electricities background presentation

ElectriCities, NCEMPA & NCMPA1 Background

July 2013Summer 2013 NCLGBA Conference

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History: Why ElectriCities Was FormedGovernanceBusinessCurrent IssuesThe Value of Public PowerQuestions

Agenda

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A Look Back at History

With energy demand outpacing supply, utilities couldn’t guarantee reliable long-term power supply

– Rationing of power predicted– Electric costs steadily increasing

Cities feared negative impact on economic development

The Impact of the 1970s Energy Crisis: Poor Reliability, Rising Costs Created Dire

Situation

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“For the first time in modern North Carolina, you’re seeing the two largest power companies in the state not being able to say to an industrial prospect, ‘Yes, come any time you want and anywhere you want, and we’ll have power for you.’”

Sherwood Smith, Chairman and CEO, CP&LOctober 1981Business North Carolina


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“We were not able in 1974 to sell any bonds at any price, under any conditions whatsoever. We were desperate for cash to meet the payroll... We converted everything we could to cash. We converted uranium to cash. We sold our office buildings and leased them back.”

Bill Lee, Chairman and CEO, Duke Power CompanyJuly 9, 1985Testimony in Rate Hearing


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The Impact of the 1970s Energy Crisis: Rising Costs Wholesale rates were volatile and unpredictable Energy rates skyrocketed across the U.S. From 1970 to 1979

– CP&L wholesale rates increased 243%– Duke wholesale rates increased 262%


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Energy Crisis Brought Together Utilities and Cities Cities wanted greater reliability and control over costs Utilities needed help to finance new power plants

The Best Solution At The Time: Cities Granted Permission to Own Generation Legislation passed unanimously in 1975 Constitutional Amendment passed in 1977 NCMPA1 purchased ownership in Catawba in 1978 NCEMPA purchased ownership in 5 CP&L plants in

1982

Who Supported the Idea? Governor, Legislators, City Officials, Voters

The Power Agency is Formed

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Three Mile Island Changed Everything

March 28, 1979

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Increased government regulationsConstruction delaysSignificant cost overruns

Cost of NCMPA1Share of Catawba

* Source: NCMPA1 “Summary of Events Affecting Current and Projected Power Costs and Responses Thereto” (July 5, 1988); original cost projected to be $0.5 billion.

The Catawba Nuclear Plant Faced:


$1.4

Billion*

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Cost to build Catawba was almost three times higher than projected

NCMPA1 was left with high debt, made worse by record high interest rates and a decline in projected load growth

NCMPA1 is legally bound to repay the bonds; no cancellation opportunities

The Impact on NCMPA1:


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Increased government regulations Construction delays Significant cost overruns Plans for 3 additional units cancelled

Cost of NCEMPAShare of ShearonHarris

* $3.6B includes construction cost, fuel, interest during construction, deferred cost and cancellation cost. Original cost estimate: $1.4B.

Sources: Research Triangle Institute “Policy Options for North Carolina’s Municipal Power Agencies” (March 1999) and ElectriCities “Report to the Study Commission on the Future of Electric Service in North Carolina” (October 1999).

The Shearon Harris Nuclear Plant Faced:


$3.6

Billion*

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• The cost to build the Shearon Harris plant* was more than twice as expensive as projected

• NCEMPA was left with high debt, made worse by record-high interest rates and a decline in projected load growth

• NCEMPA is legally bound to repay the bonds; no cancellation opportunities

* Cost per kilowatt

The Impact on NCEMPA:


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Catawba Nuclear Station

The Catawba plant, which consists of two identical units, is jointly owned by NCMPA1, Duke, Piedmont Municipal Power Agency (S.C.) and North Carolina Electric Membership Corporation

NCMPA1 owns 75% of Catawba Unit 2

Through contractual arrangements, the owners share both units at the plant

NCMPA1 owns the largest share of the Catawba Plant– NCMPA1 37.500%– NCEMC 30.754%– Duke 19.246%– PMPA 12.500%

Nuclear Regulatory Commission issued license extensions December 5, 2003 for both Catawba and McGuire Nuclear Plants

License Expiration

Catawba 1 12/5/43

Catawba 2 12/5/43

McGuire 1 6/12/41

McGuire 2 3/3/43

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NCEMPA Jointly Owned Units

Mayo Plant16.17% Ownership

(117.6 MW)

