First Electric Cooperative Corporation

“Business relationship: don crabbe (president/ceo) and david luebke (director) both serve on the board of arkansas electric cooperative corporation (aecc) at the request of and for the benefit of the cooperative. Don crabbe (president/ceo) and rick love (chairman) both serve on the board of arkansas electric cooperatives, inc (aeci) at the request of and for the benefit of the cooperative. Melissa wood (cfo) and rick love (chairman) both serve on the board of mid ark utilities at the request of and benefit of the cooperative.”

“During the year, the cooperative's bylaws were amended. The following is a summary of the changes made: article v, board of directors, section 4, nominations, has been revised to say, "nominations of eligible candidates made by petition, if any, received at least forty-five (45) days, but not more than sixty (60) days, before said meeting shall be included on the official ballot." this was amended from previously stating at least thirty (30) days and not more than forty (40) days. A complete copy of the bylaws can be found on the cooperative's website: https://www.firstelectric.coop, in the "about first electric" section.”

“The cooperative was formed by the members to provide electric service at cost on a cooperative basis.”

“The members of the cooperative vote on the board of directors. Elections are done on a one member one vote basis.”

“The following acts require approval of the members of the cooperative: 1. Dissolution/liquidation of the cooperative 2. Merger or consolidation of the cooperative with another organization 3. Disposal of a substantial portion of the cooperative's assets 4. Amendment to the articles of incorporation 5. Increase in bonded indebtedness”

“The cooperative has no committees with authority to act on behalf of the governing body. Therefore, and pursuant to form 990 instructions, the question has been answered "no".”

“Management presented a copy of the form 990 to the board for discussion, review and approval prior to filing.”

“On an annual basis, the cooperative will require the board of directors and its officers to complete and sign a conflict of interest certification and disclosure form and submit them to the president/ceo and board chairman.”

“The board of directors use the expertise of an independent consultant as well as a retention and compensation plan committee when determining the compensation of the president/ceo. The ceo uses the expertise of an independent consultant as well as a compensation survey when determining the compensation of the cooperative's other employees meeting the definition of officer and key employee. The survey includes salaries from similar cooperatives throughout arkansas and the nation.”

“The cooperative provides a summarized copy of the audited financial statements to all members of the cooperative prior to the annual meeting. The cooperative's bylaws and annual report are also available on the cooperative's website. The cooperative makes a complete copy of the audited financial statements available at the annual meeting and upon request of any member.”

“In order to provide retirement benefits to its employees, the cooperative has established a defined contribution plan under section 401(k) of the internal revenue code. As part of the plan document, the cooperative provides a matching contribution up to 10% of a participating employee's base salary for all employees hired in 2006 or later years. For all employees hired prior to 2006 the cooperative provides a matching contribution of up to 2% for all participating employees. Additionally, the cooperative participates in a multi-employer defined benefit plan. Contributions to this plan are based on the full funding limitation of such plan. Employer contributions for both plans are available to participating employees, including officers, key employees and highly compensated employees, meeting the eligibility requirements of such plans. Only employees hired prior to 2006 are eligible to participate in the multi-employer defined benefit plan. The cooperative also provides health, dental, vision and life insurance to all employees, including officers, key employees and highly compensated employees, through a qualified plan. The amounts reported on part vii, column (f) are comprised of the actuarial increase in the defined benefit plan, the total amount contributed by the cooperative to the defined contribution plan and insurance paid on behalf of and for their benefit. In addition to the above pension plans, the cooperative also provides post-retirement health insurance benefits through an unfunded welfare benefit plan. The value of these benefits has not been estimated.”

“Patronage dividends result from the purchase of wholesale power from a generation & transmission cooperative. Patronage dividends also result from the payment of interest from cooperative banks and the purchase of supplies and services from other cooperative organizations. The expenses associated with purchases from and payments to such cooperative organizations are a direct component of cost of the electric service provided by the cooperative to its members.”

