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In re Application of Northeast Neb. Pub. Power Dist.

Northeast Nebraska Public Power District

et al., appellants, v. Nebraska Public

Power District, appellee.

___ N.W.2d ___

Filed June 15, 2018. No. S-17-529.

1. 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.

2. 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.

3. 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.

4. ____: ____. An appellate court has an independent duty to decide jurisdictional issues on appeal, even if the parties have not raised the issue.

5. 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.

6. Jurisdiction. A lack of subject matter jurisdiction may be raised at any 

time by any party or by the court sua sponte.

7. 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.

8. Arbitration and Award: Jurisdiction: Statutes. An arbitration board 

under Neb. Rev. Stat. § 70-1301 et seq. (Reissue 2009), as a creature 

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

06/29/2018 08:10 AM CDT
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of statute, has only such authority as has been conferred upon it 

by statute.

9. 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.

10. 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.

11. 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.

12. ____: ____. 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.

13. ____: ____. 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.

Appeal from the Power Review Board. Affirmed.

Steven D. Davidson and David C. Levy, of Baird Holm, 

L.L.P., for appellants.

Kile 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, 

District Judge.

Cassel, J.

I. INTRODUCTION

This is 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 
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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,1

 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.

II. BACKGROUND

1. Overview of Wholesale

Rate Dispute Process

Nebraska’s public policy is to “provide adequate electrical 

service at as low overall cost as possible, consistent with sound 

business practices.”2 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.”3 Public power districts are required by law to fix rates which are fair, reasonable, 

and nondiscriminatory.4

In 1979, the Legislature enacted §§ 70-1301 to 70-13295

to provide a method to quickly and fairly resolve wholesale 

electric rate disputes.6 If a wholesale purchaser elects to dispute a portion of the wholesale electric charge established by 

a supplier7 and the dispute remains unresolved 45 days after 

the supplier receives written notice of the dispute, the dispute 

shall be submitted to arbitration.8 The arbitration board is 

1 See Neb. Rev. Stat. § 70-655(1) (Cum. Supp. 2016).

2 § 70-1301.

3 Id.

4 See §§ 70-655(1) and 70-1302.

5 See 1979 Neb. Laws, L.B. 207.

6 See § 70-1302.

7 See § 70-1304.

8 See § 70-1306.
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composed of three members: one selected by the purchaser, 

one selected by the supplier, and a third selected by the other 

two arbitrators.9 At a hearing, the arbitration board hears testimony and receives evidence relating to the dispute.10 Within 

30 days after completion of the hearing, the arbitration board 

shall render a written decision.11 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.12

A party who is unsatisfied with the arbitration board’s decision may appeal to reverse, vacate, or modify the decision.13 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.14 “Trial in the appellate court shall be de novo on the 

record.”15 As noted, this is our first such decision concerning 

such an appeal from the arbitration board. We now turn to the 

facts of the case.

2. Contracts

NPPD, a 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.

The appellants (hereinafter purchasers) are political subdivisions engaged in the distribution of electricity to retail 

electric customers. They are wholesale customers of NPPD. 

9 See § 70-1307.

10 See § 70-1318.

11 See § 70-1320.

12 See § 70-1321.

13 See § 70-1325.

14 See § 70-1326.

15 § 70-1327.
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Purchasers are parties to NPPD’s 2002 wholesale power contract (2002 WPC).

The 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.

The 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.

The 2002 WPC listed different types of costs that NPPD 

was authorized to include in its revenue requirement for ratesetting 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.

In 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 
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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 disadvantage others.

In 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.

3. Funding OPEB Obligation

Prior 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 service.

NPPD 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 
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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.

At that 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-yougo amount thereafter. The money would fund an OPEB trust, 

which was projected to be fully funded by 2033.

By 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 6 years, NPPD increased the 

annual budgeted contribution to the OPEB trust by $25 million. 

NPPD referred to it as a “catch-up.”

