Can We Wait Until 2026?

As I sit here putting together information for this piece, I am dressed in layers of clothing and blankets while my feet rest on a hot water bottle to insulate me from the chill in my 63 degree home. After moving to Wilson from Charlotte six years ago and reeling from the sticker shock of that first electric bill, I accepted that cold winters—indoors—were going to be a way of life if I wanted my electric bill to remain remotely close to where it was when I was a Duke Power customer. You cannot pay a reasonable rate in this town to stay reasonably warm. The opposite is true in the hot months—somehow we adjust to the balmy 79-80 degree thermostat setting. Thus began my intense curiosity and crusade to understand what went so terribly wrong to drive our electric rates into the stratosphere.

We expect to pay a reasonable rate for our electricity. Current regulations require power companies to endeavor to keep residential rates affordable. This is not the case for the 32 NCEMPA cities (of which Wilson is a member) due to our debt burden. These cities have been paying for almost 30 years and still owe $2.6 billion from buying into power plants in the early 1980s. We pay much more than Progress Energy customers. According to The Wilson Daily Times (WDT), Wilson’s winter rate is 13.3 cents per kilowatt hour; Progress Energy’s winter rate is 8.78 cents/kWh. Our rate is 51-54% higher than Progress based on winter and summer rate histories.

Mike Colo, an ElectriCities attorney, told the board that it has a legal obligation to set electric rates at a level that will cover its cost. While that may sound reasonable, is a 37% debt surcharge on top of ratepayers’ electric bill an acceptable way to accomplish this? We, as ratepayers, have every right to expect our elected officials to lobby for a reasonable charge…perhaps 10-20% is more in line with what the average ratepayer in these towns could manage. If this can’t pay the debt down fast enough, assistance from other resource providers should supplement.

Consider the alarming demographics of the 32 NCEMPA cities:

* 21 of these ‘cities’ have populations of 380-10,000 people—17 have under 5,000 residents, making them more like small towns than cities. This is the majority makeup of the NCEMPA.

* 17 of these cities are in Tier One (most economically distressed) counties. Wilson is included and has an astounding 24% poverty rate.

*The median NC household income for 2007 was $44,000. Only 4 of the participating cities were at this level or higher. The other 28 cities had an average household income substantially less than the state median.

*The NCEMPA cities have 265,000 residential and commercial customers. Progress and Duke have over 3 million and 4 million customers (not all in NC) respectively.

Fitch, one of the NCEMPA’s bond-rating companies (our bonds have a good rating), has this to say in reports from 2003-2008 “…weaknesses center on a high average wholesale rate...high member retail rates (30%-40% above average for the southeast region)….somewhat weaker economic base for several of the member cities…and a relatively large debt burden for a proportionally small participant customer base…. ..Revenue concentration among the five largest city members remains an issue…”

According to Fitch, the largest five debt owners (Kinston, Greenville, New Bern, Rocky Mount and Wilson) pay 63% of NCEMPA’s debt. Greenville is by far the largest city with a population of 76,000. Compare this to Raleigh and Charlotte, with 376,000 and 672,000 people, respectively. The point is there are a relatively small number of economically weaker communities paying a disproportionately huge $2.6 billion debt.

On the Wilson ElectriCities FAQ page, we learn that in the 1970s the Investor Owned Utilities (CP&L at the time—now Progress, and Duke) ‘feared shortages, couldn’t guarantee future power supply, and needed additional power plants but were having difficulty raising capital for construction....’ Even the state legislators became concerned there would not be enough electricity to meet the state’s future needs. At the same time, we needed reliable power. Duke and Progress needed us to complete the projects. Fifty-one cities (32 make up the NCEMPA) chose to form two Power Agencies and issued electric revenue bonds to help finish construction of the plants, as well as purchase partial ownership of two Brunswick nuclear units and two coal-fired plants. NCEMPA has a 16% ownership stake in these plants. This is an example that the state of NC, Progress, Duke and the NCEMPA have played a role in creating this situation, and we will all need to contribute to paying down the debt—not just the 265,000 NCEMPA ratepayers. Quid Pro Quo.

According to an article in the Triangle Business Journal in 2003, ElectriCities two power agencies helped finance nuclear generation facilities built by Duke and Progress hoping the move would result in lower costs for their customers. The opposite occurred, and ElectriCities debt now represents two-thirds of NC’s overall public indebtedness. According to the WDT, Ken Raber, Senior Vice President of Electricities, explains that as the Harris nuclear plant was continuing to be built and the costs kept going up, so did the amount of debt that we had to issue. It took 10 yrs to build Harris 1 (plants 2, 3 and 4 were cancelled). Escalating construction costs were due to federal regulations after a series of errors led to the partial meltdown at Three Mile Island. This cost overrun caused the problem. Initial cost estimates to build Harris and buy partial ownership in the other power plants were near $1.4 billion. The costs nearly doubled to almost $2.8 billion. In 1993 the debt peaked at $3.6 billion. Additional expenses were added when the three additional Harris units were cancelled and the debt was refinanced. Seventy-two percent of our debt falls on Harris 1.

