TheLedger.com
Value of Lakeland Utility Uncertain
Sunday, March 4, 2012
BY JOHN CHAMBLISS
THE LEDGER
Recent talk of selling Lakeland Electric prompts a question: How much is it worth?
That's tricky to answer, according to industry and city officials interviewed.
The answer might be about $700 million, based on assigning a value to each customer, said
Barry Moline, executive director of the Florida Municipal Electric Association.
Or it could be $1.6 billion, estimates Don Eckert, Lakeland's assistant finance director. That
includes $500 million in cash he said the city would need to
maintain its $24 million-a-year dividend indefinitely.
Or maybe it's the $3 billion figure Mayor Gow Fields spontaneously offered when asked about
any possible sale.
The question of value has been raised since Barney Barnett, vice chairman of Publix, and Steve
Scruggs, executive director of Lakeland Economic Development Council, held private meetings
with each of six city commissioners in January to talk about the idea of selling Lakeland Electric,
the third-biggest municipally owned utility in the state.
Barnett and Scruggs asked commissioners to support a change to the city's charter to make such
a sale easier.
Ted Kury, director of energy studies for the University of Florida, said establishing the value of a
utility is a lengthy process and involves determining the current market value of its assets.
"You don't have a robust market for used transformers, and the price depends on a lot of factors
and isn't terribly transparent," Kury said in an e-mail.
"As a result, most determinations of valuation turn into a battle of valuation experts, with an
administrative law judge choosing some sort of middle ground."
Kury said it sometimes takes years to figure out.
SALES TALK
TECO Energy officials have confirmed talking with Publix Super Markets and other Lakeland
businesses about the possibility of TECO buying Lakeland Electric.
Publix is Lakeland Electric's largest customer.
In 2011, the company paid $15 million and used more than twice as much electricity as the city
of Lakeland, the second-largest user of the city's electricity. In all, the grocery chain used 6.4
percent of the electricity sold by Lakeland Electric.
In coming up with a rough estimate for Lakeland Electric's value, Moline said he based his
number on his knowledge of studies conducted in Vero Beach and Winter Park utilities.
Before Winter Park became a municipally owned utility in 2004, it was estimated each customer
was worth about $4,200, he said. More recently, an independent study was conducted at Vero
Beach. Florida Power & Light is considering purchasing that utility, which has 33,000
customers.
That utility is worth about $5,800 a customer, according to the independent analysis. Moline said
that is more in line with Lakeland Electric's value.
"Lakeland has better generation and has a new generator," he said. He estimated that the utility
was worth about a $6,000 a customer.
Moline said Lakeland Electric's Unit 5 is the utility's most valuable piece. Lately, the 350megawatt natural gas generator is even more valuable because of cheap and plentiful natural gas.
Unit 3 is a 365 megawatt coal-burning generator that is 40 percent owned by the Orlando
municipal utility.
Eckert, with the city of Lakeland, estimated the value of Lakeland Electric at $1.1 billion. He
said the utility's book value is $600 million, and the city would need another $500 million to
cover debt.
In addition, Eckert said the city would need about $500 million to cover the value of the $24
million yearly dividend it receives from Lakeland Electric.
"I don't think you can get the deal done for under $1.5 billion," he said.
UNUSUAL POSSIBILITY
Moline said cities have bought portions of private utilities during his 16 years at the Florida
Municipal Electric Association, but the Vero Beach deal would be the first time a private agency
bought a public utility.
Kury, the UF director of energy studies, agreed it's unusual for a private company to buy a
municipally owned utility.
"The transaction, in my experience, is almost always the other way around," he said. "I'm sure
that it's happened before, but I don't know of another situation where a private company bought a
municipal utility's assets."
Even when a Springfield, Ill., utility went bankrupt because of a bad deal, the city didn't sell its
assets to a private utility, he said.
Kury praised Lakeland Electric. He said he couldn't provide insight into why TECO would be
interested.
Asked why Publix would be interested in such as sale, Kury said "while it is not unusual for
large customers to insinuate themselves into the utility's business in an effort to get a better deal
for themselves, I have never seen an instance where a customer urges one utility to buy another."
Both Kury and Moline said they didn't understand why anyone would want to sell Lakeland
Electric.
"Besides having a big transfer to the city's general fund, municipal utility reliability is a lot better
than investor-owned reliability," Moline said. "If your power is off on the street, you have the
power to go before the city and say, "Fix this."
And Lakeland Electric has a "great track record of service," he said.
The only reason he could see to sell, Moline said, is if there were serious problems within a
utility's top management.
Five years ago, top management at Lakeland Electric did make bad decisions, he said, but the
utility improved when General Manager Jim Stanfield took over.
"Prices are reasonable, and you've got it in tip-top shape," Moline said. "You'd be giving away
the most valuable thing you have in Lakeland."
SIZE ADVANTAGES?
Longtime Lakeland Electric critic Doug Wimberly, president of ButterKrust Bakery on West
Memorial Boulevard, disagrees that Lakeland Electric is worth keeping. He said the utility's
small size compared with bigger players in the state is a disadvantage.
"I've been advocating this for many years," said Wimberly, whose company is also a large
electricity customer. "There is a huge advantage to being part of a bigger group."
He said TECO can buy bigger sums of gas and coal at a lower price.
Tampa Electric has 670,000 total customers in Hillsborough, Pasco, Pinellas and Polk counties.
In Polk, there are 77,000 TECO customers. It also serves about 5,500 customers in Lakeland
through its natural gas company. Lakeland Electric has 120,000 customers and about 580
employees.
Lakeland Electric's support for big businesses that provide much revenue to the city has waned,
Wimberly said.
As for the dividend that helps keep property taxes low, Wimberly said that it could be negotiated
in the sale.
A check of electricity rates, however, shows TECO's are currently higher than Lakeland
Electric's, according to Florida Municipal Energy Authority figures.
A Lakeland residential customer using 1,000 kilowatt-hours per month, which is about average,
currently pays $103.62. That's third in the state behind Quincy and Florida Power & Light Co.
TECO customers pay $110.60, which is ranked sixth out of 37.
Lakeland Electric is ranked second in the state for the lowest prices among big businesses.
Wimberly questioned the data.
"You can make numbers say anything," Wimberly said. "I'll take Barney Barnett and his team.
They are as good as they can get."
[ John Chambliss can be reached at [email protected] or 863-802-7588. ]
URL: http://www.theledger.com/article/20120304/NEWS/120309778?p=1&tc=pg