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Lake Worth taking hard look at its electric utility

Lake Worth has been grappling for years about what to do with its outdated, inefficient city-owned power plant and electric distribution system.

Now it’s taking a serious look at three options:

- selling the plant and system, including poles, lines and meters;

- modernizing and refurbishing the plant;

- continuing to purchase power from the Orlando Utilities Commission or another entity.

The decision is critical to the economic future of the city because the perception of expensive unreliable electricity in Lake Worth is hurting its image.

The Tom G. Smith Municipal Power Plant was born in 1913 as the Lake Worth Water, Light and Ice Co. On May 18, 1914, the lights were turned on. In the 1960s it moved to its third location off College Street, said Utilities Director Clay Lindstrom.

In the last five years the system’s reliability has gone from being the worst in the state to being in the top 10 percent, Lindstrom said. The dramatic improvement was driven by $8 million already invested in improvements and upgrades as part of a $16 million bond.

But more needs to be done. The plant’s five 1970s-era generators must be replaced.

Lake Worth is Palm Beach County’s only city with its own power plant. It has 26,350 customers, which includes 7,200 in Palm Springs and unincorporated Palm Beach County, Lindstrom said.

The plant is expensive to run and isn’t isn’t operated all the time. Instead, it is powered up on an as-needed basis, whenever a call comes in from the Florida Municipal Power Pool, Lindstrom said. Recently, the plant has put into service on Mondays.

A year ago the city began preparing to take a serious look at the future of the utility with a massive study of the three options led by the utility advisory board.

“We are looking at all the options,” said Mayor Pam Triolo last week. “The problem is our plant is antiquated, and it costs a lot of more to run the plant’s generators.”

Last year the commission passed a law that requires the city to have parity with rates charged by Juno Beach-based Florida Power & Light Co’s within five years.

“We have already lowered the utility rates approximately 12 percent,” Triolo said. “That was done because we needed a short-term power supply and negotiated a new one that gives us better rates, due to natural gas. We also eliminated several fees and withdrew less to our general fund.”

Previously, Lake Worth’s rates were 25 percent above FPL’s.

If the electric utility were to be sold, FPL which serves the rest of Palm Beach County, would be a logical buyer.

But in early June an FPL deal to purchase Vero Beach’s electric utility reached an impasse, and it appears that city will not be able to sell its utility to FPL.

“If Lake Worth were to attempt to sell its electric system to an investor-owned utility such as FPL or Duke, they would run into the exact same problem that Vero Beach has run into,” Schef Wright, an attorney representing Vero Beach, said.

The sale, in the works for more than two years, can’t be completed because Vero Beach cannot divest itself of power supply and project support contracts with the Florida Municipal Power Agency, said Wright, who has also worked with Lake Worth on utility matters.

Wright said Lake Worth and Vero Beach are parties to the same three contracts associated with the St. Lucie nuclear plant on Hutchinson Island and the Stanton coal-fired plant near Orlando. While attorneys are trying to figure out how the deal might move forward, no solution has been found.

FPL president Eric Silagy said FPL would be interested in purchasing Lake Worth’s system only if the city comes up with a deal that make sense for FPL customers.

The city’s electric utility advisory board, chaired by Lisa Maxwell, is charged with studying the sell, refurbish or purchased power options. The advisory board set to work after the city commission approved a contract in January 2013 to buy power from the Orlando Utilities Commission. The three-year contract with a two-year option to renew started in January this year.

“Something has to be done. We don’t think it’s efficient or going to continue to be efficient over the long run to continue to try to purchase power on the open market,” Maxwell said.

“One way or the other, our plant must receive upgrades because it is just not going to work, ultimately,” Maxwell said. “We have one transmission line into the city.

“Power is the one issue that can really take the city down or it can be a turning point for our city to have a true renaissance,” Maxwell said. “We are completely undervalued. We have our own beach and golf course.”

The process is long and complex. Each of the options has to be looked at simultaneously, with the critical decision period for each in 2016.

If the decision is to upgrade the plant, it is estimated that would be completed by 2020. Selling the plant is projected to take even longer, with a completion date of September 2021. If the city continues to purchase power, a new contract or extension would begin in March 2017.

Lindstrom said the plant’s modernization could be financed through the sale of revenue bonds that would be purchased by investors looking to receive an income stream from electricity sales.

This month the commission is expected to begin looking for consultants who can assist the utility board and the commission in properly valuing the assets. The advisory board has begun formally assessing the pros and cons of the options, as well, Maxwell said.

City Manager Mike Bornstein said one problem if the plant were sold is how to replace the $6 million a year the utility contributes to the city’s $29 million general fund. The city’s total budget is $156 million.

Within the next couple of years, the ramifications of the options to sell the plant or to upgrade it will be side-by-side for the commission to consider, Bornstein said.

“The question for the first time is being honestly looked at,” Bornstein said. “The bottom line is, what is the end result in rates?”

Officials are well-aware that the city has lost revenues and businesses to other municipalities becuase of its higher electric rates.

“When somebody says they want to sell the utility, they are really saying they want to have no difference in rates between FPL and the market,” Bornstein said.

Triolo said the goal is to wean the general fund off utilities revenue, but that’s difficult when many properties are valued below the property tax exemption. Before the economic downturn, the city had a $2 billion tax base, and now it’s $1 billion, according to the Palm Beach County Property Appraiser’s Office.

“Only 30 percent of our city pays property taxes. That is the problem,” Triolo said.

Triolo said once city electric rates are the same as FPL’s, Lake Worth will be a more attractive location for families and businesses.

“We are rebooting the city right now on every level,” Triolo said.

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