Tuesday, May 29, 2018

The bad news from Lake Worth City Commission Budget Work Session #1 held last week (video below).

This is a re-post for those of you who may have missed this. Already read this blog post from last week? Thank You for visiting once again today and please scroll down.

The REAL NEWS about this City of Lake Worth is not good. But the good news is there are meetings next week (see below) that will hopefully clarify this situation and provide possible solutions.

PLEASE NOTE: At the end of this blog post, following City’s YouTube video from May 22nd, are “takeaways” from District 2 Commissioner Omari Hardy.

Most everyone knows the Beach Fund is a disaster and now raising parking rates at the Beach is a very real possibility. The Water Fund is holding its own. And last week we learned there are problems with the Electric Fund. The specter of a rise in electric rates is a very real one.

As explained by the representatives from Stantec, due to lower demand for electricity and lower than expected projections made in 2016 either revenue needs to increase or expenses need to decrease. With so many focused on system hardening now the answer may be a combination of both.

Electric Utility Director Ed Liberty was part of the discussion and he offered a lot of insight including, for example, the possibility of renegotiating electricity generation contracts and why he is focused on cutting down on City utility overtime and having the private sector take on more projects. As part of the Neighborhood Road Bond and upgrading the City’s road network many electric poles will have to moved, a very costly operation.

Let’s just say, for now, there are a lot of moving parts. There will also be three more budget work sessions prior to the final budget to come up with answers to these problems. 

An image from Budget Work Session #1,
“Urgent action needed”:
Three upcoming meetings next week may offer helpful insight: The Finance Advisory Board meets on Monday, June 4th. The next City Commission meeting is on June 5th and Electric Utility Advisory Board meets the next day, June 6th.

Without further ado. . .

From Commissioner Hardy:

Takeaways from last night’s budget meeting. For now, I’ll focus only on the Electric Fund. It’s in bad shape guys. 

1) Revenue in the electric fund did not grow as we expected it to grow. Residential customers barely increased, commercial customers barely increased, and electric usage per household was down, even when you account for the fact that we didn’t sell power for a week after Irma. By the way, decreasing usage is a national trend; we can’t control or combat it.

2) We have to pay several million dollars to the Orlando Utility Commission (OUC) because our ability to generate power dipped by an unacceptable amount for an unacceptably long period of time. This happened because a piece of equipment in our ancient power plant failed. Our contract with OUC requires us to put money up if our power generation capacity dips below a certain amount. This amount, for us, will be around $2.5 million. While some may want to treat this is a one-time issue, I don’t. Our power plant is a museum of sorts; the equipment is very old; old equipment breaks a lot. If our equipment continues to fail, and if these failures continue to reduce our capacity to generate power, then charges like this might not be so infrequent. That said, we are in the market for new contracts, and we hope that whatever contract we ink with whatever partner we choose will not have clauses like the one that's forcing us to pay this money to OUC. But I don’t know how likely that is. These sorts of clauses are not uncommon.

3) More broadly, the Electric Fund is in trouble. It’s in trouble because revenues are lower than we expected, and operating expenses are higher than we expected. We currently have 2.9 months of reserves, or money that is put to the side for liquidity or in case we have an emergency (like a when a piece of equipment fails). But by the end of this year, we're expected to have only 17 days of reserves, and by the end of next year, we expect that our reserves will be more than depleted. We have to do everything in our power to ensure that doesn’t happen.

4) So what’s within our power?
  • We can cut costs by $6 million annually, and solve our problem with reserves by 2021. This amounts to Ed Liberty, our electric utility director, like pulling a rabbit out of his hat. I don't know that anyone wants the sustainability of one of the city’s most important funds to depend on an employee doing magic. When I asked Ed how he expected to do this, I got anything but an answer. That’s not a knock on Ed, that’s a knock on the situation he inherited. He’s been in the job only 8 months, and he has numerous messes to clean up, none of which he made. This is another mess. I don’t know how he cleans it up.
  • We reduce the “franchise fee,” the amount that the electric utility pays into the general fund, from 8% of revenues to 0% of revenues, and that would . . . actually not solve our problem at all. We’d still have to do other things to make the fund sustainable. Meanwhile the general fund would be on life support if we did that, and vital services that we provide to the residents would be in jeopardy.
  • We can grow the amount of residential and commercial customers that we have by a lot, and that would help, but it still wouldn’t solve our problem. Additionally, new customers come from new meters, and new meters come of new residential and commercial construction. Our zoning code pretty much ensures that we will never grow at the rate required to make a serious dent in the Electric Fund’s sustainability problem. Forget about it.
  • We can raise electric rates. If growth continues to be sluggish, which it will, then we would have to raise rates by a lot for two straight years to fix this problem. That’s deeply unpalatable.
    It would seem that we have no good options here. That’s all I have for now. Feel free to contact me if you have any questions. Thanks!

    For the phone number and email address for Commissioner Hardy and all the members of the City Commission click on this link. If you decide to contact one or more of your elected officials please remember to be respectful and it’s actually OK to say nice things if you want to.