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Municipalization: LCEC: Utility study flawed

By Staff | Mar 6, 2015

City Council members heard the flip side of the coin in the municipalization of the electric utility from LCEC at Wednesday’s workshop session.

Weeks ago council was briefed by the consultant firm hired to do a feasibility study on the city’s opportunity to take control of the utility. It was a mostly positive report indicating a possible cost savings for electric users by doing so.

LCEC’s executive VP and CEO Dennie Hamilton disagrees with the consultant’s findings, calling it seriously flawed.

“There are significant risks involved,” said Hamilton. “For a city the size of Cape Coral it is a very big deal because it would be costly and filled with uncertainty. The consultant downplays the risks and a takeover of the utility does not fit this city.”

Hamilton pointed out the positive aspects of LCEC’s 60-plus year service to Cape Coral as the 30-year franchise contract with the city expires next year and a renewal is being negotiated while the city looks into purchasing the assets and taking control.

LCEC has not raised electric rates for seven years and, being a non-profit organization, returns excess funds to the utility customers in the form of equity shares. It has given more than $220 million back to customers over the years.

LCEC’s average cost of generating power of 7.4 cents per kilowat is among the lowest in the state of Florida.

“The costs and risks involved in a takeover would harm the people of Cape Coral,” said Hamilton. “You likely would see a 20-year string of 2 to 3 percent of rate increases. We disagree with the consultant’s figures, but we do agree that you (council) are in the driver’s seat and remind you that you also are dragging along 70,000 passengers with you.”

Hamilton told council that LCEC has no intention to negotiate its franchise agreement through the media or a public forum, but does look forward to negotiations with the city in a non-confrontational manner.

LCEC outside expert utility consultant Bob Bellemare pointed out the rarity of a government takeover of an electric utility.

“Utilities are not set up to sell,” said Bellemare. “There is a lot of cost and risk involved in a utility takeover for a city.”

A recent takeover in Winter Park, a city used by the city consultant to paint the move in a positive light, is operating at more than $11 million in the red.

“Most of the 3,000 electric utilities were formed in the early 1900s,” said Bellemare. “Only 85 have been formed in the last 40 years and most involve new communities or voluntary sales. Municipalization of an existing utility is extremely rare and efforts are largely unsuccessful.”

Most municipal utilities are small in nature, generally less than 13,000 customers, he added. The process usually takes five to 10 years to complete.

Councilmember Jim Burch was skeptical of the difference in facts and figures between the consultant and those of LCEC.

“I just want to compare apples to apples,” Burch said. “Don’t give me figures for takeovers of investment based utilities to compare to the co-op. Florida Power &?Light is nothing like a co-op. We all own a stake in the co-op and have paid for the assets as we go. I, and everyone on this council, am only interested in what’s best for the citizens, and I am looking for a good dialog on this.”

Both council and LCEC?representatives said they favored a non-confrontational dialog and negotiation moving forward.

In other business, City Utility Expansion Project?Director Paul Clinghan brought council up to date on the utility expansion projects with a formal presentation.

He said Southwest 6 & 7 is nearing completion and the $103 million project is coming down the stretch under budget.

The next area is North 2, which is an area north of Pine Island Road roughly between Nicholas Parkway and Burnt Store Road. That 4.27 square mile project is budgeted at $137 million.

North 2 is nearing the end of its planning, design and permitting phase in order to bid and start construction in 2016 to be completed by the end of 2017.

Clinghan said council will see resolutions approving the engineering fees for North 2 later this month and in April.

The next regular council meeting is Monday at City Hall. Two final public hearings are scheduled, one involving amending an ordinance approving a development project at Sunset Lakes, also know as Coral Lakes, replatting the area, deviations from the minimum side yard setbacks and partial vacation of drainage easements.

The other public hearing delves into revising the conditions required for extending the repaving of Pelican Boulevard to no later than Dec. 31, 2017.

An ordinance amendment extending the hours of operation by two hours for Downtown District bars and restaurants will be introduced to council on Monday. The introduction process does not call for a vote and members may or may not discuss the item when they set the public hearing for a formal vote on Monday, March 23.