May. 22, 2025
North Arkansas Electric Cooperative operates as a not-for-profit but must generate sufficient electric operating margins to maintain certain debt-to-income ratios as set by our lenders. We must cover operating costs, investment and maintenance of our electric infrastructure, capital credit retirements to members and principal on long-term debt while maintaining sufficient equity.
In 2023 and 2024, operating margins from the electric division were negative, $1.1 million and $2 million, respectively. This caused a significant decline in the operating times interest earned ratio (OTIER). With that downward trend expected to continue, NAEC would be in danger of violating a loan covenant with the federal government, NAEC’s largest lender. The downward trend in electric margins and OTIER prompted the co-op to have engineering consulting firm Toth & Associates conduct a cost-of-service study, which recommended a retail rate increase of 9.4%.
The proposed increase was reviewed and approved by the Arkansas Public Service Commission (APSC) and went into effect with the May bills. (APSC regulates electric cooperatives and investor-owned electric utilities in the state, and rates cannot be changed without its approval.)
Since the proposed rate adjustment was published in the January issue of Arkansas Living, NAEC has received questions that we would like to address.
Why does NAEC need a rate increase?
Until the 9.4% retail rate adjustment with the May billing, NAEC’s retail rates had not changed since 2021 and were based on 2019 costs.
In the years since, we’ve been through a pandemic, and the cumulative inflation rate has increased approximately 23%. We’ve also had limited membership growth and increased electric costs. Those increased costs include right-of-way maintenance, materials, insurance, equipment, labor, etc. For example, right-of-way maintenance increased from $1.8 million in 2019 to $4.5 million in 2024. That’s a $2.7 million increase, or 153%.
Some members have pointed to NAEC’s 2023 Annual Report stating total margins of $7.7 million. Of the $7.7 million in margins, $6.6 million was proceeds from our fiber division, which includes NEXT, Powered by NAEC. Total electric division margins were just $1 million with negative electric operating margins of $1.1 million driving down overall electric margins. Of the $7.7 million in total margins, NAEC retired $5.7 million in capital credits that year to our members in cash or in bill credits (if less than $50).
Why are some saying the rate increase was more than 9.4%?
Arkansas Electric Cooperative Corporation (AECC) is NAEC’s wholesale power provider. The Arkansas Public Service Commission approved AECC’s request for an additional 3% in wholesale revenue. Please note: the 3% is a pass-through to AECC; NAEC does not retain any of the funds generated. With AECC’s 3% wholesale rate adjustment, the overall increase for NAEC members is 12.4%.
Additionally, the power cost adjustment that appears on members’ monthly electric bills was rebased into NAEC’s new rates beginning with the May billing. Without the rate increase, the power cost adjustment on members’ May bills would have been higher. If you would like to calculate your percentage increase using your May bill, you will need to factor in the change in the power cost adjustment. An NAEC billing specialist can walk you through that calculation. Please call (870) 895-3221 during business hours.
How are members elected to the NAEC Board of Directors compensated?
Board members do not receive a salary or bonuses. They receive a per diem for each meeting day. This compensates them for time spent preparing for and attending meetings. The board is responsible for governance of a $400 million enterprise consisting of two organizations — NAEC and NEXT. The board decided in 2019 to discontinue providing medical insurance to newly elected directors. For tax purposes, board members receive a Form 1099 that includes a total of their per diem, travel reimbursement and medical insurance (if applicable).
How is employee compensation determined?
NAEC’s compensation package is reviewed annually to ensure employees in each position are being paid comparably to employees at the more than 900 electric cooperatives across the country. The process of reviewing each and every position is led by Intandem LLC, an independent management consulting firm specializing in the electric industry since 1990.
Is NAEC independently audited?
NAEC is audited annually by Forvis Mazars, a top 10 global accounting firm. It gave NAEC a clean opinion for our 2024 financials. (NAEC has maintained a clean opinion for decades.) In other words, auditors reviewed NAEC’s financials and found them free from material misstatements and that controls exist to prevent and detect such material misstatements and fraud. The audit reports are available to members for inspection upon request.
Where can I get more information?
Please call (870) 895-3221 during business hours or email info@naeci.com. Additional information on recent increased costs in the April issue of Arkansas Living.
For more than 85 years, NAEC’s directors and employees have worked to improve the quality of life of those we serve — our more than 30,600 members.
The co-op does this in a multitude of ways, including:
Our cornerstone is providing members reliable, affordable and responsible electricity while ensuring the co-op’s financial stability for decades to come.
