Agenda 06/09/2009 Item #16C16
Agenda Item No. 16C16
June 9,2009
Page 1 of 8
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EXECUTIVE SUMMARY
Recommendation for Board of County Commissioner approval for County Staff to
Attend the June 19, 2009, Florida Public Service Commission Meeting to Challenge
the Florida Power and Light Company Rate Review and Proposed Rate of Return
on Investment of 12.5 percent, and to Support tbe Proposed Electric Service
Prepayment Concept.
OBJECTIVE: To obtain Board of County Commissioner approval for county staff to
attend the special June 19, 2009, meeting in Fort Myers, Florida, of the Florida Public
Service Commission (PSC). County staff plans to challenge the Florida Power and Light
Company (FPL) proposed 12.5 percent Return on Investment (ROI) and to support a
large customer wholesale electricity cost savings concept. The public purpose is to
achieve significant electricity cost savings at county facilities.
CONSIDERA TIONS: At this series of PSc meetings, FPL will be asking for a 12.5
percent ROI which customers, independent financial experts, and the Florida Office of
Public Counsel are challenging as excessively robust, adverse to risk in the current
economic climate, and unwarranted. The Florida Office of Public Counsel, which
represents the state's utility customers, has stated that the national average ROI for
utilities is approximately 10.5 percent. (Source: The Bradenton Herald (Bradenton, FL)
by Brian Neill)
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Over the past year, several large Southwest Florida FPL customers have voiced an
interest in a proposed electric service cost savings prepayment option as an approach to
reduce their overall cost of electricity. Large customers would contract with FPL to
prepay for a block of kilowatt hours based on historical usage. This amount would be
discounted using the existing published FPL discount rate, which is currently 8.35
percent.
In 2008, the Collier County Government electric power costs were over $13.3 million.
Over $7.0 million of that $13.3 million was the electricity cost for the life sustaining
water and wastewater treatment processes. The remaining costs were for the electrical
power at county facilities to maintain the health, safety and security for employees and
citizens. The proposed prepayment option could potentially save the county over $1.1
million a year.
Other states currently have similar programs for their large electric power customers. The
prepayment option would be revenue neutral to FPL based on receiving advance payment
to invest, and hedge energy fuel pricing, among other FPL financial advantages.
FISCAL IMPACT: Potential electrical power cost savings for Collier County
Government.
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Executive Summary
County Staff Support of FPL Prepayment Option
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Agenda Item No. 16C16
June 9, 2009
Page 2 of 8
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LEGAL CONSIDERATIONS: This item has been reviewed by the County Attorney's
Office, does not involve an issue requiring a determination of legal sufficiency, is not
quasi-judicial, requires no ex parte disclosure, and requires only a majority vote for
approval.-SRT
GROWTH MANAGEMENT IMPACT: This project meets current Growth
Management Plan standards to ensure the adequacy and availability of viable public
facilities.
RECOMMENDA TIONS: That the Board of County Commissioners approves staff
attendance at a special Florida Public Service Commission meeting on June 19, 2009, in
Fort Myers, Florida.
Prepared by: Karen B. Guliani, P.E., Principal Project Manager, Public Utilities
Planning and Project Management
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Agenda Item No. 16C16
June 9, 2009
Page 3 of 8
COLLIER COUNTY
BOARD OF COUNTY COMMISSIONERS
Item Number:
Item Summary:
16C16
Meeting Date:
Recommendation for Board approval for County Staff to Attend the June 19, 2009 Florida
Public Service Commission Meeting to Challenge the Florida Power and Light Company
(FPL) Rate Review and Proposed Rate of Return on Investment (ROI) of 12.5 percent and to
Support the Proposed Electnc Service Prepayment Concept.
61912009 900:00 AM
Prepared By
Karen S. Guliani, PE
Senior Project Manager
Public Utilities Planning and Project
Management Department
Date
Public Utilities
5/27/20092:04:10 PM
Approved By
Jeff Klatzkow
County Attorney
Date
County Attorney
County Attorney Office
5/27/20092:38 PM
Approved By
Thomas Wides
Operations Director
Date
Public Utilities
Public Utilities Operations
5/27/2009 2:53 PM
Approved By
Scott R. Teach
Assistant County Attorney
Date
County Attorney
County Attorney Office
5/27/20093:40 PM
Approved By
Phil E. Gramatges, P.E.
Sr. Project Manager
Public Utilities Planning and Project
Management Department
Date
Public Utilities
5/27/20094:18 PM
Approved By
Skip Camp, C.F.M.
Facilities Management Director
Date
Administrative Services
Facilities Management
5128/200911 :03 AM
Approved By
James W. DeLany
Public Utilities Administrator
Date
Public Utilities
Public Utilities Administration
5/28/200911:19 AM
Approved By
OMB Coordinator
OMS Coordinator
Date
County Manager's Office
Office of Management & Budget
5/28/2009 1:44 PM
Approved By
Randy Greenwald
Management/Budget Analyst
Date
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Agenda Item No. 16C 16
June 9, 2009
Page 4 of 8
County Manager's Office
Office of Management & Budget
5/29/20099:04 AM
Approved By
Leo E. OChs, Jr.
Board of County
Commissioners
Deputy County Manager
Date
County Manager's Office
5/29/2009 5:59 PM
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Letter to FL Governor's Office
Agenda Item No. 16C16
June 9, 2009
Page 5 of 8
Dear Mr. Shreve
May 15, 2009
Several months ago we contacted several SW Florida FPL customers to determine if
there would be interest if allowed by the utility to have the option of prepaying for
electric service in order to receive a discount. The response was overwhelming in favor
of the concept.
