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IN RE APPLICATION OF CITY OF NELIGH

Cite as 299 Neb. 517

In re Application of City of Neligh, N

City of Neligh, Nebraska, appellee, v

Elkhorn Rural Publi

District, appel

___ N.W.2d ___

Filed March 30, 2018. No. S-17-433.

1. Nebraska Power Review Board: Appeal and Error. A decision of 

the Nebraska Power Review Board will be affirmed if it is supported 

by the evidence and is not arbitrary, capricious, unreasonable, or otherwise illegal.

2. Statutes: Appeal and Error. The meaning of a statute is a question of 

law, and a reviewing court is obligated to reach conclusions independent 

of the determination made below.

Appeal from the Power Review Board. Reversed and 

remanded for further proceedings.

David A. Jarecke and Ellen C. Kreifels, of Blankenau, 

Wilmoth & Jarecke, L.L.P., for appellant.

David C. Levy and Krista M. Eckhoff, of Baird Holm, 

L.L.P., and Joseph McNally, of McNally Law Office, for 

appellee.

Heavican, C.J., Cassel, Stacy, and Funke, JJ., 

and Arterburn, Judge

Heavican, 

INTRODUCTION

The City of Neligh, Nebraska (Neligh), filed an application 

with the Nebraska Power Review Board (Board) seeking to 

Nebraska Supreme Court Online Library

www.nebraska.gov/apps-courts-epub/

03/30/2018 08:12 AM CDT
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transfer two newly annexed territories from the Elkhorn Rural 

Public Power District (ERPPD) to Neligh’s electrical service 

area and to have the Board determine the total economic 

impact of the transfer to the ERPPD. The Board transferred 

the service and assessed the economic impact at $490,445.90. 

ERPPD appeals. We reverse the decision and remand the cause 

for further proceedings.

BACKGROUND

Relevant Statutes.

Neb. Rev. Stat. § 70-1008(2) (Reissue 2009) provides:

A municipally owned electric system, serving such municipality at retail, shall have the right, upon application to 

and approval by the board, to serve newly annexed areas 

of such municipality. Electric distribution facilities and 

customers of another supplier in such newly acquired 

certified service area may be acquired, in accordance with 

the procedure and criteria set forth in section 70-1010, 

within a period of one year and payment shall be made 

in respect to the value of any such facilities’ customers 

or certified service area being transferred. The rights 

of a municipality to acquire such distribution facilities 

and customers within such newly annexed area shall be 

waived unless such acquisition and payment are made 

within one year of the date of annexation. If an application is made to the board within one year of the date of 

annexation for a determination of total economic impact 

as provided in section 70-1010, such right shall not be 

waived unless the municipality fails to make payment of 

the price determined by the board within one year of a 

final decision establishing such price. Notwithstanding 

other provisions of this section, the parties may extend 

the time for acquisition and payment by mutual written agreement.

Neb. Rev. Stat. § 70-1010 (Reissue 2009) further provides:

(1) The board shall have authority upon application 

by a supplier at any time to modify service areas or 
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customers to be served as previously established. The 

same procedures as to notice, hearing, and decision shall 

be followed as in the case of an original application. 

Suppliers shall have authority by agreement to change 

service areas or customers to be served with the approval 

of the board. This section shall not apply to agreements 

referred to in subsection (2) of section 70-1002.

(2) In the event of a proposed transfer of customers 

and facilities from one supplier to another in accordance 

with this section or section 70-1008 or 70-1009, the parties shall attempt to agree upon the value of the certified service area and distribution facilities and customers 

being transferred. If the parties cannot agree upon the 

value, then the board shall determine the total economic 

impact on the selling supplier and establish the price 

accordingly based on, but not limited to, the following 

guidelines: The supplier acquiring the certified service 

area, distribution facilities, and customers shall purchase 

the electric distribution facilities of the supplier located 

within the affected area, together with the supplier’s 

rights to serve within such area, for cash consideration 

which shall consist of (a) the current reproduction cost if 

the facilities being acquired were new, less depreciation 

computed on a straight-line basis at three percent per year 

not to exceed seventy percent, plus (b) an amount equal 

to the nonbetterment cost of constructing any facilities 

necessary to reintegrate the system of the supplier outside 

the area being transferred after detaching the portion to 

be sold, plus (c) an amount equal to two and one-half 

times the annual revenue received from power sales to 

existing customers of electric power within the area being 

transferred, except that for large commercial or industrial 

customers with peak demands of three hundred kilowatts 

or greater during the twelve months immediately preceding the date of filing with the board, the multiple shall be 

five times the net revenue, defined as gross power sales, 
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less costs of wholesale power including facilities rental 

charges, received from power sales to large commercial 

or industrial customers with measured demand of three 

hundred kilowatts or greater during the twelve months 

immediately preceding the filing with the board for service area modification. After the board has determined the 

price in accordance with such guidelines, the acquiring 

supplier may acquire such distribution facilities and customers by payment of the established price within one 

year of the final order.

