Public Power Magazine

An Economic Engine


From the June 2013 issue (Vol. 71, No. 4) of Public Power

Originally published April 26, 2013

By Jeanne LaBella
Senior Vice President, Publishing
April 26, 2013
Loup Canal

Water diverted from the Loup River travels 35 miles down Loup Canal, through two powerhouses and exits into the Platte River. Photo courtesy of Loup Power District.

Nebraska proudly lays claim to its status as the only state that is all public power—if you include rural electric cooperatives in the definition of public power, which Nebraska does. The oldest of the state’s public power districts, Loup River Public Power District in Columbus, observes its 80th anniversary this year.

Loup’s remarkable 35-mile-long canal, which supports two hydroelectric generating plants, is recognized by the Nebraska Community Improvement Program as a top-20 “Project of the Century” for the 20th century. The entire hydroelectric system and some specific individual portions of it are listed on the National Register of Historic Places.

Not only is Loup first among public power districts in Nebraska. It is also first among member utilities of the American Public Power Association. Loup was one of the founding utilities of the national association.

A strong foundation

Harold Kramer, one of three founders of Loup and its first general manager, attended the Sept. 12, 1940, meeting in Washington, D.C., when representatives of public power utilities from across the country who were meeting in the nation’s capital to discuss war production needs broke away to discuss formation of a national association.

APPA was formally incorporated the following month. In 1942, Kramer came to Washington for six months, on loan from Loup, to serve as the association’s first general manager. Kramer and Loup stood the national association on its feet.

Kramer, Columbus businessman Phil Hockenberger and pharmacy owner Charles B. Fricke are credited with leading the effort in the early 1930s to construct the Loup Power Canal and form Loup River Public Power District. Kramer also led efforts to organize Consumers Public Power District, which once sold at retail the electricity produced by Loup.  He also helped establish Omaha Public Power District and Nebraska Public Power System, which later became Nebraska Public Power District.

Loup today serves 18,500 retail customers—14,600 residential and 3,900 commercial and industrial. Fifty-five percent of the utility's 230-MW load is industrial. Columbus, where Loup is headquartered, is a manufacturing mecca on the Great Plains.

According to statistics maintained by Indiana University’s Kelley School of Business, 30 percent of all jobs in the Columbus/Platte County area are in manufacturing. Columbus has the highest number of manufacturing jobs per capita of any city in Nebraska, said Loup President and CEO Neal Suess. The U.S. national average manufacturing jobs per capita is 9 percent, according to the Kelley School database.

Archer Daniels Midland is the utility's largest customer, with a 125-MW load. Other large employers are BD Medical Pharmaceutical Systems, a maker of medical devices; Behlen Manufacturing, which makes steel buildings for agricultural needs; and CAMACO, which makes automotive seats and frames.

Economic development has been part of Loup's three-part mission throughout its history. Columbus established its first industrial park in the 1940s, in the years following World War II.  Throughout its history, Loup has purchased large tracts of land and primed them for industrial development. When companies looked for a place to locate, the utility had space and infrastructure in place well in advance of each manufacturer's go-live date.

Archer Daniels Midland's Nebraska ethanol plant

Archer Daniels Midland's ethanol production complex is Loup Power District's largest customer, with a 125-MW load. Photo courtesy of Loup Power District.

Symbiosis with sand

Today, the utility’s staff takes pride in its ability to build electric infrastructure to meet industrial needs. Preferred Sands, one of Loup’s newer industrial customers, has a symbiotic relationship with the utility.  Water diverted from the Loup River is dredged to remove sand and silt before it begins its 35-mile journey down the Loup Power Canal and through the utility’s Monroe and Columbus powerhouses before entering the Platte River. Decades of dredging led to accumulation of a 400-acre sand pile—40 million tons of sand that sit near the settling basin at the canal’s headworks. About seven years ago, Loup reached an agreement with Preferred Sands.  The company processes the sand for oil industry use in hydraulic fracturing.

The confluence of circumstances that led to creation of a significant new industrial customer is remarkable. “All the great planning doesn’t make up for dumb luck,” said Ronald Ziola, engineering vice president for Loup. “You’ve got a pile of sand that’s 40 to 90 feet deep; it’s got a rail spur right next to it and there was 110 acres of ground that somebody was ready to sell.” 

It might look like divine intervention, but economic development is knitted into Loup’s mission, along with provision of low-cost, reliable electricity and a pledge to make maximum use of the waters of the Loup River.

When Preferred Sand began constructing its sand processing plant in the small town of Genoa in April 2007, the company told Loup it would need electricity by November. Loup’s engineering and operations teams set to work and had facilities in place by September. That instance was typical.  Whenever David Bell, vice president for development and marketing, approaches Ziola and Operations Vice President Kendall Christensen with news of a new customer or a plant expansion, they respond: “Tell us when and where. We don’t care whether it’s an 80-MW 400-person facility, or a small subdivision in the town of Petersburg,” Ziola said. “We can do a lot of it in-house. We meet schedules that a lot of companies our size would struggle with.”

Loup President CEO Neal Suess

Loup Power District President & CEO Neal Suess stands near a $6 million automated dredging facility at the Loup Canal headworks that began operating in 2012. The equipment replaced original dredging machinery installed in the 1930s. Photo courtesy of Loup Power District.