The Governmental Accounting Standards Board also created Governmental Accounting Standards Board Statement 

No. 75, which became effective for fiscal years ending after 

June 2017. This statement no longer permitted disclosure of 

OPEB in notes to the financial statements; it required entities such as NPPD to recognize the entire OPEB as a “hard” 

liability on its balance sheet. Because the statement recommended early implementation, NPPD chose to do so for the 

2016 year end.

4. 2016 and 2017 Rates

The inclusion of the $25 million in OPEB catch-up expense 

resulted in a 3.7-percent increase for 2016 rates. Wholesale 
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customers who elected to sign the 2016 WPC received a 

3.57-percent discount on the rate in 2016. The 2017 rate 

similarly included $25 million for accelerated funding of 

the OPEB trust and a discount for customers who signed the 

2016 WPC.

5. Complaint

Purchasers filed a complaint against NPPD before the arbitration board. They alleged that NPPD violated § 70-655(1), 

claiming that the 2016 rate was discriminatory. Purchasers 

alleged that the 2016 rate was formulated and implemented 

in breach of the 2002 WPC. They further claimed that NPPD 

breached the implied covenant of good faith and fair dealing 

by charging them a different rate. They sought declaratory 

relief and damages. Purchasers later filed an amended complaint to challenge the 2017 rate on similar grounds.

At a hearing, the arbitration board received extensive evidence. We will discuss the evidence in more detail in the analysis section of the opinion.

6. Arbitration Board’s Decision

The arbitration board determined that the 2016 and 2017 

rates were reasonable. It stated that the OPEB catch-up 

amounts were reasonable, because they related to the value of 

the service rendered to purchasers during their years of taking service from NPPD. It further stated that NPPD did not 

arbitrarily select the amounts to include in the catch-up, but, 

rather, those amounts were “the product of a systematic study 

of the actuarial liability of OPEB attributable to productionlevel services.”

The arbitration board also determined that the 2016 and 

2017 rates were nondiscriminatory. It reasoned that the discount merely deferred the collection of the 2016 and 2017 

catch-up amounts for customers under the 2016 WPC. The 

board explained:

Customers under the 2002 WPC and the 2016 WPC 

are taking the same service from NPPD and charged 
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the same rate. The customers operate under two separate and differing contracts, fairly negotiated. The 2016 

customers gave up some rights they had under the 2002 

WPC and accepted new terms including the deferred 

collection of the OPEB Catch-Up amounts included 

in the 2016 and 2017 rates. Customers under the 2016 

WPC have over 18 years left in their comm[i]tment to 

NPPD, whereas [purchasers] have just over 4 years. This 

differentiated approach is fair and reasonable as relating to the collection of a liability that solely relates to 

past services.

Finally, the board determined that NPPD did not breach the 

2002 WPC or the covenant of good faith and fair dealing. The 

board therefore denied all of purchasers’ requests and determined that the 2016 and 2017 rates met the standards established by § 70-655(1).

Purchasers appealed, and we granted their petition to bypass 

review by the Nebraska Court of Appeals.

III. ASSIGNMENTS OF ERROR

Purchasers assign that the arbitration board erred in (1) failing to find NPPD’s 2016 and 2017 wholesale rate structure 

violated § 70-655(1), (2) failing to find NPPD’s 2016 and 2017 

wholesale rate structure breached the 2002 WPC, and (3) failing to find NPPD violated the duty of good faith and fair dealing under the 2002 WPC.

IV. STANDARD OF REVIEW

[1,2] On an appeal from the decision of an arbitration board 

convened under § 70-1301 et seq., trial in the appellate court is 

de novo on the record.16 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 

trial court observed the witnesses and accepted one version of 

16 § 70-1327.
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the facts over another.17 We apply this same rule in an appeal 

from an arbitration board under this statutory scheme.

