BOONE — On Thursday, Appalachian State University’s Board of Trustees signed a resolution that will save New River Power and Light customers and the university hundreds of thousands annually in energy costs. NRLP is owned and operated by the university.
The resolution will allow the university to purchase natural gas beginning in 2022 at a controlled and reduced rate through Public Energy Authority of Kentucky. This contract presents a projected savings for NRLP customers of between $300,000 and $400,000 per year.
NRLP, along with nine other municipal utilities, will enter a 30-year agreement effective January 2022 with NTE Carolinas LLC (NTE). NTE’s gas-fired electric plant located in Kings Mountain will supply NRLP with electricity.
Appalachian and NTE entered into an agreement in 2016 under which NTE agrees to sell electricity to Appalachian beginning in January 2022. According to NTE’s website, the electricity will be generated by “one of the cleanest and most efficient plants in the nation. (NTE’s) Kings Mountain Energy Center generates significantly more electricity from the same amount of fuel as other plants, resulting in greater efficiency and a dramatic drop in emissions.”
According to Vice Chancellor for Business Affairs Paul Forte, the agreement was timely.
“NRLP, which is a small utility, leveraged the opportunity to join with the nine other municipalities who were in negotiations with NTE,” Forte said.
Appalachian’s contract with its current electric provider, Blue Ridge Energy, which provides power through Duke Energy, expires in January 2022.
Appalachian’s chief sustainability officer, Lee Ball, said partnerships like these enhance the university’s ability to explore renewable options.
“NTE’s energy center in Kings Mountain is one of the most efficient in the nation,” he said. “Any time we have energy cost reductions and savings, those dollars allow us to consider other alternative energy providers, including renewables. This agreement retains our ability to seek renewables and may allow us to purchase more.”
The resolution states that NRLP will only purchase gas that is required to meet NRLP obligations — 90 percent will be purchased from PEAK and the remaining 10 percent will be purchased from NTE to meet any imbalance.
Morgan Stanley Capital Group, a wholly-owned subsidiary of Morgan Stanley, will purchase the natural gas as needed to meet the requirements of NTE participants.
To finance its purchasing, PEAK will issue tax-free bonds, the proceeds of which will be used to prepay the cost of purchasing the gas to meet NRLP and other utility gas obligations. Morgan Stanley Capital Group will invest the tax-free bonds.
The bonds are issued at a fixed interest rate for a defined initial period of six years and then remarketed. Neither Appalachian nor NRLP has obligation for PEAK’s bonds except to pay for the gas as provided by PEAK. If the PEAK discount is not met, NRLP may accept a lower discount or decline to take gas from PEAK for the six-year period.
A 2005 federal law and tax code allows municipal and state-owned utilities to access funds by issuing tax-free bonds at a more competitive rate than available in the commercial sector. The savings generate funds that allow entities like PEAK to issue the bonds for state and municipal utilities who agree to purchase the gas. Morgan Stanley procures the gas for PEAK. (More than 87 transactions of this type have been completed since the law was instated. As of 2018, PEAK has completed 12 such transactions.)
While the university is allowed to enter into contracts without the board of trustees’ approval, because the university is the owner and operator of a state-owned electric utility and PEAK’s ability to supply the gas is tied to a bond, the trustees’ endorsement was required.