important issue.
What also can be proven is that the leadership in congress has expressed their intention to pass legislation this year which will regulate carbon emissions. What can be proven is that the leadership of the House of Representatives enjoys an 80 vote majority….and the United States Senate enjoys a nine-vote majority. And…leadership of both houses of congress has voiced their strong support for regulating carbon emissions. So….the issue before us today is not….will carbon be regulated……. But, how will carbon be regulated.
Now, those extreme elements of climate change…those extreme advocates…..are urging congress to simply let the EPA…. the professional bureaucrats who run EPA….write the rules that will regulate carbon. They want little or no input from you and others in this nation through the legislative process in determining how that will be carried out. Electric cooperatives…and North Arkansas Electric…..are fighting to make sure that doesn’t happen.
We want to find a bill we can support…and get to yes in this debate. A bill that takes into consideration our nation’s environmental needs, and at the same time keeps electricity available, reliable, and most importantly….. Affordable. The House Energy & Commerce Committee has just passed a 946 page bill out of committee….which among other things sets up the first national standard for renewable energy…and establishes a system of carbon emission permits that could be bought, sold or trades to comply with carbon emissions. Cap & trade….also known as smoke and mirrors…was a part of that bill.
Cap & Trade has very little to do with carbon emissions….but more to do with involving wall street(now there’s a bunch we all trust) in a scheme that will do a couple of things….raise trillions of dollars for federal government spending…..and generate more profits for wall street…….and guess who pays…..you do, I do…we all do. That is not a bill we can say yes to, and we will continue to vigorously oppose it. I am happy to report that the only Arkansas congressman on that committee….Congressman Mike Ross….voted with cooperatives and against the bill.
The objective of North Arkansas Electric and America’s 900 plus electric cooperatives is to help congress pass a simple, affordable, flexible, and effective piece of legislation to address the nation’s energy and environmental objectives. In 2009, electricity is intertwined with every American’s quality of life and the nations’ economic productivity. In 1932, President Franklin Roosevelt declared that electricity was a necessity…not a luxury. He committed to make it available and affordable to all Americans. We must not turn back on that commitment of 70 years ago. Maintaining the affordability of electricity is the principle against which all cooperatives will judge all climate change and energy legislation.
True leadership on climate change will require balancing competing goals that all serve the public interest.
Each of us has a role to play in influencing this debate
Each of us has a role to play in making sure elected representatives remember their obligations to protecting the public’s interest in maintaining affordable, reliable electricity.
Responsible leadership on energy and climate change means first answering hard questions about the economic impact on all of us. Congress must not only examine all the consequences, lawmakers should engage in an honest conversation about those consequences with constituents before taking action.
We must remind our representatives that the climate change debate…. is a debate with real consequences for real people…and their interests must be heard and taken into account in reaching a balanced solution to this complex problem.
You must make your voice heard with each of your elected officials, and keep score on those who support our position, and those who do not.
Here’s what you can do. We have launched a national grassroots campaign, titled, “Our Energy, Our Future: A Dialogue with America.” It has one purpose: to encourage open discussion between electric co-op consumers and their elected officials about the challenge of keeping the lights on.
We have 40 million members. In my view, every one of them must be involved in communicating with elected officials and helping them to understand…. that when the ink dries on new legislation addressing climate change, the electric co-ops’ twin goals of keeping electricity affordable and reliable must be achieved.
(Discuss folding card, questions, and post card here)
If we are united and clear about what we want policy makers in Washington to do…. and I believe we are…. then we will be on the internet tonight… sending e-mails & text messages…… and writing letters and making phone calls tomorrow to members of congress.
We need a climate change plan that people can live with today even as they deal with the climate change problem of tomorrow.
Now, here is one other thing you can do to help in this fight for your rights:
(Coop Owners for Political Action)
Closing
Electric bills are going up all around this country, and there is not much we can do about that. But, we can control by how much they are going up. Energy is changing in America…future economic growth will require additional sources of power….the most expensive ever built……and in the midst of a struggling economy Government must be honest with consumers about the costs and who pays…with no back-door taxes or hidden agendas. And cooperatives, as member owned not-for-profit organizations will work with government to meet these challenging goals….educate our members….work to manage costs…and, help you save money and energy. The operation of today’s electric cooperative will likely require a rewriting of the book. We must be innovative and creative in rewriting that book, how best we can operate most efficiently for you our members…and try to minimize those increases in electric bills. But, in the end, we really don’t have much choice. We can adapt and embrace change….we can be creative and come up with new ideas. We can in fact re-invent and develop ourselves for the future…..in keeping with those cooperative principles we hold so dear.
