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Wednesday, February 25, 2009

FPU Presents Their Side of the Story

FPU Officials Meet With City Commission in Special Session
By Sid Riley

On Monday evening a special session of the Marianna City Commission was held in order to provide officials from Florida Public Utilities to present their arguments against the potential purchase of the electric delivery system for the city and creating a municipally owned and operated utility. Four of the five Commissioners were present, with John Roberts absent.
In a well prepared power point presentation, COO for FPU, Chuck Stein, Mark Cutshaw, NE District Manager, and Don Myers, NW District Manager combined to present their arguments against the city purchasing the utility. They began by stressing the fact they have been providing service to this area for seventy-five years. They also pledged to engage in open, honest communication with the city as it evaluates this matter.
The presentation reviewed the history of electric rates in this area over the past ten years. They demonstrated that the favorable contract which previously existed with Gulf Power for the purchase of our power had enabled local citizens to save approximately $3100 on their electric bills during the past ten years when compared to an average cumulative cost of nine other utilities. They also stated that the low rates which then existed had a significant impact on Family Dollar’s decision to locate here.
They described how they had initially attempted to phase in the increases over a two year period instead of suddenly increasing the rates last year. This plan was turned down by the Florida Public Service Commission and was not encouraged by local public hearings. They also described how they had sent out bids to many electricity producers for bids and had initially had thirty five companies request bid packages. There were only seven of these who actually entered bids for creation of a new contract, and three of these did not meet established FPU requirements for being a provider. Of the four remaining bidders, Gulf Power was deemed to be the best choice, so a new ten year contract with significantly higher KWH costs was created. This contract became effective on January 1, 2008. New fuel adjustment rates which were also much higher went into effect at the same date.
The new system charges residential customers $ .08 cents per KWH for the first 1000 hours, then jumps to $.09 cents per KWH. This step rate system was installed to reduce the burden on low income families. When asked what percentage of their customers in this area use under 1000 KWH per month, the data was not available. They did state the usage in their system had dropped significantly with the introduction of the higher rates.
FPU argued that the comparison of their rates to larger utilities which was used by the City’s consultant Bill Harrington was not fair, due to the economies of scale created by larger networks. However, they did agree their existing rates are some 3% higher than the average for comparable utilities. Marianna constitutes some 33% of the NW Division revenues.
Then the presentation moved into a comparison of their estimates for the costs which would be incurred for the city to sever and reconnect the system for a municipally operated system. The original report of the analysis conducted by Bill Herrington, the City’s Consultant had projected a $1.9 million dollar cost. The FPU approach to severance and regeneration created a cost of $4.0 million dollars. Harrington, who was present at the meeting, responded the costs differences were primarily due to differing approaches to the task, and some initial non disclosure of information by FPU. He also felt the pricing was somewhat overstated.
In closing, they urged the city to remember the existing arrangement is creating a revenue stream of approximately $1.0 million dollars per year, with no risks on the part of the city. He reminded them of the uncertain times and the fact that during the period of conversion there would be a significant period where the city would experience negative cash flow.
Mayor Jim Wise wanted residents to realize that utility rates would probably not be lowered if the city took over the utility. The main advantage would be the fact that what monies which are now going into FPU as accumulated profits, wages for top executives and Directors, and money paid to support corporate overhead and central offices would be realized as profits by the City of Marianna. This would enable the City to continue to operate on a sound basis, and would most probably eliminate the need for tax increases for several years in the future.
The City’s Consultant is currently in the process of completing a financial feasibility analysis which will be presented within the next few weeks.

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