Electric cities seek federal relief

Eastern North Carolina's vexing burden of high utility rates is finally getting some federal attention. U.S. Rep. G.K. Butterfield of Wilson has vowed to try to give some relief to customers of North Carolina Eastern Municipal Power Agency cities, who are paying several cents per kilowatt more than customers of Progress Energy or Duke Energy. It won't be an easy fix.

The problem goes back about 30 years, to the late 1970s, when both Duke Power and Carolina Power and Light sought financing to build new power plants to meet soaring demand for electricity. At the same time, municipalities selling electricity were looking for a reliable, economical source of electric power to resell to their customers. The result was two power agencies, NCEMPA and Power Agency 1. The two agencies pooled the electrical demand and financial resources of about 60 cities (32 in eastern North Carolina) to invest in new power plants being built by Duke and CP&L (now Progress Energy). The power agencies would receive the portion of power generated from the new plants equal to their share of ownership. Additional power would be sold at wholesale rates. Municipal officials expected to be able to sell electricity at a rate lower than CP&L. Wilson actually set its retail rate slightly lower than CP&L's for a brief time.

Two things went wrong: Interest rates hit a century high with the prime rate topping 20 percent at one point, and the Three Mile Island nuclear accident soured the public and the government on nuclear power. The high interest rates increased the financing costs for the municipalities, and the Three Mile Island incident brought new regulations for nuclear power plants, which sharply increased the costs of building the new plants CP&L and Duke were constructing.

The bottom line is a continuing NCEMPA debt of $2.5 billion some 30 years after the bonds were originally sold and retail electric rates that are significantly higher than those charged by the investor-owned companies. Compounded by some bad decisions and questionable spending by power agency officials and inattention by city officials, the high electric rates have sparked a rebellion by captive  customers.

The state considered a radical type of relief in the form of electricity deregulation in the late 1990s, but the failure of deregulation in California, where rates soared and shortages caused blackouts, put a stop to the deregulation fervor. The deregulation plan would have forced municipalities to sell their electric systems, but the cities strongly objected. A forced sale would have minimized the value of their assets (power lines, substations, poles, trucks, etc.) and would not have generated enough money to pay off the municipalities' debt. Cities who had pioneered municipal electric systems would have been left with a crushing debt and no means of paying it off, except for property taxes and water/sewer rates.

Cities who went into this venture 30 years ago in good faith have found themselves in a terrible dilemma. Paying off their debt forces them to maintain high electric rates, but the high rates cause residents to rebel and also hurts economic development.

The only short-term hope might be some form of federal relief. If that relief involves the sale of cities' electric assets, however, the cities will object. They want to keep their valuable electric systems. The only way to give both cities and customers the relief they want would be some form of federal program to reduce or eliminate the debt. If Congress can salvage banks and automakers, it's not too far-fetched to hope for relief for cities who made a bad bet 30 years ago.

That won't be easy to do, but at least NCEMPA cities and customers have the attention of Congress. That's a start.