Factual and Procedural 

Background.

On July 14, 2015, Neligh passed ordinances Nos. 578 and 

579, annexing areas to the north and the south of Neligh. On 

July 13, 2016, Neligh filed an application under § 70-1008 to 

transfer these territories from the ERPPD, which had provided 

electrical service to those areas, to an electrical service area 

operated by Neligh. As part of that application, Neligh sought 

to have the Board assess the economic impact of the transfer 

to ERPPD.

A hearing was held on January 27, 2017, to determine the 

total economic impact of the proposed transfer and the compensation owed to ERPPD by Neligh under § 70-1010. The 

parties stipulated that Neligh owed $490,445.90 for the loss 

of the service area, customers, and facilities inside the south 

annexation, as well as a partial amount owed for reintegration costs. As relevant to this appeal, the issue presented at 

this hearing was what compensation was due to ERPPD under 

§ 70-1010(2)(b) for remaining reintegration costs in the south 

annexation area.

The substation in question is substation 71-18, located outside the south annexation area but near the southeast edge of 

the annexed territory. The substation was built in or around 

1998. The record establishes that at the time of its construction, 

the substation was not built at the center point of its load. Such 

substations usually have a life cycle of about 50 years. The 
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substation serves approximately 4 megawatts of load over three 

circuits. One of these three circuits is used primarily to serve 

the load in the south annexation area. Overall, the substation 

will lose approximately 26 percent of its current load following 

the annexation.

Given this loss, ERPPD investigated options for the substation following the annexation. The option ERPPD felt was 

most cost efficient and feasible was to move the substation 

21⁄2 miles to the northeast. Such a move would allow ERPPD 

to best serve its remaining load following the annexation, but 

also had the potential to increase the capacity of the substation. 

ERPPD calculated that the total cost of moving the substation would be approximately $935,000 and that $337,567 was 

solely attributable to the Neligh annexation.

The Board found in Neligh’s favor, concluding that ERPPD 

had not built the substation in the center of its load and that 

to require a move partially paid for by Neligh would be a betterment to which ERPPD was not entitled. The Board denied 

ERPPD’s motion for reconsideration. ERPPD appeals.

ASSIGNMENTS OF ERROR

ERRPD assigns three assignments of error that can be 

restated as one: The Board erred in failing to award compensation for reintegration costs under § 70-1010(2)(b) to ERPPD 

for the lost substation circuit.

STANDARD OF REVIEW

[1,2] A decision of the Board will be affirmed if it is supported by the evidence and is not arbitrary, capricious, unreasonable, or otherwise illegal.1

 The meaning of a statute is a 

question of law, and a reviewing court is obligated to reach 

conclusions independent of the determination made below.2

1 In re Application of City of North Platte, 257 Neb. 551, 599 N.W.2d 218 

(1999).

2 Id.
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ANALYSIS

This appeal presents the question of what compensation is 

owed to ERPPD for reintegration costs under § 70-1010(2)(b).

On appeal, ERPPD observes it is largely undisputed that 

one of the three circuits of the substation at issue carries no 

load as a result of the annexation and that the substation has 

lost 26 percent of its total load due to the nonuse of this circuit. As such, ERPPD contends that moving the substation 

nearer to the center of its load is the most efficient solution 

to the loss of capacity and is a direct result of the annexation. 

ERPPD seeks reimbursement for a portion of this cost as reintegration costs under § 70-1010(2)(b).

Neligh, however, argues that this loss of load was already 

accounted for via the payment Neligh stipulated to under 

§ 70-1010(2)(c). Neligh also notes that prior to the annexation, 

the substation was not at the load center. Because the substation was not at the load center and would allow ERPPD to 

more efficiently serve its existing customers as well as offer 

the potential for new customers, Neligh contends that such a 

move is a betterment not permitted under § 70-1010(2)(b). The 

Board concurred with Neligh.

Under § 70-1010(2), Neligh, as the “supplier acquiring the 

certified service area, distribution facilities, and customers,” is 

statutorily required to “purchase the electric distribution facilities of the supplier located within the affected area, together 

with the supplier’s rights to serve within such area.” This payment should include

(a) the current reproduction cost if the facilities being 

acquired were new, less depreciation computed on a 

straight-line basis at three percent per year not to exceed 

seventy percent, plus (b) an amount equal to the nonbetterment cost of constructing any facilities necessary to 

reintegrate the system of the supplier outside the area 

being transferred after detaching the portion to be sold, 

plus (c) an amount equal to two and one-half times the 

annual revenue received from power sales to existing 
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customers of electric power within the area being transferred . . . .3

The parties agree as to the consideration due for 

§ 70-1010(2)(a) and (c). At issue are certain “reintegrat[ion]” 

costs under § 70-1010(2)(b).

