RALEIGH – State Treasurer Dale R. Folwell, CPA, called on Gov. Roy Cooper and Attorney General Josh Stein today to grant waivers from Executive Order 142 for cities that operate citizen-owned utilities like ElectriCities of North Carolina. Without the waivers some of the citizen-owned utilities could face potential bankruptcy.
On May 30, Gov. Cooper issued Executive Order 142, which allows customer to defer payments to utilities, including electric, natural gas, sanitation and water and sewer for four months. This executive order was an extension of Executive Order 124 issued in March. At the end of the period, the order further requires that utilities give customers months to pay the incurred costs from the period of non-payment.
While the order is meant to help people during the economic hardship caused by COVID-19, citizen-owned utilities across the state have seen precipitous drops in revenue due to lower business usage and non-payment of utility bills. This results in the cities being unable to pay for the costs of providing those services.
In fact, on May 8 the Town of La Grange filed a lawsuit against Gov. Cooper in Superior Court requesting a declaratory judgment that the order violates N.C.G.S. 159B-22. They assert the order violates a covenant by the state that it not interferes with towns’ right to collect fees or impair the rights of bondholders.
In documents related to the suit, the plaintiffs assert that the town has seen a 311% increase in customers with an outstanding balance, a 511% increase in customers that were eligible for disconnection and a loss of more than $41,000 in the month of April alone.
More recently, Elizabeth City’s City Council voted to request Attorney General Stein grant the city a waiver from Executive Order 142. City Manager Rich Olson noted during the meeting that if relief is not forthcoming then the city’s utility will likely be insolvent by the first of August, forcing a takeover by the Local Government Commission (LGC).
“We’re in uncharted territory now with the inability of cities to collect not only electric fees, but sanitation, sewer and water fees as well,” said Treasurer Folwell. “That’s why I’m asking the Local Government Commission to create a Working Group, which will include the governor, to find out exactly how big this problem is and what we can do about preventing these utilities from going bankrupt. We don’t have the capacity or the desire to take over and run all of these utilities.”
The LGC provides guidance and oversight to more than 1,300 units of local government on a variety of financial topics. As part of their statutory authority, the LGC may “take over” the finances of a governmental unit (including utilities) to help the entity return to solvency without resulting in bankruptcy. While this has rarely happened, the LGC did recently take over the finances of the town of Eureka.
“City councils, especially across eastern North Carolina, either have to comply with the governor’s order or violate the original debt covenants that were used to finance these utilities,” added Treasurer Folwell. “The best path to avoid insolvency for these cities, is for the governor and attorney general to grant the waivers. This is in the best long-term interest of the city and its citizens.”
The treasurer added that nobody wants to turn off utilities for people who are suffering from the economic virus associated with the shutdown. But he thinks that elected city councils know their customers better than people in Raleigh and for decades they have come up with fair and equitable solutions that will not bankrupt the utilities and cities.
The LGC is working with staff to determine the nature and scope of the special Working Group. It is expected that it will seek financial information from all citizen-owned utilities to determine if they are in danger of insolvency. Further, it will work with the cities to try to ameliorate the economic impact to avoid massive rate hikes should the governor refuse to grant the waivers.
The LGC supports the State of North Carolina and over 1,300 units of local government through the sale and delivery of all state and local debt, monitoring of debt repayment, counseling and assisting local governments issuing debt, and monitoring and analyzing the fiscal health and accounting practices of all local governments.