How costs of new power plants have reversed reductions in utility bills
It used to be that few things were as dependable as the steady drop in electricity prices. Year by year, as big, efficient new power plants were built , utilities across the nation dropped their prices.
CArolina Power & Light Company, a large regional utility serving sections of North and South Carolina, provides a case in point. From 1913 through 1970 residential rates fell from 15 cents a kilowatt-hour, to 1.64 cents.
In the coming decade and a half, California Power is expected to bring more big power plants into service, including a multibillion-dollar nuclear complex.
But the utility's customers should not expect rates to drop. Instead they will likely go up, just as they have since the start of the '70s, when the trend toward over lower rates ended.
The past decade offers ample evidence that times have changed, not only for Carolina Power, but for utilities across the country. The days of cheap power have ended, and one key reason is the soaring costs of new power plant construction. Consider the record at Carolina Power:
* Forty percent of the 13.9 percent rate increase the utility is now seeking would go to pay for a new coal-fired plant, a spokesman says.
* In a 1976 rate case, the utility cited the $330 million cost of a nuclear plant as one reason power rates should be raised. Some $27.5 million of the $44 .2 million annual rate increase granted by the North Carolina Utilities Commission was to pay for the facility.
Another measure of the relationship between new plant construction and rising electric costs can be found in comparisons of power from plants of different areas. For instance, power from the nuclear unit cited in the 1976 rate case was expected to cost $404 kilowatt of capacity, records of that rate case show. That contrasted with the average of $169 per kilowatt of capacity for plants built previously.
In fact, Sherwood H. Smith Jr., chairman of Carolina Power, says the cost of building new power plants is the biggest factor in rate increases. (since 1970 the utility's price of power to homes has shot from 1.64 cent per kilowatt-hour to more than 4 cents.)
Nor is Carolina Power alone in having the raise rates to pay for new plant construction. The problem is widespread, says Barry M. Abramson, a New York-based utilities analyst with Merrill Lynch, Pierce, Fenner & Smith.
But it worse for utilities in high-growth regions, he says. In such areas -- North Carolina is one -- utilities must build more new plants to keep up with a burgeoning population and a steady influx of new industries.
"If we didn't have growth, our rates wouldn't go up as rapidly," says Carolina Power's Mr. Smith. North Carolina has attracted a wide variety of new industries, including numerous auto-parts producers, to supplement its traditional industries, textiles, furniture, and tobacco.
In the Raleigh area, where Carolina Power is headquartered, the influx includes a host of high-technology companies including IBM, which employs thousands.
Mr. Smith asserts that growth, while forcing new power plant construction, also raises per capita incom. In North Carolina, though, the state hasn't made any strides recently in raising its low per capita income ranking among the states. While the state jumped from 44th in 1960 to 38th in 1970, it had fallen to 39th by last year, the US Department of Commerce reported.
While consumers are hurt by the added costs of new power plants, utilities have taken a drubbing, too.
To finance its plants, Carolina Power is forced to sell large amounts of bonds at high interest rates. That, says Mr. Abramson, the utilities analyst, has been a major factor in eroding the Carolina Power's profits. Carolina Power agrees. While consumers may not like the higher rates that result from new plant construction, Carolina Power says higher rates are needed to offer an adequate return on investment to their stockholders. Without an adequate return , the utility can't attract the capital to build plants, the company has argued at rate hearings.
But Carolina Power doesn't always get what it wants. Consider the outcome of its 1976 rate increase case. The company asked for an annual increase of $66 million. But it only got $44 million, or two-thirds of what it asked for.