New contract offers flexibility, renewable options, competitiveness
Columbus, Neb. – On Thursday, during a requested rate hearing, the Nebraska Public Power District Board of Directors took comments from its wholesale customers both against and in support of the District’s proposed 2016 electric rate proposal.
The rate hearing opened with an overview of NPPD’s proposed 2016 General Firm Power Service (GFPS) Rate Schedule. Customers were then given the opportunity to share their concerns or support for the proposal.
“The hearing is an important part of our business communications with customers,” explained NPPD’s Pricing, Rates & Wholesale Billing Manager Todd Swartz. “In addition to accepting comments about rates, NPPD has also been working with wholesale customers for more than two years to negotiate terms of a new wholesale power supply agreement.”
No action was taken by the Board of Directors, but it is expected that a vote on the wholesale rate proposal may be conducted before the end of October.
The Rate Proposal
The GFPS rate proposal calls for an average 3.8% overall wholesale rate increase for 2016, which is comprised of a proposed 3.7% increase in production rates and a proposed 5.7% increase in transmission rates. Production costs comprise nearly 90 percent of the wholesale power costs and transmission costs make up the remainder. The production rate increase is needed to cover an additional $25 million in uncollected retiree healthcare obligations associated with past service. The transmission rate increase reflects the cost NPPD pays for transmission investments in the Southwest Power Pool (SPP).
“The rate schedule proposed to the Board of Directors meets the requirements of state statutes and the wholesale power contract,” said NPPD President and CEO Pat Pope. “Collecting funds for past service now, rather than later, is a fair and reasonable approach.” NPPD is collecting from all customers who benefited from the services provided, regardless of whether or not a customer signs a new power supply contract with us. The difference is the timeframe over which these costs are collected.
Wholesale customers who choose to sign a new, 20-year wholesale contract will receive a 3.57% discount on their 2016 production demand energy rates because NPPD can finance their uncollected retiree healthcare obligations over a longer period of time. The 2016 overall average rate increase for such customers would be 0.6 percent.
NPPD wholesale customers who remain on the existing contract will see an average 3.8% rate increase in 2016.
For two years, NPPD’s wholesale electric rates have remained steady with no rate increase in 2014 and only a half-percent increase in 2015 for transmission costs. The proposed 0.6 percent increase in 2016 for customers signing a new contract repeats a third year of rate stability.
The Contract Options
For more than two years, NPPD has been meeting regularly with its wholesale customers to establish terms of a new 20-year contract. The negotiations resulted in two proposed contract options containing some of the most, if not the most, flexible and customer-oriented wholesale power terms offered by any generation utility in the country, Pope explained.
Option A contains a provision giving customers a way to reduce purchases from NPPD if financial benchmarks are not met, while Option B allows customers the option to reduce their power purchases from NPPD for any reason, up to 50 percent, without an exit fee.
The financial benchmark within Option A compares NPPD’s rate against what more than 800 consumer-owned utility distribution entities across the country pay for power. Today, NPPD’s wholesale rate is 13 percent below the median price of this benchmark.
The new contracts give any customer the ability to add up to 10 percent local renewable generation without a penalty, while still receiving full benefits and services from NPPD. Customers can even add more than 10 percent renewables; however, the percentage above 10 percent would be handled through a different financial arrangement.
“NPPD is committed to providing low-cost energy to our customers,” Pope continued. “Having a contract that spans 20 years helps us plan effectively for the future and provide even lower prices because of the ability to finance over a longer period of time with tax-exempt debt.”
Pope noted that not all contract deals are the same.
“NPPD’s published rate includes everything a customer is required to pay including services beyond the electric commodity. No hidden expenses exist,” he said. “NPPD offers a generation mix which is on track to be nearly 50 percent carbon-free. We have a proven and reputable track record in the energy market, and we are not out to make a profit. We are committed to this state and the customers we serve.”