In the next installment of an evaluation that encompasses four key areas of Gainesville’s economy — transportation, energy, innovation and water — and the factors that contribute to prosperity in the area, the Gainesville Area Chamber of Commerce released an energy competitiveness report that indicates in dollars and cents the relatively high amount that Gainesville Regional Utilities (GRU) charges businesses and argues for lower electric rates to spur the economy.
The disparity between electric charges in the Gainesville area and other communities matters in attracting and retaining businesses, said Mike Giampietro, chairman of the chamber’s Public Policy Committee and a member of its energy study group.
To illustrate the high power costs for Gainesville-area businesses, the study group utilized the example of a business that uses 60,000 kilowatt hours (kwh) of electricity per month — 60 times more than the typical home, but an average amount for a business. Total GRU energy costs (base rate plus fuel adjustment rate) in Jan. 2013 resulted in a business paying 39 percent more than it would in Orlando.
Some may argue that the difference can be attributed to the disparity in size between the two metro areas. However, the difference isn’t just a function of size. Charges for 60,000 kwh in the relatively small community of New Smyrna Beach, for example, are 15 percent lower than GRU’s; power for 60,000 kwh was $7,403 in Gainesville, which was nearly $1,000 more than in New Smyrna Beach in Jan. 2013.
Giampietro, former general manager for Cox Communications in Gainesville and Ocala, said he often faced questions from the national offices of the telecommunications companies he worked for when local costs varied significantly from run rates at other company locations.
“Anytime area costs are 10 percent or more different from the norm, I found corporate officials are likely to ask why,” he said. “To be competitive, we should be in the middle of the pack.”
In Gainesville, the trend is in the opposite direction. The main reason rates are rising is the impact of the new biomass plant, which former Mayor Pegeen Hanrahan hailed as a carbon-neutral response to climate change.
Several current city commissioners — as well as many members of the community — have acknowledged that the city commission approved the contract with the Gainesville Renewable Energy Center in 2009 based on a big assumption that didn’t prove true.
Past commissioners who favored the biomass plant, relying on information from GRU, assumed that natural gas prices would stay relatively level, making power from the biomass plant competitive in a decade or so. In fact, natural gas prices have plummeted in recent years, making gas generation much more inexpensive than biomass generation.
However, the chamber’s energy study group emphasized that its goal was to look forward instead of reflecting on past decisions.
Seeking a Voice for Businesses
The chamber’s 12-member study group, led by David Flagg, former Gainesville mayor-commissioner and Florida state representative, and retired University of Florida economist Dr. David Denslow, refrained from getting into the biomass controversy.
But the group did conclude that an appointed governing body including city- and county-elected officials, business representatives, qualified “experts” and a member of the city’s citizen-led energy advisory committee would be more efficient than continuing to have only city commissioners govern GRU. Moreover, the group underlined that doing this would not lead to a transfer of ownership; the city would maintain ownership of GRU while allowing the appointed board to govern the utility.
“An appointed utility authority board with elected officials and qualified private (non-elected) citizens could result in business considerations, in concert with the public interest, mitigating – and perhaps overtaking – political considerations out-of-step with sound business judgment,” the chamber’s report reads.
The chamber group bolstered its argument for having a utility board manage GRU by looking at the way other public utilities throughout the United States are governed. A 2010 American Public Power Association survey of 658 public utilities found that 68 percent of public utilities with more than 50,000 customers responding to the survey were governed by elected or appointed utility boards; GRU has more than 92,000 customers. All five cities in Florida that do have appointed utility authorities have electric rates lower than those in Gainesville.
“There’s a compelling argument that as the operation of utility gets more complex, there should be a change in governance,” Giampietro said.
The chamber sees another reason for creating a nine-member appointed utility authority, of which the county commission would appoint three members in addition to six city commission appointees.
“Thirty percent of GRU’s customers are outside the city limits, meaning nearly one-third of its customers are unrepresented,” Giampietro noted.
GRU & City Funding
The chamber study found that when it compared GRU to its peers — 26 city-owned utilities with an AA- credit rating from Fitch Ratings — Gainesville relies much more heavily on the utility to fund city government than do the others.
In 2012, GRU’s payment to the city’s general fund was 10.3 percent of its total operating revenue — well above the 5.8 percent that is the median (meaning that half were below and half were above) among the utilities in the comparison.
The chamber’s energy study group proposed that the GRU general fund transfer rate remain below 9 percent of total operating revenue, corresponding to the lowest transfer rate in the past six years.
What Will the Impact Be?
At one meeting during the group’s seven-month study period, the majority of city commissioners opposed stepping down as the GRU governing board in favor of an appointed governing authority.
Later, several city commissioners expressed opposition to a bill regarding GRU governance that state Rep. Keith Perry is considering introducing in the Florida House, although Mayor Ed Braddy and Commissioner Todd Chase said they are open-minded about considering the proposal.
Perry’s approach, which is different than the approach the chamber recommends, would require a referendum of all GRU electric customers to determine if the city should transfer the operation of the utility to a new board that would represent county and city ratepayers.
Meanwhile, the city commission voted on Nov. 21 to move forward with a plan that Commissioner Lauren Poe proposed that would create a position for a county commissioner on the city commission’s Regional Utilities Committee. Three city commissioners — currently Braddy, Chase and Poe — sit on that committee.
As for GRU’s funding of city government, City Manager Russ Blackburn is working on a proposal to adjust that funding in the years ahead.
With costs relatively set, GRU has little flexibility in bringing rates down in the short run.
Chamber President and CEO Tim Giuliani noted that the chamber isn’t expecting immediate results from its study.
“We’re taking a very long-term approach,” he said. “We want to work toward structural changes that will make an impact on businesses.”
One possible change is for GRU to become the provider of electricity for the University of Florida, which currently has a contract with Duke Energy (formerly Progress Energy). The next time UF negotiates a contract could be in 2014
Since UF spends more than $40 million a year on energy, snagging the university’s contract would boost GRU’s revenue by more than 10 percent.
While this prospect is tantalizing, Duke made a big investment in its power plant located on the UF campus. Discussion of the UF power contract will be a big story in the months ahead.
The chamber group presented its study to the City Commission on Dec. 19. Visit BusinessMagazineGainesville.com for the latest information.
The chamber group compared Gainesville with the five Florida cities with appointed utility boards: Orlando, Jacksonville, Kissimmee, Fort Pierce and New Smyrna Beach.