Transformer.

• Author: Martin, Edward
• Position: Carolina Power and Light Co. - Cover Story

CP&L tries to insulate itself from the shock competition will bring to regulated utilities.

In coastal Beaufort County where the Tar River broadens into Pamlico Sound, National Spinning Co. operates "in a dog-eat-dog market," says Bill Reynolds Jr., the textile manufacturer's engineering director. Just like its counterparts in the Piedmont, "we're scrapping for every nickel."

But National Spinning has to scrap harder. The company, with 2,500 employees in five Eastern North Carolina plants, gets hit with an $8 million annual electric bill from Carolina Power & Light Co. - $1.6 million more than if it were a Duke Power Co. customer only half a state away.

Reynolds knows why. If CP&L competed for business the way National Spinning does, he says, "I've got to think we would see our cost for electricity come down 20%. The last two years are the lowest point this company has ever seen. We've laid off people and cut every way we can. Deregulated electricity would directly affect our bottom line, and we would have dearly loved to have made that $1.6 million."

For CP&L, North Carolina's second-largest electric utility, customers such as National Spinning are a growing worry, despite a year of record earnings and upbeat reports on many fronts. The utility, with $3 billion in revenues, is making strong gains in efficiency but is still behind in the race to lower rates, putting it steadfastly on a collision course with its own big customers. Critics, who see the day quickly approaching when the nation's $300 billion a year in electricity will be sold like bread and milk, believe CP&L will have to scramble to catch up or, worse, face a shotgun wedding with a stronger competitor.

As deregulation barrels down on the industry, CP&L stands foursquare in opposition. "We're not afraid of change," says William Cavanaugh III, who succeeded Sherwood Smith Jr. as CEO of the Raleigh-based company Oct. 1. "But we are concerned about change that might benefit just the few, or just a small part of our industry, and penalize others." He contends deregulation would shift costs from big users like National Spinning to residential customers and from places like the Northeast to lower-cost regions like the Carolinas.

That's just a smoke screen, critics say. CP&L's problem with deregulation is its high rates compared with neighboring utilities. "It's akin to going to the Olympics," says Mark Gillis, a Charlotte energy consultant. "If you're ready to win the gold medal, you want them to start tomorrow. If you're not in shape, you don't want to compete. CP&L isn't ready and doesn't want to compete."

At a glance, rate differences between the Carolinas' three largest utilities seem small - less than a penny. CP&L's average rate per residential kilowatt hour is 8.03 cents, compared with Charlotte-based Duke Power's 7.30 cents and Columbia-based South Carolina Electric & Gas Co.'s 7.47 cents. But those differences become huge for companies such as DuPont, CP&L's largest customer, which two years ago forced CP&L to grant it $7 million a year in discounts. Another large user, Allied Signal Inc., extracted $600,000 in similar discounts.

National Spinning and other large customers are organizing to lobby regulators and legislators for industry deregulation and, specifically, lower rates at CP&L. In one case, a whole city, Darlington, S.C., is trying to break away from the company and buy its own electricity wholesale.

CP&L is hardly sitting still. It has shaped up its troubled nuclear plants and cut costs. "There seems to be a whole change of internal philosophy" at CP&L, says Dennis Nightingale, who heads the electric division of the N.C. Utilities Commission's public staff. "Four or five years ago, the idea was, 'We can do it all, we know it all, nobody can do it better than us.' Now it's, 'Let's find out if others are doing it cheaper and better.' They've done a lot of good things to lower costs and improve performance."

But CP&L still resists the biggest change of all - deregulation. Even as Duke Power and South Carolina Electric & Gas scramble to diversify, CP&L remains steadfast in its focus on generating and selling regulated electricity. But the decision might not be CP&L's to make.

"Deregulation is one of those snowballs that has been pushed off the side of the mountain," say Mike Worms, a senior analyst who tracks CP&L for CS First Boston Inc. in New York. "Is it coming? Faster than most companies want to believe."

CP&L has never been interested in straying far from its core business. Created as Central Carolina Power Co. in 1908, CP&L gradually absorbed smaller western...