In addition to passing first reading of an ordinance authorizing an up to $4 million bond to renovate Rhame Arena and contribute to the construction of a community building at an expanded Central Carolina Technical College campus, Camden City Council took up several other matters at its Nov. 11 meeting.
Two of those items should end up saving the city of Camden hundreds of thousands of dollars: a renegotiated wholesale power contract with Duke Energy Progress (DEP) and the reissue of a 2010 public utility bond.
On the DEP contract, City Manager Mel Pearson reminded council that, in 2012 and 2013, the city negotiated a new seven-year contract that began in January. One of the biggest changes in the way DEP sells power to its wholesale customers is at least part of the contract term includes “formula,” or variable, rates. As DEP’s costs to produce power change, wholesale customers’ rates fluctuate with those costs.
In the contract that went into effect this year, DEP agreed to offer a fixed rate during the first three years of the seven-year contract. But, Pearson told council Nov. 11, that was before the city learned DEP is working on a $1.2 billion purchase of 701 megawatts of nuclear generating capacity from the North Carolina Eastern Municipal Power Agency (NCEMPA).
Pearson said DEP recently notified the city it had confidentially engaged in purchasing NCEMPA’s assets.
“Those assets consist of a lot of nuclear generating power,” he said. “Our new contract was approved by the Federal Energy Regulatory Commission (FERC), as others were with Duke. In order to purchase those assets, their capital expenditures will affect the two components of our energy costs.”
Those components, Pearson explained, are DEP’s capacity and energy costs.
“The energy cost will be affected by that nuclear power, in that it should be reduced. The generation of nuclear energy is the cheapest source of energy we have from a generating standpoint. So it should drive down … the cost of their energy component of that formula,” Pearson said -- as capacity increases, costs should go down.
DEP, he said, is asking wholesale power customers, such as the city of Camden, not to protest its purchase of NCEMPA’s assets to FERC. Pearson said an energy consultant and city staff recommend agreeing to DEP’s request.
“By not doing that (DEP has) agreed to give the city an additional year of fixed capacity rates on our current contract,” he said.
Pearson estimated the net present value of the savings from capping the 2017 demand rate in the contract to be a little more than $537,000, with net savings of just under $54,100. He said the estimates are “very conservative” in an effort to keep the city from experience any increase in energy costs above the estimates for the original contract.
In addition, Pearson revealed that the city and DEP are negotiating a “side deal” to extend the contract for an additional five years, ending in 2025 instead of 2020.
“Two years ago, we engaged in a process with them and other utility electric providers. We were looking at a lot of nuclear capacity to come on to the west of us in the Winnsboro area. It seems that capacity is going to be a lot later to start up and more expensive than we anticipated,” Pearson said.
He said the city negotiated the original seven-year contract with DEP because Camden thought the Winnsboro nuclear capacity would have some effect on the market, giving the city a better negotiating position after the seven years ended.
“We did not know that (DEP) … was in the process of purchasing this nuclear capacity,” Pearson said. “Now that they have that capacity, now that we know this, our best guess … is that their energy rates will be as stable or more so than anyone else’s that we might negotiate a new contract with in seven years.”
Pearson called this a “handshake” deal, and said the numbers “should make sense” by the end of the year.
With that information in hand, council voted unanimously to authorize Pearson to negotiate the contract modifications.
Pearson also spent time Nov. 11 explaining the benefit of reissuing, or re-pricing, the 2010 public utility bond series. The city issued the up to $3 million bond in 2010 to help fund the planning, site preparation and engineering costs for Camden’s new wastewater treatment plant. The plant, which began operating in January and celebrated its official ribbon cutting Thursday, cost more than $34 million to construct.
Pearson said BB&T, which will also handle the $4 million hospital tax bond issue, is agreeing to re-price the remaining 2010 bond principle of $2.6 million. He said the bank is also agreeing to waive all early/prepayment penalties.
“In order to get the new bond for the two projects and a fair market rate at that point in time in January -- they are going to commit Dec. 1 for a rate for our closing in January -- they agreed to re-price the (2010) loan … they re-priced the rate from 4.97 (percent) to the current rate of 3.09 (percent),” Pearson said, resulting in a net present value of $346,295, or a savings of 13.28 percent.
City Attorney Lawrence Flynn said the city originally issued the bond for a 20-year term. By re-pricing the bond for the remaining 15 years of the term, Flynn said, the city is dropping almost 200 basis points on the interest rate from 2010.
“I assume that’s going to be the rate we’re going to get on the hospitality revenue bonds,” he said.
A short time later, council unanimously approved first reading of the ordinance authorizing the reissuance of the bond.
At the end of the Nov. 11 meeting, Pearson brought up one other financial matter, one Kershaw County Administrator brought to Kershaw County Council’s attention on the same night: a years-long mistake on the part of the S.C. Department of Revenue (DOR) that may have cost the city up to $1 million in local option sales tax (LOST) revenue. LOST funds are reimbursed to local governments; Camden uses its LOST revenue to reimburse city homeowners for a portion of their property taxes.
Pearson said a DOR “systematic problem” resulted in some businesses located inside Camden’s city limits being listed as being outside the city. That mistake resulted in LOST revenue from those businesses being distributed to Kershaw County instead of the city of Camden.
Pearson said city finance officer Deborah Courtney and her Kershaw County counterpart, Angie Helms, will be meeting Thursday with DOR to reconcile the issue.
“(Looking at) each and every business that has filed returns before we’re satisfied for both the city’s taxpayers standpoint and the county’s,” Pearson said.
He said the city began receiving LOST checks in August prompting questions, that “didn’t make sense.” Pearson said Helms took the lead in investigating the matter.
“As we determine the exact dollar amounts, and understand how DOR is going to handle that discrepancy and refund the city’s portion … it’s a lot of money and it will go back in to our taxpayer’s pockets appropriately, somehow, based on what DOR decides to do,” Pearson said. “I will emphasize that this is not a mistake the county made. In some cases, we believe that there may be clerical issues in some of our very large retail stores that created some of the problem.”
He said other counties appear to be experiencing the same problem.
In other business Nov. 11:
• council voted, 4-1, with Councilman Walter Long voting against, to pass second and final reading of an ordinance amending portions of City Code Chapter 158 governing the Camden Historic Landmarks Commission; and
• council voted unanimously, on second and final reading, to repeal the city’s texting ban in favor of a recently enacted statewide ban.