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New franchise agreement on the table

By Staff | Jun 14, 2018


A discussion of the LCEC franchise agreement was added to the Cape Coral City Council agenda on Friday:

ADDENDUM: Unfinished Business – LCEC Franchise Agreement discussion (Brought forward by Mayor Coviello)

Original post:

The Cape Coral Council for Progress has tendered a new franchise agreement it hopes will resolve a three-year contract impasse between the city and its electric utility provider.

Council for Progress members Joe Mazurkiewicz and Brian Rist began meeting again with Lee County Electric Cooperative officials after previous negotiations fell apart again late last year.

Now, the “neutral, third-party facilitators” say a new agreement has been reached with the utility and submitted to the city for its consideration.

“We, being the Council for Progress, presented a contract we believe LCEC will sign off on to the mayor and all of the council members last Monday,” Mazurkiewicz said.

Although the city and LCEC each accused the other of failing to make meaningful concessions last go-round, Mazurkiewicz said the Council for Progress membership thought the business advocacy group should try again and believes its latest effort – two years in the making- is as good a deal as can be reached.

“I can tell you that I and Brian Rist do not believe this is the best franchise agreement that we have negotiated but believe it is the best we can negotiate understanding the position of the (LCEC) Board of Trustees and their CEO,” Mazurkiewicz said.

The proposed franchise agreement calls for a 30-year term that provides:

* A continuation of the city’s current 3 percent pass-through franchise fee with an option for the city to increase that fee to 4.5 percent in years two to five and to 6 percent after five years. City adoption of any increase in the fees passed on to Cape ratepayers via their electric bills would require a public hearing and Council approval.

* An audit of franchise fees collected within the city’s boundaries once every five years with an annual audit of fees from any newly annexed areas.

The companion memorandum of understanding addresses customer rates, reliability standards, the rate paid for street lights by the city and the sharing of construction schedules and tree-trimming plans.

The proposed memorandum also would create a new technology workgroup to include members from the city, LCEC and the Council for Progress or other business organization; provides that LCEC would maintain a presence in the city’s Emergency Management Center when the center is activated; and calls for a non-disparagement clause for both parties.

It also eliminates the city buyout option contained in the previous, and now expired, 30-year franchise agreement.

LCEC is open to the terms as presented, co-op officials said.

“We find the terms agreeable and we are thankful that the Council for Progress continues to work on a solution that is in the best interest of the residents of Cape Coral,” LCEC spokesperson Karen Ryan said via email. “We are cautiously optimistic that an agreement can be reached soon.”

City staff is a whole lot less optimistic on both counts.

Analyses regarding rates, reliability, transparency, return of customer equity, new technologies and economic development issues from the city’s special utility counsel and Economic Development Office solicited by City Manager John Szerlag are not favorable and Szerlag has informed City Council that staff is months away from presenting its recommended options.

“As you know, our foremost goal is to partner with an electric service provider that can meet the needs of the 9th largest city in the state of Florida in the above-mentioned areas,” Szerlag wrote in a June 6 email to Council. “This is a generational decision, and we must follow a course that will achieve the best electric service for our Cape Coral community now and for the future.”

To that end, staff is not ready to bring a recommendation to the full Council.

… “Please know my intent remains to finalize our analysis of electric options, and determine our next steps with City Council at a Committee of the Whole meeting this fall,” Szerlag said.

According to the analysis provided to Szerlag by special counsel Brian Armstrong, the LCEC terms now being advanced by the Council for Progress, with one minor exception, are “strikingly similar to LCEC’s last ‘take it or leave it’ final offer.”

“As I have indicated previously, these ‘take it or leave it terms’ reflect LCEC’s intent to punish its largest customer base (Cape Coral), and include terms rejected by the CFP and the City just a short time ago,” Armstrong wrote.

The city would lose its right to purchase, lose previously proposed reasonable rates requirements, provide for inferior audit rights, provide no commitment to improve service reliability and would not provide for bulk rates for street light charges which would provide for “significant taxpayer savings,” Armstrong’s May 24 analysis to Szerlag states.

The proposed length of service for the new agreement that increases the previously proposed 20-year term to 30, and the elimination of the purchase provision, carry a heavy downside, according to Armstrong.

“When combined with CFP’s abandonment of the City’s right to purchase this 30-year term likely becomes ‘in perpetuity’ as Cape Coral will have significantly hampered its ability to chart its own course by changing electric providers in the future,” he wrote. “This shackles Florida’s 10th largest city to a rural electric cooperative business model that provides inferior technology, higher rates, less reliability and inferior customer service.”

