The Lakeland Utilities Board discussed the need for the hike at Monday's board meeting, explaining that it is needed in order to maintain or replace the utilities' aging infrastructure, including poles, wires and machinery.
LAKELAND — Lakeland Electric customers might be seeing a 3 percent increase to their base electric rates, beginning this October.
The Lakeland Electric Advisory Board seemed to support a hike to the electric utility's "base rate," the portion of a power bill that covers labor, equipment and profit, from which a portion is paid in an annual dividend to the city's general budget.The advisory board did not take a vote on the increase Monday.
The last base rate increase was approved in December 2014 and went into effect the following March, raising that portion of residential customers bills between 4 percent and 6 percent.
The problem with the current base rate, General Manager Joel Ivy told the advisory board, is that the utility is failing to keep up with the cost of maintaining its aging fleet.
“I don’t know that we’ve had a good solid year where we’ve felt like we had the money,” Ivy said. “My instructions to (utility staff) are, ‘Go spend your money and get up to speed.’ We’re not spending at a depreciation level where we should be.”
Ivy said an advisory vote on the rate hike will need to be taken by the utility board by mid-July, to be followed after by a binding vote by the City Commission.
Several members of the utility board said they felt Lakeland Electric was actually not spending enough on infrastructure.
“In light of our aging infrastructure, we’ve had some things go out," City Commissioner Scott Franklin said. "Over a period of years, capital expenditures have been significantly less than what best practices would say."
Most notable in recent history was the dramatic failure of Unit 2 in April 2017. Consultants had warned for about five years that the approximately 40-year-old natural gas-fueled generating unit risked cataclysmic failure if it was pushed beyond its maintenance regimen. No one was injured when a high-pressure tube system burst on the unit, but the failure led to a shakeup of the power plant's leadership and the planned replacement of the unit. The failure followed a string of less dangerous failures at the C.D. McIntosh Power Plant.
Gina Jacobi, Lakeland Electric's head of finance, pointed out that the American Public Power Association recommends all utilities cap their spending equal to the depreciation of equipment and infrastructure.
“You’ve got to invest an amount equal to depreciation to maintain the infrastructure,” Jacobi said.
Anything greater than a 50 percent depreciation rate — meaning more than half of your infrastructure is past its “use-by” date — and the industry says a utility system is aging, she said. Lakeland Electric is at 54 percent. By comparison, Tallahassee Utilities is at 44 percent, Orlando Utility Company is at 43 percent and Florida Power & Light is at 27 percent.
“Clearly, we have the oldest system based on that,” Jacobi said, adding that the city needs to invest in new substations, new turbines, transmission hardening, and replacing wires and power poles.
Jacobi used fiscal year 2018, which started October 1, as a base year to determine rates. She removed all the extra expenditures that came from Hurricane Irma because it was an event that doesn’t happen every year. The utility needs $194.5 million to operate and is budgeted for only $186.9 million in FY 2018 — a $7.6 million shortfall, she said.
Operating and maintenance costs account for almost half of Lakeland Electric’s revenue requirements, she said. Expenses have grown by about 1.4 percent per year, which was a little under inflation, while salaries and benefits costs remained flat because of attrition.
The utility could use a 4.8 percent rate increase, Jacobi added, but utility leaders felt comfortable asking for only 3 percent.
“What essentially stops us from gold-plating our fixtures and spending all our money?” Jacobi asked board members. “Well, essentially, you do. And we keep in mind that we are customer-owned.”
The average age of the utility's generating equipment is 28 years, Jacobi said, which is in line with other Florida utilities, based on The Ledger's analysis of U.S. Energy Information Administration data. Though it is unlikely the utility would upgrade the fleet in one fell swoop, Ivy said, incremental upgrades will still be costly like the recently agreed-to purchase of a replacement for Unit 2 for $36.1 million installed.
“All these projects are on top of our routine spending and maintenance,” Jacobi said. “It is a cost we know we will have to make in the coming years — we know it’s coming down the pike.”
Surcharge to stay
The controversial surcharge to Lakeland Electric customers who live outside Lakeland's city limits should stay, the advisory board recommended Monday.
The plan would have removed the surcharge but add that revenue into the base rate — likely lowering prices for customers outside of Lakeland and raising prices inside Lakeland.
“We talked about eliminating the utility surcharge," Ivy said. "We would take that amount of money — $8 million — and ‘socialize’ that among all." Ivy said he opposed the plan that had been first discussed in August.
The surcharge was first implemented when Lakeland's Commission levied a utility tax but the Polk County Board of County Commissioners did not, meaning customers outside the city would have paid less than those inside the city. When the county instituted its utility tax, Lakeland did not remove the surcharge. Polk City charges a franchise fee as well as a utility tax.
A survey of Florida's 34 public utilities by Lakeland Electric found eight charged a surcharge similar to the one charged by Lakeland Electric, though they are called various things and charged in different ways, Ivy said.
"Some of them have county taxes as well, some don't," he added.
An average bill for a city residential customer is about $137, while county residents pay about $140 and Polk City customers pay about $145. If the new plan had been instituted, all residential bills would have been within about six dollars of each other. The county government challenged the surcharge in 1984 and ultimately lost the challenge in front of the Florida Supreme Court.
City Commissioner Justin Troller opposed the change, saying that city residents and businesses should get a break because they are the ones who bought the utility and invested in its infrastructure.
“At what point — when do you stop giving away our rewards?” Troller asked.
Joe Childs, who represents utility customers outside of the city, said people who live outside the city limits, but enjoy city amenities, might not be opposed to the surcharge, as long as they could see what they are getting for their money.
Though Childs represents those customers on the advisory board, which makes recommendations to the City Commission, Lakeland Electric customers living outside Lakeland cannot vote on the utility's ultimate decision makers, the City Commission.
The vote was 10-1, with Childs voting against it. City Commissioner Phillip Walker was absent from Monday’s meeting.
Kimberly C. Moore can be reached at firstname.lastname@example.org or 863-802-7514. Follow her on twitter at KimberlyMooreTheLedger@KMooreTheLedger. Editor Christopher Guinn contributed to this report.
An earlier version of this story incorrectly reported when the rate hike would take effect. This story has been corrected.