An increase in non-fuel electric rates between 5% to 15% for a few years is better for ratepayers than adding debt for 20 years. The city commission should not commit rate payers to more debt.
Winter Park is blessed that our city leaders and voters realized the acquisition of our electric distribution system in 2005. City commission members who made this happen were Kip Marchman, John Eckbert, Doug Metcalf, Doug Storer, and Barbara DeVane. If you know them, thank them.
Since acquisition, the city has been able to realize free cash flow from the electric system sufficient to fund a citywide undergrounding program, while keep our electric bills materially lower than if the system had not been acquired. We are investing about $9,000,000 per year in undergrounding while our current residential electric bills continue to be about 40% LOWER than Duke Energy for similar KWh usage. (We purchased the system from Progress Energy which was purchased by Duke Energy.) You can compare Winter Park, Duke, and OUC bills based on your actual usage here.
Currently, the typical Winter Park residential electric customer using 1,300 KWh per month is saving over $900 each year versus Duke AND realizing the reliability and lower maintenance benefits of city wide undergrounding.
Due primarily to inflation, the time to complete the undergrounding plan has been pushed back twice. Today, 80% of our undergrounding plan is complete and, at current electric rates, staff believes the plan can be completed by December 2033. City staff’s proposed budget recommends we complete the plan by the end of 2030 by increasing non-fuel rates so that the average monthly residential bill for 1,300 KWh goes up by 11%. This increase would also provide capital improvements to better assure system reliability. Staff offered an alternative to borrow $50 million for 20 years at 4.5% to complete undergrounding by 2030 as well as support capital improvements.
Note that our current primary wholesale power contracts expire at the end of 2026 and 2027.
Here is my take:
New wholesale power contracts in 2026/2027 will be included in our non-fuel rates per KWh. The non-fuel rates, together with changes in fuel costs drive our future electric bills. Any changes in contract non-fuel costs, up or down, should be a direct pass through into retail rates. Any changes in fuel costs will be driven by changing market conditions over time. These are normal business risks we do not control.
We do control investment and pace of undergrounding. We can also prioritize other capital spending such as delaying a proposed city wide replacement of electric meters in favor of critical reliability capital such as having one or more backup substation transformers. Money for these controllable investments are paid for within our non-fuel rates.
Borrowing $50 million for 20 years costs ratepayers $27.5 million in interest payments. Staff’s proposed 11% increase in the typical residential bill will cost about $245 per year, still $700 per year less than we would have been paying under Duke, while completing the undergrounding plan by year end 2030 as well as funding other capital improvements. Further, over $9,000,000 per year going to undergrounding ends at year end 2030, freeing up those funds for further electric system improvements, possible city wide street lighting, and rate decreases.
Borrowing money under current circumstances does not serve rate payers and only hides the true costs of undergrounding, spreading it over 20 more years, many years after completion. The facts favor implementing non-fuel rate increases sufficient to fund completion of the undergrounding plan between 2030 and 2033, and if necessary, delaying non-priority capital spending (for example, delaying new customer meters and service line undergrounding).
We can complete the undergrounding plan without years of added borrowing costs while we continue to save money versus the incumbent provider, and we will see material amounts of free cash flow when undergrounding is completed in the near term.
While rate increases are always politically sensitive, such increases are wise under current circumstances.
- The last 20% of the undergrounding plan will be completed.
- There will be no new debt and no new interest payments for 20 years, saving $27.5 million.
- Even with a non-fuel rate increase, customers will continue to save money vs. Duke Energy while receiving the reliability and lower maintenance benefits of undergrounding.
- The electric utility will continue to realize as much as $9.0 million in free cash flow each year after the undergrounding plan is complete.
Please tell the city commission to adjust rates as needed to complete the undergrounding plan while avoiding more electric utility debt: mayorandcommissioners@cityofwinterpark.org.