City Economic Director Dana Brunett said the proposed agreement misses an important point: “Economic Development was not discussed as being a part of the updated terms.”

Benefits exist outside LCEC’s territory that puts “Cape Coral at a disadvantage as we look to recruit new businesses and must compete with local FPL serviced territories,” he wrote adding that competitive advantages provided by FPL include lower rates and additional electrical incentives, programs and support.

Multiple city officials confirm that staff’s latest exploration replaces its previous effort that looked at the possible purchase of LCEC’s assets within the city limits and the creation of a municipal electric utility with a purchase “flip” – the city would buy those assets and sell them to Florida Power & Light, the state’s largest electric utility and the entity from which the non-profit electric co-operative buys the electricity it then sells to its customers.

If LCEC is not amenable to a sale, staff is exploring the option of a lawsuit, at an estimated cost of $200,000 to start with and a price tag of $1 million-plus if additional legal counsel needs to be brought on board, those officials said.

When asked if the Council for Progress facilitators had reached out to FPL to weigh interest, Mazurkiewicz confirmed that they had.

Based on their conversations, it does not appear that FPL would be open to the purchase of LCEC’s assets within the city alone, he said.

“Yes, we had a meeting with FPL to better understand their position with this issue,” he said. “They see themselves as already serving the customers of Cape Coral through LCEC; they already see us as being their customers through their agreement with LCEC, which they are very happy with.”

There are also legal impediments to bring FPL into the city-LCEC franchise agreement talks.

“Not only no interest, they are legally restrained from doing it due to their contract with LCEC,” Mazurkiewicz said of bringing FPL into the mix.

“They would be in tortious interference with a contract they have with LCEC; that was the first big aha moment,” he said. “The second was that the franchise agreement that LCEC offered would not be offered by FPL.”

The only things FPL negotiates in its franchise agreements are length of term, the amount of the franchise fee and right to audit, he said.

“Those are boiler plate items in all their franchise agreements,” Mazurkiewicz said, adding that means the things added to the proposed LCEC agreement would not even be open for discussion.

“So no guarantee for new technology, no rate guarantees, no reliability provision, no language supporting economic development or construction projects, no tree-trimming schedules,” he said.

Regarding the concerns related to economic development, he and Rist sought input from Council for Progress members and other members of the business community.

“We asked point blank whether they would rather work with FPL or LCEC and it was unanimous, they would rather work with LCEC. They didn’t even have to think about it. We found no one who would rather work with FPL than LCEC,” Mazurkiewicz said.

LCEC took particular issue with the city’s economic development concerns.

“LCEC has been part of developing the City of Cape Coral from the time the very first home and business broke ground,” Ryan said in the email. “We have partnered with City leaders to ensure infrastructure is in place well before it is needed. We have consistently demonstrated an ability to stay in front of growth and we plan to continue to honor our obligation to provide service where needed within the City.

“LCEC has earned a great reputation for sustaining economic development throughout our five-county service territory.”

The co-op has long been involved in the business community and has a number of business partners, she added.

“This memo is disappointing because Mr. (Brunett) has never approached LCEC with any indication of his concerns about LCEC’s limited capabilities. He has not approached us to request support for new commercial business to the area either. All indications from local research and feedback points to sustainable workforce and attainable housing as challenges for economic growth. To our knowledge, access to reliable electricity has not been a barrier for commercial business in Cape Coral,” Ryan said.

At least one Cape Coral City Council member agrees consideration of the newly proposed franchise agreement would be warranted.

“I think it’s reasonable, and I do want to move forward,” Councilmember Marilyn Stout said.

She is satisfied with the service provided by LCEC and is concerned about mounting costs with more to come, especially if the city opts to pursue a lawsuit.

“I have, from the beginning, felt that LCEC is a quality company and I believe they do a good job with providing us with the best rates they can provide,” she said. “I did not believe we should be continuing to spend the time and the money; the money, especially when you consider the attorney fees. We have attorney fees on both sides.”

Mazurkiewicz agreed that litigation to force a sale would be costly.

It also would come with no guarantees as to outcome, including the substantially lower rates the city says it can obtain, even if the municipality were to prevail, he said.

“It’s just a huge, huge risk, too risky for even me,” Mazurkiewicz said.