Sustained Growth in Nebraska

National Macroeconomic conditions are favorable for future expansion of income, employment, and revenue in Nebraska. In particular, the U.S. economy is now in the heart of an expansion expected to persist over the three year forecast period. The principal engine of growth will be a sustained expansion in private sector investment and consumption demand. However, the rate of growth in the national economy likely will be moderate rather than rapid. At least three factors will act to moderate growth. The first is higher energy prices. Rapid growth in global demand is expected to keep prices for oil and natural gas high at least into 2005. These higher energy prices will reduce the rate of growth in gross domestic product, and create a higher than normal risk that the economy could fall back into recession. However, the most likely outcome is that the economy will continue to expand at a moderate rate in 2005, and beyond. Federal policy trends also will moderate growth. Over the outlook period, Federal Reserve interest rate policy will gradually shift from pro-growth to neutral as the Fed raises interest rates over the next two years. The Federal Funds rate currently stands at 1.75 basis points and a neutral rate is typically in the range of 3 to 4 basis points. The third factor will be a marked decline in the rate of growth in federal spending. Federal spending growth averaged 9 percent annually from 2002 through 2004. Spending growth should decline substantially beginning in 2005 as part of efforts to reduce large annual federal budget deficits

RESIDENTIAL ELECTRICITY DEMAND AND OPTIMAL POWER RESOURCE UTILIZATION

Residential electricity consumption is an important component of total electricity sales for Nebraska Public Power District. However, the extent of the contribution of the residential sector to the total electric system load and, in particular, to the seasonal diversity of the system load is not fully understood. The purpose of the present study is to provide an analytical framework for evaluating the seasonal-specific contribution of the residential sector to total system electricity sales and electric power demands placed on the power supply system. The methodology applied in this effort involves three distinct stages of analysis. The first stage of the study focuses on the existence of electric-using appliances in residential structures and the seasonal patterns of electricity consumption through such appliances. Of particular interest in this investigation is the statistical estimation of a seasonal appliance-specific, residential electricity demand model. The parameters of this model are estimated utilizing a set of six bi-monthly cross section regression analyses, incorporating a conditional demand framework into the model specification. In the second analytical phase, residential electricity use for 1990 is simulated utilizing a residential electricity-use model. The residential electric use model, which combines the electricity demand parameters estimated for the residential service area with sample observations for appliance saturation and other customer characteristics, is applied to derive two residential electricity consumption scenarios. These alternate scenarios follow from two distinct assumptions concerning the 1990 saturation level of electric space heating systems in residential structures. The third stage of the study applies linear programming optimization techniques to the 1990 expected load patterns, incorporating the existing residential electric heat saturation level as the base case scenario. Utilizing the second scenario, which embodies an assumed increase in the electric heat saturation level, the resulting effects of changes in the seasonal variation in residential electricity consumption are evaluated with respect to the estimated utilization of power supply resources and utility net revenue

Continued Growth in Nebraska

National economic conditions will continue to favor growth over the next three years. Increased business investment will combine with rising industrial production, expanding exports, and moderate increases in consumer spending to grow the economy. The rate of inflation is expected to increase as well. The rate of real (inflation-adjusted) growth will moderate compared to strong economic growth during 2004. Real gross domestic product will grow 3 percent to 3.5 percent over the next three years. High oil prices will remain a drain on the economy, siphoning spending from domestically produced goods and services. Fuel prices are expected to remain at recent high levels throughout 2005 and 2006. Export growth also will remain moderate despite depreciation of the dollar. The Federal Reserve will continue its shift from a progrowth to a neutral monetary policy. The federal funds rate should rise another 0.5 to 1.0 basis points over the next year. Growth in federal spending should moderate from near double-digit growth in 2002 through 2004. Federal spending is expected to continue to expand rapidly, however, and deficits should remain near current levels. Recent increases in the core inflation rate (excluding food and energy prices) are expected to hold over the forecast period. The inflation rate is expected to average 3 percent per year. Rising inflation will lead to a greater divergence between real and nominal growth rates. Nominal income and sales will grow quickly relative to recent years even as real (inflation-adjusted) growth rates moderate. For example, with inflation running 3 percent per year, nominal income will grow between 6.0 percent and 6.5 percent during the forecast period

Manufacturing Rebounds

National economic conditions will continue to favor growth over the next three years, including sustained increases in manufacturing employment. Higher energy prices, particularly for oil, gasoline, and natural gas, will impact the economy, but probably only will moderate economic growth rather than cause a significant slowdown. After rapid growth in 2004 and 2005, growth in real gross domestic product is expected to moderate in 2006-2008, due to higher long-term interest rates as well as higher energy prices. Real gross domestic product will grow 3 percent in 2006 and fall to 2.5 percent growth in later years. The housing market will be another factor weighing on the economy. New housing starts are expected to moderate in 2006 through 2008, falling from record levels in 2005. Growth in gross domestic product will be strong enough to sustain employment growth at a steady 1.5 to 1.7 percent rate, which is in line with recent job growth. The rate of inflation will hit 3.5 percent to 4.0 percent in 2006, but is expected to moderate to around 2.5 percent to 3.0 percent in 2007 and 2008. More rapid inflation, however, remains the main risk to the forecast. Recent energy price increases, which are likely to be sustained, may continue to filter through the economy. This could cause broad-based price increases. There also is a possibility that energy prices could rise even more, causing higher inflation, and further restricting economic growth. The likelihood of such a high inflation scenario will decline, however, if the Federal Reserve continues to raise short-term interest rates and use other monetary policies to reduce inflation. The new Federal Reserve Board head, Ben Bernanke, appears willing to do so