V. ANALYSIS

1. Jurisdiction

[3,4] 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.18 Neither party challenges 

the arbitration board’s jurisdiction to decide the matters presented to it. But an appellate court has an independent duty to 

decide jurisdictional issues on appeal, even if the parties have 

not raised the issue.19

[5-7] 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.20 A lack of subject matter 

jurisdiction may be raised at any time by any party or by the 

court sua sponte.21 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.22 We begin by considering whether the arbitration 

board had subject matter jurisdiction over the issues presented 

to it.

The parties presented three issues to the arbitration board, 

and those same three issues are before us on appeal. The issues 

17 See Mock v. Neumeister, 296 Neb. 376, 892 N.W.2d 569 (2017). See, 

also, In re Interest of Steven S., 299 Neb. 447, 908 N.W.2d 391 (2018); 

Erin W. v. Charissa W., 297 Neb. 143, 897 N.W.2d 858 (2017); Strohmyer 

v. Papillion Family Medicine, 296 Neb. 884, 896 N.W.2d 612 (2017); 

Lingenfelter v. Lower Elkhorn NRD, 294 Neb. 46, 881 N.W.2d 892 (2016).

18 Boyd v. Cook, 298 Neb. 819, 906 N.W.2d 31 (2018).

19 Davis v. State, 297 Neb. 955, 902 N.W.2d 165 (2017).

20 Boyd v. Cook, supra note 18.

21 Id.

22 Cappel v. State, 298 Neb. 445, 905 N.W.2d 38 (2017).
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concern the validity of NPPD’s rate structure, whether NPPD 

breached its contract with purchasers, and whether NPPD 

breached the covenant of good faith and fair dealing. Because 

this case was brought under § 70-1301 et seq., we must determine whether the arbitration board had subject matter jurisdiction over all of the issues.

[8] The arbitration board, as a creature of statute, has only 

such authority as has been conferred upon it by statute.23

Statutes have clearly empowered an arbitration board to determine a wholesale electric rate dispute.24 But it is less clear 

whether the arbitration board also has jurisdiction over the 

contractual issues presented in this case.

[9] Reading the statutes in §§ 70-1301 to 70-1329 as a 

whole leads us to conclude that the arbitration board’s jurisdiction is not limited to deciding a dispute over the establishment of a wholesale rate. 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.25 One 

section empowers the board to resolve not just wholesale rate 

disputes but also “rate disputes relating to transmission and 

delivery of electrical energy.”26 A dispute may address “all or 

any portion of the wholesale electric charge.”27 The dispute 

could concern a “mathematical, metering, or quantity error 

in the billing.”28 And that the arbitration board may consider 

more than merely the wholesale rate to be charged is implicit 

in the Legislature’s directive that the parties meet with the 

23 See, generally, Interiano-Lopez v. Tyson Fresh Meats, 294 Neb. 586, 883 

N.W.2d 676 (2016).

24 See, e.g., §§ 70-1302, 70-1304, 70-1306, and 70-1307.

25 In re Trust of Shire, 299 Neb. 25, 907 N.W.2d 263 (2018).

26 § 70-1302.

27 § 70-1304. See, also, § 70-1305 (“disputed portion”).

28 § 70-1304.
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arbitration board “for the purpose of clarifying and narrowing 

the specific issues from those set forth in the detailed statement of disputed issues.”29

An arbitrated dispute may be intertwined with contractual 

issues. The Legislature clearly contemplated the existence of 

power contracts.30 Often, such contracts speak to amounts that 

may be charged for electricity. In order to resolve a dispute, 

an arbitration board may need to determine whether there was 

contractual compliance. The arbitration board has authority to 

“consider only those matters necessary for the resolution of the 

disputed issues” but it may “not alter or modify any existing 

contract.”31 We conclude that where, as here, contractual issues 

are intertwined with a rate dispute, such contractual issues are 

within the arbitration board’s jurisdiction.

