Eastern North Carolina Mayors’ Association

North Carolina Eastern Municipal Power Agency

ElectriCities of NC, Inc.

November 4, 2010

Kinston, North Carolina

We hear you!

• Who is ElectriCities? Who is NCEMPA?

• Rates and Rate Disparity with Other Utilities

• NCEMPA Debt

• ElectriCities/NCEMPA Expenses

• Reserve Funds and Working Capital Levels

• Transfers from Electric Fund to General Fund

• Contracts with Cities and Progress Energy

2

Agenda

• History

• Governance

• Rates/costs

• Current issues

• Moving forward

3

NC Public Power Communities

4

Double

Digit

Interest

Rates

1982

32 cities

become

wholesale

customers

under

NCEMPA

1979

Three Mile

Island Nuclear

Event

ElectriCities

organized

ElectriCities and NCEMPA Timeline

North Carolina

Legislation

passes Electric

Act to allow joint

municipal utility

action

Late 1960’s 1980’s1970’s

National

Energy

Crisis

1975 &1977

Brunswick

Units starts

producing

power

1976

North Carolina

Eastern Municipal

Power Agency

organized

1987

Harris Nuclear

Unit starts

producing

power

1990’s

Deregulation

of Electric

Industry

1993

NCEMPA

debt peaks

at $3.6 billion

1998

Supplemental

Power Supply

Contract

renegotiated

2000’s

2001, 2002 & 2005

Supplemental

Power Supply

Contract

renegotiated

2010

NCEMPA

current

debt

at $2.4 billion

California

Experiences

Blackouts;

Deregulation

efforts stop

2006

Brunswick

Nuclear Units

license extended

to 2036 & 2034

2008

Harris Nuclear

Unit license

extended to

2046

5

NCEMPA Coal Plants

Mayo PlantRoxboro Plant

6

NCEMPA Nuclear Plants

Harris PlantBrunswick Plant

7

NCEMPA Power Supply

Contract Arrangements

Sources of Electricity

Project Sales Agreement

• Brunswick Nuclear Unit 1 & 2

• Harris Nuclear Unit 1

• Roxboro Unit 4

• Mayo Unit 1

~ 62%

~ 38%

Supplemental

Load Agreement

NCEMPA 32 Member Cities

Progress Energy Carolinas

Project

Sales

Agreement

Supplemental

Load

Agreement

Operating

and Fuel

Agreement

Bond

Holders

NCEMPA

8

Agenda

• History

• Governance

• Rates/costs

• Current issues

• Moving forward

9

Governance StructureRates, Budgets and Debt

NCEMPA Board of Commissioners

Primary Responsibilities

• Accepts/rejects wholesale rates

• Adopts NCEMPA budgets

• Concurrence with debt issuance

ElectriCities Staff

Primary Responsibilities

• Provides management

services to the Power Agencies

• Provides other joint municipal

assistance services to

87 cities in NC, SC and VA

ElectriCities Board of Directors

Primary Responsibilities

• Charged with the 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

• Sets policy and strategic direction

Trade

OrganizationGovernment Relations

Member Services

Safety & Training

Economic Development

10

Kinston

William Barker

Scott A. Stevens

Rhonda F. Barwick

La Grange

John P. Craft

Larry Gladney

Bobby Wooten

Laurinburg

Edward F. Burchins

Curtis B. Leak

Louisburg

Ray Patterson

Tony L. King

Mark R. Warren

Lumberton

Harry L. Ivey

Vacant

New Bern

Jonathan Rynne

Dennis K. Bucher

Mayor Lee W. Bettis, Jr.

