Chapter 1: BOARD ROLES AND RESPONSIBILITIES
Chapter 2: HISTORICAL PERSPECTIVE
Chapter 3: THE ELECTRIC INDUSTRY IN NEBRASKA
Chapter 4: HOW THE BOARD OPERATES
Chapter 5: PRB PLANNING AND REPORTS
Chapter 6: PRB POLICIES
Municipally-owned electric systems have operated in Nebraska since 1887, when Crete established its own system with generation capacity to serve its own needs. The Nebraska Legislature, recognizing the advantages of municipally-owned electric utilities, authorized cities to establish and maintain electric systems in 1889. From 1902 to 1926, the number of municipal electric plants increased from 11 to 282, constituting the largest number of municipally-owned light and power plants in the nation.
Probably the most important reason for the development of public power was that municipal electric systems served their ratepayers at lower rates than private utilities. Private utilities gained momentum in the late 1920’s and early 1930’s, partly due to some questionable business practices such as artificially lowering rates to put municipal electric systems out of business. Most of the municipalities had their own generating resources and were unwilling to give them up. Since most of the electrical load was in municipalities, the private utilities were unable to obtain a dominant market share.
The further development and expansion of public power was spurred by the need for jobs and irrigation due to the depression and the drought of the early 1930’s. In 1933, the Nebraska legislature passed the Enabling Act (Nebraska Enabling Act of 1933 (Senate File 310)) that allowed and authorized the formation of public power and irrigation districts as public corporations and political subdivisions of the state. This provided the need for authorization to obtain money from the Reconstruction Finance Corporation.
Three main hydroelectric power districts (Loup River Public Power District, Platte Valley Public Power & Irrigation District, and Central Public Power & Irrigation District) were developed in the early 1930’s, operating independent of each other. The Public Works Administration (PWA) encouraged these districts to enter into joint operating agreements to contract for loads, then insisted on it in 1940 as a prerequisite to obtain refinancing. Since these districts were primarily concerned with generation, Consumers Public Power District (Consumers) was formed to market power. Consumers was, in contrast with the existing hydroelectric generators, a power district with no indebtedness. This allowed Consumers to issue revenue bonds and begin purchasing the private utilities in the state. In 1946, the final transfer to Omaha Public Power District (OPPD) of the Nebraska Power Company, ordered to dissolve under the Public Utility Company Holding Act, was effected and the conversion to public power was complete.
The U.S. Rural Electrification Administration (U.S. REA) was created in 1935 to facilitate the extension of electric service to rural America. Rural electric cooperatives and rural public power districts were organized in the 1930’s, 1940’s, and 1950’s. It became evident that investor-owned and municipal electric utilities would not provide service in most rural areas because they did not believe it was economically feasible. Furthermore, they did not appreciate the need for rural electric service. This occurred even though the U.S. REA first offered loans to existing electric utilities to finance construction of rural lines.
Of the first 36 rural electric systems organized in Nebraska, 13 were organized as cooperatives. At the same time the U.S. REA was established in 1935, about seven percent of Nebraska’s farms were receiving central station electric service, mostly from municipal electric systems’ rural lines. By 1958, there were 95,050 farms, almost 95 percent of the total, being served by U.S. REA-financed rural electric systems.
Concurrently with the establishment of the U.S. REA, the Nebraska Rural Electric Association (NREA) was established to help bring electric service to rural Nebraska. The NREA originally assisted its member systems in standardizing line construction to reduce costs, obtaining construction loans from the U.S. REA, expediting arrangements with hydroelectric power districts for wholesale bulk power, assisting in obtaining power from alternative sources such as municipals until the hydroelectric power districts were completed, and acting as a clearinghouse for information. The NREA also continued to provide electric inspectors for rural homes and businesses. In the early years, it employed between 15 and 20 electric inspectors who provided inspection services for five years.
Through the 1940’s the market for electricity grew dramatically, more than doubling from 1939 to 1948. After the initial early years of growth, the industry entered a period where it experienced growing pains and conflict. The lack of long-range planning and coordination of the industry in the State was coupled with inadequate generating capacity and transmission capability.
Nebraska’s public power industry has undergone major changes over the past several decades. The power industry that serves Nebraska today bears some resemblance to the structure that existed in 1960, but it is quite different.
As an example, some of the principal utilities in the early 1960’s were:
Most of the above names are unfamiliar to people today, since three of the five no longer exist, and Consumers Public Power District underwent a name change and is now the Nebraska Public Power District.
The Loup, Platte Valley, and Central districts were co-owners of NPPS, which was the state’s power generation and transmission agency outside the Omaha area. The major retail utility was Consumers, which had customers in both urban and rural areas. It operated the electric systems in approximately half of Nebraska’s incorporated municipalities. In 1949 Central withdrew from the management of NPPS, and Platte Valley and Loup operated the system. All of Central’s electric output was sold to NPPS.
During the 1960’s the structural order within the power industry changed, and the framework was established for what exists today. Several municipal utilities, the rural power districts, and the Legislature played a part in this change.
An interim study initiated by the Legislature in 1961 determined that Nebraska’s power industry was plagued by three major problems, namely: duplication of facilities and functions, service area disputes, and rate controversies (Nebraska Unicameral, 72nd Legislature, Legislative Resolution 35 (1961)).
