Regional Report Eastern April 2011
Cities: Switch off our debt for power plants
It’s tough to recruit and retain businesses when your electricity costs are a third higher than the state average, so it’s no wonder that some leaders of 32 Eastern North Carolina municipalities are willing to try what amounts to a Hail Mary pass to reduce them. But many, even within their own camp, say they don’t have a prayer of getting Duke Energy Corp. and Progress Energy Inc. to swallow $2.4 billion in debt their cities and towns incurred 30 years ago, when they bought shares of power plants in an effort to obtain cheap electricity.
The initial reaction from Charlotte-based Duke, which is seeking regulatory approval for its acquisition of Raleigh-based Progress, wasn’t favorable. “When we purchased Progress, it was a $26 billion transaction that included assuming about $12 billion of Progress debt,” spokesman Tom Williams says. “It did not include acquiring debt that Duke or Progress didn’t incur from the municipalities.”
Their problem goes back to 1981, when the 32 cities and towns, acting as the North Carolina Eastern Municipal Power Agency, bought shares in three nuclear and two coal-burning plants from Progress’ forerunner. But the deal backfired when their share of the plants’ costs soared in the decade following the 1979 accident at the Three Mile Island nuclear plant in Pennsylvania. The bonds won’t be paid off till 2026. “I’ve seen citizens paying as high as $750 a month,” says Roger McLean, mayor of Elizabeth City, which owes about $93 million. “It affects our ability to grow as a town and to maintain jobs.”
He’s one of about 20 mayors lobbying Duke and Progress to take on the debt as part of the merger. But they face an uphill fight. “The Municipal Power Agency serves 500,000 people, and the merged Duke and Progress will serve 7 million,” says a city manager who asked not to be named because his mayor is involved in the lobbying effort. “You’re not going to tell me the legislature or the State Utilities Commission is going to say, ‘You 7 million people have got to bail out the 500,000 others.’”
Plus, he adds, Duke and Progress can’t just forgive the debt, because they don’t hold it. Institutional bond agencies do. He also says that some of the municipalities dug their debt holes deeper by shunting proceeds from electricity sales to their general funds. That was a politically popular means of holding down property taxes, but it has slowed payback of the bonds.
If the mayors fail to persuade Duke Energy and lawmakers to bail out their towns, what’s next? Some municipal administrators say they want to get out of the power business by getting Duke to buy their infrastructure. Otherwise, they’ll be paying off bonds for 15 more year