Base rates are the portion of the electric bill that covers the expenses required to produce and deliver electricity. These expenses include salaries, debt service, and routine maintenance.

Base rates are adjusted annually by the Consumer Price Index.

The city staff reports that “a typical residential customer using 1,000 kilowatt-hours will see a monthly bill decrease of 3.3%, from $112.81 to $109.07.”

Also, residential customers who use natural gas will see an approximate 10% decrease in base rates and in their over all bill.

The city staff reports “a typical residential customer with average winter usage of 40 ccf will see a monthly bill decrease of 10%, from $58.75 to $52.79.”

The new rates will be discussed during a public hearing at city hall on September 12th, 2018.

However, the Tallahassee Democrat published a headline on Monday that read “Tallahassee Lowering Electric, Natural Gas Rates.”

What is going on? Why is the Tallahassee Democrat not reporting the increase?

It appears the City of Tallahassee has found a willing partner, the Tallahassee Democrat, in conspiring to mislead their utility customers.

It is clear that electric, gas and water and sewer rates are going up after October 1, 2016. The increase in rates are used to pay for budgeted items, such as labor costs which includes salaries, benefits, and raises.

However, the City of Tallahassee evidently convinced the Tallahassee Democrat to hide the scheduled increase in rates while reporting on a decrease in fuel costs. The City of Tallahassee has no control over fuel costs.

This lack of transparency is also evident in the way the City of Tallahassee bills electricity. Customer utility bills do not show the electric rates and fuel costs separately. Therefore, an increase in rates will not show up when fuel costs goes down. This is how the City of Tallahassee has hid approximately 15% in automatic rate increases over the last ten years.

Is the Tallahassee Democrat lack of reporting on the rate increase due to an inexperienced reporter or a conscious effort to conceal facts? You be the judge.

Mr. Richardson makes his home in Tuskegee neighborhood off of Orange avenue which is located in the heart of District 1, which is represented by Commissioner Bill Proctor on the Leon County Board of Commissioners.
The City portion of the District 1 is 85% African-American.

Mr. Richardson made where he lives and his race a significant part of his campaign during a forum at Tabernacle Church when he said “we do not have City Commission that lives south of Gaines Street.”He also, made the point that the City Commission needed two black Commissioners to properly represent he black community.

His opponent, Diana Orapollo, lived in Killearn Estates and is white.

Now that Mr. Richardson has won, how will where he lives affect his votes.

The issues that dominate the southside are public safety and economics. It appears public safety will be the easier issue to move on since leaders have finally been forced to recognize the problem.
Mr. Richardson will be able guide the policy in this area due to living in the section of town that needs the most help.

However, the economic issues may be another story.

Commissioner Bill Proctor has made electric rates an issue for years on the southside. His argument is that the City of Tallahassee electric utility is using a regressive tax that hurts the economically disadvantaged which are concentrated on the southside to balance the general fund.

Mr. Proctor, who has spoken directly to Commission at public hearings on this issue, has seen little progress, despite having two African Americans on the Commission in Andrew Gillum and Mayor John Marks.

Why will it be different now?

“Curtis lives among the people on the southside, this will impact how he votes on kitchen table issues and that includes electric rates” said Proctor.

The City is protective of the electric utility and it will be difficult for Richardson to change policies that have been put in place that provide for automatic rate increases and the confiscation of overcharges all without a vote.

However, records indicate that a vote on an electric base rate increase, which is beyond the automatic rate of inflation increases, may come before the City Commission within the next year.

Another issue that Mr. Richardson will be able to influence, is the spending of the Community Redevelopment Agency (CRA). A large party of the CRA includes the Southside, however to date most of the spending and incentives provided by the CRA have gone to projects north of Gaines street.

The question is will Richardson be able to change the economic development conversation so that it includes issues important to the southside?

Describing himself as one of the largest “business owners” in Leon County, he sympathized with businesses during these tough economic times. He talked about how over the last six years education revenue had been cut by $65 million and explained how Leon County was able to maintain an A rating during this period. He gave credit to the “best teachers in the state” and to a school board that “stayed focused on priorities and did not complain about the cuts.” He was also thankful to the business partners that donate time and services to public schools.