Anne-Marie Knighton

Secretary-Treasurer

EdentonApex

Bruce A. Radford

J. Michael Wilson

R. Lee Smiley

Ayden

Adam G. Mitchell

Mayor Stephen W. Tripp

Belhaven

Mayor Adam W. O’Neal

Dr. Guinn Leverett

Benson

Matthew R. Zapp

Braston A. Newton

Clayton

Robert J. Ahlert

Mayor Jody L. McLeod

Edenton

Anne-Marie Knighton

Vacant

Elizabeth City

Richard Olson

Mayor Roger A. McLean

Farmville

Richard N. Hicks

Vacant

Fremont

Leon V. Mooring

Kerry McDuffie

Harold Cuddington

Greenville

J. Freeman Paylor

J. Bryant Kittrell, Jr.

Ronald D. Elks

Hamilton

Herbert L. Everett

Mayor Donald G. Matthews, III

Hertford

John Christensen

Mayor James Sidney Eley

Hobgood

Stella Daugherty

Mayor Timothy D. Purvis

Hookerton

Mayor Robert E. Taylor

Ryan Stocks

Danny Taylor

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

NCEMPA Board of Commissioners Appointed by Local Governing Board

NCEMPA Officers

Samuel W. Noble, Jr.

Chairman

Tarboro

Mayor Vivian A. Jones

Vice Chair

Wake ForestPikeville

Lyman G. Galloway

W. Ward Kellum

Dennis K. Lewis

Red Springs

Mayor John M. McNeil

Vacant

Robersonville

Elizabeth W. Jenkins

John David Jenkins

John H. Pritchard, Jr.

Rocky Mount

Andre D. Knight

Stephen W. Raper

Richard H. Worsinger

Scotland Neck

Mayor James E. Mills, Sr.

Nancy Jackson

Selma

Richard Douglas

Donald Baker

Mayor Charles E. Hester

Smithfield

Eric M. Williams

C. Earl Botkin

Southport

M. Alan Thornton

Ralph Cardwell

Richard E. Boguskie

Tarboro

Samuel W. Noble, Jr.

James L. Alford

Wake Forest

Mayor Vivian A. Jones

Mark S. Williams

Washington

Doug Mercer

Keith Hardt

James C. Smith

Wilson

Donald I. Evans

Fred R. Horne

11

Agenda

• History

• Governance

• Rates/costs

• Current issues

• Moving forward

12

NCEMPA – 2010 Budget Expenses

2010 Budget $705(all dollars in millions)

Power Agency Services Details

Personnel Cost

- Salaries & wages $ 4.1 (0.6% of total budget)

- Benefits $ 1.2 (0.2% of total budget)

- Other PAS $ 5.7 (0.8% of total budget)

Total $11.0

Operations and Maintenance

$71.610.2%

Fuel$104.5

14.8%

Supplemental Load Agreement

$158.222.4%

PEC Allocated Administrative and

General$31.34.4%

Power Agency Services$11.0

1.6%

Taxes$26.2

3.7%

Debt Service$273.8

38.8%

Capital Additions and Decommissioning

$28.04.1%

13

NCEMPA – Outstanding Debt

• Fixed interest rates: about 5.5% on average– Stability for planning purposes

• Debt continues to decline

Mil

lions

$

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

Historical

Projected

NCEMPA

$ M

illi

on

Harris license

extension

Brunswick 1 & 2

license extensions

$1.05 Billion reduction

since high in 1993

14

NCEMPA Participant

Responsibility for Debt

Gross Gross

Percentage Dollar Percentage Dollar

City/Town Ownership Responsibility City/Town Ownership Responsibility

Apex 0.7056% 16,908,504 Laurinburg 2.2675% 54,336,783

Ayden 1.1340% 27,174,382 Louisburg 0.8577% 20,553,322

Belhaven 0.4090% 9,800,990 Lumberton 5.1568% 123,573,945

Benson 0.5773% 13,834,013 New Bern 6.3676% 152,588,709

Clayton 0.7448% 17,847,866 Pikeville 0.2046% 4,902,891

Edenton 1.5961% 38,247,823 Red Springs 0.5798% 13,893,921

Elizabeth City 4.2510% 101,867,988 Robersonville 0.5066% 12,139,808

Farmville 1.2901% 30,915,053 Rocky Mount 16.0260% 384,035,846

Fremont 0.3062% 7,337,562 Scotland Neck 0.5762% 13,807,653

Greenville 16.1343% 386,631,071 Selma 0.8102% 19,415,066

Hamilton 0.0783% 1,876,326 Smithfield 2.0056% 48,060,794

Hertford 0.4124% 9,882,465 Southport 0.7139% 17,107,400

Hobgood 0.0913% 2,187,849 Tarboro 4.7427% 113,650,743

Hookerton 0.1550% 3,714,312 Wake Forest 0.7262% 17,402,148

Kinston 8.6678% 207,709,092 Washington 5.8920% 141,191,764

LaGrange 0.5014% 12,015,199 Wilson 15.5120% 371,718,710Subtotal 887,950,496 1,508,379,504

