A Nebraska Public Power District hearing on a controversial rate proposal Thursday pitted some wholesale customers that plan to leave Nebraska’s largest utility against several others that seem to be moving toward signing new contracts.

Four NPPD wholesale customers that plan to get their power elsewhere after 2021 — and a half-dozen others still weighing their options — objected to a new rate proposal that would charge higher rates next year to wholesale customers that don’t sign a new 20-year contract with NPPD.

Some described the rate plan as an unlawful effort to coerce companies to sign a new contract — and to punish those that don’t.

“It clearly feels that this rate is retaliation and a pretext to get customers to sign,” Lance Hedquist, city administrator for South Sioux City, said during the hearing in Columbus.

NPPD was joined by five current wholesale customers in defending the plan, which would increase rates just 0.6 percent for customers signing new 20-year contracts, while raising rates 3.8 percent for those that don’t.

Those defending the plan said the higher rate is intended to make sure that all customers — both those leaving and those signing on with NPPD for the long haul — pay their fair share of accrued retiree health care costs.

“The differing rates are not punitive in nature, as suggested,” said Bruce Pontow of Nebraska Electric G&T Cooperative in Columbus. “It is fair that all customers, staying or leaving, are being held responsible.”

The hearing also was noteworthy in that it offered evidence that NPPD has made some progress in trying to shore up its future customer base — an issue that’s critical to the company’s financial future.

No customers have signed the new 20-year contracts that NPPD has pushed for the past several years. But at least three customers — including Nebraska Electric G&T, Loup River Public Power in Columbus and the city of North Platte — gave strong indications Thursday that they are moving in that direction.

Unlike the Omaha Public Power District, which provides most of its electricity to residential and business customers who have no choice in who provides their electricity, NPPD is largely a power wholesaler. It contracts to sell most of its electricity to 76 other public power entities across Nebraska, who then resell it to their individual retail customers. And all of those wholesale contracts — representing just over half of NPPD’s annual sales — are set to expire at the end of 2021.

Faced with the possibility of downgraded bond ratings if it can’t firm up its future customer base, NPPD has been pushing hard to get wholesale customers to sign long-term contracts by the end of this year.

Earlier this year, the utility announced that over the final six years of the current wholesale contract, it would begin recovering $150 million in projected unfunded costs of retiree health care. That necessitated the 3.8 percent rate increase for 2016, the company said.

However, the proposal offered a discount — the lower 0.6 percent rate hike — to wholesale customers signing new 20-year contracts by Dec. 31. Those customers would still pay their full share of those health care costs, NPPD said, but over 20 years rather than just six.

Four northeast Nebraska public utilities that have already decided to get their power elsewhere after 2021 — South Sioux City, Wayne, Wakefield and Wayne-based Northeast Nebraska Public Power District — challenged the dual-rate structure. Six other utilities that are still considering their future power options also filed challenges: Beatrice, Auburn, Superior, Southern Power District in Grand Island, Butler Public Power District in David City and Perennial Public Power District in York.

During Thursday’s hearing, opponents questioned the math behind the proposal and described it as unfair, discriminatory and in violation of the current contract.

“The rate increase is punitive and based on phantom accounting,” said Don Larsen, president of Northeast Nebraska.

Some customers said they just want to stay on the current contract for now without paying the higher rate and keeping their long-term options open.

Todd Swartz, NPPD’s pricing and wholesale billing manager, defended the proposal, noting that the current contract gives the utility the right to collect revenue to pay for post-retirement benefits like health care. “It is important to note that all customers ... will pay their share of these (health care) costs, just over different time periods.”

The point was echoed by several current wholesale customers. The plan “is fair to all NPPD wholesale customers,” said Neal Suess, president of Loup River Public Power. Suess indicated that his utility is moving toward a new contract with NPPD.

Likewise, North Platte officials indicated that the city “intends to continue the longstanding and trusting relationship” with NPPD.

Pontow indicated that Nebraska Electric G&T is somewhat divided, with two of the 21 rural electric utilities that it buys power for opposing the 2016 rate proposal. But he said his utility is working on new contracts with its members that would conform with the NPPD proposal, possibly paving the way for a new agreement with NPPD later this year.

NPPD said its board would make a final decision on the rate proposal later this month.

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