Progress-Duke merger revives hope for eastern NC power bills

jmurawski@newsobserver.comApril 17, 2013 

Last year’s merger between Progress Energy and Duke Energy was premised on substantial cost savings for customers and investors. But the deal resonated throughout eastern North Carolina – as a potential rescue from crushing power bills that are suffocating local economies.

This is the state’s economically depressed flatland, where households and businesses in 32 towns – including Apex, Clayton, Wake Forest, Wilson, Smithfield and Kinston – get their electricity from municipal utility departments. Residents here pay on average between $240 and $600 a year more for electricity than do customers of the neighboring utility, Progress Energy.

The towns own a share in five Progress power plants, the source of their electricity, and won’t finish paying for them until 2026. They have tried in the past to get Progress to buy the plants back because the colossal debt has driven up electricity costs. Nearly half of that debt is now paid off, leaving them $2 billion in the red.

Running out of options, officials in those towns have pinned their hopes on the Progress-Duke merger. Lawmakers from down east introduced bills to make the $32 billion merger contingent on retiring the region’s electricity debt and on conducting studies on how to alleviate the debt. Two towns – New Bern and Rocky Mount – hired Washington lawyers in a bid to block the merger.

Now, four months after the merger’s completion, local officials and some in the legislature see the combined Duke Energy as their last, best hope to retire the debt.

“Before it was Progress Energy, now it’s Duke Energy,” said state Sen. E.S. “Buck” Newton, a Republican from Wilson who introduced one of the merger-related bills in 2011 and another bill this month to get the towns to the negotiating table.

“You’re dealing with a different entity,” Newton said. “It’s really the first time that Duke has been involved.”

Local officials are more hopeful this time because the debt is lower and could be easier to pay off if Duke does agree to buy the plants. There’s also Duke’s historical willingness to take greater corporate risks.

“It’s a larger entity that we’re dealing with now that may be able to absorb more of these costs to make all this work,” said Mark Williams, town manager of Wake Forest, which has 17 electric department employees and about 6,000 customers.

Duke and the organization negotiating for the 32 towns, N.C. Eastern Municipal Power Agency, would not comment on the status of their discussions.

The power agency’s senior vice president, Ken Raber, said the agency, which was created by the state, has tried to shed the debt for years, and refinanced its bonds to cut interest payments.

“It’s a tough position for us to be in,” Raber said.

He was uncertain how the legislation could help the towns, who say they are doing everything they can to get rid of the debt.

But with the merger recently completed, Duke has fresh valuations for the Progress power plants it acquired, a starting point for negotiations. The N.C. Eastern Municipal Power Agency owns 16.17 percent of the nuclear unit at the Shearon Harris plant in Wake County and 18.33 percent of two units at the Brunswick nuclear plant near Wilmington.

The power agency bought into those plants in 1982 as a means of stabilizing power costs. But soaring interest rates and the 1979 nuclear accident at Three Mile Island wiped out the economic assumptions behind their investment. The huge debt, not scheduled to be paid off until 2026, eats up more than one-third of the power bills paid by households and businesses in the 32 towns.

“It’s a major economic impediment to an entire region,” Newton said. “It takes a lot of money out of our economy to service this debt.”

Debt affects towns differently

The towns are not affected the same way by the debt. Those in the Triangle have benefited from significant population growth to spread the costs. Some towns have raised electric rates to cover other costs of city government, a policy never adopted by Apex and abandoned by Wake Forest years ago.

A typical monthly power bill in Apex is about $118 for 1,000 kilowatt-hours of electricity, while Wake Forest residents pay about $130. People in communities such as Southport and Scotland Neck pay more than $150 a month, while Hobgood residents pay nearly $190 a month.

Bailing out the indebted towns is a complex undertaking with iffy odds. It would require approval from the N.C. Utilities Commission and likely the Federal Energy Regulatory Commission, which twice held up Duke’s acquisition of Progress before issuing a conditional approval.

There would have to be a clear financial benefit for Duke to convince Wall Street and state regulators that Duke should take on someone else’s financial problem. It would almost certainly run into opposition from consumer groups and industrial power users.

“We’d be very concerned about raising rates for retail customers,” said Robert Gruber, who directs North Carolina’s Public Staff consumer advocacy agency.

The 32 town councils would also have to vote on getting out of the electricity business if the deal required them to turn over their electric departments and sell their utility poles and bucket trucks to Duke Energy.

That could be a hard sell for the residents of Clayton, with 14 utilities employees and 6,500 customers.

“We provide good local quality service to our citizens,” said Clayton town manager Steve Biggs. “We’re directly accountable for that.”

The towns are proud of their local service tradition. In 2011, a typical municipal power agency town had an outage every 16.8 months, and it lasted 67 minutes. That year Progress had an outage more than twice as often – every 7 months – and outages lasted longer: an average of 85 minutes.

If Duke were to make an outright acquisition, it would gain 100 percent ownership of five aging power plants and 268,000 customers. The number of customers at stake would constitute a fraction of Duke’s 3.2 million customers in North Carolina but would be larger than service territories in several states.

Progress Energy’s total service area in South Carolina comprises 175,000 customers, and Duke has just 140,000 customers in Kentucky.

The most recent sale discussions between the power agency and Progress Energy took place in 2010 without resolution. In 1999, in anticipation of electric utility deregulation, both Duke and Carolina Power & Light, the predecessor to Progress, offered to buy the assets, which would have raised Duke and CP&L customers’ bills by $2 to $3 a month.

At the time, town officials were reluctant to give up control of their municipal utility departments, especially since the sale would not have erased the debt.

“No, it’s not simple and it’s not easy,” Newton said. “Yes, there are things that can be done.”

Murawski: 919-829-8932

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