Roxboro Unit 412.94% Ownership

(90.3 MW)

Brunswick Plant18.33% Ownership

(342.7 MW)U1 License Expires:

9/8/2036U2 License Expires:

12/27/2034

Harris Plant16.17% Ownership

(150.0 MW)License Expires:

10/24/2046

HistoryGovernance: How ElectriCities Operates

BusinessCurrent IssuesThe Value of Public PowerQuestions

Agenda

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Governance Structure

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NCMPA1 Board of Commissioners Primary Responsibilities Accepts/rejects wholesale rates Adopts NCMPA1 budgets Concurrence with debt issuance

ElectriCities StaffPrimary Responsibilities Provides management services

to the Power Agencies Provides other joint municipal

assistance services to 86 cities in NC, SC and VA

ElectriCities Board of Directors Primary Responsibilities Sets policy and strategic direction Holds management accountable for day-to-

day operations of the Power Agencies Reviews and approves ElectriCities budget Adopts wholesale rates sufficient to cover

Power Agencies’ debt and expenses subject to rejection by the Board of Commissioners

TradeOrganization

Government RelationsMember ServicesSafety & Training

Economic Development

NCEMPA Board of Commissioners Primary Responsibilities• Accepts/rejects wholesale rates• Adopts NCEMPA budgets• Concurrence with debt issuance

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MonroeDonald D. Mitchell Greg DemkoFreddie B. Gordon MorgantonDan Brown Brooks KirbySally W. SandyNewtonTodd Clark Wayne DellingerDouglas S. WessonPinevilleMayor George Fowler VacantShelbyMayor O. Stanhope Anthony, III J. Richard Howell, Jr.Brad R. CornwellStatesvilleMayor Constantine H. Kutteh F. Kent HoupeLarry Pressley

Mayor Constantine H. KuttehSecretary-TreasurerStatesville

AlbemarleRaymond I. Allen Jack F. NeelBosticVacant VacantCherryvilleMayor Bob Austell Brian DaltonCorneliusChuck TravisDavid Gilroy DrexelSherri Bradshaw Carroll FranklinGastoniaPorter L. McAteerJim GallagherPaul JakubczakGranite FallsMayor Barry C. Hayes Jerry T. Church Frank Mackie

High PointStrib Boynton Mayor Bernita Sims J. William McGuinn, Jr.HuntersvilleGregory H. Ferguson Sarah McAulayLandisW. Steve Rowland D. Reed LinnLexingtonJohn T. Walser, Jr.Mayor Newell Clark L. Wayne AlleyLincolntonStephen H. Peeler Mayor John O. Gilleland, Jr.Jeff B. Emory MaidenBilly R. PriceMarcus C. Midgett

NCMPA1 Commissioners and Alternate Commissioners;Alternate Commissioners' names appear in italics. (as of 1/29/13)

NCMPA1 Board of CommissionersAppointed by Local Governing Board

NCMPA1 OfficersJack F. NeelChairmanAlbemarle

Mayor Barry C. HayesVice ChairmanGranite Falls

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KinstonVacantTony SearsRhonda F. BarwickLa GrangeJohn P. Craft Larry Gladney Bobby WootenLaurinburgHarold W. HaywoodCurtis B. LeakLouisburgRay Patterson Tony L. KingMark R. WarrenLumbertonHarry L. IveyLeon MaynorT. Wayne HorneNew BernJonathan Rynne Dennis K. BucherMayor Lee W. Bettis, Jr.

Donald I. EvansSecretary-Treasurer, Wilson

ApexBruce A. Radford J. Michael WilsonR. Lee SmileyAydenAdam G. Mitchell Mayor Stephen W. TrippBelhavenMayor Adam W. O’NealDr. Guinn LeverettBensonMatthew R. Zapp Braston A. NewtonClaytonRobert J. Ahlert Mayor Jody L. McLeodEdentonAnne-Marie KnightonWillis PrivottGlenn AndersenElizabeth CityRichard Olson Mayor Joseph Peel

FarmvilleRichard N. HicksDavid P. HodgkinsBrian ShacklefordFremontLeon V. Mooring Kerry McDuffieHarold CuddingtonGreenville Utilities Comm.Virginia D. Hardy, PhD John F. Minges, IIIAnthony C. (Tony) CannonHamiltonHerbert L. EverettMayor Donald G. Matthews, III HertfordBrandon ShoafMayor Horace C. Reid, Jr. HobgoodVacantDanny EllisHookertonMayor Robert E. TaylorApril H. BakerDanny Taylor

NCEMPA Commissioners and Alternate Commissioners; Alternate Commissioners' names appear in italics.

