Fort Walton Beach Council agenda — 06-28-11 regular — reading text

a Agenda — City of Fort Walton Beach Special Meeting of the City Council of Fort Walton Beach Tuesday, June 28, 2011 5: 00 PM 107 Wiraole Strip Pat", Fort Walton Beach, FL 32548 CALL TO ORDER 5: 00 PM Meeting will be called to order on June 28, 2011 at Council Chamber, 107 Miracle Strip Parkway, Fort Walton Beach, FL. 2. PLEDGE OF ALLEGIANCE 3. PRESENTATION 3. 1. Gulf Power Franchise Agreement Synopsis: Suzanne Brownless, Franchise Attorney, will be at the meeting to provide an update to Council on the negotiations with Gulf Power and to request direction on said negotiations. Executive Assistant) n rrncumLS'rs: 1, 2N - 11 MemD no- 1. Culf I' omer ( 11DH F' -8 - II GPCoin, rison fPDF1 4. ADJOURNMENT Quasi- Judicial - denotes that the item must be conducted as a quasi- judicial hearing in accordance with Florida Statutes Action- Direction -Discussion items may be acted upon by the City Council by either a motion with vote in accordance with Robert' s Rules of Order, or by a consensus of the Council. Any person who decides to appeal any decision made with respect to any matter at this meeting will need a record of the proceedings, and for such purpose may need to ensure that a verbatim record of the proceedings is made, which record includes the testimony and evidence upon which the appeal is to be based. ( Chapter 286. 0105, F. S.) The City of Fort Walton Beach adheres to the American with Disabilities Act and will make reasonable modifications for access to this meeting upon request. Please call City Clerk Helen Spencer at 850- 833 -9509 to make a request. For Hearing Impaired dial the City Hall TDD #850 - Cary C000ul ofFor1 Wnhon Beach Pax, I Printed 6222011 Special Mecting Agenda June 28, 2011 833 -9925 or 1- 800 -955 -8771 JDD) or 1- 800 -955 -8770 ( Voice). Requests must be received at least 48 hours in advance of the meeting in order to allow the City time to provide requested service. Cm, Coanetl aj For, W Iton Beach Page 2 P. inmd 61221201  3. 1 City Council of Fort Walton Beach CITY MANAGER a MEMORANDUM To: Robert T. Meams, City Manager From: Carole Jones, Executive Assistant Date: June 28, 2011 Gulf Power Franchise ATTACHMENTS: 6 -28 - 11 Memo Brownless Gulf Power ( PDF) o- 18- 11 GP Comparison ( PDF) SIGNATURE BLOCK: Carole Jones Completed 06/21/ 2011 10: 17 AM Carole Jones Completed 06/ 21/ 2011 10: 17 AM City Manager Completed 06/ 21/ 2011 1: 46 PM City Council Pending Packet Pg. 3  F31.a Robert Mearns, City Manager June 17, 2011 Page 1 SUZANNE BROWNLESS, PA, OF COUNSEL Theriaque and Spain 433 Magnolia Drive Tallahassee, Florida 32308 June 17, 2011 TO: Robert Mearns, City Manager FROM: Suzanne Brownless, Franchise Attorney RE: Gulf Power Company Franchise Renewal The following are my comments and recommendations with regard to the renewal of the current Gulf Power Company electric utility franchise which will expire on October 13, 2011. Background Section 337. 401( 3)( e) 3, F. S., allows municipalities to impose a franchise fee on electric utilities for the use of municipal rights- of way for the installation of electric power poles and other electric facilities. All city franchises are contracts which only become effective when adopted by the City Council as ordinances. The current Gulf Power Company ( Gulf Power) franchise was adopted as Ordinance 1324 on February 25, 1997, has a term of 15 years and expires on October 14, 2011. Ordinance 1324 contains the following relevant provisions: 15 year term Definitions of "electric utility service" and " Grantee revenue" Right of the City to purchase the " electric utility system" necessary to provide electric service to the City located within the City limits at the expiration of the franchise term 6% franchise fee Ability to renegotiate the terms of the franchise, except the term and franchise limits, at any time by mutual consent. A comparison of the City' s current franchise with the current franchises of Century, Cinco Rave, Crestview, Destin, Defuniak Springs, Lynn Haven, Mary Esther, Niceville, Panama City, Panama City Beach, Pensacola, Shalimar and Valparaiso is attached. Please note that the Gulf Power franchises of Century ( 02/ 2010), Pensacola ( 12/ 2009) and Mary Ester ( 03/ 11) have all expired and no new franchises have been adopted as of this date. Packet Pg. 4  31. Analysis At this time the electric utility industry in Florida is experiencing a new paradigm. Due to the sluggish economy, high unemployment and population stagnation in the state as a whole, electric utilities are under economic pressures they have not faced since the 1930' s. For at least the last 20 years Florida has experienced annual growth in electric demand