Announcements

  • TelephoneEffective July 12, 2010, the Norris District will perform courtesy calls to customers regarding account information ONLY if we have written consent on file.
    Click here for more information & to obtain a        copy of the courtesy call consent form    .
  • The District will be using contract meter readers to inspect services & read residential services during 2010.  The contractors will carry ID cards and will also have marked vehicles.  Please contact us if you have any questions or concerns.
  • Take advantage of our Refrigerator Recycling Program and earn $35! Call 1-866-444-9160 to schedule a FREE pickup of your old working refrigerator or freezer. Click here for more information.

Message from General Manager Kevin Pollard

The True Cost of Intermittent Renewable Energy Sources

Kevin Pollard

I am repeatedly asked to answer questions on how much renewable energy actually costs the average Norris customer and why Nebraska isn’t as aggressive about installing renewable energy sources as neighboring states such as Minnesota and Iowa. I will explain this issue in the paragraphs below.
 

Almost all electric utilities break their rate structure down into two fundamental areas. The first portion is used to recover “fixed costs.” This portion of the rate is used to recover the costs of all plant equipment, the operation and maintenance of the equipment and all debt service associated with its installation.


The second portion of the rate structure is used to recover “variable costs.” Variable costs are those costs mostly associated with the purchase and transportation of the actual energy-producing fuels. In other words, these are the costs associated with purchasing fuel for our generating plants such as coal, nuclear fuel and natural gas and also for the transportation costs, including rail and trucking costs. Variable costs are the same for each distinctive rate class since they are simply the cost of the raw material to produce the energy.

 

Industrial Customer Rates

Industrial customers use a smaller portion of the electric system than residential customers. As a result, the fixed costs that need to be recovered from industrial customers are less than for residential customers. In 2009, the District’s industrial customers purchased their energy at an average cost of 5¢ per kilowatt hour (kWh). Of that 5¢, approximately 2.5¢ was used to recover the District’s fixed costs, and the remaining 2.5¢ was used to pay for the variable costs.

 

Residential Customer Rates

The entire electric system is used to deliver energy to residential customers. Therefore, the recovery of the fixed costs from a residential customer per kWh is higher than for an industrial customer. In 2009, the District’s residential customers paid an average of 7.5¢ per kWh. Of that 7.5¢, approximately 5.0¢ was used to recover the District’s fixed costs and the remaining 2.5¢ was used to pay for the variable costs.

 

How would an intermittent renewable energy resource such as wind affect the recovery of the District’s fixed and variable costs? 

In my opinion, because the wind resource is intermittent by nature and therefore cannot be used to replace existing power plant capacity, we must look at this resource as a portion of our variable costs. Looking at the pie charts and replacing the existing variable costs with the variable cost of wind energy, estimated at 8¢ per kWh, you can see that it would raise the cost per kWh significantly both to our industrial and residential customers. In the case of our industrial customers, it would more than double the present cost per kWh. For example, if a Federal mandate were passed which required us to provide 20 percent of our energy from renewable energy sources, such as wind, our industrial customers would see a 22 percent overall increase in costs. Taking that same example and applying it to residential customers, providing 20 percent of energy from wind would result in a 14.5 percent increase in their costs.

 

Why do we see so many wind turbines in states such as Iowa and Minnesota? Why does it work there and not here?

Nebraska is unique in that we are the only totally not-for-profit public power state in America. Electric costs are passed to consumers at low, cost-of-service rates and local utilities put consumers — not stockholders — at the forefront of decisions. As a result, electricity costs in Nebraska are well below the national average and ranked the 7th lowest as of December 2008. 

 

Due to our public power status, Nebraska utilities are not able to benefit from the renewable energy incentives and subsidies available to private utilities. As a result, we are cautious to add additional generation resources from traditional and/or renewable sources, as all costs are passed on to our consumers. Today, Nebraska’s power generation portfolio has excess capacity which is sold to outstate markets. Our generation includes a mix of statewide resources including coal, nuclear, natural gas, diesel/oil, wind, hydropower and methane. This diversity offers our public power utilities the flexibility to draw upon a variety of resources at the most economical times.

 

In comparison, private utilities are eligible to receive incentives to install renewable energy sources. For example, a utility located in Iowa could receive the following incentives to install wind generation:

 

1. A 2.2¢ per kilowatt hour Federal Tax Credit

2. An accelerated depreciation bonus

3. Property tax abatement

4. State income tax breaks

5. A 12.2 percent return on investment by the Iowa rate commission

 

Simply put, because Iowa utilities are private, they can take advantage of all the mentioned tax and rate incentives. These would bring the variable cost of wind energy from 8¢ per kWh to the mid-3¢ per kWh range. Nebraska utilities, being publicly owned, cannot take advantage of any of these incentives. Something to keep in mind, however, is that all Federal taxpayers, including all Iowa property taxpayers, pay for these rates to be subsidized.

 

I believe that the above example is an accurate depiction of the actual cost to Norris ratepayers to purchase intermittent renewable energy, with the estimate that the renewable project can produce variable energy costs at 8¢ per kWh. Several factors could change that would affect this analysis, which include a significant rise in the cost of conventional fuel sources, a development of significant energy storage devices for wind or solar, a depletion of excess generation capacity in the state, a Federal or State carbon tax, increased demand from surrounding markets for renewable energy, and the completion of large scale transmission projects which would enable transportation of this energy over great distances.

Norris Public Power District ©2010