At Thursday night’s Town Board meeting, Kevin O’Donnell with NOVA Energy Consultants, Inc., who is the liaison between the town and Duke Power, had some news for commissioners that went over like a lead balloon.
“If deregulation takes hold in this state, we may not have to do this on behalf of our citizens,” said O’Donnell, referring to arbitrating with Duke for the lowest rates possible. “We may just let them shop the market themselves. I prefer that. I think the choice needs to be in the hands of the citizens. What started and was snuffed out 18-20 years ago has come full circle and I do believe some time in the next 10 years you will have retail deregulation in states and you may not have to buy power on behalf of the town’s citizens by that time. Individual homeowners could do it. There are 16 states that are allowing and doing that right now and given that Duke’s rates are getting way out of focus relative to the market, you are going to see more states allowing customers to do that.”
That scenario, though likely good for consumers, could severely cripple Highlands’ bottom line since profits from its electric enterprise fund pays for much of Highlands capital outlay needs and more.
But the possibility of Highlands getting out of the electric business is years away. The town’s contract with Duke is up in 2028 and no one knows if North Carolina will deregulate retail power. But, O’Donnell said in 2028 the town can either negotiate with Duke for lower prices or buy wholesale power from another company.
According to O’Donnell there are market opportunities if Highlands decides to make a move. He suggested beginning to shop for power in five years at which point Duke will likely try to entice with lower rates.
“There are several municipalities and universities who have bought power on the open market and they wouldn’t have done that if the costs weren’t lower,” said O’Donnell.
Namely, Kings Mountain, Concord, Black Creek, Lucama, Stantonsburg, Sharpsburg, New River Light and Power (App State), Western Carolina University and United EMC have all left Duke.
“Duke will try to offer a contract ahead of termination of the current contract to try to get us lower rates and lock us in on a long-term basis. At that point, we will do the economic analysis and come back and tell you whether it’s in the town’s best interest to stay with Duke,” said O’Donnell. “Fayetteville recently renegotiated with Duke and saved a lot of money according to press reports.”
O’Donnell was at the meeting to update commissioners on Duke’s position and to announce the possibility of rate hikes in 2020 but he offered a lot more information.
“We will have a rate hike from Duke in 2020. The exact amount will be known in the next several days. Once we get the final wholesale rate forecast from Duke, NOVA will work with town staff to examine whether a retail rate increase is needed,” he said.
Highlands’ wholesale contract costs are tied to Duke’s coal ash cleanup efforts and to whatever the NC Utilities Commission decides concerning Duke’s requests and responsibility. So far, the NC Utilities Commission (NCUC) has sided with Duke and allowed basically whatever it wants concerning costs.
“The NCUC decided to give Duke 100% coal ash cost recovery, even though the NC coal ash law is more stringent than the federal rule,” said O’Donnell. “NC Public Staff and the Attorney General appealed the case to NC Supreme Court. Oral arguments are set for some time in April. It’s possible our rates could go down with an order from the NC Supreme Court.”
He said there are two components to the wholesale bill – demand and energy. O’Donnell said Duke’s demand rate is going to go up because it is in the process of replacing their coal generating plants.
“The good news is the energy costs will go down due to natural gas prices,” said O’Donnell.
Evidently, natural gas prices fell to the floor this past summer. In Pennsylvania and the Marcellus area fracking has occurred so now the U.S. is competing with Saudi Arabia as number one in the production of oil.
“In the Marcellus area they are still trying to get the oil out and one of the byproducts is natural gas. There is so much in some places they are actually flaring the gas because they are really going after the oil. Gas is a byproduct. We want the natural gas, but there’s not enough pipeline in the Marcellus area to get the gas out. As a result, natural gas prices have gone down and that will help offset the demand rate increase from Duke,” he said.
O’Donnell said Duke’s rates are going up and it will be filing cases to increase rates by 10% every two years for the next 10 years. So, its retail rates will be looking at a 50% increase over the next 10 years.
Mayor Pat Taylor said Highlands’ rates have been “pretty flat” over the last several years because Highlands is a wholesale customer so it’s immune from retail rate increases.
By Kim Lewicki, Highlands Newspaper