In re Application of Northeast Neb. Pub. Power Dist. Northeast Nebraska Public Power District et al., appellants, Nebraska Public Power District, appellee.
Nebraska Power Review Board: Arbitration and Award:
Appeal and Error. On an appeal from the decision of
an arbitration board convened under Neb. Rev. Stat. §
70-1301 et seq. (Reissue 2009), trial in the appellate court
is de novo on the record.
Nebraska Power Review Board: Arbitration and Award:
Evidence: Appeal and Error. Despite de novo review,
when credible evidence is in conflict on material issues of
fact, the appellate court will consider and may give weight
to the fact that the arbitration board under Neb. Rev. Stat.
§ 70-1301 et seq. (Reissue 2009) observed the witnesses
and accepted one version of the facts over another.
Jurisdiction: Appeal and Error. Before
reaching the legal issues presented for review, it is the
duty of an appellate court to determine whether it has
jurisdiction over the matter before it.
__:__. An appellate court has an independent duty to decide
juris- dictional issues on appeal, even if the parties have
not raised the issue.
Jurisdiction: Words and Phrases. Subject
matter jurisdiction is the power of a tribunal to hear and
determine a case in the general class or category to which
the proceedings in question belong and to deal with the
general subject matter involved.
Jurisdiction. A lack of subject matter
jurisdiction may be raised at any time by any party or by the
court sua sponte.
Jurisdiction: Appeal and Error. When a trial
court lacks the power, that is, jurisdiction, to adjudicate
the merits of a claim, an appellate court also lacks the
power to adjudicate the merits of the claim.
Arbitration and Award: Jurisdiction:
Statutes. An arbitration board under Neb. Rev. Stat.
§ 70-1301 et seq. (Reissue 2009), as a creature
Neb. 238] of statute, has only such authority as has been
conferred upon it by statute.
Statutes: Legislature: Intent. Components of
a series or collection of statutes pertaining to a certain
subject matter are in pari materia and should be
conjunctively considered and construed to determine the
intent of the Legislature, so that different provisions are
consistent, harmonious, and sensible.
Public Utilities. Persons receiving similar
service from a public power district under similar
circumstances cannot be charged for such service in an
arbitrary, designed, dissimilar manner.
Contracts: Parties. The implied covenant of
good faith and fair dealing exists in every contract and
requires that none of the parties to the contract do anything
which will injure the right of another party to receive the
benefit of the contract.
___: ___. The nature and extent of an implied covenant of
good faith and fair dealing are measured in a particular
contract by the justifiable expectations of the parties.
Where one party acts arbitrarily, capriciously, or
unreasonably, that conduct exceeds the justifiable
expectations of the second party.
__:__.A violation of the covenant of good faith and fair
dealing occurs only when a party violates, nullifies, or
significantly impairs any benefit of the contract.
from the Power Review Board.
D. Davidson and David C. Levy, of Baird Holm. L.L.P., for
Johnson and Corey Wasserburger, of Johnson, Flodman, Guenzel
& Widger, and John C. McClure, of Nebraska Public Power
District, for appellee.
Heavican, C.J., Cassel, Stacy, and Funke, JJ., and Steinke,
our first opinion addressing an appeal from an arbitration
board's decision under Neb. Rev. Stat. §§
70-1301 to 70-1329 (Reissue 2009). After Nebraska Public
Power District (NPPD) provided a discount to wholesale
customers [300 Neb. 239] who renewed their contractual
relationship, some nonrenewing customers initiated statutory
arbitration. They alleged that the discount was
discriminatory and an abuse of NPPD's statutory
rate-setting authority,  but the arbitration board disagreed.
Upon our de novo review, we conclude that the discount was
reasonable and not arbitrary and that it did not breach the
contract or the covenant of good faith. Accordingly, we
affirm the arbitration board's decision.
Overview of Wholesale
public policy is to "provide adequate electrical service
at as low overall cost as possible, consistent with sound
business practices." To further that policy, "electric
service should be provided by nonprofit entities including
public power districts, public power and irrigation
districts, nonprofit electric cooperatives, and
municipalities." Public power districts are required by law
to fix rates which are fair, reasonable, and
1979, the Legislature enacted §§ 70-1301 to
70-1329to provide a method to quickly and fairly
resolve wholesale electric rate disputes. If a wholesale
purchaser elects to dispute a portion of the wholesale
electric charge established by a supplier and the dispute
remains unresolved 45 days after the supplier receives
written notice of the dispute, the dispute shall be submitted
to arbitration. The arbitration board is [300 Neb. 240]
composed of three members: one selected by the purchaser, one
selected by the supplier, and a third selected by the other
two arbitrators. At a hearing, the arbitration board hears
testimony and receives evidence relating to the
dispute. Within 30 days after completion of the
hearing, the arbitration board shall render a written
decision. And within 5 days of the date of the
decision, the arbitration board shall file the decision along
with all the pleadings and exhibits with the secretary of the
Nebraska Power Review Board.
who is unsatisfied with the arbitration board's decision
may appeal to reverse, vacate, or modify the
decision. To do so, the party must file a notice
of appeal with the Nebraska Power Review Board within 30 days
after the arbitration board's decision is filed with the
Nebraska Power Review Board. "Trial in the appellate
court shall be de novo on the record." As noted,
this is our first such decision concerning such an appeal
from the arbitration board. We now turn to the facts of the
public power district, derives the majority of its revenue
from wholesale power supply contracts with political
subdivisions in Nebraska. These wholesale power supply
contracts often are the largest single financial obligation
of the purchasing political subdivision.
appellants (hereinafter purchasers) are political
subdivisions engaged in the distribution of electricity to
retail electric customers. They are wholesale customers of
NPPD. [300 Neb. 241] Purchasers are parties to NPPD's
2002 wholesale power contract (2002 WPC).