“Reintegration” is not explicitly defined in statute or by 

Nebraska case law. As such, we turn to other jurisdictions for 

guidance. In City of Cookeville v. Upper Cumberland Elec.,4

the Sixth Circuit, applying Tennessee statutes nearly identical 

to Nebraska’s statutes, noted that the dictionary definition of 

“‘reintegrate’” was “‘to restore to unity after disintegration.’” 

The court observed:

The structure of [subsection (a)(2) of the relevant statute] 

suggests that the reintegration costs are those necessary 

to place the system in the same state of integration that 

it was in prior to the condemnation. [Subsection (a)(2)

(A) of the statute] provides for replacement costs for any 

facilities acquired by the municipality whereas [subsection (a)(2)(B)] then provides for the cost of constructing “necessary facilities to reintegrate the system of the 

cooperative.” This scheme suggests that the reintegration 

costs are those necessary to reconnect the replaced facilities into the cooperative’s existing electrical system. To 

bring the system back to “unity” would involve placing 

the system in as integrated a condition as existed prior to 

the annexation.5

ERPPD presented the Board with multiple options for 

allowing it to restore unity to its system following the south 

annexation: (1) upgrading the line to extend the reach of the 

substation to new customers, (2) moving the substation to the 

exact load center, or (3) moving the substation 21⁄2 miles closer 

to the load center. In addition, the Board heard testimony on 

3 § 70-1010(2).

4 City of Cookeville v. Upper Cumberland Elec., 484 F.3d 380, 392 (6th Cir. 

2007).

5 Id.
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a fourth option: reducing the capacity of the substation by 

replacing its existing transformers with smaller ones. ERPPD’s 

expert testified that ERPPD’s preferred method was to move 

the substation 21⁄2 miles closer to the load center. ERPPD 

sought a portion of the costs of this move as reintegration 

costs under § 70-1010(2)(b).

The Board rejected ERPPD’s proposed substation move, 

instead agreed with Neligh that “any effect on the total economic impact [on ERPPD was] captured by the compensation 

[Neligh] will pay to [ERPPD] for the loss of the customers and 

facilities located inside the south annexation” area, and accordingly rejected ERPPD’s claim for reintegration costs under 

§ 70-1010(2)(b). The Board noted that the relocation of the 

substation would be a betterment to ERPPD.

This court will affirm decisions of the Board unless they 

are unsupported by the evidence or are arbitrary, capricious, 

unreasonable, or otherwise illegal. We conclude that in this 

case, the Board’s actions were arbitrary, capricious, and 

unreasonable.

It is undisputed that ERPPD’s loss of load came from customers in the south annexed area. Indeed, the parties have 

stipulated to the compensation due for lost revenue. But reintegration costs are based on the amount needed to compensate 

ERPPD for the impact to its physical asset—the substation—

and are not related to the loss of revenue or loss of facilities, 

which are provided for separately under § 70-1010(2).

We held as much in In re Application of City of Lexington.

6

In that case, we affirmed the Board’s decision, made on similar facts, that compensation was owed for surplus property—a 

transmission line substation and feeder circuits—lying outside 

of an annexed area. We agreed with the Board’s conclusion that 

this cost was not subsumed in the compensation provided for 

under § 70-1010(2)(c) and was instead distinct from that loss 

of revenue.

6 In re Application of City of Lexington, 244 Neb. 62, 504 N.W.2d 532 

(1993).
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Section 70-1010(2) clearly contemplates compensation for 

loss of revenue, facilities, and impact to physical assets. 

ERPPD was entitled to have its system “‘restore[d] to unity’” 

following the south annexation.7 By conflating the revenue due 

for the load under § 70-1010(2)(c) with the reintegration costs 

ERPPD was entitled to under § 70-1010(2)(b), and despite our 

prior holding in In re Application of City of Lexington suggesting that the two types of compensation are distinct, the 

Board failed to provide compensation for ERPPD’s reintegration costs and acted in an arbitrary, capricious, and unreasonable manner.

Moreover, the Board also acted in an arbitrary, capricious, 

and unreasonable manner when it focused its analysis solely 

on the preferred route of moving the substation 21⁄2 miles to 

the northeast without also considering the alternative proposals presented or otherwise determining Neligh’s liability for 

the undisputed injury caused to ERPPD’s system by the south 

annexation. The Board abdicated in part its statutory duty 

under § 70-1010(2) to “determine the total economic impact 

on the selling supplier and establish the price accordingly 

based on, but not limited to, the . . . guidelines” set forth in 

§ 70-1010(2)(a), (b), and (c).

There is merit to ERPPD’s argument on appeal. We reverse 

the decision of the Board and remand the cause for further 

proceedings.

CONCLUSION

The decision of the Board is reversed, and the cause is 

remanded for further proceedings.

 Reversed and remanded

further proceedin

Wright, Miller-Lerman, and Kelch, JJ., not partic

7 See City of Cookeville v. Upper Cumberland Elec., supra note 4, 484 F.3d 

at 392.