Florida TaxWatch opposes Clearwater municipal electric utility, supports negotiating Duke agreement

Florida TaxWatch is recommending that the city of Clearwater not move forward with proposed plans to establish its own municipal electric utility, with a report showing doing so would put taxpayers at risk.

The report, Clearwater’s Plan To Establish Its Own Municipal Electric Utility Puts Taxpayers At Risk, highlights results from an independent research project requested by Sen. Nick DiCeglie last month.

The study found that “Clearwater’s proposed municipal electric utility presents substantial financial and legal risks with limited upside for taxpayers.”

While that contradicts a study conducted by NewGen Strategies on behalf of the city of Clearwater, the Florida TaxWatch analysis found that such feasibility studies conducted for municipal governments often underestimate costs.

The report also found that based on a review of municipalization case studies, voters often reject establishing a municipal electric utility due to cost escalation, length of time required to make the transition, and overall reluctance.

In its own analysis of the Clearwater proposals, Florida TaxWatch found that acquiring needed assets from Duke Energy to create a municipal utility would “almost certainly require prolonged litigation” due to eminent domain issues, which could “dramatically” increase costs and delay implementation.”

The Florida TaxWatch analysis further said costs presented to the city by NewGen underestimate acquisition, severance, startup and financial costs. The review also found that a municipal utility would lack the scale and experience afforded by utilizing services from a large investor-owned utility. The report also detailed red flags in outcomes across the nation in which other local governments attempted to launch a municipal utility.

Instead, Florida TaxWatch recommends “pursuing a renegotiated franchise agreement.”

Clearwater’s franchise contract with Duke Energy ended Dec. 31.

“Florida TaxWatch considers the City of Clearwater’s efforts to take over electric utility service from a private company to be a huge financial risk for something that is projected to generate single-digit savings, at best, for the first few years of operation,” Florida TaxWatch President and CEO Jeff Kottkamp said in a written statement.

“No matter how much the City thinks this effort will cost, or how long this process will take, it is going to cost more and take longer to do.”

Kottkamp went on to explain the group’s rationale, including that the NewGen study included “too many assumptions and unknowns,” had an unrealistic time frame for completion, and stands in opposition to “a 25-year body of research that is not favorable to or supportive of such a takeover.”

“Moreover, there are some things the private sector does better than the public sector, and the provision of electric power service is one such example,” Kottcamp added. “The challenge facing the City going forward is determining whether the financial risk is worth the potential reward. Florida TaxWatch believes the answer to this challenge is a resounding ‘no.’”

The Clearwater City Council voted in September to move forward with next steps in establishing a municipal electric utility, including seeking an appraisal for the acquisition of Duke Energy assets and establishing a timeline for a transition.

The NewGen report estimates that eliminating Duke and establishing a Clearwater Municipal Electric Utility would save ratepayers approximately 7% each year for the first five years, with savings increasing to 18% over the subsequent 25 years. In the first year, this would translate to nearly $18 per month for the average residential customer and approximately $115 per month for the average commercial customer.

In supporting taking the next steps in the process, Council members and the Mayor all noted that it doesn’t mean they are definitely moving forward with creating a municipal utility, and even if they decide to go that route, there would be “off-ramps” to return to an agreement with Duke.

Duke has already stated that their assets are not for sale, which would require the city of Clearwater to utilize eminent domain —a process that could be lengthy and costly.

At the September meeting, Duke Energy Florida President Melissa Seixas pointed out that NewGen’s study cannot guarantee cost savings or lower rates for customers, adding that the survey even acknowledges the plan could cost nearly $1 billion, nearly double what NewGen pitched as the most likely cost.

The NewGen study values the cost of acquiring Duke property at $572 million, but notes that the real cost of Duke’s assets could be lower or higher than its estimate, ranging anywhere from $386 million to nearly $1 billion.

Costs could soar even higher, given that the NewGen study assumes an immediate takeover, which Duke reminds the public that would not happen, and a longer process would drive costs higher.

And the NewGen report used Boulder, Colorado, as an example of municipal governments making the switch away from private utilities, though that example may not be the best example of a positive outcome.

Boulder spent $29 million and a decade trying to municipalize before abandoning the effort, having fallen behind on climate goals while the private utility accelerated renewable energy adoption.

Duke has already expressed a willingness to negotiate a new franchise agreement, including consideration of activities such as undergrounding power lines, vegetation management, distribution system reliability and service metrics, and new customer programs boosting affordability, stated priorities in the city’s municipal utility inquiry.

The TaxWatch report comes the same day the city of St. Petersburg issued a request for proposals seeking consultants to evaluate whether the city should break from Duke Energy Florida and establish its own municipal electric utility.

There, proposals are due March 19, with officials aiming to bring a contract for City Council approval by early June. St. Pete’s franchise agreement with Duke expires in August.