A Closer Look: What Neligh's Generation Plant Really Creates

Editor’s Note: At the June 25 town hall meeting, questions were raised on the cost of Neligh’s generation plant, along with fees paid to McNally Law Office during that time. The Antelope County News investigated both and looked into the financial reports of energy use for the City of Neligh. 

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At the west edge of Riverside Park in Neligh sits a $3.2 million bio-diesel generation plant used to create what is generally known as green energy. In all reality, its biggest product for the City of Neligh is another type of green - money.

While Neligh’s generation plant does in fact create energy, it is considered a backup for the community. At each City Council meeting, generation supervisor Josh Capler confirms the generation station was tested and is ready to be used in case of an emergency. 

But, on about 29 days of each month, this green energy tool spends its time unused and silently saving thousands of dollars each month.

Since construction was completed in early 2012, the generation plant has saved residents nearly $1 million, simply because the City of Neligh has the ability to produce its own energy. More specifically, having the generation station in place saves the City of Neligh on average $22,794.42 each month, according to financial documents. 

How Does It Save Money?
Producing electricity from bio-diesel is expensive and not economical on a daily basis, which is why the City of Neligh doesn’t use the plant often. But because the City has the means to produce its own electricity, it can now purchase economy energy on its own, rather than paying the demand charge issued by Nebraska Public Power District.

The month prior to the generation plant being used (March 2012), the City of Neligh paid NPPD a demand charge of $42,407.95. In April 2012, that charge was eliminated as Neligh began purchasing energy on its own.

Of course, in building a $3.2 million structure, there are bond payments each month. After all payments and costs were subtracted - including the $17,500 bond payment - in April 2012, the City of Neligh came out ahead $22,369.45 in that month alone.

The City of Neligh receives a month by month financial report on the savings of having the plant. The report is based on the charges that the City would have to pay if they had a wholesale contract with NPPD.

During the first 12 months of operation, Neligh had a net savings of $123,652.48. The next 12 months was $305,748.12. The third 12 months was $388,507.07. Neligh is currently two months into the fourth 12 months and has saved $48,280.63 to date.

The City of Neligh did not hire any additional employees due to the creation of the generation plant. Josh Capler is trained to operate the facility and has trained the other electric employees to operate the plant in his absence.

The Original Proposal
In reviewing the original proposal of the plant, this was a six-year project for Neligh, including three years of concept work. The idea stemmed from a hog farmer in Colfax County, who wanted to utilize methane gas produced by his hogs to produce energy. He could produce more than he needed and wanted to sell the excess energy to NPPD.  

As a public power state, the farmer needed approval of the Nebraska Power Review, which asked for an opinion of the Nebraska Attorney General as to whether they had power to approve the application. The Attorney General’s opinion stated that if a small, renewable energy project was approved by the Federal Regulatory Commission (FERC), then the state board would accept that certification and not undertake to regulate such projects.

That opinion actually opened the door for the City of Neligh to seek approval through FERC because the Nebraska Power Review Board would in turn have to approve the project.

James McNally, who serves as city attorney for Neligh, worked with his son Joe for approval through FERC for green energy production, which was granted in the later part of July of 2010. On Aug. 4, 2010, they received approval of the Nebraska Power Review Board. 

After Neligh’s mayor and city council approved the project. An engineer was needed to prepare the plans and specifications of the project. McNally’s firm negotiated a contract with Olssen and Associates for approximately $200,000, which was just two-thirds of their normal fees.

Fees Paid To McNally
Records indicate McNally Law Office was paid $80,000 in fees for their work on the generation station or about 2.5 percent of the project cost.

The project took over six years from start to finish, and McNally Law Office was not paid until the project was complete, according to records. The $80,000 was paid over a two-year period.

McNally estimated that through negotiations with the engineer alone, his office saved the City of Neligh over $100,000. That includes the engineer’s fee and his fees. The City of Neligh could have hired an outside counsel instead, but that would have been a price which would have been greatly in excess of what the city paid. “Also, any outside attorney would have had to redo the research that Joe and I had done over the previous three years,” he said.

When asked how he felt about the accusations issued at the town hall meeting, McNally admitted it was difficult but said people are concerned about their taxes, and that’s understandable. However, criticizing officials for saving residents money doesn’t make sense.

“Yes, it was difficult, but it goes with my job. What I hate the most is that the opponents of annexation are trying to use these fees as evidence of the mayor and council’s lack of accountability,” he said. “In my view, the mayor and council, and the previous mayor and council, have shown extraordinary foresight and intestinal fortitude in making this biodiesel decision.”

Why Not More Generation Plants?
If Neligh’s generation plant is so revolutionary, why aren’t more communities in Nebraska doing the same thing? McNally said more would if they could. Most area towns have long-term contracts with the local REA’s or NPPD and can’t consider alternative sources of power while those contracts are outstanding. 

McNally said the City of Neligh recognized the window of opportunity due to the hog farm case and instead of signing a 15-year contract with NPPD, signed a five-year contract and gave notice that it would not be renewing after that expired. The City used that five-year window to install their generation.

It should be noted, however, that it was recently announced that South Sioux City, Wayne, Wakefield and the Northeast Nebraska Public Power District plan to contract with other generators for future power when their current contract expires.

Cost of Electrical Rates
At the mayor’s June town hall meeting, complaints were waged about Neligh’s electrical rates. There are four utilities that cover the Neligh area - City of Neligh, North Central Public Power District (NCPPD), Elkhorn Rural Public Power District (ERPPD) and NPPD. The average residential monthly service charge for the utilities is $16.62.

All of the utilities charge within $1.50 per month of each other, except for NPPD. Monthly single phase residential rates for each are as follows: ERPPD $15, NCPPD $16, City of Neligh $16.50 and NPPD $19.

As for an overall comparison, all of the utilities charge differently by usage, making an apples to apples comparison difficult between the four companies. 

Through the energy savings from having the generation plant, Neligh’s Electrical Department puts an excess of $130,000 into the general fund each year to assist in budgeting.

According to City Clerk Dana Klabenes, this funding goes toward many items, including the full-time police force, city parks, library and other entities that do not generate income. Without the funding from the electrical department, the tax levy in Neligh could potentially be higher than it is currently.

The City of Neligh tax levy is currently .893 and has a bond of .407 for streets and other projects. These bonds are not from construction of the generation plant, Klabenes said. That bond is directly from electrical rates. 

In comparing tax levies with area communities, Tilden’s levy is .819 and includes .397 toward bonds. That’s a levy of 42 cents without its bonds.

When excluding its bond, Neligh’s tax levy is roughly 48 cents. Elgin’s levy currently is .47, Creighton’s is .47, Clearwater’s is .49 and Plainview’s is .61.