NCEMPA Officers

Mayor Vivian A. Jones

Chair, Wake Forest

Matthew R. ZappVice Chair, Benson

PikevilleLyman G. Galloway Robert HooksKathie P. FieldsRed SpringsMayor John M. McNeillDavid ShookEdward HendersonRobersonvilleElizabeth W. Jenkins Stacy Scott John David Jenkins Rocky MountAndre D. KnightCharles W. PennyRichard H. WorsingerScotland NeckMayor Leonard Bunting Nancy JacksonSelmaRichard DouglasDonald BakerMayor Cheryl L. Oliver

SmithfieldPaul SabistonC. Earl BotkinSouthportPaul D. FisherJames F. (Jim) PowellTarboroRick PageAlan ThorntonRobert L. (Buddy) HarrisonWake ForestMayor Vivian A. JonesMark S. WilliamsWashingtonDoug Mercer Keith HardtJosh KayWilsonDonald I. EvansDathan C. ShowsGrant W. Goings

NCEMPA Board of Commissioners Appointed by Local Governing Board

(as of March 2013)

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HistoryGovernanceBusinessCurrent IssuesThe Value of Public PowerQuestions

Agenda

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NCMPA1 Power Supply

Electricity Supply

Project Sales Agreement• Catawba Nuclear Unit 1 & 2• McGuire Nuclear Unit 1 & 2 (exchange)

~ 96%

~ 4%Supplemental Power Supply

Electricity Sales

Sales to Member Cities

~ 75%

~ 25%Sales to Utilities(Surplus Sales)

NCMPA1 – 2013 Budget Revenues

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2013 Budget $564M

Sales to Partic-ipants,

$420.4M, 74.5%

Sales to Utilities, $52M, 9.2%

McGuire Exchange Entitlement,

$42.1M, 7.5%

Excess R&C Fund Valuation/Other In-

come, $19.2M, 3.4%

Investment Income, $7.9M, 1.4%

Fund Equity Withdrawal/ (Deposit), $22.5M, 4.0%

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NCMPA1 – 2013 Budget Expenses

2013 Budget $564M

Power Agency Services Details

Management Services $ 10.1 (1.8% of total budget) Outside Consultants $ 1.4 (0.2% of total budget) Other PAS $ 3.2 (0.6% of total budget) Total $14.7 M

O&M , $110.0M,

19.5%

Fuel , $66.1M, 11.7%

McGuire Ex-change Enti-

tlement, $39.1M, 6.9%

Purchased Power &

Transmission, $40.4M, 7.2%

Duke/Catawba A&G, $37.0M, 6.6% Power Agency Services,

$14.7M, 2.6%

Taxes, $37.9M, 6.7%

Debt Service, $192.6M,

34.1%

R&C Fund, $19.2M, 3.4%Decommissioning Fund, $7.4M,

1.3%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Historical Projected $154M Capital Additions (2012 - 2014) $121M Forecasted Capital Additions (2015 - 2017)

$ M

illio

ns

Catawba Retirement

$1.3B reduction since high in 1993

Outstanding Debt January 2013 = $1,433,090,000 Weighted Average Interest Cost = 3.36%

Outstanding Principal by Year Historical and Projected

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Wholesale Rate Plan

* All increases shown are assumed effective July 1 of each year.

Year

Projected NCMPA1 Increase*

2013 5.0%

2014 5.0%

2015 5.0%

2016 2.5%

2017 - -

2018 - -

2019 - -

* Duke values are projected by NCMPA1

*

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Regional Electric Rate Increases

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

33.77%36.77% 38.67%

50.83% 51.37%

Cumulative 10 Year Electric Rate Increases2004-2013*

NCMPA1 Wholesale NCEMPA Wholesale Duke Retail Progress Retail Dominion Retail

Per

cent

age

Incr

ease

* 2013 increases filed pending approval for Duke and Progress

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AR Rate Levels – Projections Since 2007

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Comparing 2007 Rate Plan to 2012 Rate Plan

Summary of Higher Costs & Revenue Loss

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Cost reviews/audits of contracts and bills

Debt restructuring

Refunding debt to lower interest rate

New Capital Additions financing

Seek opportunities to maximize off-system sales revenues

Internal cost controls

What Are We Doing About Costs And Rates?

