The information seems to be that Duke Energy is willing to buy out the assets of the power agency and thus take on the $1.8 billion dollars of debt associated with the deal. For those not familiar with the ENCMPA back in the 1980's the small cities of the eastern part of NC and the western part of NC became concerned that there towns would not be able to get power down the road and even if at a fair price. So they went in with the Carolina Power and Light company to help them built power plants for the growing state. The agency was formed and sold municipal power bonds to finance their share of the plants and debt. ElectriCities, the administration arm of the cities power agency, was formed to handle the buying of power and administration of the debt. Add in the ElectriCities was to lobby for the cities as well. The last few sentences are the short version of this arrangement as there is more at play here and if you have interest read our post on Small Town Investor August 22, 2011 for the rest.
Anyway this news this morning was obviously not meant to be released just yet as the negotiations could likely more forward quicker is there were not pressure on politicians to tank this deal. Kudos here to NC Senator Buck Newton who has been a big supporter of getting some deal done here and it appears has been pushing behind the scenes. If this deal was to happen the power plants assets and debt would move from the member towns of ElectriCities to Duke Power. This is frankly the correct approach and would relieve the towns of what is said to be about 37% of the cost of providing power in the local towns. To be honest we do not see what Duke Energy gains from this, but give them credit for the willingness to make the plan happen. They only gain more debt since they will continue to provide power to the local towns wholesale as they are now doing anyway.
So the local towns could be relieved of $1.8 billion dollars in debt and could in effect lower their power bills to customers. I said COULD lower power prices because we are dealing with politicians here who only see that ratepayers are paying the high rates now so why not keep socking it to them and take the extra profits and use elsewhere to make new friends from all that money. Personally I think the pressure to reduce bills will be enormous and I think it will happen. As to reducing the bills the entire debt load reduction I doubt it since in the past town leaders in the effected areas how not been wise stewards of the power revenue. These bonds should have been paid off about now if the original bonds had been allowed to mature, but of course they reissued the bonds and extended the debt ten years some years ago in order to use all that lovely new revenue from lower interest rates for favorite projects and to reward those in government.
Let's add another layer to this hopeful buyout and that is why not take the opportunity to not only pay off the bonds and get out of debt, but to also get out of the power business entirely for the towns involved. Wanna bet that any leaders or government employees in the power agency towns cringe when reading that last sentence? If not you would lose big and here is why. If the towns did the right thing and looked after the citizens and power customers here they would take the next step past ending the debt and sell off, or even just give Duke, the remaining small assets like power lines and such. Basically I am saying here that Duke takes the keys, you are in the power business and do it well, so do what you do best. The towns would be rid of the problems of owning and dispensing power and could concentrate on what they are supposed do and that is provide basic government like police and fire protection. The cost to do so would be negligible to the towns and would actually be a plus to Duke and power customers as they could find ways to buy over a larger customer base. The towns would benefit from having lower power rates and less pressure on property taxes which would in turn add to their ability to attract new business and the associated jobs.
Why will this not happen? This goes back to my belief this news was a leak. Likely from either someone in the towns or someone at ElectriCities who does not want to see this deal happen. Point is the towns have employees who do not want to work for Duke and frankly might be out of a job as Duke finds ways to operate more efficiently. ElectriCities highly paid staff would lose jobs too and we all know how bureaucracy likes to live on forever even when not needed. Maybe we could pray or wish that there are leaders here who understand they work for and should be advocates for citizens and taxpayers but count me as skeptical since being around this game long enough I know where this is likely to play out.
For full disclosure we own significant bonds in the power agencies so this deal would not be a positive for the writer, but non the less as a NC citizen would like to see it happen since it would be so good for the state going forward in attracting more business and jobs.
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