We note that no party is attacking the constitutionality of 

the statutes contained in §§ 70-1301 to 70-1329. We express 

no opinion on the relationship of these statutes to the jurisdiction conferred upon a district court under the Nebraska 

Constitution.32

2. Whether Rate Structure

Violates § 70-655(1)

(a) Additional Evidence at Hearing

NPPD presented considerable evidence concerning its 

efforts to address its unfunded OPEB liability. NPPD’s wholesale billing manager testified that if NPPD had collected the 

full unfunded OPEB obligation of $150 million in 1 year, it 

would have resulted in a rate increase of over 22 percent—

a much larger rate increase than the 3.7 percent that was 

implemented. The manager testified as to the amounts of 

purchasers’ pro rata shares of OPEB that they could avoid by 

29 § 70-1312.

30 See §§ 70-1303, 70-1304, and 70-1314.

31 See § 70-1314.

32 See Neb. Const. art. V, § 9.
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reducing their purchases under the 2002 WPC. In the aggregate, purchasers potentially could avoid $3,750,000 of their 

pro rata share of the $150 million OPEB catch-up collection. 

The manager emphasized fairness and reasonableness and 

stated that because the costs were associated with past service, NPPD needed to find a way to recover the costs from all 

of its customers who had benefited from them. He believed 

that NPPD’s methodology was reasonable because it tried to 

recover the unfunded obligation over a 6-year period, which 

was the remaining time period in the 2002 WPC.

NPPD’s chief financial officer testified that in 2016, NPPD 

borrowed approximately $23 million on behalf of the 2016 

WPC customers by issuing taxable debt to generate bond proceeds. The interest on the borrowing was capitalized through 

2021. NPPD borrowed a similar amount under similar terms 

for the 2017 catch-up. The chief financial officer explained 

that purchasers and customers under the 2016 WPC “are both 

being charged the exact same rate, except for the 2016 contract customers I have borrowed their pro rata share and made 

that deposit into the OPEB trust and I’ve recorded a regulatory asset that says they will have to pay that beginning in 

2022.” Because the rates are identical, the difference in what 

is charged and collected is a function of the discount. With the 

discount, OPEB gets paid from two sources: contributions from 

ratepayers and investment earnings in the trust.

According to the chief financial officer, the purpose of 

the discount would be “deferring the collection of that 2016 

and now 2017 catch-up amount until 2022 through 2033, the 

same time period.” She explained that the wholesale customers would pay the same amount, but it would be collected 

over a different time period. In order for the delayed payments to equate to a payment today, NPPD would have to 

apply a discount rate between 3.37 and 3.9 percent. The chief 

financial officer testified that the discount was “a mechanism 

to fairly collect the OPEB catch-up from two different customer groups.”
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Purchasers’ expert, David Dismukes, a consulting economist, viewed purchasers and the customers under the 2016 

WPC as similarly situated in terms of the nature of the power 

service they receive from NPPD. Dismukes testified that customers can be charged different rates, but that the rates “have 

to be justifiable and there has to be a cost basis for that.”

Dismukes opined that the rate structure created discrimination between the two sets of customers. He explained that similarly situated customers were being assessed rates that differed 

for taking similarly situated services. According to Dismukes, 

there were no cost differences between the two groups of customers. The signing of the 2016 WPC was the only difference, 

and Dismukes did not believe that the execution of a new 

contract justified a different rate. He testified that there was 

no legitimate cost basis supporting the discount mechanism. 

Based on Dismukes’ knowledge of the industry, he believed 

that a discount for one subset of customers and not the other 

constituted rate discrimination.

From a cost-based rate-setting perspective, Dismukes disagreed with testimony to the effect that both groups would 

ultimately pay the same amount. He pointed out that “a dollar 

today is not the same as a dollar tomorrow” and that there was 

a benefit to not making the payment today. He testified that 

the timing difference created an economic advantage of sufficient consequence to support a finding of discrimination. Thus, 

Dismukes opined that NPPD did not set its rates in a manner 

that was fair, reasonable, and nondiscriminatory.