NCEMPA Power Supply

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Sources of Electricity (2012 Energy)

NCEMPA’s ownership of jointly-owned units

Remaining needs purchased through a long-term agreement with Progress Energy

71.6%

28.4%

NCEMPA – 2013 Budget Expenses

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2013 Budget $767(all dollars in millions)

Power Agency Services Details

Management Services $ 8.3 (1.08% of total budget) Outside Consultants $ 1.5 (0.20% of total budget) Other PAS $ 1.4 (0.18% of total budget)Total $11.2

O & M$96.6M12.6%

Fuel$76.3M10.0%

Supplemental Power Supply $194.9M

25.4%

DEC Allocated A&G$30.0M3.9%

Power Agency Services$11.2M

1.5%

Taxes$25.6M

3.3%

Debt Service $261.4M34.1%

Power Agency Genera-tion

$12.6M1.6%

Special Funds Deposits$58.2M7.6%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

Historical Projected $87M Capital Additions (2012 - 2013) $201M Forecasted Capital Additions (2014 - 2019)

$ M

illion

s

Harris Retirement

Brunswick 1 & 2 Retirement

$1.6 Billion reduction since high

in 1993

Outstanding Debt January 2013 = $2,025,720,000 Weighted Average Interest Cost = 5.24%

NCEMPA – Outstanding Debt

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2012-2022 Wholesale Rate Plan

No rate increases projected until 2015

3% increases 2015 - 2020

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Agenda

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Federal Regulations / Legislation– EPA– Tax-exempt Financing

Economy

State Legislation– HB 295 REPS Repeal

• SB 720 NCEMPA required to negotiate sale of assets with Duke Energy

– SB 635 Limitation of Transmission Construction to Incumbent Utilities

Current Issues

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Pole Attachments

NC Supreme Court Ruling on Duke’s 2012 Rate Increase

Post Merger Report

Current Issues (Continued)

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Duke / Progress Energy Merger Benefits

• 20 MW distributed generation (owned by NCEMPA)

• Increased capacity for load side generation for cities and their customers

• 5 year reduction in certain fees and expenses provides protection for merger related costs

• Most benefits continue through 2032

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Agenda


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To serve the needs of public power communities through collective strength, wisdom and action while promoting a more successful future for our citizens

Our Purpose:

The Value of ElectriCities

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ElectriCities provides benefits in 5 broad categories:

Power Supply

Load and Demand Side Management

Contract Administration

Finance

Services

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Reliability


Services


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Industry data shows that ElectriCities communities provide more reliable power and restore power more quickly than investor-owned utilities

Average Outages: ElectriCities: 0.923 outages per year, Progress Energy: 1.69 outages per year

Average Restoration Time: ElectriCities: 67.07 minutes, Progress Energy: 85.21 minutes

Public Power Reliability

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Public Power Reliability

• Industry data shows that ElectriCities communities provide more reliable power and restore power more quickly than investor-owned utilities

• Economist estimates the value of this increased reliability to the customers is between $25-$30 million per year

ElectriCities Duke Energy Progress Energy0

0.5

1

1.5

2

0.923 1.03

1.69

Average Outages per Year

ElectriCities Duke Energy Progress Energy0

40

80

120

160

67.07

155.34

85.21

Average Restoration Time (in minutes)

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Service to Members– Strategic Target Marketing– Customized City Projects– Marketing / Collateral– Advertising– Grant Opportunities– Industrial Recruitment– Retail / Commercial Recruitment


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Apex• Site review with major grocery chain developer• Site review with national full service fitness center

Louisburg• Palviz North America – 15 jobs; $2.75M investment• Project Crabtree – Discount grocery store in process• Collateral material for Louisburg Industrial Park

Wake Forest• Site review with major grocery chain developer• Site review with national full service fitness center• Project Zeiss expansion

Clayton• Caterpillar expansion – 199 jobs; $33M investment

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Hamilton• Smart Communities Grant (2012) -

