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Bushnell learns price for power

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By Martin Steele

A trio of arbitrators decided earlier this month that the City of Bushnell will have to pay SECO Energy (Sumter Electric Cooperative) $5.1 million if the municipality decides it wants to buy out SECO services and accounts within the city limits.

After some weeks of deliberation, the arbitrators on April 7 issued a report with their decision. It follows about two years of controversy between the electric cooperative and city officials that saw law suits, modification of the city charter, attempts to force sale of the city electric utility and numerous accusations and counter accusations played out publicly.

Arbitration came about under a provision of a more than 30-year-old franchise agreement between the city and SECO. The agreement provided an opportunity for the city to purchase SECO services within the city at the end of the contract which expired in 2012. The city opted for arbitration due to the two entities vastly different estimates of the value of SECO’s territory.

The arbitrators found a value that was somewhat less than that estimated in the fall of 2015 by the city’s own consultant, WHH Enterprises. The consultant reported that it would likely cost the city about $6.1 million to exercise the buy-out option.

There would be some additional costs for the city – including “integration” and bonding expenses - if the council decides to proceed with a buy-out, said Bushnell City Manager Bruce Hickle last week. But, it was well below the more than $16 million value that SECO representative placed on their facilities and accounts

“We’re happy with it,” Hickle said about the arbitrators’ decision. “I didn’t know how it would come out, but I had confidence in our evaluator.”

During the week-long arbitration hearings that ended in late February, attorneys for both sides presented expert witnesses and data to back-up their estimated values. The findings of the arbitrators were compiled into a 24-page report. It can be viewed or downloaded from Bushnell’s official website - www.cityofbushnellfl.com. Look for the download link under the “4-10-2017 Update on Arbitration.”

In response to a Times inquiry about the cooperative’s response to the arbitration decision, Kathryn Gloria, SECO’s vice president of corporate communication and energy services, noted in an email that SECO was not permitted to recover stranded costs or damages, or the cost of meter removal. Nor did the arbitrators approve any value for growth in the potentially lost service area.

According to the arbitration report, SECO had placed an almost $2.4 million value on growth and had sought approximately $7 million for “stranded costs” that was disallowed. Along with that, the arbitrators rejected SECO’s request for $42,850 for meter removal.

Stranded costs are referred to in the report as the actual cost of SECO’s electric distribution facilities within annexed areas that would become totally or partially useless for providing power to SECO’s remaining accounts outside the city in the event of city buy-out.

If the city proceeds, some of the financial issues might set something of a new record for Florida electric utilities.

“If you do the math, $5.1 million in exchange for 527 members is approximately $10,000 per meter,” Gloria stated in her email. “This is the highest per-meter purchase cost in any Florida electric system valuation in recent years and SECO will definitely incur capital gains due to the high valuation.

There’s still much to consider about the potential purchase, according to Hickle, who said he would provide at the next council meeting a status report on the arbitration. Before the council considers a buyout, there has to be considerable “number crunching” and evaluation of the “return on investment.”

“We’ll need a few weeks to sort through the information,” he said. “There’s a large cost, but there’s a large revenue stream that comes with it. We have to look at that over a 20-year period.”

The analysis – performed by Hickle, city staff and a financial consultant – would be presented to the council during a workshop meeting, possibly in late May or early June, Hickle said. There is a need for a decision before that city completes its budgeting for the next fiscal year and that process begins in June, he said.

Gloria noted that SECO will contact the 527 members affected and advise them of the Final Arbitration Award and ask them to watch the city’s website and attend the City Council meetings for more information.

“SECO will be sad to lose the members, and we wish the citizens of Bushnell the best, Gloria stated. 

If the city decides to proceed with the buy-out, a change in service is “not going to happen overnight,” according to Hickle. The city and SECO each would have to build some distribution lines and upgrade some other lines. There’s a matter of interim financing to get those things done and likely a revenue bond issue for full payment to SECO.

“There are a lot of things that have to be looked at,” Hickle said. “This takes us from a discovery phase to an evaluation phase. Hopefully, we’ll have enough information for the council to make a decision.”

The city has made other capital investments, Hickle noted. “You have to make these to have the infrastructure to serve your city. You try to do it without impacting your rate-payers or your taxpayers.”

“It’s a big decision,” he said. “We want to make sure we consider the up side and the down side.”

With the arbitrators decision reached, Bushnell Mayor Bil Spaude last week said he thinks the buy-out is “a doable thing.”

The price tag for the buy-out looks good, he said. “I think it’s one we could work with. I would probably vote to go forward, but we don’t have all the answers at this time.”

He expects the council will consider some things at the next meeting. “I want to be sure we put all the numbers out there,” Spaude said.