The recent debate on the fate of the $8 million electric utility surplus for 2010 has morphed into a discussion about the proper level of the electric utility reserves.
City staff has reported that the current level of the reserve is approximately $100 million, with a staff proposed range of between $119 million and $185 million. To reach the midpoint of this range, $152 million, the city would have to collect an additional $52 million.
City Commissioner Miller opened the door to this discussion at the last commission meeting, on January 7, 2011, when she asked that the reserve level be the subject of an agenda item. City Manager Favors-Thompson has indicated that this issue would be placed on the agenda.
Tallahassee Reports has completed a comparison of electric utility financial data for seven cities. The purpose of the comparison is to provide a context for discussing the appropriate level of the electric utility reserve.
The research is based on information in audited financial statements produced by respected accounting firms.
In addition, annual reports are compiled using consistent accounting standards which allow for comparisons. Using ratios and calculations with the information on assets and liabilities in a balance sheet, analysts can determine the net worth and/or the financial health of a company, or in this case a municipal electric utility.
Tallahassee Reports compiled data from the annual reports of the seven cities listed in the table below. The cities were picked because each owns a municipal utility and are comparable to Tallahassee.
|City||Restricted & Unrestricted Assets ($)||Customers||Assets ($) Per Customer||Most Recent Bond Rating|
|Lincoln, NE||$111,979,000||129,332||$ 865||AA|
|Orlando, FL||$174,017,000||264,734||$ 657||AA|
Information taken from balance sheets provided in 2009 annual reports. The bond ratings are for 2010 and are gathered from Fitch Ratings reports.
The information in the above table shows that the City of Tallahassee leads the category with $2,195 worth of assets per customer. The next closest utility is JEA, with $1,852 assets per customer. The three utilities with lowest asset per customer ratios are Orlando, Gainesville, and Lincoln, Nebraska. Lincoln, Nebraska is where the former director of the City of Tallahassee Utilities accepted the job of CEO a little over six months ago.
Based on this analysis, the City of Tallahassee is the “wealthiest” or the financially “healthiest” among the group.
What does it cost to be at the head of the pack? If the City of Tallahassee lowered the asset per customer ratio to that of JEA, Tallahassee electric utility customers would get a $38 million refund. If it was lowered to the level of Gainesville, Florida, Tallahassee electric utility customers would get a $130 million refund.
The analysis above is based on 2009 data. At that time the electric reserves were less than $100 million. All other things being equal, if the reserve level reached the proposed midrange of $155 million, the City of Tallahassee assets per customer ratio would increase to approximately$2,600 per customer.
Why does the City of Tallahassee need this amount of cash assets? Is it because of bond rating?
As the chart indicates the bond ratings show little correlation to the assets per customer ratio.
Do we have this wealth because we are planning on building new power plants in the next 5-10 years?
The City of Tallahassee 10 year site plan states “the City currently expects that no additional powers supplies will be needed” between 2010 and 2019. (Page 40, Ten Year Site Plan, April 2010)
Given this information, what does it mean for the appropriate reserve level?
Does it really need to be increased? Does this information indicate the City could give a substantial refund back to customers?
And finally, how did the City of Tallahassee’s electric utility, during the worst recession in fifty years, become the wealthiest utility in the comparison group?
Our research continues!
While the Commissioners might make an agenda item of setting an fixed amount to the Rate Stabilization fund, they will not seek any input outside the city and its staffers. Yet another pretense of listening to the people will be made and our opinions will again be dismissed.