How Do We Measure Up?
At NPPD, this measurement mentality spills over into my day job as well. Folks who work with me know I am a stickler for benchmarking and knowing how we, as a public power entity, compare to others in a number of areas inside and out of our industry.
Some of the trends I follow closely come from the Energy Information Administration. While data fluctuates from month to month, one piece of information that really got my attention recently is where Nebraska ranks for average retail electric rates compared to the nation at the end of 2012.
For more than 40 years, Nebraska’s electric rates have been well below the national average. While we continue to be at least 15 percent below the average yet today, our individual state ranking is on an upward climb, and this is reason to pay close attention.
Factors driving this upward trend for NPPD, in particular, are primarily attributed to: 1) investments to meet reliability and regulatory standards, 2) fuel cost increases, such as coal, natural gas and uranium to generate electricity, and 3) lower than average prices in the wholesale energy market.
What is the retail ranking?
In January 2013, Nebraska ranked 12th in overall lowest-cost states for retail electric service. This is a higher ranking than the past several years. Therefore, I am challenging employees within NPPD to take significant action and look for cost reductions that will help Nebraska become a top 10 lowest-cost state once again. NPPD representatives are also meeting with other electric utilities across the state to manage this issue together. It’s a hefty challenge, but one I know is possible and something our customers expect and deserve.
With a history of recent rate increases at NPPD, we need to exhaust all avenues and minimize this trend going forward. Every stone will be unturned as we look to cut an additional $30 million out of next year’s budget to keep a planned rate increase in 2014 to 2 percent or less. Part of accomplishing this includes expected savings from a voluntary early retirement program, which I announced this spring. We are also looking to cut or delay projects that will help us meet this financial goal without jeopardizing safety or reliability.
What does being competitive look like?
As a not-for-profit entity NPPD only charges customers what it costs us to do business. But being cost-based doesn’t mean we can ignore what “being competitive” looks like. That’s another reason I’m asking each area of NPPD to continue finding ways of comparing against their peers and coming up with action items focused not only on potential budget cuts, but process efficiency savings as well. These goals will be different for each area, but collectively, it will help us get the job done and sustain the effort going forward.
It’s no secret we are a capital-intensive industry, and generating and delivering electricity takes a lot of equipment and parts to work. In fact, the multi-trillion-per-year global energy sector is the world’s biggest single business. And, it keeps growing. In 1980, the typical U.S. household had an average of three consumer electronic products and, today, that number is 25. We need to continue investing in power lines and plants that ensure power is there when our customers need it. But it is also our job to do so responsibly and as cost-effectively as possible.
What about our wholesale rates?
NPPD serves approximately 89,000 homes and businesses at retail, which makes up about 25 percent of our total annual revenues. We also sell electricity at wholesale, meaning retail distributors buy the power we produce at our power plants and deliver over power lines. This part of our business makes up about 50 percent of our total annual revenues.
While the state ranking of 12th is for retail rates, a recent Black & Veatch study finds NPPD remains one of the lowest-cost wholesale providers in the region. This is due primarily to the diverse mix of fuel sources we use to generate electricity.
Owning generating resources is a major benefit to our customers, and somewhat unique to public power. When we compare to state rankings, we are primarily comparing to retail distributors who supply electricity at retail. When we look at generation and our wholesale power, we are competing with a majority of investor-owned utilities, and it’s good news we are doing well from a cost standpoint.
Investor-owned, or privately-held utilities, and non-utility generators produce about three-fourths of the total power sold in the United States compared to only about 15 percent for public power systems, including cooperatives. Having this locally-owned generation available to electric customers in Nebraska is a huge competitive advantage, and one we expect to continue benefiting from in future years.
Looking forward, we can’t ignore the fact we are a “measure up” society. In fact, it’s human nature to stack ourselves up against others and wonder if it would be better on the other side. While I am confident we have a good, solid foundation in place, it doesn’t hurt to peer over the fence periodically to see if we can do better. It’s not only our job to do so, but something we, as a public power entity, must ensure happens on an ongoing basis.