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Politics

Ratepayers Would Save Millions if 'Munis' Sell Out to FPL: Study

March 1, 2012 - 6:00pm

Florida taxpayers could save hundreds of millions of dollars annually in utility costs if cities turned over their municipal electric systems to Florida Power & Light, an independent study shows.

Of the 33 Florida cities that own and operate electric utilities, none have rates lower than FPL and only two are within 10 percent of FPL pricing, according to the analysis compiled by Glenn Heran, a Vero Beach-based CPA and consultant.

Heran calculates that residents currently served by municipal power authorities would get a net savings of $597.9 million if FPL became the service provider. The savings would be generated through a combination of lower rates and new property taxes paid on the formerly exempt utility properties.

Dominic Calabro, president and CEO of Florida TaxWatch, said, "All of our cities and local governments have a fiduciary response to ratepayers and taxpayers to find the most economical and proper service level of power generation.

"If they can save a substantial amount, they should look at any option that investor-owned utilities have to offer," Calabro recommended.

Unlike investor-owned utilities such as FPL, Florida's "munis" are not price-regulated by the state Public Service Commission. That has given cities the latitude to raise rates and use the extra proceeds to pad budgets of other departments.

Cities justify these "transfers," saying their utility revenues help to keep property taxes down. Combined, the 33 munis shifted $270 million in electric revenues to their city general funds last year, Heran determined.

But such transfers anger ratepayers who live outside the city limits, and thus receive no benefit from the rake-offs.

"Bartow and Wauchula are classic examples of cities who abuse unprotected outside electric customers for the benefit of inside city residents," Heran says.

"As a percentage of electric ratepayer revenue, Bartow and Wauchula transfer 25 percent and 21 percent [of their utility revenues] respectively," said Heran, who found that most munis only transfer 6 percent to 10 percent.

By contrast, in 2010, FPL paid only 2.4 percent of its revenues to its shareholders as a dividend.

"These cities are incentivized to increase price-unregulated electric rates at the expense of outside city customers," Heran asserted.

Of the 22 munis that have electric customers outside their city limits, five of them have 40 percent or more living beyond the municipal boundaries: Vero Beach (61 percent), Jacksonville Beach (59 percent), Kissimmee (55 percent) and Key West and Ocala (both 40 percent).

Debate has raged in Vero Beach, whose electric rates run 30 percent higher than FPL's rate in surrounding Indian River County. That disparity has stoked cries of "taxation without representation" from county residents on the city power grid.

"These customers have no representation and the PSC has no jurisdiction over them," Heran states. Neither the author nor his family has any financial interest in FPL. Heran owns no FPL stock, nor receives any form of compensation from FPL.

After a turnover at last year's City Council elections, officials began negotiating to sell Vero's aging riverside power plant to FPL. A contract for purchase is under consideration.

Heran says the rate differential in Vero Beach means "the community is losing over $21 millionper yearby not having access to FPL rates."

Meanwhile, transfers to the general fund from the electric utility run $5.7 million a year.

Lakeland, where electric rates are 8 percent higher than FPL's, also would benefit by getting out of the power business, Heran argues.

"The community as a whole would be better off by $14 million per year, with 'outside customers' saving over $22 million," he says.

But despite the higher rates, and the projected savings, a selloff of municipal power plants is no simple transaction.

Heran's analysis acknowledges that Lakeland's "inside city" residents would be worse off if the city could not reduce government spending or replace the $25 million in lost transfers to the general fund.

There are also contractual issues to consider.

As the city closest to a sale, Vero Beach faces resistance, including threatened legal action from the Florida Municipal Power Authority, the association of 30 munis that wheel and deal electricity. The FMPA board is composed almost entirely of city managers and city utility directors who have a vested interested in keeping their consortium intact.

"I suspect that the FMPA contracts will be more challenging to exit due to the political impact it will cause the FMPA," Heran noted.

Vero Beach, which produces only a fraction of its own electricity, is contracted to purchase power from the Orlando Utilities Commission.

Calabro urged cities to "engage voters" in a frank discussion about utility service.

"Too often, taxpayers do not know the options that are available in an increasingly competitive marketplace," said Calabro, who asserted that "territory and patronage" can unfairly drive the decision-making process.

"The fact is, large IOUs have access to wider capital markets and have maintained their infrastructure very well," he said.

While applauding Heran's research, Bob Sanchez, policy director for the James Madison Institute, warned against a "one-size-fits-all" solution.

Citing JMI's home base of Tallahassee, which runs its own electric utility, Sanchez recalled that the city, at the behest of then-Mayor Scott Maddox, briefly considered putting its utilities up for auction to investor-owned power companies.

"The key question then was what the city would do with the money -- park it in an investment account and try to live off the proceeds? How long before Tallahassees elected officials would be tempted to tap into that pot of money?" Sanchez mused.

"Moreover, even if the principal couldnt be touched and the idea was to live off of the proceeds, at todays low interest rates, even the interest on a principal of half a billion dollars would yield considerably less than the city currently earns in profits from operating its own utilities."

Sanchez suggested that differing circumstances in different cities merit further investigation.

"A cost-benefit analysis of each case could point to the best course for each community," he concluded.

FPL has publicly stated that it will only engage a city in utility sale discussions if invited to do so by city officials.

In a statement, FPL spokeswoman Jackie Anderson said this:

"We have invested in smart, cost-efficient technologies and worked hard to keep operating costs down. As a result, we have the lowest typical electric bills in the state, which is clearly reflected in the rate disparity cited in the report.

"What isnt noted in the report is that we also have a clean-energy emissions profile, service reliability and customer service that are all ranked among the best in the nation."

Contact Kenric Ward at kward@sunshinestatenews.com or at (772) 801-5341.

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