NPPD’s expert, Joseph Mancinelli, the general manager 

and president of a consulting firm specializing in management 

economics predominantly serving the public power market, 

disagreed. He opined that NPPD’s 2016 and 2017 rates were 

fair, reasonable, and nondiscriminatory. In arriving at that 

conclusion, he looked at the unfunded accrued OPEB liability, 

which was incurred over a historical period and was directly 

attributed to the labor of retirees. He testified that it was 

proper to recover those costs from customers who enjoyed 
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those benefits, i.e., the 2002 WPC and 2016 WPC customers. 

Mancinelli believed that the rates were adequate and would 

support the revenue requirement.

Mancinelli explained that there was one rate and that the 

difference was the source of the funding of the OPEB liability. 

Because the 2016 WPC customers had a long contract, the cost 

was financed. But financing was not an option for the 2002 

WPC customers, so the funding came out of rate revenues. He 

stated that the source of the funds created a difference and that 

difference “is the genesis of what we call the discount.”

Mancinelli believed that the cost of borrowing the money 

was not materially different from the discount. He testified that 

the discount was cost based and that it was basically the difference between funding the trust with cash from revenues or 

funding the trust with borrowed funds. Mancinelli was unaware 

of any other utility imposing a rate increase for the exclusive 

purpose of collecting money for an OPEB trust. Although 

NPPD’s situation and solution was unique, he opined that it 

met the test of being fair, reasonable, and nondiscriminatory.

(b) Discussion

Purchasers contend that the rate structure for 2016 and 2017 

violates § 70-655. That statute requires NPPD’s board of directors to fix adequate rates that are “fair, reasonable, nondiscriminatory, and so adjusted as in a fair and equitable manner 

to confer upon and distribute among the users and consumers 

. . . the benefits of a successful and profitable operation and 

conduct of the business of the district.”33 As the party claiming 

discrimination, purchasers have the burden of proof to establish its existence.34

[10] Purchasers rely on McGinley v. Wheat Belt P.P. Dist.35

In that case, a wholesale distributor informed Wheat Belt 

33 § 70-655(1).

34 See 12 Eugene McQuillin, The Law of Municipal Corporations § 35:57 

(3d ed. 2017).

35 McGinley v. Wheat Belt P.P. Dist., 214 Neb. 178, 332 N.W.2d 915 (1983).
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Public Power District (Wheat Belt) that the distributor would 

be imposing a surcharge on Wheat Belt, which would be 

assessed on the basis of Wheat Belt’s summer peak demand. 

To deal with the surcharge, Wheat Belt created two classes of 

customers based on the date the customer requested service. 

Customers before a certain date would be protected from 

increased costs associated with the surcharge, on the theory 

that it was the new customers who were causing the increased 

summer peak demand. As a result, Wheat Belt charged markedly different rates for customers receiving similar service. We 

concluded that Wheat Belt’s action in establishing two classes 

of customers and assessing most of the surcharge to one class 

was arbitrary and discriminatory. We stated, “Persons receiving similar service under similar circumstances cannot be 

charged for such service in an arbitrary, designed, dissimilar manner.”36

McGinley is distinguishable from the situation at hand. 

There, Wheat Belt wanted to assess the bulk of a surcharge 

against one class of customers. To do so, it wanted to charge 

different rates to similarly situated customers. Here, NPPD is 

charging but one rate—purchasers are charged the same rate 

as NPPD’s customers under the 2016 WPC. The difference 

between the amounts charged to purchasers and the 2016 WPC 

customers is attributable to a discount for the 2016 WPC customers. Of course, under some circumstances, charging one 

rate but conferring a discount upon some customers could be 

discriminatory. But here, as discussed below, there was a reasonable basis for NPPD’s ratemaking determination.

The discount is tied to the OPEB liability. That liability 

relates solely to past services of NPPD employees, and purchasers received the benefit of those services. Because a specific portion of OPEB cannot be connected to any particular 

customer, NPPD allocated the liability on a pro rata basis. 