First, let us explain that our recommendation has nothing to do with rate structure. We
are requesting that FP&L allow its customers the option to prepay their utility bills and
receive a discount for the prepayment.
The enclosed spread sheet is a calculation using Lee County Governments last year's
actual numbers.
The customer would contract with FP&L to prepay for a block of kilowatt hours, based
on their historical usage. This amount would be discounted using FP&L's published
discount rate, which at this time is 8.35%. The customer would secure their cash needs
through bonding, third parties, banks, etc. In some cases the customer would not have to
secure outside financing but pay cash. Under this circumstance the customer would
receive the full benefit. We believe this would be basically revenue neutral to FP&L
based on the fact that they have received payment in advance to invest, hedge etc.
(attached FPL advantages)
On January 1 st of this year for the first time in history utilities in the state of Florida
started collecting from their customer base the "Capacity Clause Recovery Charge"
which is a prepavrnent for future facilities that mayor may not be constructed.
Pennsylvania state regulators capped energy increases until 2010. Pennsylvania Electric
and Metropolitan Edison are currently allowing their customers to prepay up to 10% of
their monthly energy cost. The utilities then pay 7% interest on the prepay portion which
will be distributed back in credits to offset the expected increases when the cap is lifted.
In 2003 IRS rulings opened the door to tax-exempt bond financing for long term energy
contracts. Public utilities have prepaid 33 gas and electric energy contracts worth billions
for the wholesale side of the business.
In sum prepayment is being offered in different form and structure within the energy
landscape the Florida electric customer should be allowed the same courtesy. FPL
considered this concept in the mid 90's (deregulation era) to prevent other utilities from
cherry picking their customers by entering into a prepay contract.
This concept is revenue neutral to FPL and could be offered to all rate payer
classifications.
Respectfully
Don Morgan CPA
239-340-5138
Frank Balogh CEM CEP
239-223-0956
Letter to FL Governor's Office
Agenda Item No. 16C16
June 9, 2009
Page 6 of 8
FPL Advantages with Prepayment of Electric Utility Bills
1) Promotes energy conservation
2) Drastic reduction in monthly meter reading cost
3) Reduction in back office monthly billing cost
4) Increase working capital
5) Call center activity reduced
6) Reduced back office cost in tracking and payment of deposits
7) Utility can better manage credit risk
8) Float for utility
9) Built in hedge against weather conditions
10) No late payment or reconnect fees expenses
11) Reduce credit and collection costs
12) Improved safety and productivity with reduction in disconnects and
reconnects
13) No capital expenditure
14) Elimination of time between delivery and receipt of revenue
Agenda Item No. 16C16
June 9, 2009
Page 7 of 8
FPL to Lower Customers' Bills? Maybe
Friday, March 20, 2009 3:53 AM
(Source: The Bradenton Herald (Bradenton, Fla.))By Brian Neill, The Bradenton Herald, Fla.
Mar. 20--It's not often that a utility company's rate proposal involves a decrease in customers' bills,
but that's what Florida Power & Light Company is suggesting will happen.
There is one caveat, how- ever: fuel prices have to remain at levels projected by the company.
FPL is actually seeking to increase its base rate by $12.40 per month, which would increase its rate of
return on service by 12.5 percent -- or $1 billion in 2010 and $250 million in 2011, according to its
filing with the Securities and Exchange Commission announcing the rate proposal.
At the same time, the company is proposing to reduce the fuel portion of customers' bills by 4.5
percent, or about $4.92 per month on the typical 1,000 kilowatt-hour customer bill, through an offset
between the increased base rate and current lower fuel costs.
In a press release, the company emphasized the savings that would result in customers' bills. FPL
officials said the typical customer bill is already 18 percent lower than the average electric bill in
Florida and 17 percent lower than the national average.
But J.R. Kelly, public counsel for the state of Florida, isn't buying it.
"It's certainly in the eye of the beholder," said Kelly, whose Office of Public Counsel represents the
state's utility customers. "First, it's certainly not a rate decrease. If the price (of fuel) goes up,
customers pay more. If it goes down, they pay less. There's certainly nothing magical about it from
FPL's standpoint."
Kelly also said FPL's pro- posal to increase the rate of return by 12.5 percent -- generating more than
$1 billion -- is excessive and unwarranted. He said the national average rate of return for utilities is
about 10.5 percent.
"I'm floored. I think that is just absolutely overwhelming," Kelly said.
"I don't know what the Public Service Commission is going to award them, but we just think it's
ridiculous. I'm absolutely at a loss as to how you can say 12.5 percent is a fair rate of return. It's just
out of the norm when you're looking at the economy today."
Jackie Anderson, a spokeswoman for FPL, acknowledged that customers would not see a decrease in
their bills if fuel prices were to rise beyond the company's projections.
But she said that FPL's plans to use the increased based rate revenues to make its delivery systems
cleaner and more efficient should guarantee that customers' bills stay lower in the future.
"They're (fuel projections) based on Feb. 9, 2009, and if you look at the prices now, fuel prices are
even lower," Anderson said. "But fuel prices are volatile, so that's why we're investing in this now so
that we can continue to keep customers' bills lower."
FPL expects to have its rate proposal hearing by the third quarter of this year with a final decision by
year's endr according to its SEC filing.
If approved, the new rates would go into effect in January.
To see more of The Bradenton Herald or to subscribe to the newspaper, go to
http://www.bradenton.com .
Copyright (c) 2009, The Bradenton Herald, Fla.
Distributed by McClatchy-Tribune Information Services.
Agenda Item No. 16C16
June 9, 2009
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