Economic development dispute in Smithfield illustrates the problem with the monopolistic electrical system in this state | Eastern North Carolina Now

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

    Warren Smith recently wrote here that electric rates are one of the most significant variables that impact economic development. That point was reinforced yesterday (6-20-12) by an article in the Smithfield Herald. The story seems particularly local, but actually it is not. It is one of the major issues facing Eastern North Carolina. It impacts economic development more than most people realize. Essentially what the story is about is a developer who is trying to avoid being taken into a municipal electric service area. He prefers to be served by Progress Energy because Progress has lower rates than does Smithfield. Click here to read the Herald story.

    Meanwhile, it appears that the merger between Progress and Duke Energy is going to proceed. But without the merger solving the problem that is actually causing the dispute in Smithfield. That is the enormous debt that ElectriCities (municipalities who operate their own electric system) labors under being resolved in the merger. ElectriCities agreed to support the merger in return for small concession from Duke. But the concession in the merger deal will not be sufficient to allow Smithfield and other ElectriCities to compete with Duke. Since each electricity provider is a monopoly within the area they serve the consumer will not benefit from a competitive market place.

    Rep. Leo Daughtry, who just happens to be from Smithfield, recently introduced a bill to address the ElectriCities problem, but it appears that the merger will go through before the bill can become law.

    Meanwhile, Washington and other ElectriCities appear to be the losers in this battle. And as such, these cities will be at a disadvantage in recruiting new and expanded businesses in the economic development race.

    Commentary

    The dispute between the developer in Smithfield and the town is not unique. It illustrates a fundamental problem in economic development and it must be rectified. The question, however, is how to correct the problem.

    We think the solution is simple. Allow the developer in Smithfield to choose which electric utility he will purchase from. Allow every consumer to do the same. Set the system up like the phone system is set up.

    But if the electrical system were to be opened up to competition then something would also need to be done about the ElectriCities debt. And we think that can also be addressed simply by treating the electrical generation capacity the ElectriCities own as any other business deal would treat minority owned property.

    If several owners own a piece of property and the majority owner(s) decides to sell (merge) it to someone else then the new owner must pay each owner what they want for their interest or there is no deal. In other words, you can't just buy the majority owners' interest in a jointly owned piece of property. But minority owners in common cannot block the sale in good faith. The common law rule is that if the property cannot be partitioned and parts of it sold then a referee is appointed to determine the value of the minority shares and that is what the new owner must pay.

    We have no idea what the value is of the generating capacity in the plants ElectriCities owns is but we are confident that the fair value could be determined. Once determined each ElectriCity would then be offered that value for its interest in the generating capacity and each could decide whether to sell its interest for that value.

    But at the same time, those who decided to sell their generating capacity but keep their distribution system, should be able to purchase wholesale power from whatever generating utility they chose to purchase from. Then the developer in Smithfield, and any consumer anywhere on the grid, should be able to choose whichever electrical provider they think will offer them the best value.

    The difference between the competitive electrical system and the one we currently have is the difference between the old Bell/ATT&T phone system and the current cell phone system we use today. And who would argue that consumers do not get better value in cell phone service than we did from the old Carolina Tel & Tel when it was a monopoly?

    And finally, we would suggest that the future of these large electrical generating facilities is doomed anyway. The day will come when developers like Mr. Shallcross will provide their own electricity whether it comes from solar, wind or mini-nuclear generation. Therefore, we may as well go ahead and move the electrical monopoly system to the boneyard. The sooner the better.