It is reasonable for purchasers to pay their pro rata share of 

36 Id. at 187, 332 N.W.2d at 920.
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the liability. And the catch-up amounts, which were based on 

actuarial studies, are not arbitrarily established.

There is a reasonable basis for the discount. If a variance in 

rates is based upon a reasonable and fair difference in conditions that equitably and logically justifies a different rate, any 

discrimination is not unjust.37 Purchasers opted not to extend 

their contractual relationship with NPPD; thus, NPPD had a 

shorter period of time in which to collect purchasers’ pro rata 

share of the liability. On the other hand, customers under the 

2016 WPC extended their relationship with NPPD for an additional 20 years, thereby giving NPPD a longer period of time 

over which to collect those customers’ pro rata share.

NPPD crafted a plan to collect the OPEB catch-up expense 

at different times. Under the plan, purchasers pay their portion of the OPEB catch-up expense over the 6 years remaining 

on their contract, while customers under the 2016 WPC get a 

discount during those years and will pay the catch-up expense 

between 2022 and 2033. It is the difference in the remaining 

terms of the contractual relationship with NPPD between purchasers and customers under the 2016 WPC that allows for the 

different collection of the OPEB liability. The effort to fund the 

OPEB trust through catch-up amounts in 2016 and 2017 was 

an effort to mitigate the risk of shifting the cost of the common liability onto the customers under the 2016 WPC. Under 

the circumstances of this case, the discount for one group of 

customers is not discriminatory.

The methodology assured that both classes of customers 

would pay an equal share of OPEB costs—the difference 

would be solely in the timing of the payments. Contrary to 

purchasers’ argument, the financing scheme imposed a future 

cost sufficient to remedy the advantage that the 2016 WPC 

customers otherwise would have had from paying their share 

later. In other words, an approximation of the time value of 

37 See 14 William Meade Fletcher, Fletcher Cyclopedia of the Law of 

Corporations § 6681 (Carol A. Jones ed., perm. ed., rev. vol. 2012).
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money was built into the mechanism employed to ensure that 

both classes of customers were treated fairly. In evaluating 

the experts’ testimony, the arbitration board had the advantage of observing them and making judgments considering 

their credibility. We have considered and given weight to 

that fact.

3. Whether Rate Structure

Breached 2002 WPC

Purchasers next argue that the discount constitutes a breach 

of the 2002 WPC. It does not. Under the 2002 WPC, purchasers agreed to pay “amounts reasonably required to be set aside 

in reserves for items” such as OPEB. The catch-up amounts 

were reasonably within the definition of revenue requirements. 

This assignment of error lacks merit.

4. Whether Rate Structure Breached

Covenant of Good Faith

[11,12] Finally, purchasers argue that the discount breached 

the covenant of good faith and fair dealing. 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.38 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.39

[13] Purchasers claim that giving a discount to the 2016 

WPC customers penalized purchasers for exercising their contractual right to purchase energy elsewhere. We disagree. The 

availability of the discount was not connected to whether a 

38 Coffey v. Planet Group, 287 Neb. 834, 845 N.W.2d 255 (2014).

39 Id.
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customer reduced or limited its energy purchases from NPPD; 

rather, it was available to all customers under the 2016 WPC. 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.40 Purchasers did not have a right 

to avoid paying amounts toward unfunded accrued liability 

for OPEB. They have failed to show that NPPD significantly 

impaired any benefit of the 2002 WPC.

VI. CONCLUSION

We conclude that NPPD’s rate structure for 2016 and 2017 

was fair, reasonable, and nondiscriminatory. We further conclude that the rate structure did not constitute a breach of either 

the 2002 WPC or the implied covenant of good faith and fair 

dealing. Accordingly, we affirm the decision of the arbitration board.

Affirmed.

Wright and Miller-Lerman, JJ., not participating.

40 Id.