This will require great strength, great determination & great conviction on the part of your cooperatives leadership, employees, and you the members. All of us must join together & stay together…..as they did 70 years ago, when generations before us fought so hard to bring electricity to all Americans……knowing it was a necessity….and not a luxury. Right prevails……we are in this business for all the right reasons…..and we will continue to provide you the members with the service you deserve….. and at a price you can pay.
2009 Ice Storm
The challenges of maintaining over 5000 miles of power lines, covering 4000 square miles of service territory is a challenging task……on a good day. But, unfortunately, all days aren’t necessarily good days when it comes to dealing with the forces of nature. Just in the last 17 months North Arkansas Electric has experienced some of the worst imaginable weather….and just about every weather phenomenon. Last year began with a snow storm, small ice storm, and a straight line windstorm. Then in the spring parts of our service territory were hit with over 25 inches of rain in less than two weeks. And, we also had the devastating F4 tornado. Then of all things, in the fall we had to deal with Hurricane Ike, which brought us hurricane force wind gusts. In all, four FEMA qualifying events last year. Then, the granddaddy of all storms, the January Ice Storm that shattered records in terms of ice……. Coverage…… and damage. In a matter of hours the ice storm left hundreds of thousands of residents in Arkansas, Missouri, Tennessee, and Kentucky without power….some for up to 5 weeks. The storm left amounts approaching three inches of ice on most of our service territory, leaving behind almost more than 2700 broken poles, hundreds of miles of power lines on the ground, and equipment destroyed . All told…..over 30 million dollars in damage to our system….by far the worst natural disaster ever faced by our cooperative in our seventy year history. But even in the worst of situations, the cooperative spirit shined brighter than ever had before. On Monday before the storm hit on Tuesday…we were in full emergency preparation mode.
We knew that to respond to potentially record-setting ice storm….that we would have to be fully prepared(which we were), and that we would have to suspend normal operations and re-think our processes….all within a relatively short period of time. Never before have we requested outside assistance, before a storm hit, but in this case we did. Our response, in my opinion, was phenomenal…..right on target. Looking back, strategically we made all the right moves…..actually working in ways we had never worked before. What is normally three cooperative districts, became 20 or so mini districts. What is normally a co-op with 119 employees grew to almost 1000 employees……within just a few days fourteen area hotels and rental properties, and even our offices housed the storm workers. Our offices became staging areas for food preparation…..serving hundreds of workers 2 hot meals a day. Local restaurants other businesses went above and beyond the call of duty to provide us with hot meals and supplies. We even had a full service laundry operation running. Our materials and truck staging areas…usually equipping a handful of crews each day….were assigned the task of making sure the hundreds of storm workers and their heavy equipment were ready for the day’s work. Makeshift pole yards were set up at strategic locations within our territory.
While the challenge of this $35 million storm seemed insurmountable at first, our team of employees, contract linemen, retired employees and numerous others, restored power to more than 34,000 members in less than three weeks. Work continues today, and will continue for the remainder of the year as our employees deal with the debris clean-up…..and with the permanent restoration of the entire system.
Our employees are to be commended for a superb response to such a horrendous event. A storm that was originally estimated to keep some of our members without power for a month to 6 weeks.
But, always on our mind…..the members who were without power, and had to deal with life without electricity for a sustained period of time. The management, employees and directors of North Arkansas Electric Cooperative would like to first thank our 35,695 members. Your patience and understanding during this trying time was greatly appreciated. To the citizens, businesses, churches, community organizations, cities, counties and local law enforcement personnel . . . without your assistance our challenge of getting the lights back on would have been much tougher. Your kindness and generosity will be remembered for years to come. Tonight we would like to pay tribute to the employees and the true heroes during this catastrophic event . . . you the members.
Copyright 2010, North Arkansas Electric Ash Flat - Salem - Mountain Home , (870) 895-3221
