July / Aug. / Sept. 2009 - Nebraska Public Power District

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4 ENERGY INSIGHT • JULY / AUGUST / SEPTEMBER 2009 Not a TYPICAL from the PRESIDENT & CEO First, this summer’s mild weather resulted in reduced sales to our Nebraska customers. Our “billable” peak load this summer of 2,181 megawatts was 365 megawatts below our 2009 original budget, which was used to set electric rates for this year. In April, we revised the 2009 budget and lowered our forecasted billable summer peak load from 2,546 megawatts to 2,449 megawatts. The actual billable peak of 2,181 megawatts was 268 megawatts below that revised budget estimate. summer RON ASCHE As the summer draws to a close, I find myself reflecting on the season. Obviously, this wasn’t a typical summer. We saw below average temperatures and above average precipitation. If you are an outdoor enthusiast, you might have enjoyed the mild temperatures; however, the weather indirectly brought with it several challenges for the District. Energy usage has also been down. As a result, we expect to end this year with sales to our Nebraska customers $24 million below our revised budget. A second challenge included a reduction in prices in the regional wholesale energy markets due primarily to the national economic recession and reduced natural gas prices. For example, through August, the District’s average sales price of non-firm energy on the wholesale energy market is about $25 per megawatt‑hour, a decline of 50 percent from the
average price for the same time period in 2008. Actual revenues from the wholesale non-firm energy sales are forecasted to be $33 million below our revised budget for the year. Projected revenue shortfalls from sales to our Nebraska customers— coupled with declining energy prices—are about $57 million for this year. Thankfully, we’re able to offset some of this shortfall. Earlier this year, we looked for ways to reduce our 2009 costs and were able to cut approximately $20 million from our budget. Because of the decrease in energy sales to our Nebraska customers, our fuel and purchased power costs are going to be less than budgeted. We’re also expecting our O&M expenses to be slightly less than budget. Between the revenue shortfall and the cost cuts, NPPD is currently projecting a $19 million deficit for 2009. This deficit in 2009 will in part be covered by use of existing rate stabilization funds. What about 2010 electric rates? Our preliminary 2010 budgets indicated additional revenue shortfalls. To mitigate these shortfalls, we looked first at cutting costs. We did a review of our preliminary 2010 budgets. That effort resulted in $21 million of proposed cost reductions. We changed some of our short-term financing plans resulting in additional reductions of $11 million for 2010, for a total reduction of $32 million in our operating budget for next year. We also deferred or reduced our capital budget for next year by more than $60 million. One thing we did not cut were expenditures necessary to maintain safety and reliability of our system. Even with these cost reductions, we will need to increase both wholesale and retail rates around 6 percent for next year. The main reason this ENERGY INSIGHT • JULY / AUGUST / SEPTEMBER 2009 5 Some of things we will do to reduce our operating budget for next year include: • freeze executive salaries at current levels for 2010 • • • • • • defer merit pay adjustments for colleagues across the District until the fall of 2010 (merit adjustments are typically made in March), and then we will look to see if our financial situation has improved before making a final determination defer filling vacant positions wherever possible defer enhancements to the 401k retirement program reduce employee travel and training reduce software enhancements and outside contractor services reduce tree trimming and pole inspections provided it does not impact safety and reliability increase is necessary is to cover the cost of new facility additions and improvements that have been made to our system, such as the new 80‑mile 345 kV transmission line from Columbus to Lincoln that will be completed later this year, improvements made at Cooper Nuclear Station, and payment of our share of the costs of OPPD’s new Nebraska City coal-fired plant which began operation late this spring. Next steps Our Board of Directors will consider final rate changes for 2010 later this year. The new proposed rates, if approved by the Board, would likely have an effective date of Jan. 1. The proposed rate adjustments would have been substantially higher if we had not been able to reduce our costs. The support of colleagues across the District has been tremendous. I thank everyone for their support in addressing our financial situation in these trying economic times. Our customers expect nothing less from all of us.
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July / Aug. / Sept. 2009 - Nebraska Public Power District

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