Duke Must Take Debt Along with Assets in Buying Out Municipal Ownership of Power Plants

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ElectriCities, the organization of North Carolina cites that are also electric utilities, announced recently that it is negotiating the sale of 32 eastern N.C. member cities’ ownership interest in four power plants to Duke Energy. These cities are the local power utility for many low-wealth and excluded communities across what’s commonly referred to as the “Black Belt” of eastern North Carolina. They are also home to the highest electricity rates in the state; many residents report paying more than $500 per month for electricity. In 2009, ElectriCities customers paid $240 million more than they would have if rates were the state average.

More than a third of the high cost of electricity in these areas is due to the approximately $2 billion in debt tied to the cities’ share of these power plants, particularly the Brunswick and Shearon Harris nuclear plants. During the energy crisis of the 1970’s, the cities entered into a deal with Carolina Power and Light (CP&L) to help finance the construction of these plants in exchange for an ownership interest and a wholesale power deal to meet any of their additional energy needs. The cities own 18.3% of Brunswick nuclear, and about 16% of Shearon Harris. Shearon Harris was the last nuclear power plant built in the U.S. and also the most expensive, costing more than twice what was originally projected. In total, 52% of the power provided by member cities comes from nuclear energy.

Rocky Mount, Wilson, and other small cities in eastern North Carolina, bought large ownership shares of these power plants anticipating continued service to large industrial power users, but with the loss of manufacturing facilities across the region, there is smaller industrial demand. With the high power costs, these cities cannot attract new industry; even when new industry comes to the region they intentionally locate in areas served by Duke Energy or a cooperative rather than pay the higher municipal rates. The result is that the entire debt burden falls upon the predominantly low-wealth residents who can least afford to pay. Residents of these cities are thus paying again and again for the miscalculations made by local officials decades ago.

This is simply unfair. The state of North Carolina must shoulder some of the responsibility for the intolerable situation facing these cities. The originally deal between the cities and CP&L included legislation that exempted municipal power providers from state rate regulation by the Utilities Commission; this exemption means there is no control over the rates other than the local governments, even though many ratepayers live outside the city limits and cannot vote for these governments. While the legislature studied the issue in the 2011-12 session, the only legislation produced had minimal impact and did not significantly lower rates. Notably, the state failed to address the issue when given the opportunity during the recent Duke-Progress merger.

While these cities are failing, Duke Energy continues to show record profits, as did its predecessors, Progress and CP&L. In 2010 Duke posted profits of $1.3 billion, enough to pay off more than half of the municipal debt in a single year. Purchasing the ownership interests of the cities would only further tighten Duke’s state-sanctioned monopoly on electricity in North Carolina.

As the cities negotiate with Duke, and as state and federal regulators review any proposed purchase, officials must demand that Duke pay a price that will allow these cities to substantially reduce the exorbitant rates being paid by working class rural residents; a price at least equal to the outstanding debt owed on the plants. Absent such a requirement of Duke (a public utility that exists to serve the interests of the people of North Carolina) hundreds of thousands of North Carolinians will continue to see their road to economic prosperity hopelessly and needlessly blocked.

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Posted by Peter Hull Gilbert on Thu. February 6, 2014 12:16 PM
Categories: Community Inclusion
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