Eastern North Carolina Electricity Power Deal.

One our first postings on this blog some four years ago discussed the situation with the Eastern North Carolina towns getting crushed by extra high electricity rates and how to resolve this issue. Seems that issue has been put to rest effective mid year 2015.  Or has it? 

First off very soon as we understand it Duke Power is going to effectively deposit into Electricities account, the company that manages the eastern NC power system and towns that are members, about $1.2 billion dollars. Now that is a lot of money however it does NOT payoff the entire debt of the power system.  There will still be remaining about $500 million dollars or so to be paid off.  Talk about a serious capital loss this one is a doosie, but that is the lousy deal politicians made for taxpayers back in 1981 buying some power plants.  The debt remaining past the buyout amount for the power agency is in municipal bonds and those mature on a set schedule, up to about 10 years out. Some of those bonds are what is known as callable now and we expect, and hope, the agency will call those bonds and redeem them quite soon after they get the Duke funds. Then for those which come due along the way over the next few years we assume that Electricities and the member towns will redeem them and use the funds still in the bank to slowly eliminate the debt.  We hope. 

Electricities and the member towns have NOT been good custodians of power revenues over the years. When money piled up in accounts waiting for bonds to mature known as a sinking fund the politicians in the towns and bureaucracy at Electricities could not help themselves and spent the money.  Seriously would you expect anything else, they are who they are.  That is one of the reasons why the bonds originally planned to mature in total in 2011 are still another ten years plus out.  As we noted in our original post on this subject that money was spent on other "power" needs and frankly some of those "power" needs where in our opinion real sketchy. So the bonds not having the needed funds to pay them off where rolled over into longer dated bonds and the Electricities crew and politicians in the member towns just kept on keeping on with nary a worry in the world.  The problems  arose when the higher power rates came into conflict with no new residents, no population growth, and the lack of economic development.  That lack of the aforementioned growth was and is BECAUSE the lack of growth meant that those higher rates could no longer be spread over an expanding base of ratepayers.  So the ugly cycle of higher rates and higher rates kept going since not only was their no growth but in some cases there was declining numbers of ratepayers to shoulder the burden.  Of course if the powers that be would be minded their knitting and paid off the bonds in the timely manner planned then they would be completely free of the bonds and their cost now.  But what would that crowd at Electricities do and where would their operating funds originate? Those agencies need a reason to exist.  They want to keep their cushy high paid positions.  So the longer the debt and power agency game can be kept going the better.  Talk about the ultimate middle man job well these are it. 

So now they will soon sit with several hundred million dollars of new Duke money in the bank and frankly we do not trust them with it and we think with good reason.  If the bonds could be paid off immediately we would rest easy. The smart move would be to find some trustee say an insurance company that would love to have a cool billion dollars or so and deposit it with them, collect some negotiated high interest,  and make a deal to get funds as needed to pay off the bonds. Hey Warren Buffett's little operation might be a good place, how about someone placing the call for starters? Anyway here we sit with all that money and wonder if the towns and Electricities will find some more "power" needs for the money?  And of course remember there is still that $500 million or so hanging out there that needs to be paid off, wonder if they can just let those bonds mature on schedule and rid us of all this debt.   The past being prologue and as a ratepayer I am worried and you should be to if you live in a member town.  Yes we know that the bonds left will likely be put into what might be called pre-refunding mode backed by US treasuries, but we still do not trust them as US Treasuries can be sold and money spent. 

There is one other issue that concerns us too and this is totally a town governance one.  Let's go back to those higher than high electric rates.   With those bonds being paid off and the debt going down the cost of electricity should follow.  Maybe even a nice double digit drop shortly after mid year 2015 since the rate decrease should be around 18%, oh wait maybe it is 16% since we gotta pay those folks at Electricities their cut . Well do not count on it yet, remember we are dealing with some bureaucrats and politicians here. The savings will be large as in over $200 million annually in interest costs alone plus several million more annually in related costs of being part owners of power plants. Of course politicians see all that lovely cash flow they have had all along and they think special projects and other such government expenditures and we best be worried as they may well not cut rates or cut rates much to keep more of the cash flow for their favored interests.  They might even lower the rates for large businesses or even new industry sweetener than allow residents to see a cut in rates.  Yeah I do not trust them.  The smart move would be for each town to dump the entire power structure on Duke, like make a call and make a deal, and be done with all this mess.  Yes we are talking power poles, power employees, and power bills for good, get out of what should be a private business all along. But do not expect that to happen either since we still got those pesky people at Electricities to pay and some politicians who like that cash flow and we all know nothing succeeds in keeping itself employed like agency bureaucrats and government employees. So we expect they will sign another 20 year deal with Duke and we all will be some better off, but not as much as other power buyers in other towns. 

So keep a sharp eye out and keep up with what is going on here in your power agency member towns as we are not out of the woods yet and frankly I expect this is far from over. Yeah I will say it again I do not trust them.