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UPDATED: City presents ‘draft franchise agreement’ to LCEC

By Staff | Mar 11, 2016

Updated: Prepared statement issued by LCEC

LCEC issued a prepared statement Monday morning in response to the recommendation that the city file a “rate challenge” with the Public Service Commission. According to that statement, any filing by the city means “that no substantive negotiation can take place until the PSC rules.”

Cape Coral City Council is expected to discuss the recommendation to bring the matter to the PSC, made by the city’s legal consultant, at today’s council meeting.

CapeTV 98 is the government access channel for the City of Cape Coral. The city also provides streaming video of the channel via the City website., capecoral.net . Live streaming of the meeting is available at capecoral.net/services/cape_TV

The LCEC statement reads:

City Legal Consultant Recommends Suing Over Franchise Terms That Have Yet to be Negotiated

March 14, 2016, North Fort Myers, FL – The City of Cape Coral recently advised LCEC of its intent to file a request with the Florida Public Service Commission (PSC) challenging LCEC’s electric rate structure.

Unfortunately, the legal theories to be discussed with the PSC relate directly to franchise agreement terms provided by the City to LCEC on March 9, meaning that no substantive negotiation can take place until the PSC rules.

“After waiting nearly a year for a franchise proposal from the City, we had hoped to begin good-faith negotiations immediately,” said LCEC Executive Vice President and CEO Dennie Hamilton. “However, it would be a waste of both taxpayer and LCEC member resources to negotiate terms that are party to a legal challenge before the PSC. This appears to be another costly strategy by the City to delay working out a resolution in the best interests of their constituents.”

As background, electric cooperative rate structures are reviewed by the PSC to ensure they are non-discriminatory. The PSC has reviewed and approved LCEC electric rates now among the lowest in Florida many times over the years. LCEC recently reduced rates for the fourth time in two years, reporting rate changes to the PSC each time.

Utilities conduct cost of service studies to establish pricing that is equitable, and to ensure that one customer class does not subsidize another. The studies establish customer pricing that is at levels appropriate to serve residential, commercial, and industrial customers. LCEC performs and submits all documentation required by the PSC.

The City’s legal consultant is recommending a PSC filing based, in part, on the belief that costs and pricing should change within rate classes based on population density across geographic regions. In other words, rates should change based on geography and customers in some areas should pay more than customers in other areas. “The information underlying cost of service studies is not collected by geography. As we have communicated to the City, the cost and effort to conduct additional research by geography would be extensive and would serve no purpose with respect to electric rates,” said Hamilton.

Interestingly, while arguing this geographic-based rate theory, the City maintains a traditional rate structure for its water utility that is not based on population density. Some areas of Cape Coral are denser than others but all City water customers pay the same rate.

“We advised City staff leaders and their legal consultant that a petition of this sort will require a significant investment in legal and consulting fees,” said Hamilton. “The only people who will benefit from this strategy are lawyers and consultants.”

Among other recommendations, the City’s legal consultant also advised the City to consider filing a complaint with the PSC regarding rates for a new LED lighting program and Contribution in Aid of Construction (CIAC) policy, over which the PSC does not even have jurisdiction. LCEC’s LED and CIAC rates are in line with other utilities and are applied consistently across LCEC’s service territory.

LCEC recently reviewed the new LED lighting program with City officials explaining the reduced energy charges and the higher fixture prices resulting in a pricing structure and performance equal to the existing lighting program. Specific fixture pricing information was not released due to the proprietary nature of the vendor bidding process. Maintenance cost and life-cycle data is not yet available since LED technology is fairly new in the industry.

The LCEC CIAC policy has been in effect for many years and although not under the jurisdiction of the PSC has been vetted by the Commission. The LCEC policy is very similar to policies required by investor-owned utilities and relates to recovering costs for power lines extended to areas not currently served so that all rate payers do not bear the cost.

“We are disappointed that efforts and resources continue to be aimed at litigious activities rather than focusing on the negotiation of a new franchise agreement,” said Hamilton. “We stand ready to work together with City leaders to negotiate an agreement that is in the best interests of our members in the City, and we hope such negotiation can begin soon.”

* * *

Original post/story by Chuck Ballaro:

Nearly one year after the city of Cape Coral received the framework of a franchise agreement from LCEC, the city has responded with terms of its own.

But while the cooperative rejoiced at the news, it was less happy with the city’s intent to challenge the company’s rate structure, which the city staffers says the municipality needs to continue its due diligence.

While LCEC and the city both declined to discuss the details of the negotiations, the fact there is finally some movement has both sides feeling hopeful something can be ironed out before the current 30-year agreement ends in October.