Downtown Redevelopment

Robersonville• Smart Communities Grant (2012) –

Signage• Customized City Project – Meeting

Scheduled

Scotland Neck• Smart Communities Grant (2012) - Façade

Upgrades

Tarboro• Customized City Project – Quality of Life

brochure• Smart Communities Grant (2012) –

Industrial Park Signage• Project Dellen – Site submitted to

Department of Commerce

Hobgood• Public Power Promotional Program

(P4) – Fire retardant shirts for employees

Economic Development – Rocky Mount

• Smart Communities Grant (2013) $4,000 for website update / economic development page

• Working with Alan Matthews (Chamber ED) on promoting retail site(s) for grocery store

– Met with developer at ElectriCities booth during International Council of Shopping Centers in May

• Continue to market available properties with Carolina’s Gateway Partnership

– Project Blossom (Food Processing)– Project RAM (wovens)

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Safety & Training

Legal and Regulatory Compliance

Communications

Legislative Issues

Utility Operations

Business Operations

Customer Service Support


Commercial & Industrial Customer Initiatives

Residential Customer Initiatives

ElectriCities Services

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Services to Help Control Power Costs

• Free Energy Audits

• Load Management Switches

• Distribution System Improvements

• Load-Side Generation

Services

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Services Provided through ElectriCities Power Agency

Non-Power Agency

Annual Conference Yes Yes

Member Relations and Education Yes Yes

Emergency Assistance Program Yes Yes

Statewide Service Contracts and Purchasing Yes Yes

Business Operations Support (Customer Service Workshops and Performance Indicators) Yes Yes

Distribution System Operations Support (Operation Standards Team and Best Practices) Yes Yes

Career Development Programs Yes Yes

ElectriCities Schools Yes Yes

ElectriCities and NCAMES Teams Yes Yes

Safety & Training Support (Crew Audits, Safety Meetings, Accident Investigations, OSHA & NESC Support) Yes Yes

Territorial Support Yes Yes

Storm Communications Yes Yes

Regional / State Support Yes Yes

Retail Billing Assistance Yes Yes

Remote Read / Billing Yes Yes

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Non-Power Agency

Public Relations - Communications and Media Yes No*

Customer Communication Pieces (Bill Inserts and Videos) Yes No*

Wholesale Rates and Billing Yes No*

Demand Side Management (Load Management) Yes No*

Appliance and Voltage Control Yes No*

Innovative Rates Yes No*

Load Management Notification Yes No*

Retail Rate Program Yes No*

Power Cost Yes No*

Distribution System Losses Survey Yes No*

Business Development Services (C/I Energy Audits, Key Accounts) Yes No*

Load Growth Initiatives Yes No*

Retail /Commercial Development Yes No*

No* - These programs may be available at an additional cost billed directly to the city.

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Non-Power Agency

Economic Development Support - ( Aerial Photography, Territorial Legal Advice, Prime Power Park) Yes No*

Member Design and Communication Projects Yes No*

Economic Development Support Yes No*

NERC Services Yes No*

REPS EE Programs Yes No

Residential Energy Services Yes No

Generator Interconnection Yes No

Renewables Yes No

Load Forecasting Yes No

Rebate Studies Yes No

Peak Shaving Generation Yes No

No* - These programs may be available at an additional cost billed directly to the city.

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(as of January 2013)

NCEMPA Participant Debt Responsibility

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Your feedback helps us:– Focus on those issues of importance to you– Deliver the best mix of programs and services– Continue to improve the value of your membership

Member Satisfaction Rating of 92%– Responses from Mayors, Board of Commissioners, City

Managers, Utility Directors, Finance Directors, City Staff– Rates ElectriCities staff on Performance, Customer

Service, Professionalism, Responsiveness, Accuracy

Service Excellence is our goal

2012 Member Satisfaction Survey

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Stay involved: Keep up with ElectriCities news– Twitter: @ElectriCitiesNC, @NCEnergyTips– YouTube: NC Public Power channel– Facebook: ElectriCities of NC

All links are on the ElectriCities.com home page

Stay Connected

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Contact InformationGraham Edwards

CEO, ElectriCities of NC, Inc.

Office: 919-760-6330

Cell: 843-647-8355

Email: [email protected]

Communications

mailto:[email protected]

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Questions?

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