The FACTS about Electric Deregulation in NC

The Study Commission on the Future of Electric Service in North Carolina has recommended that the state restructure the electric industry. State legislation would be needed for this to occur. A key issue would be dealing with the $5 billion debt that 51 cities, including Washington, collectively owe on bonds used to finance investments in power plants on the Carolina Power & Light Co. and Duke Power systems.

The City of Washington endorses a solution that gives cities the option of remaining in the electric business by making additional payments toward the debt payoff above what the sale of the cities' share of power plants would bring. Since the sale of distribution systems, power plant interests, and additional contributions would not be enough to pay off the entire $5 billion, a surcharge on the electric bills of customers of the cities, CP&L and Duke Power also has been proposed. This solution would put the responsibility of paying off the debt on the electric customers that most benefitted from that partnership and would not involve North Carolina taxpayers. This is the solution that the cities, working collectively through the trade organization ElectriCities of North Carolina, have been advancing.

The concept of a surcharge has been under fire. As the electric deregulation debate heats up politically, City customers may hear statements in the news media that misrepresent the truth about how the cities have handled their electric systems and debt payments. The following information is intended to clear up confusion.

Statement: The electric cooperatives want to merge with municipal electric systems.

Fact: The cities and the electric cooperatives have been talking about ways to work together. The cities welcome positive dialogue with the electric cooperatives and other parties regarding bringing about deregulation in a manner that is most beneficial to our customers.

Statement: Instead of paying off debt using profits from sales of electricity, the cities have cut property tax rates, paid employees higher than average wages, paid for special projects, paid huge fees to consultants and used the money in ways other than what was intended.

Fact: The cities make debt payments every year according to a debt schedule that works much like a home mortgage. In the early years, more interest is paid than principal. Since 1978, the cities have paid $6.69 billion in interest and $658 million toward the principal.

Fact: The cities are fiscally responsible, saving money wherever possible, such as reducing interest costs through refunding bonds. National rating agencies have recognized these efforts.

Fact: After the cities committed to investing in power plants being constructed by Duke and CP&L the price of those plants, and the cities' debt obligation, grew considerably because of cost overruns and construction delays by Duke and CP&L. Nevertheless, the cities have honored their commitment to these projects.

Fact: Washington and other cities transfer revenue from their electric funds to the general fund. These transfers are good for citizens, area residents and businesses. The city electric systems are run like businesses, and transfers from the electric fund are the "dividends" paid to the community as benefit of local ownership of that electric system. This is similar to the dividends that Duke and CP&L pay directly to private shareholders, although the cities' pay at a much lower rate. In 1999 return on equity for Duke Power was more than 15% and CP&L 11.89%. Returns funneled back into the communities of the 51 cities was just 2.41%.

Fact: Washington's Electric Department reimburses other City departments for services provided which the Electric Department would have to pay for if it were independently operated, to compensate for revenue that the City would have gained had the area been served by an outside utility, and to help pay for projects that benefit the community as a whole, not just the citizens of Washington. Such projects include a grant toward construction of the North Carolina Estuarium on the Washington waterfront, renovation of public recreation facilities, expansion of Brown Library, and grants toward the operations of the Civic Center and the new Aquatic & Fitness Center.

--Revised March 2002, Communications Office