“We’re so excited because it’s been a year since they got what we sent them,” said LCEC spokesperson Karen Ryan. “So we were finally happy we got it back from them. We’ve been talking to a lot of customers and we believe this is in their best interests.”

“We are pleased to see some movement in this area after so much time has passed,” said Dennie Hamilton, LCEC executive vice president and CEO in a statement. “Having just received this document, it will take some time to review, but it is my hope that we can now engage in the kind of substantive negotiation that was promised to City residents early last year.”

Last March 27, LCEC sent its framework for a franchise agreement. Ryan said the document represented roughly the same terms and language that Lee County agreed to when it extended its agreement earlier this year. In that agreement, Lee County got a 4.5 percent franchise fee, while Ryan said Cape Coral has received about 3 percent, the same as Sanibel (Marco Island doesn’t have a franchise fee).

LCEC is already collecting 7 percent for Cape Coral as part of its public service tax.

Cape Coral elected leaders told LCEC and residents last year that the city would evaluate a “municipalization option” while also negotiating a new franchise agreement with LCEC.

“We feel a franchise agreement is in the best interest of citizens, but we completely understand the city needs to do their due diligence,” Ryan said. “We took the Lee County agreement, tweaked it and said this was the starting point.”

City spokesperson Connie Barron said LCEC’s proposal contained certain elements included in the existing agreement and removed others, such as the opportunity for the city to buy certain assets, and it would be required to charge reasonable rates, adding it wasn’t really a genuine offer.

“It was a boiler plate agreement that contained none of the added value items we had discussed with city council publicly,” Barron said. “We’ve presented them an agreement that contains many of the elements of added value that we think are important for a good franchise agreement and for good service for Cape Coral ratepayers.”

On Wednesday, the city outlined its terms in a draft agreement, which include:

n A 20-year term with the possibility to renegotiation in 10 years.

n Equity capital disclosure and representation on board of trustees.

n A city right to purchase assets.

n LCEC right to use streets

n Street lighting modernization

n Contributions in aid of construction reporting

n Should there not be an agreement in place before the current one expires, the old terms simply remain until negotiations end.

n Customer service office in the city

n Reasonable rates

n Franchise fee

n Maintenance of books and records

n Right to examine records

n Service reliability reporting

n Open records

n Semi-annual meetings between LCEC and city

n No city electric service competition

n Notice of rate, service territory changes

n No sale of assets without city consent

n Undergrounding

n Smart meters

n Forfeiture for breach

n Franchise a contract and legislative act

n Standard provisions

n Franchise effective upon LCEC acceptance no later than 45 days after city council passes ordinance.

Ryan said there are no talks currently scheduled, as LCEC has to look at Cape Coral’s proposal.

While LCEC expressed hope that serious negotiations could now begin, they were disappointed that during Wednesday’s meeting the city announced its intent to pursue a filing with the Florida Public Service Commission challenging LCEC’s rate structure.

“It’s disappointing. It’s like going to marriage counseling but you already filed for a divorce,” Ryan said. “But we’re optimistic because the dual track in one step closer to a franchise agreement.”

“While some legal posturing is to be expected, I know our members would want, and expect, both parties to work together in good faith to secure a mutually beneficial agreement. It is difficult to engage in earnest negotiations while also defending against a legal challenge,” Hamilton in a statement.

Barron said the reason the Cape’s agreement took the time it did was because LCEC withheld information the city needed to make an informed decision on what side of the dual track to ride on, as well as a proposed franchise agreement “from a position of knowledge.”

That’s the reason they’re looking to go to the PSC and why they want a seat at the table at LCEC board meetings. They want transparency, Barron said, which is important when you’re dealing with 45 percent of your customer base.

“We have not been able to get the information from LCEC and whenever we asked for it, they told us no,” Barron said. “One of the statements that had been frequently made to the city manager from Mr. Hamilton is ‘If you want to get that information, you’ll have to go to the PSC.’ So, that’s what we’re doing.”

Barron emphasized that the dual track, looking into a new agreement as well as possibly buying LCEC assets, doesn’t necessarily mean municipalizing electricity, which was one of the options LCEC gave the city.

“That’s just one of the things. You could have an independent board that oversees the electric. You can outsource the management, which LCEC does in a sense,” Barron said. “There are different models available if we purchased the assets.”

The complete draft and relating documents can be viewed on The Breeze website.

City council will consider the matter at Monday’s meeting under new business. City Council also will consider taking “LCEC rate structure issue” to the PSC for an administrative review.

The meeting begins at 4:30 p.m. in the Council Chambers.