NTF Issue Paper: oppd2.doc.  12-09.

 

NEBRASKA TAXPAYERS FOR FREEDOM ISSUE PAPER:

NTF OPPOSITION TO OMAHA PUBLIC POWER DISTRICT RATE HIKE: 2009.

 

PART I: OPPD MANAGEMENT PRESENTATION.  Before the vote, OPPD execs presented information detailing why they believed a rate hike was necessary, plus other information.  A Power Point presentation indicated the resulting net revenue required from district rates and charges to pay all expenses totaled $759.7 million.  This amount equaled a revenue deficiency of $35.2 million, which equated to a proposed rate adjustment of 4.9%.  The primary reasons for this adjustment included reduced sales and revenues from current economic conditions, increased expenditures from the addition of Nebraska City Station Unit 2, and newly-imposed government regulations.  Regulatory requirements that did not exist in 2009 included cyber security requirements mandated by the North America Electric Reliability Corporation (NERC), amounting to about $2 million annually, and the “Fatigue Rule” mandated by the Nuclear Regulatory Commission, which has increased the budget by $2.5 million at the Fort Calhoun Station and increased labor costs.  Also, continued increases in health care costs.  The utility has only 85 days of cash on hand, much less than normal, but mild weather is forecast.   The interest rate for OPPD to borrow in 2008 was 4.7%.  The residential rate hike was 4.9%, $4.05 per month, the commercial rate hike only 3.9%.  OPPD offered to take a group of 10 or fewer NTF members on a tour that would help explain parts of the budget.  Saving $$: OPPD currently is using mobile data terminals in field service and crew trucks for troubleshooting. Remote terminal units (RTUs) are at substations now.  A smart grid can diagnose itself, but OPPD is not buying the 1st generation of smart meters, until the entire system can go on line.  OPPD cut $23 million from its FY 2010 budget. 100+ employees are gone through attrition, and OPPD cut overtime by $4 million.  The utility is installing service lines at lower cost and performing less tree-trimming.  It is using in-house training instead of traveling to training.  A 25% reduction in total travel expenses occurred.  Restricted hiring, customer service office closings, other reductions including deferring exempt pay increases and reduced costs for overtime,  professional and outside services, and coal car and train track maintenance.  Although these budget reductions may not become sustainable, they will help mitigate present economic recession conditions. OPPD buys wind energy when it becomes available at reasonable cost. It tries to negate need for a new generating plant by dropping commercial capacity through conservation prodding. The utility is using LED lights in Morton Meadows neighborhood.  UNMC is using these lights in its parking areas.  OPPD spends a small amount of revenue on safety advertising mandated by state government.  Other dollars pay for ads publicizing numbers to call in emergencies, etc., and for conservation advertising.  OPPD advertising spending has dropped by 30%.  The utility contends that it must pay higher wages in specific categories, because there exist insuffi-cient numbers of applicants to operate a nuclear plant and do other technical utility work.  Local colleges must train additional individuals.  Many utilities will not accept a financial risk to construct a new nuclear plant because of uncertain government policies, and banks are hesitant to lend money for such plants.  There also exist state regulations; a utility must appear before the NE Power Review Board and evidence least cost options regarding nuclear and other sources.  With review board sanction, the board can move forward with construction.  Though OPPD sold about $82 million in excess energy outside its area in 2008, it will sell only about $36 million in 2010 and $50.5 million in 2011 because of the economic downturn and less demand.  The OPPD debt retirement fund acts as a reserve to cushion higher rate increases.  The utility currently holds $2 billion in debt.  Union Pacific and Burlington Northern railroads each won about 50% of bids to transport coal to OPPD, but transport costs reached higher because of inflated rail contracts.  Natural gas prices drive wholesale costs to OPPD, and prices are down, making alternative energy sources more competitive.

 

PART II: NTF PRESENTATION TO OPPD BOARD: DECEMBER 17, 2009.

            Good morning.  My name is Doug Kagan, and I represent NE Taxpayers for Freedom.  As a taxpayer group, we urge you to continually find new ways to cut your costs, improve efficiency, and find means to improve your service reliability to maintain customer satisfaction.

            Although we are not overly familiar with the OPPD administrative system, we offer several suggestions to the board for purposes of budget cutting, so that perhaps you can lower the proposed 2010 rate hike.

            We suggest accelerated use of mobile data voice networks to improve productivity.  Monitor instrumentation and control equipment with intelligent remote terminal units and remotely monitor your plant perimeters.  Fully implement remote meter reading to save labor costs.  Terminate the wind energy projects, as this form of energy requires subsidization.  Pursue nuclear plant partnerships instead.  End the cfl bulb giveaway program, subsidized weatherization and installation of heating and cooling equipment, energy assistance program, and bilingual services.  Tighten the rules for service cutoffs and demand larger deposits for restoring service. Continue to pursue legislative permission to mail out service cutoff notices via regular mail rather than certified mail.  Further curtail funding for advertising and cooperate in placing ads with MUD, though the utilities are in some ways competing.   Further reduce travel and organization memberships.  Investigate implementing interlocal agreements with other utilities or government subdivisions, e.g., street work. Board members could give up health benefits, as their duties are not full-time.  Suspend employee performance and other bonuses from the lowest-paid employee to the highest-paid executives.  End the $10,819 expenditure for bowling, golf, and basketball employee leagues, $37,956 for an annual employee picnic, $120,000 for assorted vendor and beverage services, $6,500 for a childrens’ holiday party, $6,500 for a retiree group, $457,300 expended on employee tuition aid, and $101,182 for service awards.  These expenditures may seem appropriate to boost employee morale but appear unnecessary in a recessive economy.  Fulltime, permanent employees enjoy a discount on their monthly electric bills; OPPD has no dollar amount for this perk.  Lobby the legislature to remove the sales tax on line items on customer bills, as MUD is doing, to alleviate the continuing upward pressure on ratepayer bills.  An outside company reviewed the OPPD budget, a non-necessity if the utility budgeted correctly.  NTF will cooperate with State Sen. Gay to pass legislation to allow OPPD to mail out shut-off notices in monthly bills instead of by certified mail.  Finally, I want to commend the board and OPPD management for their present efforts to cut costs, a list of which we found on your website and in your presentation today, and your cooperative attitude towards our taxpayer group. 