Superintendent Pons was clearly excited about the CNG program that will not only  help the Leon County School Board save money, but also help the citizens of Leon County. The project will provide CNG for school buses, but there will also be two locations where citizens that own CNG vehicles will be able to refuel their cars. “We have had people calling us from all over the county about the project. The project will save money and help with the environment” said Superintendent Pons.

Responding to a question from the audience about the proposed $30 million increase in City of Tallahassee electric base rates, Pons said “this not the time to raise electric rates.” He talked about the impact of increased rates on the school budget and the effect on local businesses. He also discussed a school board analysis that concluded that high electric rates can put Leon County Schools at a competitive disadvantage with other school districts.

The bottom line is the study indicates that, even though electric consumption is projected to be down, the COT electric utility needs $178 million more in revenue than existing rates will produce from 2012 to 2016.

The largest deficiency, $43 million, occurs in 2016 and is not addressed in the proposal by the city consultant, RW Beck.

Instead, the proposal calls for electric customers to pay approximately $134 million in higher rates from 2012 through 2015. In the short term, for fiscal year 2012, the plan means electric customers would pay $31 million more in rates followed by smaller increases in each of the next three years.

In the end, base rates would increase approximately 25% from fiscal year 2012 to 2015.

Base rates are the part of the electric bill that pays for operational expenses like salaries, benefits, system maintenance, debt service and the $22 million transfer to the general fund. The total electric rate is the combination of the base rate and the cost of fuel – which the COT has little control over.

The residential rate impact of the proposal on a $250 monthly electric bill would be 11% in fiscal year 2012 or $27.50. For a restaurant with a current monthly bill of $4000, the new bill would increase by approximately $440 or over $5000 per year.

The detailed study indicates that overall consumption will decrease by 1.5% over the period of the study and that approximately $10 million in rates will be used to pay down the loan taken out by COT to pay for smart meters.

It is important to point out that the study by RW Beck relies on information provide by the COT and their rate proposal is a starting point. Rate increases could be offset by deferring maintenance expenses and using revenues in the Electric Operating Reserve. This approach was used last year to avoid a rate increase to the tune of $20 million.

RW Beck also analyzed the COT water and wastewater functions and concluded that there is $28.7 million deficiency from 2012 through 2016. Their proposal calls for a 10.8% increase in water rates and a 4.3% increase wastewater rates in 2012. The combined increase would raise rate revenue by $4.6 million in 2012.

The base rate portion of the electric bill covers expenses like salaries, benefits, debt service, and funds the $22 million transfer to the general fund.

Now comes the news that a base rate increase is indeed on the horizon. Reese Goad, director of Utility and Business Customer Service stated that the electric utility revenue deficiency is “sizable.” This means “new revenue” from a rate increase or from the reserve fund will be needed to balance the electric utility fund.

Tallahassee Reports recently published an article that showed total electric rates were trending downward due to the decrease in the cost of natural gas. While the trend was downward, the COT was still tied for the highest rates in the state among the other municipalities that generated their own electricity.

The chart below shows the trend of base rates for Tallahassee since 2005 is headed in the upward direction. Base rates have increased approximately 39% since October, 2005. During this period the CPI, a measure of inflation, has increased approximately 12%. This means that COT base rates have increased at a rate equal to three times the CPI rate over the last five years.

CHANGE IN COT BASE RATES SINCE 2005

What is the source of this increase? Tallahassee Reports compared expenditures in 2005 and those in the budget in 2011 to determine what functions were responsible for the increase in base rates.  The comparison yielded three areas that increased at rates that exceeded the 12% inflation rate.

First, debt service and maintenance expense increased a combined total of $12 million from 2005 to 2010. Based on budget projections, this category is due to increase by $18 million from 2010 to 2011. That would be a total increase from 2005 of $30 million which is approximately a 75% increase from the 2005 level.

Second, personnel services, which include salaries and employee benefits, increased from $18.2 million in 2005 to $23.7 million in 2011 for 291 employees. This is a 25% increase.

And third, unclassified supplies and services are scheduled to be $10.5 million in 2011. This is an increase of approximately $4 million from the 2005 amount of $6.2 million. This is a 70% increase over 2005 levels.