In 1963 the Legislature created the Nebraska Power Review Board to address the problems of duplication and service area disputes. Legislation aimed at resolving rate controversies by forcing consolidation, or merger, of several utilities failed to pass. Two years later, however, the Legislature passed a consolidation law called the “Grid Bill” (Nebraska Unicameral, 75th Legislature, Legislative Bill 764 (1965)). The Grid Bill mandated the merger of the four agencies mentioned earlier: Loup, Platte Valley, Consumers, and NPPS. Excluded from this merger were OPPD and an area in western Nebraska served by Consumers. However, the Nebraska Supreme Court later declared the law unconstitutional (see Wittler v. Baumgartner, 180 Neb. 446, 144 N.W.2d 62 (1966)).
In the early 1960’s Consumers entered the power generation and transmission field, with construction of conventional power plants and an experimental nuclear plant at Hallam, Nebraska. Consumers continued to be the catalyst of change by consolidating power agencies through voluntary agreements.
First, Consumers acquired Loup’s ownership interest in NPPS. Then Consumers merged with Platte Valley, which eliminated Platte Valley and NPPS as separate entities. Consumers completed these mergers and officially changed its name to the Nebraska Public Power District (NPPD) on January 1, 1970. NPPD worked diligently to consolidate its role as the major power generation, transmission, and distribution agency serving Nebraska outside the Omaha area.
The concerns of the 1960’s leading to legislative interest in the public power industry centered on the structure of the industry and various disputes among the utilities. Legislative interest in the 1970’s centered on energy costs and industry performance.
For example, in the 1970’s the Legislature hired three consultants to study the power industry. (The consultants and dates of their report were O’Brien and Gere Engineers (1976), Adam Kubik (1977), and John Dunn (1978)). Their studies resulted in no major legislative actions. The power industry structure they recommended is essentially what exists today:
In the 1960’s, terms such as “battling utilities” and “warring power districts” were common in news stories and the comments of political leaders and editorial writers. Local and statewide political fights among utilities occurred virtually every legislative session. Lawsuits among utilities appeared at times to be the normal way of doing business.
There is very little of this today. All segments of the electric power industry work together through the Nebraska Power Association (NPA). NPA traces its origins back more than 30 years. Its predecessor, the Nebraska Power Industry Committee, was created at the urging of the Legislature to help resolve power industry problems. Today, NPA works to resolve differences and facilitate dialogue and compromises.
Creation of the Power Review Board
The Nebraska Power Review Board was created in the electric industry climate of the 1960’s. The power industry had been experiencing a period of relatively steady but fast growth following World War II. Because of the growth, conflicts were arising among power districts in the state, and as previously stated, numerous lawsuits were being filed.
Nebraska citizens and members of the legislature saw a need for regulatory control over this expanding industry. The 1961 Nebraska Legislature established two committees: The Nebraska Public Power Committee (NPPC) composed of representatives of public power districts, and the Legislative Council Committee on Public Power, composed of state senators.
These committees were asked to study power industry problems and to recommend solutions for these problems. Although no legislation was introduced as a direct result of these particular studies, they did provide the basis for L.B. 220, which was enacted by the Nebraska Legislature in 1963.
The primary aim of L.B. 220 was to solve recurring disputes among power suppliers over service territory. The legislation also attempted to deal with rate issues by giving the Board some jurisdiction over rate disputes, although the jurisdiction was advisory only.
Nebraska is unique in that it is the only state in the nation in which all of its electric power suppliers are consumer-owned. This is commonly referred to as “public power.” The large majority of Nebraska’s power suppliers are political subdivisions of the state, namely public power districts and municipalities. Cooperatives are non-profit corporations owned by their respective ratepayers, but they are not political subdivisions of the State of Nebraska.
The history of the public power movement and the philosophies behind it are summarized in the 1963 publication of the University of Nebraska’s School of Journalism entitled “Public Power in Nebraska: Depth Report No. 2.” A history of the Board, written in 1983, is The Nebraska Power Review Board: Regulating a Publicly-Owned Electric Industry.
The immediate priority for the first Board was to establish areas in which the various suppliers had exclusive rights in which to operate. These became known as service areas. The document that created a service area became known as a service area agreement. Most of the service area agreements were completed by the first Board, but a few agreements were completed in later years due to the need to resolve ongoing disputes among the affected parties.
As of April 2011, there are 366 active service area agreements between Nebraska’s power suppliers (a total of 417 such agreements have been created, but 51 have been terminated). These agreements are essential because they strictly define the area in which each specific supplier can provide retail electric service, thus eliminating overlapping service areas and eliminating most disputes over who can serve any particular customer.
During the following years, the Board turned its attention from settling disputes over service areas to specific customers. These disputes arose when two different power suppliers had transmission lines in close proximity to a proposed customer. Even though the customer might be located in one power supplier’s service area, another power supplier might have a transmission line geographically closer to the proposed customer and therefore would file an application for permission to run a line into the first power district’s service area in order to serve that customer.
The Board’s various determinations concerning this topic created guidelines for power suppliers to follow when contemplating providing service to a customer not located in its service area, but close to one of its transmission or distribution lines.
A third important component of L.B. 220 granted the Board the authority to regulate construction of generation and transmission facilities in Nebraska. This authority was granted so that the Board could restrain suppliers from building generation capability when it was not truly needed, thus avoiding a surplus of electrical power, and unnecessarily raising the electric rates for the power supplier’s customers.