Guest Editorial re Wholesale Electricity Provider - by Chip Guthrie

Submitted this morning - 7/12/12

Thank you to all who showed up at the special commission meeting (7/10) to support the commission moving forward with the 7 qualified bidders vying to be our next wholesale electric provider. The vote was unanimous and now we will get the opportunity to see and hear presentations from each bidder in hopes of hearing that they can lower our outrageously high electric bills.

 

One problem with this scenario is that they have some hefty hurdles to jump.

 

I'm learning as I go, so please bear with me. You see, the major reason our electric rates are so high, 30% to 45% higher than FPL (just as a comparison) is that our rates are set by our elected officials, not a Public Service Commission (PSC), and this is important. Not necessarily those commissioners sitting in the high chairs in the commission chambers, but many before them as well. The electric utility was always designed to be a way for Lake Worth to keep it's tax burden for its citizens low because we could supplement our low energy costs with profits helping the general fund.

 

Unfortunately, we now have high taxes, due to lower property values and real high electricity rates to make up for the lower tax revenue, which in turn makes for lower property values because of ultra high utility rates... and so on.

 

Our city general revenue taxes, what you pay with your property taxes and some other fees only make up a little over half of our city budget ($23 million). The electric utility pays in the other portion... somewhere near $9 million dollars every year. Most of our neighboring cities live within that property tax revenue without the benefit of owning their own utility. So the REAL question you start to ask is "why are other cities able to operate with just property taxes and our little town needs to soak our own residents for $9 million on top of the property taxes?"

 

You will hear all about our "antiquated system" , "lack of maintenance", "bad contracts", "FMPA", "Stanton Coal fired plants (#1 & 2)", the "St Lucie Nuclear Power Plant", blah, blah, blah....

 

All of the above contributes and complicates an issue that boils down to us wanting to pay as close to what our neighbors North and South of our city borders pay for electric power.

 

Here's a clue: Dropping FMPA and finding a new wholesale provider may not lower our retail rates significantly. That all depends on how much the City keeps adding to the wholesale cost to prop up the general fund.

 

If the city decided tomorrow to drop every penny it takes from LW Utilities, and passed that savings on to each of us, we would still pay higher rates than FPL customers...... and the city would need to find another source for the $9 million..... or we have to face cuts to  lots of things like salaries, services, library, code, sheriff, fire..... etc., etc., until they reach $9 million. Think about that.... Why aren’t the administrative costs ever cut as much as the services? Has there ever been a cut to the budgets for consultants, outside legal firms and more studies?

 

"Well then.... why don't we just produce our own electricity with our own power plant?" you might ask. Apparently, I have learned, that we do have one big and one medium sized generator that work together as one but they are expensive to operate, Another big one that’s 35 years old and only burns diesel. Another big one that’s 45 years old and runs on natural gas and 5 more little ones that run on diesel and are almost 50 years old, and two monsters that are good for paper weights. (and that could be stretching it) The first two mentioned are capable of producing 30 mega watts. Our peak demand is somewhere around 90 mega watts but we have to have a 15% reserve capacity on top of that.

The only way we could produce our own power at a reasonable cost is to buy new generators.

 

You know the "bad contracts" mentioned above? This is where bad contracts come in. Waaaaaay back during the oil embargo in the 70's I think, our generators that run on diesel were looking like a potential problem. Remember, "the earth is running out of oil", so we went looking for ways to diversify our power and entered into lengthy, cheap (then) contracts that REQUIRE us to purchase a certain amount of power each month from these sources (coal and nuclear)...... let's say 30 mega watts...... forever. Remember, it sounded like a good idea back then because it was cheaper than having to see our power plant sitting in one of those long lines stretching around the block to get 5 dollars worth.

 

So today, and tomorrow, and even AFTER we choose a new wholesale power provider, we will still be required to purchase the FIRST 30 mega watts from those contracts we signed back in the 80's. The rest of our requirements will be met with whatever our commission agrees to in the coming months. Those first 30 mega watts can be very expensive and our generators are still more expensive to operate than buying from the wholesale market. Actually, they are normally only fired up to supplement the system during peak draw on the larger grid.

 

So that brings us back to why we need a new wholesaler for our power...... there is the perception that there is SIGNIFICANTLY lower cost electricity available to us than what we were able to buy from FMPA. That is what we will find out at the presentations of the bidders. What we don’t know is if that lower wholesale cost to the City is going to mean lower retail rates for us.

 

Let’s now think about the difference between “municipality owned” versus “privately owned” suppliers of wholesale power to Lake Worth.

 

When a privately owned electric utility wants to raise retail rates they charge their customers, they must apply to the PSC, which is a group of experts in the utility industry appointed as a watchdog for the rate payers. They examine all the issues and grant or deny the rate increases based on “need vs. greed”.

 

Municipally owned utilities such as ours only require a vote of the commission to raise rates. In such cases, if the utility director requires an upgrade that requires rates to rise, he or she would apply to the city commission with reasons and the commission would grant or deny based on the need only. If the city commission needs more funds to operate its city, like ours does, and it happens to own its own electric utility, and ours does, it can authorize rates to rise to by a majority vote.

 

This might be seen as an over-simplification, but you can make your own decision as to which retail customer is better protected and which retail customer has more control; the customer who’s utility is governed by the Public Service Commission or the one who’s utility is governed by a city commission.

 

Our new supplier of wholesale electric IS going to be one of the above.

 

This is why YOU need to be involved in the discussion. Let your commissioner and Mayor know how you feel in this most important decision that affects each and every one of us for now and for the foreseeable future.

 

Chip Guthrie