With questions looming about the David City Power Plant – and its ability to generate consistent revenue for the city through its wholesale purchase agreement with the Nebraska Public Power District - city officials opted to have a Cost of Service/Rate Design Study completed to analyze what the impact may be like if one of its major money makers is eliminated.
“The mayor (Alan Zavodny) and (Electric Supervisor) Pat Hoeft called for it – they wanted to investigate whether we should raise rates due to the loss of revenue from the Power Plant,” Ward 1 Council Member Skip Trowbridge said. “We stopped receiving payments from NPPD a couple of months ago and they will make a decision in September regarding whether they will restart the payments again, and it will depend on our ability to start and maintain those (power plant) engines to generate electricity ...
“They stopped because we were in violation of the agreement to start that plant after Eric (Betzen) resigned.”
For years, the David City Power Plant has generated about $25,000 monthly – just under $300,000 annually - for David City. The agreement states the city must be able to have the plant up and running on two hours notice to pump power into the city grid if required by NPPD. The municipality’s power is purchased through NPPD and then distributed through the city’s lines, which in turn is purchased through the city by residents.
Conversation regarding the future of the plant has been ongoing and heated at times. Should the plant incur another large-scale expense, in all likelihood it would be forced to shut its doors. However, steps are in place that could ensure some staffing stability at the facility moving forward enabling it to remain operational.
“We really embraced the thought of, 'do we close it or do we try to find someone to start and run it?'” Trowbridge said. “And the consensus appears to be that Pat Hoeft is in the process of hiring two new line crew members and he will expect them and a few others to be trained with starting the engines and keeping them running. And with that, the hope is that NPPD will start paying the city again in September or October.”
Trowbridge said that the city purchases the majority of its power through NPPD, with about 10 percent also coming from the Western Area Power Administration. The power study was timely, he said, because there are still questions regarding whether Butler Public Power District will hike its customer wheeling rate from $1.10 per kilowatt-hour to $1.71.
That price is what the district charges to transport electricity to villages and municipalities that have the ability to distribute and sell electricity to its own residents. Customers of the power district include David City and the villages of Brainard and Prague.
“Strangely enough, they didn't raise those rates – and I've been watching them,” Trowbridge said of the wheeling rates. “I watch what we pay them and I don't see that they have gone up at all.”
Zavodny during last week's city council meeting noted that the major concern with any rate increase would be that so many local residents operate under closely monitored budgets.
“We have lots of people here who are on fixed incomes,” the mayor said. “We obviously want to do everything we can to keep costs as low as possible.”
John Krajewski of JK Energy Consulting said that the study indicated the city is in pretty solid financial shape regarding its energy revenue.
“When I look at existing expenses compared to revenues for existing utilities, I would say that I wish every client was in as good of a financial condition that you are in terms of your revenue versus your expenses,” Krajewski said. “I think the cash you have on hand is good revenue and there really weren't any financial issues that I could find.”
Annually, the city brings in about $600,000 from its power services. Krajewski said that the only area that he would recommend a rate increase would be a 3-percent customer bump for what the city charges for security lighting.
While there are still questions about what will happen for local ratepayers, Krajewski said the city was smart to have the rate study completed.
“This definitely wasn't a wasted effort,” he said. “You went through this process and now you have the reassurance that you can tell your customers, 'our rates are adequate, our finances are in good shape and we are collecting revenues from the right customers moving forward.'”
Krajewski added that the city needs to continue putting itself in a position to generate revenue through power, but that at this time he doesn't see the need for any major rate increases.
“I would say with your given system … I would say this. I would really want your net income to be about 5 to 10 percent of revenue,” he said. “And that goal enables you to make sure that you are still putting away money for capital improvements … So you need to have some cash reserves for a rainy day fund, but, you could probably absorb a $300,000 to $400,000 unexpected increase and maintain where you're at (with rates).”
Sam Pimper is the news editor of The Banner-Press. Reach him via email at email@example.com