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Wednesday, 01 April 2015 14:10

Waynesville ditches Duke for new power supplier

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fr electricityWaynesville has emerged victorious in a nail-baiting quest for cheaper wholesale power to resell to its own electric customers.

The town’s power system is a vital revenue source, but its future has been on the rocks in the face of rising wholesale power costs.

The Waynesville town board voted last week to sever its established ties with Duke Energy and instead buy electricity from a South Carolina-based public utility called Santee-Cooper.

The decision is a critical one for the town. The town makes more than $1 million a year off its electric system. It plows those profits back into amenities, perks and services atypical for a town its size, all the while keeping property taxes low.

But rising wholesale power prices over the next decade threatened the town’s cash cow if it stayed with Duke.

Waynesville is currently locked in to a 10-year contract to buy wholesale power from Duke. But that contract expires next year.

Duke was going to hike Waynesville’s wholesale power rates substantially when the contract came up for renewal. Duke planned to hike the wholesale rates so much, in fact, that Waynesville decided to jump ship.

Santee-Cooper offered Waynesville much cheaper power than Duke. Santee-Cooper has a generation mix of coal, nuclear, natural gas and hydropower — but its big gun is a second nuclear power plant nearing completion.

Given Santee-Cooper’s big construction debt for the new plant, it’s eager to find buyers for its additional nuclear power capacity.

“They are trying to find a home for these megawatts,” said Louis Davis, consultant with Utility Technology Engineers-Consultants. “There’s not a whole lot of customers buying megawatts. They see Waynesville as a real opportunity and they are cutting it to the bone to get you a great proposal.”

Who to buy its wholesale power from has been studied extensively by the town over the past year. The town brought in two separate energy market consultants to analyze its options.

Three wholesale power suppliers were in the running. One was Duke, one was Santee-Cooper, and the third was Southern Company, which has a fleet of natural gas power plants throughout the South. 

The first consultant the town brought in was its long-time, go-to power advisor, who spent months soliciting and weighing the pros and cons of who the town should go with.

The town then brought in a second team of energy market consultants to refine the analysis further. That team went back to Duke, Southern Company and Santee-Cooper to try to negotiate better offers. They shared their findings with the town board at a special meeting last week.

In the end, Santee-Cooper offered the best bargain —$14 million less over the life of the 10-year power contract compared to what Duke offered, based on Utility Technology Engineers’ analysis.  Santee-Cooper chalked up its better deal to the new nuclear power plant it has coming on line within a couple of years.

“We believe nuclear has a lot of benefits. It will give us stable and lower fuel costs,” said Mike Brown, a representative with Santee-Cooper, during a pitch to the town board last fall. “If you look back over the last 25 years nuclear has been the least expensive and least volatile source of fuel.” 

Santee-Cooper currently gets its power from a diverse mix of generation, including coal, natural gas, nuclear and hydroelectric.

When its new nuclear plant comes on line, nuclear will jump from 11 percent to 40 percent of its energy portfolio, while coal will drop from 53 to 30 percent.

That’s in keep with the utility’s stated goal of moving away from fossil fuels and toward sources that don’t emit greenhouse gasses.

The town hasn’t signed a contract with them yet, however. The next step is a protracted period of due diligence, which could take months of additional negotiating and lawyering over the contract wording.

Santee-Cooper provides power for two million customers in South Carolina, but a relatively small number are its own direct retail customers. The rest are wholesale customers — namely some four dozen small electric co-operatives.

Santee-Cooper not only offered the cheapest power rates, but also sweetened the pot by paying the transmission costs of getting the power from its generators to Waynesville’s doorstep.

A decade ago, Waynesville had little choice who it bought power from. Power companies were legal monopolies, even in the wholesale market.

But federal deregulation changed that. Wholesale power became a commodity that could be bought, sold and traded across the country. The only catch was getting it from point A to point B on the power grid.

The power companies that own the lines charge a “wheeling” fee to move power across its transmission lines from to the final destination. But Santee-Cooper agreed to cover those costs for Waynesville. 

“Part of the reason Santee-Cooper came in so low is because they agreed to pay those transmission costs for the town,” said Ted Orrell, the managing partner of Utility Technology Engineers.

And yet another pot sweetener was an escape clause in the 10-year contract that would allow the town to end its agreement with Santee-Cooper if it can find better rates somewhere else.

Waynesville Finance Director Eddie Caldwell is breathing a sigh of relief following the latest wholesale power rates negotiated from Santee-Cooper. Under the higher rates from Duke, Waynesville would have had to mark up its power costs to customers substantially.

“We would have to charge our customers more than Duke in order to maintain our profit margin. But our concern is always can we keep our customers rates the same or cheaper to Duke rates,” Caldwell said. “If I can’t I shouldn’t be in the business of buying power. We also shouldn’t be in the business if we aren’t earning a dividend for our tax payers.”

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