Editor's note: Last week, The Log published Mayor Scott Fischer's letter to residents on why the city is looking into purchasing the electrical utility. This letter is Gulf Power's response to Mayor Fischer's letter.
Dear Mayor Fischer,
I am writing in response to your letter to a "Concerned Citizen" dated Dec. 29, 2017. As you have mentioned on several occasions, I know you want to ensure citizens are receiving accurate information and hope this correspondence provides additional facts and useful context.
In your letter, you discuss the differences between Gulf Power rates and rates of other utilities in the state. Implied is that all energy providers throughout the state of Florida could also be an energy provider to the city of Destin. We respectfully disagree with this conclusion. The Florida Public Service Commission has jurisdiction over rates and service of public utilities, including jurisdiction to determine utility service areas. Many different factors go into customer rates that can be offered by an energy provider including geographical location, population density of service area, services provided and energy sources used to produce energy. It is worth noting that, on average over the last 30 years, Gulf Power has been one of the lowest-priced providers in the state.
Your cost comparisons also imply that the relationship between Gulf Power's rates and those of other electric utilities will be the same for the next 30 years. Rates, as well as the relationship of rates among utilities, can and do vary greatly over time. In fact. some of the energy providers you mention in your letter such as FPL, Duke, and TECO, already have plans to increase their prices, including step rate increases from rate review settlements and Duke and TECO are requesting storm cost recovery increases. Rates, as well as the relationship of rates between utilities, have not stayed the same over the last 30-years. Rates don't always increase, sometimes they decrease. In fact, in the last 10 years Gulf Power has decreased rates six times. Additionally, we believe that the most recent decision on tax reform will also put downward pressure on customer rates and we are working diligently now to determine the exact customer benefit. If you look instead at the actual rates over the past 30 years, you will see that the citizens of Destin have largely benefited by having Gulf Power as their energy provider.
In the third paragraph of your letter, you mention that "all the municipal utilities that I have spoken with are very happy with their decision to operate their own electric utility." In the last 15 years, only one municipality in the state of Florida has taken the action that you are considering for the city of Destin, and this would be the city of Winter Park. In the first four years of operation, Winter Park lost $11 million in their operation of the electric system. Historically speaking, most municipally owned electric services were created by the cities themselves and did not involve a decision to takeover an investor-owned utility. The action you are considering -- taking over an investor-owned utility -- is extremely rare. I would also note that two municipal electric providers, Vero Beach and Jacksonville Electric Authority, are presently considering or taking steps to get out of the electric utility business altogether.
Your due diligence in looking at options for the city of Destin is understandable. However, when you mention, "Paying $70 million to save you and our other citizens $150 million, or $250 million, or more after covering the entire front-end cost, seems like a sound business decision to me," that implies to your citizens that $70 million is the cost to purchase, start up, and run an electric utility. It is important to be clear that the actual purchase price, which is yet to be determined, will not include start-up cost, expense to run an electric utility on an ongoing basis, infrastructure improvements that ensure long-term reliability, protection against cyber and physical threats and storm hardening investments that improve the resiliency of the electrical system. Because there are many more costs than just the purchase price, the predicted savings you mention may not actually come to fruition.
Your statement also implies that if Destin purchased the electric assets, the city would lower rates for 30 years, saving the citizens millions. Lowering rates was never suggested or recommended in the WHH feasibility study you reference. In fact, this feasibility study and the financial forecasts included are all based on one assumption: the city of Destin will keep the same rates that Gulf Power currently charges.
The WHH feasibility study also did not include undergrounding any lines and, in fact, suggested adding another overhead line along U.S. Highway 98 because it was more economical to do so -- increasing expenses in the form of new above-ground infrastructure. This cost is not included in the bottom line recommendation of the consultants.
In your letter, you write that the "Florida Public Service Commission voted in December for a multi-year rate freeze for four of the five major public utilities in the state except one, Gulf Power." We have not been able to verify this statement through FPSC records. Rates, including rates for utilities that have entered into rate settlement agreements, have the potential to change each year. These changes can come in the form of clause adjustments (fuel, environmental controls, energy efficiency programs, etc.) which occur annually; through storm cost recovery, which Duke Energy Florida and TECO have recently requested; or through step rate increases, which FPL and Duke Energy will have over the next few years based on their recent settlement agreements.
Your letter speaks almost exclusively about price, and although important, equally important is the customer and community value received. Value comes in the form of reliability, service, energy efficiency, pricing and payment options, community and economic development partnership, community service, environmental stewardship and planning and investing to ensure energy security for all Destin citizens. That is why I truly believe the men and women of Gulf Power have brought much value to the city of Destin over the past 81 years and continue to do so today.
In the past 10 years, from 2007 to 2017, we have made more than $9.3 million in capital improvements to the distribution infrastructure in Destin. Those improvements include the installation of smart grid technology like distribution reclosers, which are self-healing mechanisms that make the electric grid more resilient and reduce the number and duration of outages. These improvements also include infrastructure storm resiliency upgrades along U.S. 98.
Additionally, we have invested more than $7.5 million in our transmission infrastructure in Destin, including a recent $1.5 million renovation to a substation in Destin to ensure the substation has the most up-to-date technology and equipment to increase service reliability. A new concrete switch house, that contains the protection and control devices, was built to withstand hurricane force winds of up to 150 mph. Other transmission improvements include the new Henderson substation in Destin to increase reliability by adding the ability to shift power load from Crystal Beach substation and Destin substation as needed. Additional storm resiliency upgrades have been made to transmission towers to improve reliability.
In total, over the past 10 years Gulf Power has spent more than $16.8 million improving the equipment that services the city of Destin and we have a plan to spend an additional $9 million over the next five years on capital infrastructure needed to upgrade and support area growth. We are committed to making power in Destin even more reliable than it already is for homes and businesses.
We also deliver more kilowatt hours of renewable energy per customer than any other investor owned utility in Florida, harnessing the power of wind and solar energy sources to the benefit of our customers.
Additionally, Gulf Power employees have been actively involved in the Destin community. We volunteer in civic organizations like the Destin Chamber and Kiwanis, not just as members but holding board positions. We have had the privilege to mentor students and serve in local class rooms. I personally have worked alongside others in the business community to promote Destin and lend support for economic initiatives. Our entire team works to develop and deliver energy programs for both residential and commercial customers that promote energy efficiency and conservation.
In your letter, you mentioned storm response and I will tell you that Gulf Power has one of the most experienced teams when it comes to storm recovery. Not only has our own team traveled 36 times to 14 different states since 2008, we are reinforced and supported by Southern Company that stands ready on all sides to assist when the storms come. There is much more to the value we deliver than price alone. There is the peace of mind that comes from energy security and the value of delivering cleaner, more sustainable, more resilient power to the communities we serve. These are some of the many benefits, in addition to competitive prices over the long term, that we bring to our customers today and into the future.
I appreciate that you are trying to gather all the facts about this matter. As you do so, please continue to consider us as an experienced resource to help you in this endeavor.
As I expressed in my letter to the editor in The Destin Log on Nov. 10, 2017, we at Gulf Power are confident that our franchise agreement negotiations will yield a good outcome for the citizens of Destin. To accomplish that, we need to be able to have these good faith conversations without the interference of outside parties to this process. We stand ready to work together with you and the City Council so we can reach an agreement and move forward in serving the people and city of Destin.
Bernard H. Johnson Jr.
Gulf Power - District General Manager