Duke Energy Progress has agreed to buy for $1.2 billion the interests that Eastern North Carolina municipal power systems own in four Duke power plants, the parties said Monday.
The agreement, which capped several months of negotiation, deeply cuts into the debt that for decades has forced 32 cities and towns to charge more for electricity than Duke charges its retail customers.
The seller, North Carolina Eastern Municipal Power Agency, owns stakes in Duke’s Brunswick nuclear plant in Brunswick County, the Harris nuclear plants in Wake County, and its Mayo and Roxboro coal-fired plants in Person County.
The agency’s interest in the plants represents about 700 megawatts of generating capacity.
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Duke and the agency agreed to a 30-year wholesale power deal to supply the 32 cities and towns represented by the agency. The municipal systems will continue to own their distribution lines that send electricity to homes and businesses.
Many North Carolina cities began buying interests in power plants in the 1970s, as wholesale electricity rates skyrocketed. But lingering debt from those purchases has forced the municipalities to charge more for power.
Power agency members owe about $1.9 billion. Assuming the sale goes through, they would be left with debt of $480 million.
“The board’s overarching goal is to strengthen public power’s future in North Carolina,” said Richard Hicks, chairman of ElectriCities, which manages the power agency. “Reducing NCEMPA’s debt and therefore reducing overall costs will provide the opportunity for more competitive rates in the 32 member communities.”
Those municipalities now have retail rates that are 7 percent to 35 percent higher than rates offered elsewhere in the region. The impact of the agreement on rates will vary among those cities and towns, depending on factors such as their share of debt and customer mix.
Paul Newton, Duke Energy’s president for North Carolina, said the agreement “provides positive benefits to Duke Energy Progress customers, including long-term fuel savings that help keep rates affordable.”
The power plants involved generate electricity at a lower fuel cost than the average cost of Duke’s fleet. Once the municipalities sell their interest in the plants, they will become wholesale customers whose bills will be based on average fuel costs. Duke, in buying back the capacity, will benefit from the lower fuel costs.
The agreement needs approval by state and federal agencies. Its terms say the transaction has to be approved and closed by the end of 2016.