The body controlling much of the electricity in Eastern North Carolina passed a wholesale rate cut earlier this year, but it doesn’t look like Johnston County residents will feel those savings.
Smithfield, Selma and Clayton are all part of the N.C. Eastern Municipal Power Agency, providing electricity to residents and businesses.
Because of considerable debt, NCEMPA customers generally pay more for electricity than customers of the state’s largest power supplier, Duke Energy Progress. But rates in many public power towns fell in 2015 after the NCEMPA sold a portion of its assets to Duke, allowing the agency to pay off much of its rate-driving debt. Smithfield, Selma and Clayton all passed rate cuts, but each promised future fluctuations were likely in store.
At its Feb. 24 meeting, the NCEMPA board of directors passed a 4.5-percent rate decrease, which will go into effect April 1. The agency said the rate cut is in response to lower fuel costs from the Duke power system.
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At Clayton’s March meeting, power director Dale Medlin recommended the town do nothing in response to the rate cut.
“The first train of thought, can we relay this to our retail customers automatically?” Medlin told the town council. “Basically, we can’t do that right now.”
Instead, Medlin suggested a rate study to best determine what, if any, action Clayton should take in response.
But Clayton last studied its rates not too long ago. After the 2015 asset sale, NCEMPA provided towns with a rate analysis, intended to help the member towns determine what their rates should be.
Before they had that analysis in hand, Smithfield and Selma each made arbitrary cuts to their rates, with Selma eventually having to hike its electric rate back up and Smithfield able to cut a little more. Clayton did nothing initially, waiting until after the study to pass a 4.8-percent cut for customers while feeling an 8.7-percent wholesale drop itself.
“What we need to do right now is conduct a rate analysis,” Medlin said. “We’re in the process of trying to come up with a consultant which will capture some of our capital and operations needs. That’s one of the critical things we have to do now before we can consider a decrease on the retail side.”
Medlin said town staff will the electric rate during this spring’s budget drafting. But even with a commissioned rate study, power bills won’t fall in Clayton this year, he said.
“(The wholesale decrease) is a positive for the town, but the caveat is we can’t automatically relay that to our customers, which is what we’d love to do,” Medlin said. “We have to do it in steps.”
In 2015, in explaining why Clayton’s cut couldn’t go further, former town manager Steve Biggs said the cut the town settled on was meant to stabilize rates for at least four years while also paying for a $6 million substation.
Current town manager Adam Lindsay said he also valued stability, noting that in its decision to cut the wholesale rate, NCEMPA expects it to rise 3 percent two years from now and more after that. Lindsay said the substation is also costing more than expected.
Having joined the town last fall, this will be Lindsay’s first Clayton budget, and already he sees an electric department running on tight margins. Instead of immediately cutting rates, Lindsay said he wants to get a better handle on the town’s spending and have the input of the rate study.
“Adjusting the rates now just felt a little premature before I could get a complete handle on electric operational and capital budgets,” Lindsay wrote in an email. “I didn’t want to reduce rates now and then find out through the budget and rate analysis process that our needs are much different than what I assumed.”
Lindsay said said the town will use any savings from the wholesale rate drop for future electric projects or to help smooth out or delay future rate hikes in Clayton.
Smithfield too has its eye on the NCEMPA rate cut and like Clayton is prepared to wait before acting. Town Manager Michael Scott said Smithfield will discuss the electric rate during the town’s budget negotiations deliberations.
“This is not a permanent reduction but one that will increase later on,” Scott said of the NCEMPA rate. “I don’t have a recommendation right now. We’re still gathering information on our current rates and what this wholesale reduction is going to do. We could also put the money in a surplus fund, which could be applied when rates increase in the future so they don’t rise as high or as fast. There are a number of possibilities.”
Scott said Smithfield’s priority is keeping its electric rate competitive. The entire council will weigh in during budget talks, he said.
“It’s certainly something we’ll be looking at,” Scott said.
The timing of the rate cut couldn’t have been better for Selma, Town Manager Jon Barlow said. Selma was in the middle of a cost-of-service study for all of its utilities, Barlow said, and after plugging in the new wholesale rate, Selma might be in position to lower customers’ power bills.
“The timing was really good for us,” Barlow said. “We plugged in the change into our rate design and last week presented those findings to the council. There is an opportunity for a retail rate reduction.”
Barlow said he had no timeline for when the council might act on the electric rate, but he expects it to come up during budget discussions. A potential figure would be around a 2.5-percent reduction, but Barlow said that would vary with usage.
Benson, another Johnston County power town, appears poised to drop its rate. The town’s board of commissioners has discussed a possible 5.5 percent residential rate reduction that would go into effect July 1. The town cites the wholesale rate cut, combined with efficiency gains.