Loup purchases and holds land for industrial development so it can respond nimbly to manufacturers’ needs.  When Archer Daniels Midland wanted to expand production of ethanol at its Columbus plant from 80 to 375 tons per year, Loup sold 140 acres of land, complete with access to gas, water and electricity.

The collection of manufacturers in Loup’s service territory is diverse, so jobs are not all tied to one or two major industries. In 2008, when the U.S. economy was sliding into a recession and national unemployment was escalating, the unemployment rate in Columbus was 1.9 percent. Economists debate the level of employment that represents normal churn, but unemployment rates of 4 to 5 percent are often characterized as “full employment.” 

The Columbus area was not losing jobs—it needed more people to keep the local economy in motion.  To bring new people to the city and surrounding areas, the Columbus Chamber of Commerce launched a “Drive for Five” campaign, aimed at convincing at least 500 people to move to Columbus.

“Our manufacturers were stealing (employees) from each other, they were tired of that,” said Suess. A full-time coordinator for the Drive for Five campaign visited colleges and reached out to people in Midwestern communities where manufacturing plants were closing down.  After three years, the campaign succeeded in growing the local population by 600.  The population growth program remains in effect today.

“When the economy really does start growing again, our guys are going to start really rebounding and increasing production, building, expanding and we want to be up front and be ready to go when it happens,” said Suess.

Reorganization, relicensing and requirements

Loup serves retail customers in incorporated areas of four east-central Nebraska counties: Boone, Colfax, Nance and Platte. Cornhusker Public Power District serves rural areas of the counties. That service territory dichotomy is a residual effect of a tense restructuring of Nebraska’s electric utility industry in the early 1970s.

The reorganization occurred after state legislators threatened to impose a consolidation plan if the utilities did not work out bitter differences that had erupted among them. Prior to the reorganization, Loup was a statewide organization that owned transmission and generation, said Suess.  With the merger of Nebraska Public Power System and Consumers Public Power District into what is today Nebraska Public Power District, Loup shed all of its generating assets, except the original hydroelectric system, and got out of the power production and wholesale provider business.

Loup now focuses chiefly on retail service. All power produced at its original hydro project is sold to NPPD and Loup today is a full-requirements wholesale customer of NPPD.  Loup continues to supply wholesale power to two small cities, Schuyler and Leigh. To outsiders, a consolidation of Loup and Cornhusker PPD might make sense, but merging power districts is like merging school districts—consumer-owners are reluctant to let go of local control.

Loup's Hydro Licensing Application
Relicensing a hydroelectric project is vastly more complex than it was prior to enactment of the Electric Consumers Protection Act of 1986. Photo courtesy of Loup Power District.

One of the greatest challenges confronting Loup today is the relicensing of its hydro system. The current license, issued in 1984, will expire next year. Hydro licensing today is starkly different from the regime in place in 1984.

In 1986, Congress passed the Electric Consumers Protection Act, a bill undertaken initially to address the preference rights of public entities in relicensing of hydro projects. The law eliminated municipal preference on relicensing, a major blow to public power. It was also the law that placed hydro power outside of the renewables club.

ECPA expanded the Federal Energy Regulatory Commission’s role in hydro licensing by mandating extensive review of the environmental impact of hydro projects. State and federal fish and wildlife agencies assumed a prominent role in licensing proceedings and FERC was directed to assess every hydro project’s impact on water quality, recreation, land use, local communities and cultural resources.

Loup staff today who worked on the 1984 relicensing effort feel overwhelmed by the 1986 requirements. Work on the relicensing project has been underway since 2007 and the utility has spent $7 million to date on environmental assessments and other consulting.

“It is costing us more to relicense our hydroelectric projects this time than it did to build the powerhouse and the canal back in the 1930s,” said Suess.

Habitats for two bird species, the endangered “interior least tern” and the threatened “piping plover,” are impacted by the project.  Since 1988, Loup has worked with U.S. Fish and Wildlife Service and the Nebraska Game and Parks Commission to protect nesting areas for the birds.

Wholesale market issues are putting pressure on Loup and other Nebraska utilities. NPPD, Loup’s full-requirements supplier, has ample base load generating capacity and participates in the market run by the Southwest Power Pool, a federally chartered regional transmission organization. When market prices for wholesale power are high, NPPD can sell surplus power and provide a revenue credit back to Loup and other wholesale customers, Suess said. But prices recently have been low, reducing NPPD’s revenue stream and forcing the supplier to collect higher rates from its native-load customers, he said.

The expansion of wind energy has altered the all-public power makeup of Nebraska’s electric utility industry. Federal investment tax credits for wind energy are available only to private companies. Nebraska has the fourth or fifth largest potential for wind energy, said Suess.  However, the lack of a public entity incentive comparable to the production tax credit for wind has limited wind energy development in the state. “I think we’re 26th or 27th in the amount of wind that we have in the state,” Suess said.

The incursion of for-profit wind generators into Nebraska’s all-public power electricity industry has raised concern about the utility industry’s future makeup among Loup policymakers and others in the state.  The Loup board of directors examined the issue during a strategic planning process last year.

The challenge is fundamentally an economic one and thus one that the Loup River Public Power District, born during the Great Depression, is well positioned to address. The utility has grown and evolved throughout its 80-year history to support a thriving economy in Nebraska. It will, no doubt, continue in that vein.

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