NPPD has been working closely with its key municipal and business customers since early this year to identify and discuss the potential cost increase for 2012. Providing an early estimate allows NPPD to receive feedback and engage in idea sharing about the factors that are driving up rates. Despite some additional cost challenges related to recently passed environmental legislation, NPPD management plans to ask its Board to approve the rate increase at the same amount that was provided as an early estimate in May.

Fuel cost increases and system investments are the two primary reasons why NPPD is proposing an estimated 6.5 percent average rate increase in 2012. Of the 6.5 percent increase, roughly half is due to an increase in NPPD’s wholesale power, or generation and transmission, costs. In 2012, NPPD is seeing a 75 percent increase in NPPD’s coal transportation costs alone. The other half of the estimated rate increase is the result of higher debt principal and interest payments associated with capital investments in electric system plants and facilities, which are needed to maintain reliability and meet current and future environmental policies and regulations.

Since utility revenues are tied closely to electricity sales which can be greatly impacted by weather and the general economy, revenue and expense forecasts can vary and be difficult to predict. However, when NPPD recognized a growing budget deficit due to reduced revenues this spring, management took immediate action to reduce expenses by more than $13 million so that the proposed rate increase amount did not go up. This cost-cutting action—along with improved electricity sales and revenues in July—has put NPPD into position of recommending the rate increase remain at 6.5 percent.

NPPD’s Board will vote on the proposed rate increase amount, which will take effect January 1, 2012, in November or December of this year. This rate adjustment equates to a monthly increase for an average residential customer of approximately 30 cents a day. During this time, NPPD will continue working in cooperation with its customers to discuss cost pressures and the best way to handle them moving forward.

“We want to keep the cost of electricity as low as possible for customers while assuring reliability is also maintained,” said Bender. “Right now, we are facing huge regulatory and industry challenges that are going to cause us to re-think our traditional business model and determine what the most cost-effective solution will be for serving customers going forward. But, our focus is always on our Nebraska customers, and how we can best meet their needs by serving them as reliable and affordably as possible.”