During this period of time, sales of electricity have remained relatively flat and average annual usage per customer has been below 2005 levels for each year from 2006 through 2010.

Using data from the Florida Municipal Electric Association for December, 2008, December 2009, and December 2010, Tallahassee Reports compared monthly residential rates for 1000 KWH of electric usage. The comparison includes all municipalities that generate their own electricity. It does not include cities like Bushnell or Bartow that must buy a majority of their electricity from power producers and it does not include investor owned utilities like Progress Energy or Gulf Power.

The table below shows that of the eight municipal utilities, Tallahassee and Gainesville are tied for the highest rates at approximately $127 per 1000 KWH. However, a closer look shows that the COT has made the biggest move towards lower rates since 2008 than any of the other municipal utilities.

For example in December 2008, COT charged $157.80 for 1000 KWH and in December 2010, the cost was $127.97. That is a 18% drop. Lakeland had the next largest drop with a 9% decrease during the same period.

Also, in 2008 the COT electric rates were approximately 27% higher than the average of the eight municipal utilities and in 2010, the rates were just over 5% higher than the average. For the COT to be in the “middle of the pack”, rates for a 1000 KWH would have to decrease approximately $6.00 a month.

RESIDENTIAL MUNICIPAL ELECTRIC RATE COMPARISON

A review of base rates and fuel costs over this period, show that COT base rates have stayed relatively flat while fuel costs have decreased significantly. This is consistent with news reports that indicate that natural gas prices are at historical lows.

The question now is will base rates remain stable so that COT customers can continue to reap the benefits of lower rates when compared to the past several years? The COT is currently conducting a “rate study” to determine base rate requirements over the next five years.

As we enter the smart meter and time-of-use rates (TOU) era here in Tallahassee, and in fact, throughout the United States, the debate over who benefits more, consumers or the utilities, will be front and center for years to come.

Time-of-use rates are designed to make the delivery of electricity economically efficient by charging a different price for electricity during certain times of the day. The City of Tallahassee is testing a voluntary pilot program that charges more for electricity from 7 a.m. to 7 p.m. and less from 7 p.m. to 7 a.m.

Experts say that the current practice of one rate for all hours of the day for electricity does not capture the “true costs” of the resource. In other words, the City of Tallahassee –through time-of-use rates – strives to price electricity so that those who use more of the resource will pay more.

Beyond the question of who benefits from time-of-use rates, the City of Tallahassee is embarking down an “optimal efficiency” path that has very interesting implications for how government delivers services.

Usually, optimal efficiency in pricing is left to the free market because with government services, such as public transportation and public works, the connection between how much of a service someone uses and pricing, gives way to the benefit delivered to the public as a whole.

If government starts moving toward optimal efficiency in the delivery of services, does this mean that only those who use Star Metro will pay for the service? How about parks and schools? In the name of efficiency will there be a family services fee?

Now if you haven’t noticed yet, this is the same approach that insurance companies use to squeeze every bit of profit out of each dollar of premium paid. This leads insurance companies down the path of trying to find out as much as possible about your health so they can put you into a group. A group that is then charged based on how much health care you may use.

Now this approach comes to electricity. The City of Tallahassee, since the implementation of smart meters, has begun to track the usage patterns of each customer. Eventually, smart meters will be able to tell the City when your AC is on and when your washer and dryer are running. Based on your usage and the time of your usage, the city will determine various pricing structures to efficiently collect revenue.

What some policy makers fail to see with optimal efficiency is that such an approach clearly defines winners and losers. And there will be winners and losers with time-of-use rates. To say that everyone will win with these rates is a fallacy. Actual results from across the country have indicated that the losers will be businesses, stay-at-home parents, those with low incomes and senior citizens. Winners are those who can take advantage of not needing electricity during the day.

The City of Tallahassee has indicated that there will be programs to help out those that do not benefit from time-of-use rates. This means there will be financial assistance, which brings us back to the original question of costs and benefits. Why embark down the path of optimal efficiency if you are going to go back and help out those, who due to the increase in efficiency lose out on benefits?

The pursuit of time-of-use rates for electricity by the City of Tallahassee will surely provide fertile ground for the debate on when the strive for efficiency should give way to the benefits that serve the public good.