Eastern NC towns see Duke Energy as best hope to cut massive power bills

jmurawski@newsobserver.comFebruary 10, 2014 

Duke Energy and Eastern North Carolina town officials say they could sign a deal in the coming months that would bring long-awaited financial relief to families and businesses that for decades have paid some of the state’s heftiest power bills.

But such an agreement would require 32 towns to commit to an unusual term: The town governments would have to get their wholesale electricity from Duke for as much as a quarter century, rather than shopping around for a better deal from other Southeastern electric utilities.

Officials in the affected towns, which include Apex, Clayton and Wake Forest, say Duke’s intervention is the best hope in decades to rid their local governments of a colossal debt that has dramatically marked up electricity prices for their residents – in some cases by hundreds of dollars a year more than households in Raleigh and Charlotte pay for the same amount of power.

The last time the town officials tried to offload their debt – to Progress Energy in 2010 – the electric utility said it was not interested. Months later Progress and Duke announced they were merging, reviving hopes in Eastern North Carolina that Duke would renew the talks that Progress cut off.

“We’re closer than we’ve ever been,” said Wilson City Manager Grant Goings. “That’s our sole motivating factor to being at the table: to bring rate relief to our customers.”

There are still hurdles to clear. If a deal materializes, it would be reviewed by the N.C. Utilities Commission in Raleigh, which regulates electric rates, and also by the Federal Energy Regulatory in Washington, which monitors anti-competitive utility practices and regional wholesale power prices.

In North Carolina, an agreement would require approval from all 32 towns that would be involved. Town officials say the agreement would have to deliver tangible rate cuts to their residents.

“Obviously they’ll have to show the benefits before we agree to this deal,” said Mark Williams, Wake Forest’s town manager.

The economic morass stems from complicated investments made by small towns spooked by unstable energy prices in the 1970s. These 32 towns speculated on the future cost and demand for energy, and the gamble backfired.

In most of the state, homes and businesses buy their electricity directly from Charlotte-based Duke or from its Raleigh-based subsidiary, Duke Energy Progress.

But some residents buy power from their local governments, which operate their own utility departments. In the eastern swath of the state, 32 towns get their juice from the N.C. Eastern Municipal Power Agency, which decades ago invested $3.6 billion in five Progress power plants.

That agency buys electricity from Duke and sells it to the 32 towns at a markup; the towns in turn sell the power with another markup to residents and businesses. In addition to Apex and Wake Forest, those closest to Raleigh include Benson, Clayton, Rocky Mount, Selma and Smithfield.

Two key points

Duke has been in discussions for several months with the N.C. Eastern Municipal Power Agency to buy back the agency’s shares in the aging power plants, including the agency’s 16.17 percent stake in the Harris Nuclear Plant in Wake County.

If Duke agrees, the purchase price would pay off much, if not all, of the power agency’s remaining $1.8 billion debt, about half the original investment. But the N.C. Eastern Power Agency would have to agree to sign a long-term contract with Duke as a supplier of wholesale power.

Otherwise, Duke could lose one of its largest wholesale customers in the Carolinas to Dominion Virginia Power to the north or to S.C. Electric & Gas to the south.

“Duke’s going to be interested in keeping us as a customer,” Williams said.

The negotiations are focused on two main points: the value of the power plants the power agency jointly owns with Duke, and a fair price for a long-term wholesale power contract that would replace the power agency’s ownership stake in those power plants.

Duke spokesman Jeff Brooks said any deal would be contingent on the N.C. Eastern Municipal Power Agency committing to a long-term contract to buy wholesale power from Duke. However, Duke is not interested in taking over the 32 local utility departments, which include utility poles, bucket trucks and custom service operators.

Agreement possible

If a deal falls through, the towns’ share in five Progress power plants won’t be paid off until 2026. The power agency bought into those plants in 1982 as a means of stabilizing power costs. But soaring interest rates and runaway nuclear construction costs wiped out the economic assumptions behind their investment. The huge debt eats up more than one-third of the power bills paid by households and businesses in the 32 towns.

So where a typical Duke or Progress customer pays about $115 a month, the equivalent amount of power in most of the towns costs between $130 and $160 a month. In one town, Hobgood, the bill would top $180 a month.

Apex, which has grown exponentially in recent decades, has been able to spread out the cost and keep power bills close to those of Duke and Progress, charging households about $118 a month.

For years eastern residents have pleaded with their elected officials to bring relief to their power bills.

Last week, Duke and the power agency disclosed they’re in negotiations, with Duke assuring its shareholders that the 32 towns would remain captive wholesale customers for decades to come.

“This is the first time we’ve ever come out and made a public announcement,” said Brooks, the Duke spokesman. “The main difference here is we’ve reached a point where we see a realistic option of a definitive agreement.”

Murawski: 919-829-8932

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