“The cooperative annually provides each director who served on the board during the year a questionnaire. The completed questionnaires are used to complete the applicable questions on the form 990 pertaining to business relationships among directors, officers, and key employees, as well as to determine if there are any transactions which must be reported in detail on schedule l - "transactions with interested persons". If the cooperative was unable to obtain a completed questionnaire and/or time log, the cooperative relied upon the completed information for the prior year. Director, robert hill, retired in june of 2022; therefore the prior year questionnaire was relied upon during the preparation of the 2022 form 990. There were no known changes from 2021 to 2022.”

“Althought the cooperative is no longer an rus borrower, its accounting records are maintained in accordance with the rus uniform system of accounts (usoa) prescribed for rus electric borrowers. The usoa does not record expenses in the general expense categories provided on part ix lines 1-23. The cooperative separately reports salaries and wages, employee benefits and payroll taxes that are allocated in accordance with its accounting system, but other expenses that are described in lines 1-23 are reported on line 24 under the expense categories required by the usoa.”

“Salaries and wages are allocated to asset, liability, and expense accounts based on the accounting system described above. The following schedule reconciles amounts reported on lines 5-7 to total wages accrued and/or paid: total per lines 5-7 $16,929,742 less: director fees & benefits reported on forms 1099-nec (335,378) less: officer & key employee benefits included in line 5 (887,191) plus: salaries and wages capitalized directly to plant 4,263,824 plus: salaries and wages capitalized/expensed indirectly through clearing and other accounts 64,085 total wages accrued and/or paid $20,035,082”

“Other expenses are comprised of the following: sales $ 3,471 subsidiary provision for federal and state taxes (330,902)taxes 8,280 transmission 404,764 other deductions 790 total other expenses per form 990, line 24e $ 86,403”

“Pursuant to the form 990 instructions, the amount of patronage dividends paid to the members (hereinafter referred to as "patrons") should be reported on part ix, line 4. The phrase "patronage dividends paid" refers to the process, subsequent to year-end, by which the cooperative allocates patronage capital to and, therefore, operates at cost with its patrons. The cooperative's tax exempt purpose is to provide electricity to its patrons and to do so on a cooperative basis. Tax law defines "operating on a cooperative basis" as subordination of capital, democratic control, and operation at cost. The cooperative operates at cost through the allocation of true patronage dividends (also referred to as allocations of patronage capital) to its patrons. Patronage dividends are considered paid if the allocation is made (1) pursuant to a pre-existing obligation, (2) from the margins produced from the transactions done with or for patrons, and (3) in a fair and equitable manner on the basis of patronage (i.e. Purchases). Additionally, the allocation of patronage dividends should be made within a reasonable time period after the close of the cooperative's year-end of december 31. Each one of these requirements for a true patronage dividend is provided for in the non-profit operation article of the cooperative's bylaws. The amount reported on part ix, line 4 represents the amount of patronage capital that is either allocated or to be allocated to the patrons resulting from their purchase of electricity from the cooperative for the 2022 calendar year. Because patronage dividends are the process by which the cooperative operates at cost with its patrons and thereby a key component to accomplishing its exempt purpose, the cooperative has reported such amounts as an expense for form 990 reporting. Patronage dividends are not an expense for financial statements prepared in accordance with generally accepted accounting principles, however.”

“Administrative & general expense is comprised of the following: administrative & general salaries, benefits, & other $ 3,745,369 office supplies 1,393,417 outside services 129,844 insurances 259,019 employee benefits 485,825 directors 559,776 annual meeting 74,974 capital credits 55,074 miscellaneous general 1,019,437 fiber network study 10,920 regulatory commission 454,247 maintenance of general plant 730,314 connect 2 first admin & general expense 311,022 total admin & general exp per financial statements $ 9,229,238 less: reclass of director fees to part ix, line 5 (335,378) less: reclass of labor to part ix, lines 5 & 7 (2,919,457) less: reclass of benefits to part ix, lines 8-10 (1,613,858) total admin & general expense per form 990, part ix $ 4,360,542”

“Patronage capital allocated or to be allocated 18,817,879. Patronage capital retired -7,812,787. Patronage capital retired - discount 96,524. Unclaimed patronage retirements retained under state law 1,180,240. Net change in memberships 11,065. Other comprehensive income provision for post-retirement benefit obligation 6,917,668.”