 

PART III: THE VOTE.

The following OPPD board members voted YES, to raise our electric rates in 2010:  Cavanaugh, Dodge, Green, Hall, McGuire, Thompson, Ulrich, and Weber.  No board member voted NO. 

 

ADDENDUM: The following are verbatim minutes from the OPPD board meeting of Dec. 17, 2009:

At this time, Board Chair Ulrich invited the public to comment on the issue.  Director Hall suggested to the Chair that persons may speak on either the Corporate Operating Plan or the Rate Adjustment proposal at this time even though they are separate voting items.  Chairman Ulrich concurred.  Thereafter, Chairman Ulrich recognized Mr. Doug Kagan (12320 William Street, Omaha NE  68144).  Mr. Kagan said he represents Nebraska Taxpayers for Freedom.  As a taxpayer group, he said they encourage the boards of directors to continually find new ways to cut costs, improve efficiency and find means to improve service reliability to maintain customer satisfaction.  He commented although his organization is not totally familiar with the OPPD administrative system, they would like to offer several suggestions to the Board for purposes of budget cutting in an effort to lower the 2010 proposed rate increase.  On behalf of Nebraska Taxpayers for Freedom, he provided the following list of suggestions for the Board and Management to consider:   accelerated use of mobile data voice networks to improve productivity; monitor instrumentation and control equipment with intelligent remote terminal units and remotely monitor OPPD’s plant perimeters; fully implement remote meter reading to save labor costs; terminate the wind energy projects because this form of energy requires subsidization and pursue nuclear plant partnerships instead; discontinue the compact fluorescent bulb give-away program, subsidized weatherization and installation of heating and cooling equipment, energy assistance programs, and bilingual services during this recession; tighten rules for service cutoffs and demand larger deposits for restoring service; continue to pursue legislative permission to mail out service cutoff notices via regular mail rather than certified mail; lobby the Legislature to remove the sales tax from the items on customer bills (as MUD is doing) to alleviate the continuing upward pressure on ratepayer bills; further curtail funding for advertising and cooperate in placing ads with MUD; further reduce travel and organizational memberships; investigate implementing interlocal agreements with other utilities or government subdivisions (i.e., street work); Board members should give up health insurance benefits since their duties are not full time; and suspend employee performance and other bonuses from the lowest employee to the highest paid executives.  He concluded by commending the OPPD Board and Management for their present efforts to cut costs, a list of which he found on the corporate website and reported during the presentation today, as well as the cooperative efforts demonstrated with their taxpayer group.

 

Board Chair Ulrich acknowledged his empathy with Mr. Kagan’s concerns and asked President Gates if he had additional comments to make.  Mr. Gates stated his management team will continue to discuss his concerns and will assist in setting up requested tours of OPPD operations facilities.

 

Thereafter, Chairman Ulrich recognized Mr. Paul Meyer (14823 Drexel Street, Omaha NE 68137).  Mr. Meyer said he represents his wife, his family and a number of retired people in his neighborhood. He commented there are a number of retired OPPD customers who will be receiving no increase in social security benefits; however, their Medicare Part D insurance premiums have increased.  Mr. Meyer remarked that a $4 monthly increase will make life difficult for certain people on fixed incomes and for many people who have lost their jobs.  He inquired about OPPD salary increases and employee benefits.   He commented the tax on the Fuel and Transportation Cost Adjustment should be separated and he does not believe tax should be charged to consumers for the transportation cost.  In reviewing several previous electric statements, Mr. Meyer said he has discovered discrepancies in the Fuel and Transportation Cost Adjustment percentage charges.  He continued saying at his former business all employees were forced to cut back in all areas including salaries and this he thinks should be considered by OPPD.  He also commented on a faulty heat pump that he installed in 1995 which required a lot of maintenance and repair work and said he is not in favor of heat pumps at this time.  Mr. Gates affirmed a management decision made previously to defer salary increases for all exempt personnel at OPPD until at least October of 2010.  He also said his billing discrepancy will be investigated. 

 

Research, documentation, and analysis for this issue paper done by Nebraska Taxpayers for Freedom.  This material copyrighted by Nebraska Taxpayers for Freedom, with prior permission granted for its use by Citizens for Local Control, Cherry County Taxpayers, Dawes County Taxpayers, and other groups in the Tax Freedom Network.  12-09.  C