Power Talks


As I am writing this column, it looks as if City of Sarasota commissioners will be voting this month on whether to grant FPL another 30-year de facto monopoly over electricity distribution. As a member of Sarasota Power (sarasotapower.org), a group that advocates local control over energy, I am hopeful that at least three will be in favor of taking more time before making a decision.

I say this because, as of now, the public discussion has barely scratched the surface of all the options that lie before us. Whether that’s granting the investor-owned corporation another 30-year monopoly, granting them five years (FPL has said it won’t do anything less than 30 years), going without a franchise agreement at all, creating a city-owned utility or setting up a utility that goes beyond electricity, we have not informed ourselves about the shape and implications of each of these possible choices.

In other words, the city commissioners cannot make an educated vote at this point.

The opportunities we have go way beyond adding more renewable energy. It’s about boosting savings and efficiency; it’s about reliability; it’s about taking advantage of technological change that’s turning the one-way power distribution network into a two-way street; it’s about opening up the grid for competition; it’s about economic development and improving Sarasota’s competitiveness; and it’s about nuts-and-bolts financial issues, such as keeping end users’ electrical bills in check; and, yes, maximizing revenues for city budgets.

Take Trevor Underwood’s road map towards municipalization of electric distribution networks. You can’t accuse the British-born finance expert, economist, physicist, Bank of England adviser and IMF consultant of being a tree hugger. To him, renewable energy is an afterthought. Underwood’s mantra is “competition.” The reason he became an agitator for turning over power to cities is reliability—or rather the lack thereof in the Third-World setting of storm-prone Florida, where hundreds of thousands of miles of overhead cables are dangling from flimsy poles. His key experience was the 10-day blackout he witnessed when he moved into his Fort Lauderdale home in 2005.

Putting the distribution network underground is the only way to prevent similar experiences in the future, Underwood concluded. But because of the way the system is set up, investor-owned power companies have little incentive in maintaining their infrastructure, let alone making considerable investments in improving it.

Says Underwood: “FPL can’t be blamed. They’re just enhancing their investors’ interest. The problem is the monopoly setup.”

Underwood, acting as a private citizen-activist, created a detailed proposal that outlined the way the city could own and operate the local electric distribution network when the City of Fort Lauderdale went through its franchise renewal negotiations with FPL in 2008-’09. Unfortunately, three of five city commissioners declined to pursue this option. They had the same trepidation Sarasota city commissioners are facing: the loss of a predictable revenue stream power consumers generate via the franchise fee, the distraction of starting up a utility and the high start-up costs. But it is a proposal Sarasota should study thoroughly.

Under this plan, the city will not renew the FPL contract. Instead, it will set up a city-owned but separate Municipal Utility Distribution Authority that buys FPL’s distribution network. When ready, the Distribution Authority will put underground all electric cables and, while at it, add a fiber-optic network for telephone, Internet and TV services. The Distribution Authority will then rent its network to multiple competing suppliers.

The purchase would be financed not by the city, but by the Municipal Authority issuing one taxable bond. A second, nontaxable, 30-year bond would be issued in portions to fund construction of the underground distribution system. Both bonds would be secured against the distribution system assets and rental revenues.

Separately, the city will create a Municipal Electricity Supply Utility to purchase electricity in the wholesale market or from local producers, rent the municipal electric distribution system, and sell the power to residents and local businesses.

The electric utility would recover the rental cost by charging customers a percentage rental charge, the same way FPL currently charges customers a 5.9-percent franchise fee. In other words, rates would stay the same.

The beauty of Underwood’s municipalization plan is that there would be no cost to the city or its residents, either in taxes or rate increases. It would effectively be paid with the monopoly and near-monopoly profits that otherwise would have been earned by FPL, Comcast or Verizon over the next 30 years.

The only additional expense in Underwood’s plan is the cost of putting the cables underground, distributed over the life cycle of the newly built infrastructure. For consumers, the competitive pricing brought about by an end to monopoly suppliers should offset that additional cost. Meanwhile, the Municipal Distribution Authority will pay a dividend to the city, replacing FPL’s existing franchise fee.

An added benefit is that such a local entity can—and should—promote a reduction of electricity consumption, the weatherproofing of homes and the purchase of local energy, particularly renewable electricity produced by home-owners, farmers and businesses.

What about financial turmoil in the transition period? If FPL stops passing on the franchise fee from customers to the city—a considerable $5 million in annual revenues for Sarasota—the city should be prepared to seek a court order. The Florida Supreme Court has ruled that a regulated utility must continue franchise fee payments.

Of course, there’s widespread skepticism about government. Underwood counters the utilities he envisions will be efficient because they’re isolated from politics. They will be small and lean organizations, without lifetime job contracts, run by engineers reporting to the city manager, city engineer or public works director, not directly to the commissioners.

He touts the municipal utility of Orlando as a model, where he says the city is acting more like a shareholder than a manager.

“These organizations are a wonderful thing to have,” says Underwood. “All you have to do is keep them free of interference from commissioners.”

Says José Antonio Garnham, a skeptical Sarasota resident, former economist for the Organization of American States and budget analyst for the government of Chile, after reading Underwood’s proposal: “How are they going to manage that transition without shutting down the whole city? I want to see a three-phase plan and a simulation that lays out all the details.”

Exactly! I want to see that plan, too, and so should the city commissioners. ■

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