Since the breaking news that Costco Wholesale and Lincoln Premium Poultry set their sights on the Hills Farm property just south of Fremont, concerns raised about impacts on the city’s utility resources, revenues and the financial side of potential expansion to accommodate Costco’s facility, prompted some to question the proposal.
However, according to Fremont officials, business leaders and others working for the state of Nebraska, Costco’s arrival in the Fremont area may represent prosperous opportunity for water, sewer, gas and electric services.
“In a nutshell, this is a once-in-a–lifetime opportunity for utilities to grow,” said Fremont Department of Utilities General Manager Brian Newton.
Courtney Dentlinger, Director of the Nebraska Department of Economic Development concurred with Newton. She holds experience from municipal environments similar in size to Fremont.
“Large users (like Costco) can actually help keep (utility) fees low for community residents,” Dentlinger said.
Dentlinger admitted that effects work on a case by case basis because every community represents a unique situation. But because communities fund their utilities through the base fees they charge, only by adding more customers/users can cities generate more revenue for those services.
“If you don’t have additional users coming on, with additional revenue, it’s difficult to make upgrades to the system without increasing rates,” Dentlinger added.
Newton expanded, saying that because Costco’s facility would represent such a large customer, growth in utilities would occur in all four sectors: water, gas, sewer and electric.
Illustrating his point, Newton contrasted a large commercial or industrial customer to the city-wide residential use of electricity. Residential usage creates two peaks of usage per day. One occurs in the morning when people wake up, flip on the lights, turn on the news, jump in the shower and make their breakfast. Then usage drops and remains flat throughout the day as children go off to school and parents spend their days at work. In the evening, usage peaks again as the family returns home. Such usage represents a small “load curve.”
On the other hand, large industrial and commercial customers, such as a large-scale poultry processing operation running a 24-hour facility, show a load curve that rises up in the morning and remains at that high usage level all day before dropping off in the evening when the night shift arrives. Such facilities are called a “flat level consumers,” representing very good sources of revenue for utilities.
Detailing the numbers, Newton said Fremont’s annual electricity revenue currently sits at about $40 million. Based on operational estimates provided by Costco, the facility would increase electrical sales (measured in megawatts) by 14 percent annually over the current city usage. That 14 percent increase equates to a 10 percent increase in revenue – in other words, an extra $4 million per year in revenue.
Additionally, no new, expensive system upgrades would be required to accommodate that increased energy need for Costco. The three main electrical generators spinning away inside Fremont’s power plant can generate a supply of 128 megawatts of electricity. According to Newton, on a the hottest day of the year the city currently peaks out at about 100 megawatts of needed electricity, a good 28 megawatts below the capacity. Additionally the city possesses two back up sources of energy in in case of emergency. Those sources, the backup gas turbine and the Southwest Power Pool grid, provide an additional 100 megawatts.
Costco energy usage would only represent an additional 10 megawatts increase, still far below Fremont’s 128 megawatt capacity – not including backup sources. Those 10 megawatt add surplus revenue at no significant increase in expenses.
The story paints a similar picture in gas and water. Both sectors see significant revenue increases. Gas increases by 5 percent and water by 25 percent.
The city of Fremont currently falls under a consent decree (court order) from the Nebraska Department of Environmental Quality to resolve issues related to an out of date waste water treatment plant. Newton said the Fremont DU continues to work with the DEQ on mandatory upgrades to the system for completion by 2019, when the Costco plant reaches full operation.
“This (Costco facility) could be a good thing to have,” Dentlinger said. “A larger user coming on (could) actually fund the upgrades that Fremont needs (in its sewage treatment facility).”
STABILIZING AN INCREASE IN UTILITY RATES.
Newton also stressed that utility sales (i.e. the electricity, sewer, gas and water service the city sells to its citizens and other customers) across the board have remained flat since about 2006. At the same time, the cost of supplying those services (labor, insurance, and every other product purchased to maintain those services) continue rising.
“When we don’t sell any more (commodity) but costs continue to rise, we have to increase rates,” Newton said.
The gap between the stagnant level of sales and the rising costs of supplies results in the need to increase utility rates in order to maintain a revenue that allows for supplies and upgrades.
“By adding a large customer, (the city) will have a larger pie to split those costs over,” Newton said. “I’ve been in this business for 30 years and this is the first time we’ve ever been fortunate enough to get somebody like Costco to come in.”
Mayor Scott Getzschman agreed that spreading the costs over a larger number of customers, without the need for significant upgrades, creates a stabilizing effects on the increase in rates.
“When you look at the revenue provided by the utility sales to Costco, it equates to about 10 percent of our current revenue stream,” Getzschman said. “Those fund would go a long way to pay for some of the indebtedness projects we’ve done.”
Some of those projects referred to by the mayor represent the updates mandated by new regulations on energy diversification by the Environmental Protection Agency. Those upgrades cost the city approximately $78 million. The Mayor stressed that Costco’s arrival can help pay back some of those investments while keeping utilities rates from rising.
Aside from financial, Newton also pointed to other benefits. The installment of covered lagoons near the Costco sight for facility waste capture, much of which results from the organic byproduct of processing a chicken (e.g. unused parts), will reduce stress in other areas of Fremont’s waste water system. For example the main sewer line that runs beneath Morningside road, transferring waste from throughout the city to the treatment plant would see a great reduction in stress thanks to additional lines primarily serving industrial sources from Costco and possibly Hormel.
The lagoons solely serve industrial facilities (not residential). They would also capture methane to resell to the processing facility as energy.
In addition, new water lines will allow for increased pressure to better serve Inglewood Village in South Fremont. New gas lines will also create increased capacity.