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North Carolina Electric Rates May Remain High

Posted on: Saturday, 8 October 2005, 00:00 CDT

By John Murawski, The News & Observer, Raleigh, N.C.

Oct. 7--Not happy with Progress Energy's 4.4 percent cost increase this month?

Regular cost increases could be a foretaste of things to come in the era of soaring fuel costs and rising energy demand. North Carolina electricity users could face paying 10 percent annual cost increases in the near future.

That's the bleak scenario painted by energy consultant Lawrence Makovich, who spoke to 52 Progress Energy department managers during the utility's annual leadership retreat Thursday at the Pinehurst conference center. Makovich said Progress will have to make the case now for the expensive proposition of building a new power plant, to prepare customers for the inevitable price jolt. Making matters worse are record high prices for natural gas and coal used to generate electricity, costs that will be passed on to customers.

Putting off tough choices could result in energy shortages and blackouts, such as those that crippled California five years ago, he warned.

"They [customers] should brace themselves for price shocks," Makovich said an an interview after he spoke to the utility executives. "The most important issue that faces the power industry today is the timely solution of resource supply. Power supply is not cheap."

Progress acknowledges the essential truth of Makovich's forecasts, but won't commit to concrete percentages. When the utility needed money to pay for the Shearon Harris nuclear plant in Wake County, it raised rates by 9 percent in North Carolina in 1988.

"Our customers in North Carolina have enjoyed rate stability for almost two decades," said company spokesman Keith Poston. "In real dollars, they're actually paying less, when you look at the cost of other things that have gone up in price."

In 1991, the farthest back for which Progress could provide data on Thursday, a typical household paid $84.74 a month, based on 1,000 kilowatt hours of usage. Today, it's $90.43, the increase all attributable to increasing costs of coal and natural gas used to fire power plants.

The Raleigh-based utility, which is seeing energy demand grow 2 percent a year, has said it will need a new power plant in a decade, and the company is considering building another nuclear reactor, which could cost $2 billion. Poston said he couldn't predict when the rate increases might kick in. But this year the president approved an energy bill with financial incentives that industry experts say could cover up to half the cost of a new nuclear plant.

Meanwhile, rising fuel prices are already taking their toll in Progress Energy's service areas. In Florida, the company is seeking an increase of 11 percent for residential customers, to offset fuel costs. Passing through increases in fuel costs is generally approved in full by regulators. Progress Energy's base rate hasn't been increased in 17 years and is frozen through 2007.

Makovich, a regular on the utility stump circuit, is an analyst at Cambridge Energy Research Associates, the think tank founded by Daniel Yergin, a former Harvard University historian and author of the Pulitzer-prize winning book, "The Prize: The Epic Quest for Oil, Money and Power." The group takes a free-market orientation to energy and says that electricity deregulation has lowered prices everywhere but California.

He predicted that several new power plants will be built by 2015 by utilities that strongly advocate nuclear power, including Progress Energy and Charlotte-based Duke Power.

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Copyright (c) 2005, The News & Observer, Raleigh, N.C.

Distributed by Knight Ridder/Tribune Business News.

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PGN, DUK,

Source: The News & Observer

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