Total Debt 2,396,330,000

(as of 9/30/2010)

15

Wholesale Power Cost Projections

$0

$30

$60

$90

$120

$150

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Ave

rag

e C

ost

s ($

/MW

h o

f AR

En

erg

y @

Del

iver

y P

oin

t)

NORTH CAROLINA EASTERN MUNICIPAL POWER AGENCY

Components of Projected All Requirements Power Costs (Based on July 2010 Rate Work)

Other Project Costs Supplemental Costs Net Debt Service

Net Debt Service

Supplemental Costs

Project Costs (including Operations &

Maintenance, Fuel, and Capital Additions

Projected Wholesale Power

Cost in the Region

Net Debt Service

16

Wholesale Power Cost Projections

$0

$30

$60

$90

$120

$150

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Ave

rag

e C

ost

s ($

/MW

h o

f AR

En

erg

y @

Del

iver

y P

oin

t)

NORTH CAROLINA EASTERN MUNICIPAL POWER AGENCY

Components of Projected All Requirements Power Costs (Based on July 2010 Rate Work)

Other Project Costs Supplemental Costs Net Debt Service

Net Debt Service

Supplemental Costs

Project Costs (including Operations &

Maintenance, Fuel, and Capital Additions

Projected Wholesale Power

Cost in the Region

Net Debt Service

17

National Residential Rates

Source: Energy Information Administration

NH: 16.2¢

RI: 16.5¢

CT: 19.5¢

NJ: 16.9¢

MA: 14.6¢

VT: 15.7¢

DE: 14.5¢

MD: 15.2¢

¢ = average retail price per kilowatt

hour for 2009

11.7¢

9.3¢ 9.4¢

8.3¢

10.0¢

9.1¢

12.0¢

9.1¢

10.3¢

11.3¢

12.4¢

15.5¢9.2¢

9.8¢

12.1¢

10.6¢

10.7¢

9.4¢

10.1¢

12.6¢

11.8¢

12.8¢

9.6¢

8.9¢

12.9¢

9.2¢

12.0¢

15.4¢

19.1¢

10.2¢ 10.2¢10.9¢

10.6¢

8.4¢

10.8¢

13.3¢

8.6¢

10.1¢

9.5¢

8.2¢

16.9¢

19.5¢

< 9¢/kWh

9¢/kWh to 10¢/kWh

10.1¢/kWh to 12¢/kWh

12.1¢/kWh to 15¢/kWh

> 15¢/kWh

Avg. NC Utility Residential Rates

NCEMPA: 13.6¢

NCMPA1: 10.2¢

Progress Energy: 9.6¢

Duke: 8.2¢

National

Average

11.3¢

18

$-

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

North Carolina Eastern Municipal Power AgencyProgress Energy North Carolina / Dominion North Carolina Power

Average Residential Electric Cost

Average Total Wholesale Power Supply Costs Local Distribution Costs

Source: Current published rate schedules; load management credits and energy efficiency discounts not included.*Seasonal rates averag ed. EC/RF 09-30-2010

Average Residential Rate Comparison

(per 1,000 kWh)

19

What are we doing about

costs and rates?

