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UPDATED: City: LCEC resolution could take years

By Staff | Mar 29, 2016

This story has been updated to include quotes from the city of Cape Coral’s special utility counsel:

City Manager John Szerlag told City Council members Monday night that he would not be surprised if the city’s franchise agreement dealings with LCEC played out until 2020.

Szerlag’s statement was prompted by comments regarding an email received by Councilmember Marilyn Stout, who said she hoped the process would not go on and on that long.

“I asked the city manager this morning when would it end and he told me it could be 2020,” said Stout. “I hope this does not drag out because it’s the attorneys who are making money.”

The subject came up during unfinished business after Assistant City Manager Mike Ilczyszyn asked to postpone the presentation he wanted to give council on LCEC’s policy on CIAC charges until next week due to the late hour.

CIAC charges are “contributions in aid of construction,” a cost paid, for example, for power poles and lines extended to new construction in an area without that infrastructure.

Szerlag said he was told that the electric co-op would challenge any effort to purchase the co-op’s in-city infrastructure without a vote of all ratepayers, something the utility maintains is required but the city says is not.

“I have been advised by LCEC that even if our business model indicates it is in the best interest of the ratepayers in Cape Coral to acquire the electric assets in some fashion that the city would be challenged on that including through the court system,” Szerlag explained.

Contacted by phone Tuesday, LCEC spokesperson Karen Ryan would not comment on Szerlag’s statement because her office was unaware of the discussion, but indicated the information did not come from LCEC.

“It is LCEC’s belief that it would take a two-thirds vote of the membership of the entire co-op to agree for that to happen,” said Szerlag. “We disagree with that, but my comment includes any possible lawsuit if LCEC decides on suing us.”

Ryan referred to Florida State Statute to confirm the two-thirds vote required to sell off a substantial portion of assets.

“Statute 425.22 Disposition of property – A cooperative may not sell, mortgage, lease or otherwise dispose of or encumber all or any substantial portion of its property unless such sale, mortgage, lease, or other disposition or encumbrance is authorized at a duly held meeting of the members thereof by the affirmative vote of not less than two-thirds of all of the members of the cooperative “

Councilman Richard Leon asked Szerlag if he has had any negotiations on the franchise agreement with LCEC while the city’s complaint and petition questioning LCEC’s rate structure is before the Public Service Commission.

“Me and our attorney met with Dennie Hamilton and his attorney one time,” Szerlag answered.

Encouraged by Leon to reach out to LCEC to negotiate anyway, Szerlag replied it is LCEC’s position not to negotiate until the PSC rules on the city’s complaint. He also said he has asked LCEC for a date to meet, but has not received a response.

The city of Cape Coral’s complaint asks the Public Service Commission to “Require LCEC to conduct and file, on an expedited basis, a fully allocated cost of service study which justifies its current rate structure and rate design, including, but not limited to justification for its use of uniform rates and charges for in City and out of City service, including CIAC charges, and LED lighting charges that disproportionately impact the City, as well as inhabitants and businesses located within Cape Coral’s municipal boundaries.”

The complaint also asks the PSC to “Initiate a hearing process on an expedited basis for review of LCEC’s cost of service study by the Commission as well as the City of Cape Coral and other interested persons impacted by LCEC’s current unfair, unjust, unreasonable and discriminatory rate structure” based on the city premise that ratepayers within the city are subsidizing ratepayers in other areas served by LCEC because the city has more ratepayers per mile.

Following the city’s March 15 filing, The Breeze asked the regulatory agency whether any utilities under its regulatory authority use a rate structure that applies different rates within its service areas based on population density.

The question submitted was, “In general: Of the utilities whose rates structures are regulated by the PSC, how many have a ‘sliding’ rate structure where more dense areas within a service area pay a different rate than those is less dense areas?…”

The PSC replied via email Tuesday: “From staff: No utility has a sliding rate structure. All customers of a utility, no matter where they live, pay the same rates. Franchise fees, and taxes may vary by region, but not electric rates.”

LCEC has maintained that breaking out its rate structure according to density would be too difficult and is not a commonly applied methodology. Ryan said the utility is not surprised by the PSC response to the general question of a “sliding scale” rate structure.

“I’m happy that the PSC is in agreement with what we have been communicating to the city and council, and their legal consultant,” said Ryan. “Utility rates are not based on geography. We are proud of how hard we work to provide competitive rates to our customers.”

The city’s special utility counsel, Brian Armstrong, said however, that rates based on the cost of providing service to a unique customer base is not unusual and is, in fact, commonly used for, for example, commercial or industrial ratepayers.

Industry A, for example, may be a high-use customer and so pay a lot less than those at the standard rate. Industry B may also use a lot of electricity but fall into a lower tier and so pay a little more than Industry A. Industry C may pay rates a bit higher than either, based on cost-based rates, Armstrong said in a phone interview Wednesday.

“It’s really a standard utility rate principle for establishing rates based on costs,” he said.

Given the city’s customer configuration within a utility system that serves a largely rural base, Cape Coral falls – or should fall – into a similar rate structure that takes into account the lesser cost of providing service to its higher use “customer,” Armstrong said.

“The city is so unique based on the rest of the customers served by LCEC,” he said.

Armstrong emphasized the city’s numbers: 750 customers per mile vs 55 per mile in the rest of the LCEC service area.

When asked whether the commercial/industrial type of rate structure is used elsewhere for residential customers, Armstrong, who has specialized in utility-related matters 30 years, said that, yes, outside of Florida there are examples where there are different rates for municipalities and customers served outside those city limits.

“We’ve had them in Florida as well,” he said.