2002 WPC included a 20-year term beginning on January 1,
2002. After December 31, 2021, the 2002 WPC would
automatically renew from year to year unless terminated with
5 years' notice by either party.
2002 WPC obligated wholesale customers to purchase their full
energy requirements from NPPD for the first 6 years of the
contract. After that point, a wholesale customer could limit
or reduce its purchases of demand and energy from NPPD in
varying amounts depending on the length of advance notice
provided to NPPD. To limit purchases meant that a customer
could continue to buy power in the same amount as on the date
of its notice to NPPD, but that it would not buy any future
growth in its electricity from NPPD going forward. To reduce
purchases meant that the customer could purchase less than
its full requirements from NPPD. The 2002 WPC imposed no fee
or rate increase in exchange for the privilege to limit or
reduce purchases. Each purchaser had given, or intended to
give, notice to NPPD of its intention to limit or reduce its
purchases, which reductions would commence at various times
on and after January 1, 2017.
2002 WPC listed different types of costs that NPPD was
authorized to include in its revenue requirement for
rate-setting purposes. One such cost was "amounts
reasonably required to be set aside in reserves for items of
costs the payment of which is not immediately required, such
as . . . post-retirement employee benefit reserves."
Thus, the 2002 WPC allowed NPPD to include in its revenue
requirements a reasonable amount to be set aside for other
postemployment benefits (OPEB). OPEB are benefits promised to
employees once they retire. They are unfunded liabilities
associated with past service.
2009, NPPD formed a contract strategy team to look at options
for extension of the 2002-era contracts. NPPD desired more
certainty in its revenue stream than that provided by [300
Neb. 242] the 2002 WPC. And NPPD believed that the provisions
of the 2002 WPC permitting customers to limit or reduce their
purchases would allow some customers to economically
2013, NPPD initiated negotiations to replace the 2002 WPC
with a new standard wholesale contract. The negotiations
resulted in a 20-year contract beginning on January 1, 2016.
and ending on December 31, 2035 (2016 WPC). A customer under
the 2016 WPC could not limit or reduce its purchases unless
NPPD failed to meet certain performance standards. NPPD
decided to charge extending and nonextending customers the
same general firm power service rate. But as an incentive to
get customers to execute a new contract, NPPD created a
discount for renewing customers. Thus, the 2016 WPC provides
a rate discount through December 31, 2021, at an amount to be
approved by the NPPD board of directors. Purchasers did not
execute the 2016 WPC.
Funding OPEB Obligation
to 2007, NPPD funded its OPEB obligation on a
"pay-as-you-go" basis. In 2007, the Governmental
Accounting Standards Board implemented Governmental
Accounting Standards Board Statement No. 45. This statement
required NPPD to use actuaries to calculate and identify its
unfunded OPEB liability and include those amounts in notes to
its financial statements. It allowed NPPD to amortize the
unfunded OPEB liability over a period up to 30 years. The
statement also introduced the concept of the annual required
contribution, which is the theoretical amount, if contributed
consistently each year, that would fully prefund future
retiree benefits associated with benefits earned for past
then explored its options for accounting and reporting of
OPEB. One was continuation of "pay-as-you-go." This
had the lowest impact on rates. However, because of a
perception that NPPD was not addressing the liability, it had
the potential for a negative response from rating agencies
and the investment community. Another option was to put the
annual [300 Neb. 243] required contribution into 1 year's
rates. That would mean adding approximately $36 million as a
revenue requirement in the rate-setting process and
collecting the full sum from customers in rates within a
1-year period. A third option was to borrow money toward the
OPEB liability. NPPD could borrow money, and the debt service
from the borrowing would be added into the revenue
requirements used to set rates.
point, NPPD adopted a plan to obtain additional funding in
rates. Under the plan, NPPD would continue on the
pay-as-you-go basis for 2007. Through rates, NPPD would
collect $4 million over the pay-as-you-go amount between 2008
and 2013, and then $10 million above the pay-as-you-go amount
thereafter. The money would fund an OPEB trust, which was
projected to be fully funded by 2033.
2011, actuarial studies showed that NPPD would need to
contribute more in order to have the liability funded by
2033. NPPD decided to accelerate the collection of the OPEB
liability to the 6-year term remaining in the 2002 WPC.
Otherwise, based on purchasers' notifications of
reductions, purchasers would be able to avoid 40 percent of
their pro rata share of the OPEB obligation. NPPD estimated
the liability to be $155 million. To collect that amount over