Power agency won't refinance bulk of debt

A citizen’s group advocating lower electric rates in Rocky Mount had hoped their goal could be accomplished by the refinancing of bonds funding power plants.

They learned Wednesday that would not likely happen.

“At this point, it is not a (financially) viable option,” said Tim Tunis, chief financial officer for ElectriCities, the administrative arm of the power company serving Rocky Mount.

Citizens for Fair Utilities of Rocky Mount got the answer to its question on Wednesday morning during a meeting of the board of N.C. Eastern Municipal Power Agency in Wilson.

The agency includes 32 cities in Eastern North Carolina that banded together to provide electric service to customers.

Meeting at the Wilson Operations Center, city officials from throughout the eastern region of the state on the power agency’s board listened to staff explain the many negatives and few positives of refinancing a major portion of the agency’s $2.5 billion debt that funded construction of power plants.

Tunis presented three refinancing options for the agency’s portion of the debt funding the Shearon-Harris power plant near Raleigh and Brunswick power plant in Brunswick County.

One scenario involved refinancing $1.62 billion. That would result in an average 3 percent reduction in wholesale power costs from 2010 to 2022. But the refinancing would cost $491 million in today’s dollars.

“It is a very expensive option,” Tunis said.

About 70 percent of the power agency’s outstanding debt cannot be refinanced on a tax-exempt basis due to federal tax laws.

That means that most of the new debt would have to be refinanced at a higher, non-tax-exempt rate of 7.9 percent, compared to the current rate of about 5.7 percent, Tunis said.

Also, this refinancing option would result in a 20 percent increase in wholesale electric rates from 2023 until 2025.

Without a major refinancing, the current debt financing the plants would be paid off in 2026. And there would be $171 million in reserves available that year to stabilize rates.

Tunis also presented another possible scenario that involved refinancing $701 million of the agency’s bonds that could be refinanced at the tax-exempt rate. This would result in an average wholesale power cost decrease of 2 percent from 2010 through 2022. But this option also would result in 8 percent higher wholesale power costs from 2023 through 2035. And this refinancing would cost $20 million.

“It’s not worth the savings,” Tunis said.

Staff is recommending a plan that would refinance about $122 million in bonds that still would be paid off in 2026, which would save about $12 million in interest costs. But this would not result in any substantial change in the wholesale electric rates, Tunis said.

The ElectriCities board has decided to go along with staff’s recommendation, Tunis said. He said the board is slated to formally vote on the issue Friday in Raleigh. The power agency board will vote on the issue next month.

Jessie Frazier, chairwoman of the Rocky Mount citizen’s group, said as she was leaving the meeting that she was disappointed to learn that refinancing the bonds would not be the key to lowering rates.

“It looks like we’re not going to get any (rate) relief at all unless there is a miracle,” Frazier said.

She presented a resolution at the meeting endorsed by the Rocky Mount City Council that “vehemently opposes” a proposal being debated in the N.C. General Assembly to increase the sales tax on electric bills from 3 percent to 6.75 percent.

The resolution states that city officials are “keenly aware” that this and any other tax increase imposed on purchased electricity would worsen “the financial crisis currently being experienced by citizens.”