HB 1163 throws up a hurdle for Progress/Duke merger | Eastern North Carolina Now

    Publisher's Note: This article originally appeared in the Beaufort Observer.

Rep. Leo Daughty, R-Johnston seeks relief of municipalities' debt in the merger deals

    Just when many observers were predicting that the proposed merger between Progress Energy and Duke Energy was about to be finalized a new bump in the road was created last week when Rep. Leo Daughtry, R-Johnson introduced House Bill 1163. In effect what the bill would do, if passed would be to block the merger unless and until the Municipal Power Agencies (MPA) (Electricities) either sold their interests in the generating facilities owned by Progress/Duke or the "retirement of the debt incurred by the MPA. Of course the debt retirement provision would effectively block the merger because the debt is not scheduled to be retired, under the current payment schedule, for many years.

    Knowledgeable sources in the Legislature said that the real purpose of H 1163 is to force Progress/Duke to negotiate some resolution of the massive debt the municipalities that are a part of the two municipal agencies in the state now suffer under. Washington and Belhaven are two such municipalities. Electric rates among the Electricities/MPA towns and cities are higher than other power suppliers because of the debt incurred by those systems in generating facilities. As the cost of those facilities went up, so did the debt and thus the cost of wholesale power to the municipalities. Without some relief from the debt the municipalities have little hope of reducing the cost of electricity.

    ElectriCities negotiated an agreement with Duke and Progress which resulted in ElectriCities no objecting to the merger without debt relief. Several municipalities contested that position and took legal action to try to block the merger unless a better agreement was reached. It does not appear that such an agreement was going to be reached before the merger was consummated so Daughtry introduced the bill to change the conditions of the pending merger.

    One source told the Observer that the goal is to force Duke to buy the MPA's generating capacity and thus liquidating the debt as a part of the merger. Duke has little incentive to do that, absent some external compulsion and H 1163 is seen as just that. "Solve the debt problem or you don't get to merge" is the way it was explained.

    A number of observers have wondered why the municipalities and the MPA's agreed to the proposed merger without the debt being included. "It does not make sense that ElectriCities would agree to just be sucked into a merged system. They are part owners in assets that are being conveyed to Duke. If Duke wants the assets it should pay the debt that comes with the assets," we were told.

    It is not at all clear what H 1163 status is. It was referred to the House Rules Committee. That committee operates as a "traffic cop" for legislation, particularly late in the session. The committee kills more bills than it moves to the floor under these circumstances.

    Clearly there will be some serious backroom discussions in the coming days. We'll keep you informed.

    If you have a particular interest in tracking the bill you may do so at:

    http://www.ncga.state.nc.us/gascripts/BillLookUp/BillLookUp.pl?Session=2011&BillID=H1163&view=history_rss

    By way of a footnote on this issue, we would suggest that if you are a student of the legislative process in the General Assembly that this will be an interesting bill to watch. Duke and Progress have what is probably one of the most powerful lobbying machines in the business. The money involved is enormous. Legislators who represent municipalities who own electrical systems are intent of helping these towns and cities find some relief from the enormous debt they now have and from that mountain of debt continuing to grow going forward. But many legislators don't represent ElectriCities and don't want the cost of that debt to be dumped on other rate payers who now have better deals. So the stakes are high. It will be interesting to see how the Energy Lobby pulls this one out.