The North Carolina Utilities Commission on May 12 approved the Duke Energy Progress subsidiary of Duke Energy (NYSE: DUK) to buy from the North Carolina Eastern Municipal Power Agency minority stakes in coal and nuclear plants where Duke already holds ownership interests.
On April 13, Duke Energy Progress (DEP) and North Carolina Eastern Municipal Power Agency (NCEMPA) filed a joint notice and request for approval of the planned transfer to DEP of NCEMPA’s certificate of public convenience and necessity and its ownership interests in the five generating facilities that are jointly owned by the two entities: the Brunswick Steam Electric Plant (Brunswick Units 1 and 2); the Roxboro Steam Electric Plant (Roxboro); the Mayo Electric Generating Plant (Mayo); and the Shearon Harris Nuclear Power Plant (Harris Unit 1).
DEP and NCEMPA further request the reissuance to DEP of the certificate issued to NCEMPA contingent upon the closing of the sale of the so-called “Joint Units” to DEP.
In 1981, the commission granted a certificate to NCEMPA for its undivided ownership interests in the facilities as follows:
- an interest of 18.33% in Brunswick Units 1 and 2, an 1,870 MW nuclear plant located in Brunswick County;
- an interest of 12.94% in Unit 4 of Roxboro, a 698-MW coal-fired facility located in Person County;
- an interest of 16.17% in Mayo Unit 1, a 727-MW coal-fired facility located in Person County; and
- an interest of 16.17% in Harris Unit 1, a 928-MW nuclear plant located in Wake County.
NCEMPA and DEP have jointly owned the Joint Units, including the related interconnection facilities and all equipment, structures, improvements, and appurtenances related thereto, since April 1982.
NCEMPA’s interest in the Joint Units represents approximately 700 MW of generating capacity. DEP has the remaining ownership interest in the Joint Units and has been the operator of the units under a Power Coordination Agreement, as amended, between itself and NCEMPA.
In September 2014, DEP and NCEMPA entered into an Asset Purchase Agreement (APA) whereby DEP agreed to acquire NCEMPA’s ownership interests in the Joint Units for a purchase price of $1.2 billion, subject to certain adjustments for capital expenditures incurred by NCEMPA after Jan. 1, 2015, and prior to closing. Assuming a closing at the end of 2015, the purchase price, which is capped at $1.278 billion, includes an acquisition premium of $343 million.
Under the APA, DEP will acquire the following in addition to NCEMPA’s undivided ownership interests in the Joint Units: NCEMPA’s ownership interest in all accounts, including bank accounts and trusts, established to hold funds for NCEMPA’s share of decommissioning costs of Brunswick Units 1 and 2 and Harris Unit 1; NCEMPA’s ownership interest in the nuclear fuel inventories purchased and designated for Brunswick Units 1 and 2 and Harris Unit 1; and NCEMPA’s ownership interest in the spare parts inventory of the Joint Units. DEP will also acquire all related real property and all plant permits.
Duke to sell power to the agency under revamped deal
Upon the closing of the transaction, the Supplemental Load Agreement between DEP and NCEMPA will be terminated and DEP will become NCEMPA’s full requirements power supplier pursuant to a Full Requirements Power Purchase Agreement (FRPPA). This Agreement retains certain provisions that were part of the Supplemental Load Agreement, including provisions that allow NCEMPA and its members to own and operate on-site generation that displaces service provided by DEP.
The commission noted that the benefits of the transaction to NCEMPA include the ability to retire approximately 70% of its approximately $1.7 billion of debt, and thus reduce its cost of wholesale power to its members, who will then be able to reduce rates to their retail customers. Benefits of the transaction to DEP and its customers include the addition of approximately 700 MW of baseload and intermediate generation to DEP’s generation system, including approximately 493 MW of nuclear. The addition of this mix of generation to DEP’s system is expected to result in overall reductions to DEP’s customers.
The commission noted that on April 2, the governor of North Carolina signed into law Senate Bill 305, entitled “An Act to Provide Cost Recovery for Acquisition for Joint Municipal Power Agency Ownership Interest in Generating Facilities, to Authorize Municipalities That Are Members of Joint Municipal Power Agencies to Enter into Support Contracts, and to Issue Bonds to Pay the Costs of Projects That Are Sold.” Section 1 of Senate Bill 305 provides for the recovery of all reasonable and prudently incurred costs incurred by DEP to acquire, operate, and maintain NCEMPA’s proportional interest in the Joint Units. The remaining sections are related to NCEMPA.
Applications are currently pending before the U.S. Nuclear Regulatory Commission for approval of the transfer of NCEMPA’s ownership licenses and distribution of its decommissioning funds to DEP. The NRC on April 21 went out for comment on the transfer requests.