of approximately 4%. Much of this growth was due to the fact that approximately 1, 000 people moved into Florida every month during that period. That is no longer the case. While the electric demand in Okaloosa and Escambia counties is projected to grow with the expansion of existing military operations at Eg1in, much of the rest of Gulf Power' s service area has been hard hit by the recession. Lower demand in Gulf Power' s service area translates into fewer kWh sales and less revenue which puts pressure on Gulf Power to increase rates to cover the cost of fixed O &M and the capital costs of electric capacity, transmission and distribution systems already constructed to serve projected electric demand that has not materialized in the future time period analyzed. Financing for everyone has become much more difficult, and much more expensive, since the Wall Street near- meltdown of 2009 and electric utilities are no exception. Bond rating agencies want electric utilities to have franchise agreements with the local governments in their service area. It is true that the expiration of an electric franchise does not produce a visible change. The electric utility doesn' t quit selling electricity to that city' s citizens and the city doesn' t remove the electric poles or transmission lines from its rights- of-way. Gulf Power continues to pay the 6% franchise fee even if the franchise has expired because Florida case law says it must. Florida Prover Corporation v. City of Winter Park, 887 So. 2d 1237 ( Fla. 2004). However, Wall Street doesn' t like it because it introduces " risk" into the equation and risk adds extra basis points to the electric utilities financing costs. The electric industry is also concerned about the " cap and trade" greenhouse gas legislation which is making its way through Congress. The Florida Department of Environmental Regulation ( DEP) has been tasked with developing rules to implement " cap and trade" should it pass on the federal level. Over the last three years various " energy bills" have been proposed in the Florida legislature outlining a statewide energy policy including greenhouse gas emissions, renewable energy and nuclear energy. The Florida Legislative leadership has promised that the 2012 session will contain an energy bill as well although its contents are yet to be revealed. All of these energy policies dramatically affect which type of generating capacity each Florida utility must include in its generating capacity portfolio and which type is the most economical to construct and operate. The nuclear disaster in Japan has triggered even more questions about the current construction of 4, 000 MW of nuclear power by Florida Power & Light Company and Progress Energy Florida with in- service dates of 2017 to 2020 and does not Packet Pg. 5  3. 1. a Robert Mearns, City Manager June 17, 2011 Page 3 help ease concerns about electric energy supply for Florida. If those plants are not built, what will be built to replace them? In sum, the Florida electric industry faces many and varied challenges at this time and in the near future. Recommendations Based on the current state of the electric utility industry in Florida, I recommend the following with regard to the crucial franchise issues identified above: Term: Shorter is always better. Stick with the 15 years. Both the current franchise and the one before that ( Ordinance 98. 1 adopted in October 13, 1981) were for 15 years. The City needs to retain as much flexibility as possible. Definitions: It is in the City' s best interest to maximize the types of services provided by Gulf Power that are used in the calculation of the franchise fee amount - the more revenue included, the higher the franchise fee payment. Clear definitions of what revenues are included in the base amount to which the franchise fee percentage is applied eliminate, or at least decrease, the frequency of disagreements about the proper amount of franchise fee payment to the City. Right of purchase: Keep it. The City has had the right of purchase at the end of the franchise term for the last 30 years. There is no reason to give this up now. Franchise fee: Leave it at 6% which is the most common rate throughout Florida in each investor -owned utility' s service area ( FPL, PEF, TECO, FPUC). Reopeners: Retain the unilateral right to reopen the franchise agreement in the event that there are significant regulatory changes at the state or federal levels, e. g., deregulation of the electric utility industry. The City needs to retain the ability to quickly respond to whatever regulatory changes may take place. Retain the ability to renegotiate all other terms except term by mutual agreement of the parties. Again, the idea is to