Letter to the Editor

Report: Nebraskans overpaying for electricity by $250 million per year

Thursday, December 29, 2016

OMAHA, Neb. -- An economic study of Nebraska's public power and the Southwest Power Pool (SPP) determined that the high cost of production at some power plants in Nebraska has not allowed Nebraska ratepayers to benefit from the more than $1 billion saved since 2014 by lower electricity prices from the SPP Integrated Market (IM). The study also determined that until Nebraska's generation costs are reduced, ratepayers will not benefit in the future from the lower prices in the SPP Integrated Market. The study, titled, "Nebraska Public Power's Competitiveness in the Regional Energy Market," was prepared by Goss & Associates Economic Solutions.

"The cost-effectiveness of Nebraska's public power generation is currently at risk in the SPP Integrated Market," Dr. Ernie Goss, the principal investigator for the study. "There are two main reasons for this: 1) Low natural gas prices; and 2) additional wind generation in the SPP footprint. Low natural gas prices keep the SPP IM market price low. Gas-fired generators are the marginal supply in the market, so bids from those generators typically sets the market price. Lower fuel costs for natural gas generators lead to lower market prices since fuel is a major contributor to the generator's bid price. Low market prices threaten the competitiveness and ultimately the value of coal and nuclear assets owned by Nebraska public power," Goss said.

"Wind displaces higher cost fossil-fuel generation when SPP dispatches generation. Significant increases in wind generation are expected in the SPP footprint. As more wind energy is produced, there is risk that Nebraska's coal plants will sit idle more often, less able to recover fixed costs, as electricity is dispatched from wind generation, and mainly from other states within the SPP footprint," Goss said.

"Baseload capacity like coal and nuclear is expected to continue to decrease in value as wind generation capacity increases in the SPP," said Michael Matheson, Executive Director of Wind Is Water Foundation, a non-profit Nebraska corporation who funded the report. "For example, in September 2016, Nebraska Public Power District's (NPPD's) Sheldon Station went offline because the SPP's wholesale market price was lower than that plant's marginal cost of production. It doesn't make economic sense to burn the fuel to produce electricity which would have been sold below the fuel cost. Fixed costs, however, are still incurred while that plant sits idle. OPPD recently took action to shut down Fort Calhoun Nuclear Station (FCS) because of its high cost of production and low SPP wholesale market prices. This is likely to continue happening," Matheson said.

"The financial risk to ratepayers in owning generation is increasing, as seen with the decommissioning of the Fort Calhoun nuclear plant. Divesting from generating assets and embracing retail choice could reduce ratepayers' risk by eliminating the potential future costs of stranded assets," Matheson said.

"Bringing competition to Nebraska would allow ratepayers to choose among public and private electricity providers, which is retail choice," said Gary Aksamit, Chairman of Americans For Electricity Choice, a national group based in Nebraska that is promoting retail choice in states across the country. "In other states, consumers have choices of free nights and weekends for their electricity, free nesting thermostats, buying 100 percent renewable electricity, or merely the lowest price," Aksamit said.

"With retail choice the consumer is in charge instead of a big monopoly provider. It is estimated Nebraskans could save between 15-20 percent on their electric bills each month. Accordingly, Nebraskans spent nearly $2.5 billion on electricity in 2015, so a 10 percent savings would be at least $250 million dollars annually. At a time when farmers are getting hit hard and we have a state budget shortfall, that's a lot of money back in Nebraskans' pockets. While the Legislature is talking about handing out tax cuts to agriculture and income tax cuts to everybody, it would seem smart to give taxpayers a $250 million per year rate reduction through electricity market competition," Aksamit said.

-- The entire report can be found at www.AFEChoice.com

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