Big changes could affect Nebraska electricity consumers

Nebraska’s electric rates have gone up faster than the national average in recent years. Advocates say competition between outside utilities and the Nebraska Public Power District is a way to combat that. Others say the state should not switch from a system that’s done a good job. The argument reflects big changes in the business of electricity.

At an energy conference in Lincoln last week, electricity expert Erin O’Connell-Diaz had some words for the people who run Nebraska’s electrical system.

“You’re here today because you want to build a better utility for your future – a utility that will be in the future as opposed to a utility that is steeped in a tradition that worked well, but it is time to change that song, time to change that channel,” O'Connell-Diaz said.

O’Connell-Diaz works with the Harvard Electricity Policy Group, a think tank at the university’s Kennedy School of Government. Before that, she headed a commission that oversaw the introduction of competition in Illinois’ electrical market.

Mike Matheson of Grain Belt Energy Solutions, a Lincoln consulting firm, says competition helps consumers.

“Competition is what drives the electric rate down. And without it, it doesn’t matter whether you have the generation or not, your electric rates are high,” Matheson said

Nebraska’s electricity rates are still below the national average. (For state-to-state comparisons over time, click here.) But since 2001, they have gone up 63 percent, compared to a 43 percent increase nationwide. In Nebraska‘s unique, all public power system, every retail consumer gets electricity from a public power utility.

Currently, local electric utilities in 50 towns and 25 rural public power districts buy that electricity wholesale from the Nebraska Public Power District before delivering it to their customers.

But a few of them are leaving NPPD, or thinking about it.

The Northeast Nebraska Public Power District, which supplies five counties, along with the communities of Wayne and Wakefield, has decided to stop buying power from NPPD and start buying it from Kentucky-based Big Rivers Electric Corporation, or BREC. Northeast board chairman Don Larsen says it makes good financial sense for the utility and its customers.

“Through the BREC deal, whatever the NPPD price, we’re guaranteed a 10 percent reduction from that rate,” Larsen said.

Separately, South Sioux City recently announced it would buy power from the Lincoln Electric System instead of NPPD. NPPD general counsel John McClure says the utility hates to lose any customers. But he said those that have given formal notice they will reduce or end power purchases represent less than four percent of the utility’s revenues.

McClure adds there is a potential financial downside for consumers whose utilities stop buying power from NPPD.

“Someone might find a good short-term deal. What happens when the market flips? And we might or might not be available to serve them because of who we’re serving at the time, and what our resources are?” McClure asked.

Whether utilities should sign 20-year contracts, as NPPD wants its wholesale customers to do, or try to get a better short-term deal from someone else, also concerns Bruce Pontow. He is general manager of Nebraska Electrical Generation and Transmission, which contracts with NPPD on behalf of about 20 rural power districts.

Pontow says electrical market uncertainty helps the argument for sticking with NPPD because of its long track record in the state. And he says bad things could happen if competitors turn out to be like an infamous electrical wholesaler from earlier this century.

“I don’t know for sure what’s going to happen out there. But I do know that I want to face that future with someone that I’ve had a decent past with (rather) than somebody that’s an unknown. What happens to some of these companies – and I’m not saying they’re going to do this, but what happens to the Enron’s of the world,” Pontow said. “The state of Nebraska is not going to escape a major problem if NPPD is not existing. It’s that simple.”

Northeast Public Power District General Manager Mark Shults says he’s not worried that any of the companies who responded to Northeast’s request for proposals would leave the utility or its customers in the lurch.

“I don’t know that any of the companies that responded to our RFP are Enron. We had a number of established utilities, including the utility that we selected that have been in business for sixty years plus,” Shults said.

In addition to the utilities in northeast Nebraska, Beatrice and Auburn in southeast Nebraska are soliciting bids from possible alternatives to NPPD, while Superior, in south central Nebraska, is considering doing so as well.

NPPD’s McClure says public power has served the state well, and he’s not worried about the utility’s future.

“We expect the overwhelming majority of our customers to sign the new contracts,” McClure said.

But Northeast Public Power District Board Chairman Don Larsen says utilities that stick with NPPD out of inertia haven’t done their homework.

“They just feel like, ‘Well, we’ve been with NPPD forever, they’ll take care of us,’ but I don’t know. Times have changed,” Larsen said.

Over the next few years, communities and rural districts’ decisions should provide a good idea of how much times are changing -- and how much remains the same -- in how Nebraskans get their electricity.