US Uncut is Wrong about Nebraska Public Utilities

Blog Post - US Uncut is Wrong about Nebraska Public Utilities

MISLEADING CLAIM: "Nebraska ended their private utility model in favor of publicly owned. That’s why they now have extremely low cost electricity." This claim was made in an article authored by the founder of US Uncut. It’s misleading for a few reasons. Let’s take a look with more in-depth analysis.

COST OF LIVING: Nebraska has the 7th lowest cost of living in the country. ALL of the lower cost states, except Kentucky, have lower utilities indices. Therefore, it's fallacious to conclude that Nebraska has cheap electricity "BECAUSE of publicly owned power," when that's largely attributed to the purchasing power of USD across the entire statewide economy. In other words, if ALL things are cheaper than the national average in Nebraska, it shouldn't be surprising that electricity is as well. That's partly why electricity was ALREADY relatively inexpensive in Nebraska.

What's also misleading is the suggestion that this "relatively" cheap electricity is "one of the cheapest." It may seem like semantics, but the distinction matters, because if numerous private competitors are out performing the now publicly run entity, then it's not necessarily an example of superior ideology. According to Nebraska's government, the state ranks 15th in cents per kilowatt-hour. While that's not bad, it's NOT “one of the lowest electricity costs" as US Uncut implied. Matter of fact, of the states below the national average, Nebraska is roughly in the middle. In this circumstance, therefore, low cost cannot be considered a function of who owns the utility.

PROFIT MOTIVE: There seems to be a misconception that, by removing profit motives, customers will suddenly have better service. IF this were true (it’s not), then one would think Nebraska Public Power would be an altruistic company that breaks even every year. That’s hardly the case. Their CEO makes about 2.5X the national average for CEO pay. If NPPD were purely about the service, it stands to reason that executives would have more average compensation. NPPD, however, cannot retain top talent in the electric utility industry without competitive CEO pay. Their new CEO didn’t come there because he wants to altruistically give everyone power.

Even with the CEO pay, that does not mean they “don’t include profit in their prices." As it turns out, they are not a break even, non-profit entity. After subtracting operating expenses from revenue, NPPD made $164,000,000 in 2013. Furthermore, their average revenue per kwh has been steadily rising, while operating expenses have remained relatively even. This coincides with Nebraska’s economic development, gradual rise in cost of living, and increases is income – all determinants of demand for utilities.

Also noteworthy? NPPD is NOT the only publicly owned utility provider. In the United States, 61% of utilities are publicly owned. In Gibson's article, the author implies that “big investor" owned utility companies are not economically or socially desirable means of providing power. However, "big investors" only own 5.8%, but provide electricity to 68.5% of customers, which is quite the impressive ratio all things considered. Publicly owned utilities supply 14.4% of customers. It’s worth mentioning that California, which has the highest kwh price, has 25% of their electricity supplied by publicly owned companies.

But has public management failed the consumer? Let’s take a look at NPPD’s cost obligations and practices. In theory, profit-generating firms that are publicly owned should give said profits back to the treasury. In the last year, however, NPPD authorized $6 million in raises and a significant portion went to executives and board members. Furthermore, the American Council for Energy Efficient Economy consistently ranks Nebraska and NPPD in the BOTTOM THIRD for efforts to be more energy efficient, which indicates a lack of innovation and desire for investment. The Center for Rural Affairs notes that, in order to keep a major power station open in Shelton, NPPD has to shell out $223 million in capital or risk accumulating losses of roughly $1.4 billion through 2024.

CONCLUSION: Many claims of “state Y has X, therefore Z”, can easily be debunked to show that the attributed cause is falsely concluded to be the result of something entirely unrelated. Nebraska has low electricity cost because it has a low COST OF LIVING. Many of the other states with similarly low costs of living have low kwh prices that are supplied by privately owned corporations. The difference in price is completely unrelated to who owns it since, as we have shown, both entities possess similar characteristics – competitive CEO pay, revenue exceeding expenses, and growing price with demand. Although remaining profitable, NPPD has given much of that money back to itself while failing to address costly needs of failing power stations.

There is NO clear or determined NET BENEFIT to Nebraska having had changed to a publicly owned model.

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