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The issue is less can we; it’s should we?

January 23, 2015
Cape Coral Daily Breeze

With the city's franchise agreement with LCEC up in 2016, Cape Coral City Council is exploring the idea of becoming the community's electric services provider.

The elected board was presented Wednesday with a report that says "municipalization" is feasible - that the city can borrow $425 million dollars at a "weighed" rate of about 6.5 percent to purchase and then supplement the needed infrastructure. The city could then provide electricity at a rate lower than that charged by the Lee County Electric Co-Op, and be "more responsive" to boot.

"In summary, the results of the analysis indicate the investment is financially feasible and suggests that, absent compelling arguments against the proposed purchase of the electrical distribution system, the City should proceed along the path to acquire the system," the analysis and feasibility report from WHH Enterprises inc., a subconsultant for Spencer Consulting Services, states.

We'll not question the report or its numbers here.

Instead, we have a practical question for our city officials as they consider a municipal takeover as is allowed in the soon-to-expire franchise agreement: How's that daily operations/long-term planning thing working out with the city run water and sewer utility?

Cape Coral City Council, and indeed most of staff with any tenure with the city at all, is well aware that making the numbers work on paper is a far cry from the challenges of day-to-day operation and long-term expansion- especially in a city that lacks about half the utility infrastructure it will need at buildout.

For consideration:

The concept of a municipal electric utility is not new or unique. It also is not the predominant ownership model.

According to the Florida Municipal Electric Association, there are 34 such entities in Florida. Municipal utilities statewide hold about a 25 percent market share, serving approximately 3 million customers. Nationwide, there are about 2,000 municipal electric companies with a collective market share of 14.7 percent.

The bulk of customers both state- and nationwide are served by private companies, with Florida Power & Light being the big provider in Florida, serving 3.7 million customers, or more than all of the municipal utilities combined.

The Cape, though, is served by neither a for-profit company nor a government-run entity. LCEC is a co-op, a utility that is customer-owned and customer-operated through an elected board of directors.

As such, "profits" belong to the ratepayers, they are not paid out as stock dividends nor are they used to supplement a governmental "general fund," a "benefit" listed among the pros of municipalization.

LCEC's "capital credit" to each of its customers - i.e. members - is an average 2.6 percent of revenues, according to the WHH report.

And, as the city has learned through the operation of its water and sewer utility, municipalization is neither a panacea for rates nor is it any protection against rate hikes -something Cape water and sewer customers have learned all too well in the last several years, even before assessment costs are added in.

Again, according to the Florida Municipal Electric Association, the bulk of the state's public electric utilities fall in the top 50 percent in a lowest-to-highest rate comparison based on an "average" residential bill using 1200 kWh.

In fact, the largest public electric utility, in Jacksonville, JEA, comes in higher than the largest private utility, FPL, with the public system in Gainesville - the state's fifth largest public utility - topping the list.

The public utility invited to be part of the workshop presentation Wednesday night, in Winter Park, while self-described as competitive now, underwent some growing pains through its municipalization process.

According to the New York Times, which last year published a report entitled "Cities Weigh Taking Over From Private Utilities," Winter Park both lost money and raised rates in the years immediately following the creation of its public utility.

It's now reporting "about $5 million in profit on about $45 million in revenue," the Times reported, adding it is spending that money on a 15-year plan to underground its power lines. Winter Park comes in at the midpoint on comparison billing, according to the Nov. 14, 2014 chart provided by the FMEA.

LCEC, meanwhile, has not had a rate increase in seven years. The utility, in fact, has lowered rates the last two years running and stands within the bottom third or so among average bill comparisons.

Let the city also not fail to take into account employee costs here as it continues its analysis. In addition to taking on substantial debt - to the tune of nearly half a billion dollars - the city would be adding to payroll, enterprise fund or not.

In Jacksonville, where JEA provides electric, water and sewer services, pension contributions have proven to be a significant problem, an issue already existant in the Cape.

According to the utility website, the JEA received a letter from the city's mayor last year asking for an additional $40 million per year pension contribution for the next 10 years to close a pension gap.

For the police and fire pension funds.

(Yes, again, public utilities can be used as a "revenue source.")

JEA informed the city in November, that it could not make the pension fund "contribution" as it has reached a "tipping point."

"JEA is already facing the following significant challenges to overall financial health," its website states.

The utility then pointed out:

* Declining sales for both electric and water/wastewater services.

* City contribution greater than 90% of peer utilities.

* Contribution twice the median for similarly-rated municipal utilities limits JEA's ability to increase contribution without jeopardizing JEA's credit rating.

* Debt outstanding substantially greater than similarly rated utilities; JEA credit ratings are bolstered by JEA's commitment to pay down this debt.

* Significant and potentially costly regulatory requirements still to be defined and accounted for.

* JEA also has an unfunded pension liability of $460 million.

The city has a lot to consider in its exploration of municipalization and it needs to consider very carefully the flip side of the can-it-be-done coin. That is, should it be done?

That's the $425 million question.

Both the consultant report and council opinions expressed Wednesday suggest that the city proceed unless there are compelling arguments to the contrary

We disagree. That's putting the cart before the horse.

First, give us the compelling arguments FOR purchase, FOR spending a substantial amount of the time and money for research and negotiations.

The "possibility" of lower rates and better service simply isn't enough here.

Rates and service are not even an issue.

So we ask: What is?

Put some quantifiable advantages on the table - and discount the potential risks.

We haven't heard anything compelling yet.

- Breeze editorial



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