In October, Ken Raber was quoted in the WDT saying ‘we were already in, and we did not have any protection in our contracts for that cost overrun.’ Because of an unfortunate lack of foresight on numerous levels a bad deal was made almost 30 years ago. Should the small group NCEMPA ratepayers be expected to bear this monstrous burden alone for almost 50 years?

The issue of ElectriCities’ mountainous debt has over time become not just an NCEMPA problem, but a statewide dilemma. This was never clearer than when the subject of electricity deregulation for the state was openly discussed in the late 1990s. During that time, deregulation had its pros and cons (it was not the pariah it is today), but it was struck down in NC mostly due to the NCEMPA debt.

While it is true that our debt will be going down after 2008, there will not be a noticeable difference in principal and interest payments until after 2021, according to NCEMPA debt responsibility information. According to the WDT recently, ElectriCities recommended rate increases not only to cover increasing expenses but also to increase its fund equity account to pay for unplanned increases in cost to operate its plants or purchase energy resources. Our plants are 30 years old. An alternative to a rate increase is to issue a $63 million bond to pay for capital additions to the power plants through 2012. This implies our problems will not end in 2026— expensive upkeep will always be an issue when spread over so few ratepayers

The ElectriCities FAQ page states ‘because the municipalities helped build the plants, the state of North Carolina has enjoyed a plentiful and reliable source of power to spur economic growth.’ NC as a whole is benefiting from our contribution and should be expected to bear some of this debt burden. NC has capacity/facilities they wouldn’t have had without our financial help.

ElectriCities was formed back in 1965 to protect the interests of public power customers, provide a unified voice to speak out in the North Carolina legislature, and continues today to serve Public Power communities. Electricities has several legal teams and lobbyists. Since they work at the state and federal level, let’s insist they appeal to our state representatives and lobby for funds to reduce the debt carried by ratepayers they are supposed to be representing.

We are experiencing the devastating impact current rates have on our ratepayers, communities, and region. Are we prepared to forfeit fifteen more years of economic prosperity? Stand by and watch while the rest of North Carolina moves forward?

There are several thoughts to consider in managing this debt; none are pleasant. It is a matter of trying to determine which is most fair, which is the least of all evils. I hope to see better ideas brought forward!

1. The General Assembly can agree that the state will pay off/reallocate some portion of this debt. According to the WDT, members of the NCEMPA board are considering bringing in state and federal legislators in an effort to explore whether any state or federal help is available to alleviate NCEMPA’s rising energy costs and restructure the debt. We can find a way for all NC power customers to have reasonable utility bills if we reallocate this debt among all power customers and investors.

2. Renegotiate with the parties to our debt. The Oct. 24 WDT editorial stated that all the parties involved in this—ElectriCities, the member cities (NCEMPA), the banks and other financial institutions that hold the debt and the ratepayers—be brought together to work toward an equitable solution. We are watching this take place all across the country as ‘iron-clad’ contracts are being renegotiated; flexibility is essential for survival.

3. Apply Golden LEAF grant money to the debt .Golden Leaf Foundation (Long-term Economic Advancement Foundation) president Dan Gerlach has discussed ‘diversifying our strategy’ in applying the grant money from its share of the master settlement to boost the economies of tobacco-dependent communities. Grants are given to elevate the economies of poorer communities. Applying this money toward debt would directly benefit the residents in these NCEMPA communities. This money is not substantial, but it could be one resource among several to chip away at this over time.

4. All NCEMPA cities sell back their ownership stake. - an option that should not be rejected without vigorous discussion and debate. Business developers and residential and business ratepayers across the NCEMPA are all desperately seeking relief—some locals to the point of recommending selling Wilson Energy to sever ties to the NCEMPA. While this action may not retire the full debt, is the staggering price we have been and will continue to be paying (qualitatively as well as quantitatively) for the next 17 or so years a price we’re willing to pay to own our own power? What are the success stories of cities of our size that do not own their own power? Do the benefits of keeping our ownership stake clearly outweigh the costs of selling it?

Let’s agree to no longer accept or be intimidated by the mantra ‘nothing can be done’ by some city leaders. Where is our vision—where is our leadership? If we, you and I, as the rate payers in these cities push and pressure elected officials on all levels hard enough—long enough, things can change. Compromises will be uncomfortable but necessary. We cannot have it all. We have a new Governor (who is from an NCEMPA city) and Senator. They should be under pressure to work with us and for us. Let’s not let budget shortfalls and the current economic climate be one more excuse to stay quiet and do nothing.