• Cost reviews

• Contract renegotiations

• Debt restructuring

• Refunding debt to lower interest rate

• New capital additions financing

• Harris settlement issues

• Demand-side management

• Internal cost controls

• Attempts to find funds for relief

• Stimulus Funds & weatherization

20

• Over the years NCEMPA has taken advantage of refunding opportunities to lower debt costs

• Weighted average interest costs have declined

– Highest rate: 12.2% in 1983

– Currently this percentage is 5.428%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

NCEMPA

1983 1995 2005 2010

Lowering Cost of Debt

21

NCEMPA Ratings Feedback

A- Stable Outlook

―upgrade reflects solid financial operations which have proven to be stable during

the current recessionary period‖

―key rating driver: Members’ continued support of a financially and operationally

sound Eastern Agency‖

A- Stable Outlook

―rating reflects gradual strengthening of financial profiles of both NCEMPA and the

32 member municipal utilities as continuing debt reduction improves margins and

limits need for base rate increases‖

Baa1 Stable Outlook

―rating incorporates the agency’s high debt ratio; above average wholesale prices

charged to participants and the credit of NCEMPA’s participants. Also factored in

are the agency’s strong take or pay contracts; declining debt service and the role

of the state Local Government Commission.‖

Moody’s

22

• Refinanced $146 million @ 3.01% interest rate

– Was at 5.5% interest rate

– Average savings: $2.68 Million/year

• Impact of recent upgrades by S&P and Fitch

– Improvement in credit quality achieved lower rate

– Savings of $345,000/year

• Total savings over term $35 Million

2010 Refunding Transaction

23

2010-2019 Wholesale Rate Plan

Effective

January 1 of …

Without Financing With Financing

Option 1 Option 2 Option 3 Option 4

2010 - - - - - - - -

2011 1.0% - - - - - -

2012 - - 1.5% - - - -

2013 - - - - - - 0.8%

2014 - - - - - - 0.8%

2015 1.0% 0.8% 1.6% 0.8%

2016 1.0% 0.8% 1.6% 0.8%

2017 1.0% 0.8% 1.6% 0.8%

2018 1.0% 0.8% 1.6% 0.8%

2019 1.0% 0.8% 1.6% 0.8%

Rate adjustment options considered by NCEMPA Rate Committee, NCEMPA Board of Commissioners and ElectriCities Board of Directors. All board and committee representation comes from the membership.

- Rate Plan Selected ($35 Million Minimum Fund Equity, Capital Additions Financing and No Rate Increase for 2010-2011) 24

Agenda

• History

• Governance

• Rates/costs

• Current issues

• Moving forward

25

Efforts to Pay off Debt

State• Legislative Meetings—Message received: with $3.5B shortfall,

no money available

– Senator Basnight, President Pro Tempore; Beth Braswell

(Sen. Basnight’s General Counsel)

– Senator Martin Nesbitt, Majority Leader

– Rep. Bill Owens, Rules Chairman

– Rep. Hugh Holliman, Majority Leader

– Rep. William Wainwright, Speaker Pro Tempore

(threatened legislation to prevent transfers)

Federal• Troubled Asset Relief Program; not available

• Congressman Butterfield: no relief from Congress26

Progress Energy’s Response

―We have not been able to devise an option

for purchasing the Power Agency’s share of

the five generating units at this time that

would serve the best interests of our

customers and shareholders and your

members.‖

Letter from Bill Johnson, CEO Progress Energy

August 26, 2010

27

Individual Participant’s

Withdrawal from the Power Agency

Three (3) General Options*

• Agency sells all of its generating assets and satisfies

its outstanding debt and obligations

• If debt exceeds proceeds from the sale, Participants must pay

the deficiency

• Participant assigns its Project Power Sales Agreement

to another Participant**

• Participant assigns output to another Participant or a

non-Participant so long as the bonds’ tax exemption is

maintained**

*Subject to certain restrictions. The foregoing is a very general overview of complex issues.

Members interested in pursuing the subjects in greater detail should contact ElectriCities.

**Must still address the Supplemental Power Sales Agreement28

Agenda

• History

• Governance

• Rates/costs

• Current issues

• Moving forward

29

Moving Forward

• Participation in the Board of Commissioners

• Continue to explore opportunities together

• Potential Actions by Participants

– Limit transfers from electric fund

– Assist customers with energy efficiency

– Improve distribution system efficiencies

– Implement programs of best practices

– Increase load management programs

• Others ?

30