Duke Energy Progress will buy out 32 eastern North Carolina towns’ share of power plants valued at $1.2 billion, erasing much of the crippling debt that has forced residents of those towns to pay the state’s steepest power bills for decades.
The deal, including nuclear fuel, spare parts and tools, will give Raleigh-based Progress full ownership of the Shearon Harris nuclear plant in Wake County along with four other power plants that local governments had partially owned since 1982 as a misguided investment.
Progress announced the buyout Monday, after years of failed efforts by town authorities to unload the power plants and the financial burden they carried. Town officials have long complained that inflated electricity prices turn away potential industries and businesses that can save hundreds of thousands of dollars a year on energy costs by setting up operations down the road.
The towns include Apex, Clayton, Wake Forest, Wilson, Smithfield, Kinston and others dotting the eastern half of North Carolina. Their 270,000 customers pay, on average, $240 to $600 more a year for electricity than Progress customers.
Residents of the 32 towns wouldn’t see the financial benefits for at least a year, until the deal is approved by regulators.
Still, some households could see their bills drop by more than $20 a month. The actual rate cuts won’t be known until officials in the 32 towns negotiate among themselves how to divide the windfall they will pass on to their residents.
“What you’ll see is that our customers’ rates across the board will be much more in line with what people pay in the rest of North Carolina,” said Wilson City Manager Grant Goings. “This is our only path to more competitive rates in the near term. We can sell the assets and have competitive rates in a year.”
Approval would be required from the Federal Energy Regulatory Commission and from the N.C. Utilities Commission. Charlotte-based Duke Energy, the corporate parent of Progress, expects to file an application with federal regulators in September.
North Carolina regulators will review the deal’s costs and benefits to Progress’s 1.3 million customers in the state, including businesses and heavy industry. The $1.2 billion acquisition cost and other details will also be scrutinized by the N.C. Public Staff, the state agency that represents customers of regulated utilities.
“Certainly we don’t want them entering into a deal that’s going to unreasonably impact the retail customers,” said James McLawhorn, director of the Public Staff’s Electric Division. “We don’t want retail customers to pay for something they don’t need and they’re not using.”
Progress spokesman Jeff Brooks said the deal would be structured so that Progress customers would come out ahead, too.
“If approved, the purchase will provide long-term fuel savings, which will ultimately benefit customers by keeping fuel rates lower over time,” Brooks said. “The N.C Utilities Commission will ultimately determine how costs associated with the purchase of these assets are handled.”
Duke’s 1.9 million customers in North Carolina would not be affected by the deal between Progress and the N.C. Eastern Municipal Power Agency.
The deal would likely bring the greatest financial benefits to those towns whose residents pay the highest electricity bills, Goings said. Those with the lowest rates – including Apex, Smithfield and Wake Forest – would see smaller rate reductions because their rates are already closer to prices paid by customers of Progress and Duke.
Under the deal, the towns’ collective debt of $1.9 billion, at 5.1 percent interest, would be paid off, and the towns would borrow $480 million at an interest rate between 3.75 and 4 percent, said Graham Edwards, chief executive of ElectriCities, the Raleigh-based management services company for the municipal power agency.
The agency negotiates wholesale power contracts for the 32 towns. As part of the deal, Progress would supply electricity to the towns, through the power agency, under a 30-year wholesale power contract.
The primary change residents of the 32 towns would see would be the size of their monthly bills. Under the terms of the deal, the towns will be able to keep their municipal utility departments, which include utility poles, line crews, bucket trucks and customer service departments.
Timing finally right
The deal announced Monday follows years of frustration and fault-finding over the high power bills that small-town residents have been forced to endure. But in recent years two factors aligned that made the deal possible, Edwards said.
Duke’s 2012 merger with Progress created the nation’s largest electric utility that today has a market value of nearly $53 billion and a huge balance sheet to back up major acquisitions. At the same time, the towns chipped away at their combined debt over the years so that they were within striking distance of paying off the obligation.
“We have an asset that they want – they need more generating capacity,” said Clayton Town Manager Steve Biggs. “We have a liability – that is the debt load – that we need to get some relief from.”
The towns collectively own 18.33 percent of both nuclear reactors at the Brunswick power plant and 16.17 percent of the reactor at the Harris nuclear plant in southwestern Wake County. They also own portions of two coal-burning units at the Roxboro and Mayo power plants.
They acquired the ownership shares in 1982 as a hedge against unpredictable energy costs, but the wager backfired when nuclear costs skyrocketed in the wake of the 1979 nuclear accident at the Three Mile Island plant in Pennsylvania.
The towns had borrowed $3.6 billion; the debt wasn’t scheduled to be paid off until 2026.
Biggs, the Clayton town manager, said the debt and interest of the towns’ ownership share of the power plants was greater than the market value of the assets.
“It’s just like when someone is upside-down on their house,” he said.
The debt affected the towns to different degrees. Those with fast-growing populations, such as Apex, were able to spread out the costs over a larger population base and boosted power purchases at lower prices. An average residential power bill in Apex is $116.93 for 1,000 kilowatt-hours of electricity, compared with $109.27 for Progress customers.
Hobgood, about 80 miles east of Raleigh, has the highest prices within the municipal power agency network, charging a household $182 for the same amount of power that costs $109.27 for a Progress customer.