State Government

Resolution of Key Issue in Electric Deregulation May Be Near

It's one of the oldest and among the most effective threats available to lawmakers when opposing groups seemingly can't resolve their differences over a public policy issue: You can come up with a solution on your own or the General Assembly will impose one on you. And that's exactly what the Study Commission on the Future of Electric Service has done to get electric deregulation off the dime.

The commission, created by the legislature last year to study electric deregulation and make recommendations to the General Assembly, called a halt to its meetings until January or later in the hope — one might even say the expectation — that the state's two big utilities will reach a deal with the 51 power-producing municipalities over the issue of stranded costs.

The cities are holding about $5.8 billion in debt from their purchase two decades ago of a minority interest in nuclear power plants Duke Power and Carolina Power & Light were constructing. At the time the demand for and the cost of electricity were skyrocketing, and the investment was seen as a smart hedge. But demand leveled off, prices stabilized and the power-producing towns, represented by ElectriCities, struggled to repay the bonds they issued for the investment. That's even though the cities generally charge more for the power they provide residents than CP&L and Duke Power charge their customers.

Still, the cities apparently would be able to muddle through unless total deregulation occurs. Allowed to choose their power supplier, it's universally assumed that residents of the 51 cities would desert en mass, crippling the cities' cash flow and imperiling their ability to repay their bonds. Some constitutional and legal experts believe the state could not allow the cities to default on the bonds and, if push came to shove, would have to pay them off itself.

Various proposals have been advanced during the fall, none acceptable by all the parties, that would resolve the cities' stranded cost problem and allow them to remain in business, including a surcharge on the monthly electric bills of everyone in the state. The last offer on the table before the commission recessed its meetings in late October was a joint proposal by Duke and CP&L to get the cities out of the electric business altogether.

The big utilities proposed auctioning off the cities' generation capacity, their distribution systems and other assets to the highest bidders. It's believed such a sale might fetch $2.8 billion or more, a figure that includes about $1.6 billion the cities have set aside in reserves. The state would assume the cities' remaining bond debt and pay it off through a surcharge of $2 or $3 a month on every residential customer in the state ($4-$5 for industrial users) for 17 years. In theory, electric customers wouldn't notice the surcharge because deregulation — after a three-year rate freeze — would lead to lower prices for everyone.

State Treasurer Harlan Boyles, who is a member of the commission, is a strong advocate of the auction plan.

The 51 cities are willing to sell their stake in the power plants, if the price is right, but not all are eager to sell their distribution systems. Those two sticking points, plus a myriad of other details, are being discussed in private by the parties in the hope of reaching a compromise.

Some critics charged that Duke and CP&L are offering to buy out the cities at an attractive price just to eliminate competition and to gain 358,000 new customers. The cities also worry the utilities would eliminate the jobs of nearly 1,000 city employees who maintain the distribution lines. Spokesmen for the big utilities dismiss that criticism and assert the offer is the best way to get the state out of a jam.

Sen. David Hoyle (D-Gaston), the co-chairman of the study panel who discussed the overall issue in the Executive Voices column in the November issue of this magazine, said he's pleased the parties are meeting in private to work out a deal. “We've started the process,” Hoyle told reporters. “Everybody knows where everybody stands. And now the negotiations come.”

Workers Comp Rates Remain Unchanged: The base rate that businesses pay for workers compensation insurance will remain unchanged in 2000, the third year in a row with no increase in the base cost of coverage every business with at least three employees is required to buy.

Workers' comp rates have held steady or declined every year since 1994 when the General Assembly adopted reforms advocated by NCCBI. The reforms modernized and streamlined the system and moved workers' comp more toward an HMO system. Another factor was the adoption in 1995 of a loss-costs rating system advocated by Insurance Commissioner Jim Long.

Under that system, the N.C. Rate Bureau files a basic rate with the Department of Insurance on behalf of all workers' comp carriers in the state, a figure that covers the cost of paying claims. Each carrier then adds overhead expenses and profit to determine its final rate. Because these individual rates must be filed with the department, businesses can comparison shop for the best rate.

Workers' comp rates rose 18.9 percent in 1990, 15.8 percent in 1991, 33 percent in 1992 and 9.3 percent in 1993. There was no rate filed in 1994 when the reform movement began. With adoption of the reforms, rates fell 15.3 percent in 1995, 13.7 percent in 1996 and 1.1 percent in 1997.

—Steve Tuttle