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Trade association files for ‘person of interest’ status in Cape LCEC complaint

By Staff | Apr 8, 2016

A trade association representing electric cooperatives statewide has filed for “person of interest” status with the Public Service Commission concerning the city of Cape Coral’s request that LCEC justify its systemwide rate structure.

The Florida Electric Cooperatives Association, Inc., a not-for-profit representing 15 electric distribution, and two generation and transmission, cooperatives collectively serving more than 1 million consumers in 57 of 67 Florida counties, filed because the city petition and complaint “raises issues of interest to electric co-ops.”

“The issues in the above-referenced docket are of interest to FECA’s members by potentially adversely changing the formula used to determine fair and reasonable rate structures,” the FECA letter filed Tuesday states.

The city complaint also raises a fundamental issue that could impact all electric utilities throughout the state, according to FECA Executive Vice President and General Manager Bill Willingham.

“This would really be for the whole electric industry in Florida,” Willingham said in a telephone interview Friday.

The city’s complaint argues that rates within the municipal limits should be density-based as there is “a widely disparate number of customers per mile served (approximately 750 customers per mile in the City compared to only approximately 55 customers per mile served by LCEC in the remainder of its 2,100 square mile service territory.”

Citing a proceeding filed with the then Florida Railroads and Public Utilities Commission in 1957, the city maintains there is a precedent showing that different rates, based on population density, have applied in the past.

According to Willingham, there is precedent that shows density-based rate structures for residential ratepayers are no longer applicable in the state.

“The fundamental issue is whether the city can have a unique rate,” Willingham said. “The PSC went away from that in either the ’50s or ’60s.”

He cited two PSC cases.

In one, the city of Tallahassee proposed, in the early ’80s, to charge ratepayers outside the city limits more than those within, based on an argument that it cost more to provide service outside the municipal limits. The city wanted to tack on a 15 percent surcharge.

That argument was “shot down,” Willingham said, as the PSC found that the city’s cost-of-service argument could not be uniformly applied, that in some areas within the city it actually cost more to provide service than in some areas outside the municipal limits.

The city of Tallahassee appealed and, in 1983, the state Supreme Court weighed in on its density-based rates argument, siding with the PSC and its rule that an out-of-city “equivalency surcharge” should be equal to an in-city public services tax but could not be more.

“The city did not offer enough evidence to show why they could charge more outside the city limits,” Willingham said.

The second cited case concerned the city of Wauchula, where a similar argument was made and also rejected by the PSC.

…”The Commission was primarily concerned with the application of separate rate schedules to members of the same class of customers based solely upon their geographic location,” the PSC letter dated Sept. 25, 1980 states. “While it is apparent that the City of Wauchula is not applying rate schedules that are as obviously discriminatory against non-city residents as are the rate schedules applied by the City of Tallahassee, the fact that different rate schedules, with different charges are applied to customers inside and outside of the city limits raises doubts as to the reasonableness of the rate schedules applied by the City of Wauchula.”

“It used to be a policy in the state of Florida but the PSC has gotten away from it,” Willingham said of variable rate structures. “We’re not sure why they (the city of Cape Coral) are trying it dredge up history.

“Clearly the PSC has said we don’t want to have those rates at some point,” he added.

If granted, the filing would allow FECA to be copied on all filings and other correspondence from the city and LCEC, including any pleadings, motions, notices and orders.

The city of Cape Coral’s complaint, filed March 15, 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.

LCEC has maintained that breaking out its rate structure according to density would be too difficult and is not a commonly applied methodology.

LCEC responded to the city of Cape Coral’s petition for a rate structure analysis on Monday, saying a deeper look into the city’s “unconventional” argument that a density-based methodology would provide for fairer costs is not a practice commonly used, does not take into account the greatest cost associated with providing service, and could result in higher rates to city residents if emergency repair costs ever became part of the equation.

The April 4 letter also reiterates to the city LCEC’s position that any analysis breaking out cost of service within the city boundaries would be time consuming and expensive and further, proposes … “that LCEC abandon its long-standing, PSC-approved customer classification system in favor of a radically different system designed around geographically differentiated rates based on customer densities,” a matter not for the Public Service Commission but for LCEC’s member-elected Board of Trustees.

…” While we can certainly appreciate how a municipality might think geographically differentiated rates would be sensible, a deeper look at the issue shows why that is not the case,” the letter from LCEC Executive Vice President and CEO Dennie Hamilton to Cape Coral City Manager John Szerlag states.

Link to the Tallahassee Supreme Court ruling: (City of Wauchula letter attached.)