Monday, February 17, 2014

Duke deal with cities could be a game changer

This could be a game-changer the likes of which eastern North Carolina has not seen in generations. If negotiations between Duke Energy and 32 eastern North Carolina municipalities are successful, those towns would suddenly become competitive in electricity costs with other areas of North Carolina.

For 25 years, 32 eastern North Carolina municipalities, including Wilson, Rocky Mount, Greenville and New Bern, have charged higher electric rates to their customers. The rates vary, but all are substantially more than the rates charged by corporate energy providers such as Duke. This costly disparity is the result of a bad bet made in the late 1970s, when it appeared that an energy crisis loomed — one that might make it impossible for municipal power systems to buy wholesale electricity. Towns and cities that sold electricity to their residents, as they also sold water and sewer services, persuaded voters to approve a law that allowed them to join together and buy a portion of Duke's and then-Carolina Power and Light's generating capacity. This ownership would guarantee them access to the electricity their consumers needed. The cities would jointly float tax-exempt bonds to pay for the $3.5 billion deal.

The law was approved, the negotiations fell into place, and the cities congratulated themselves for avoiding a catastrophe. But another catastrophe shattered the congratulatory celebration. The near-meltdown at Three Mile Island nuclear plant frightened regulators, insurers and Congress. Suddenly, the cost of building new power plants increased exponentially. CP&L cut the size of its planned Shearon Harris nuclear plant from four reactors to one, but that one cost more than had been estimated for the planned four.

And the bargain the N.C. Eastern Municipal Power Agency (the 32 cities in eastern North Carolina that had banded together for the deal) suddenly had a losing proposition. Not only had costs increased, but interest rates soared into double digits. The municipalities faced back-breaking interest charges on their bonds, and the price of their electricity leaped upward.

The 32 cities and towns were trapped. They could not get out of the deal. They could not declare bankruptcy without ruining their ability to finance other municipal operations. And neither the state nor the federal government was willing to bail them out.

With the merger of Duke and the former CP&L, Duke Energy is willing to discuss a buyout of the municipalities' share of the generating capacity. If Duke is willing to buy out the cities' remaining debt, electric rates could drop to a level comparable to Duke's. The immediate impact would be a boost to businesses and industries that would like to be in Greenville or Wilson or Smithfield but are frightened away by the high electric rates. Residential rates could drop by 30 percent, making these towns more attractive to retirees and others.

The municipalities would retain their electric distribution systems and would respond to power outages, but they would buy their electricity wholesale from Duke. If the towns succeed in negotiating a wholesale price that allows them to match Duke's residential and commercial rates, all of North Carolina would be on a level playing field for the first time in decades.

And that would be a game changer for industrial development in one of the poorest areas of the state.

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