Municipalization

You may have heard about the process of taking over an electric utility and forming a municipal electric utility (MEU), known as municipalization. Because of the financial risks involved, municipalization is rare.

Q) What is municipalization?
A) In this case it means that the City of Cape Coral would provide electric service by forming, owning and operating its own electric utility. Because the franchise agreement with LCEC expired, the City no longer has a contractual purchase option. The only avenue left for the City to purchase LCEC assets is via a costly condemnation of LCEC facilities in the city.

Q) Why is the possibility of a City of Cape Coral municipal electric utility being discussed at this time?
A) While some council members may have publicly stated they have no interest in a City takeover of the electric system, the only official action of the council (by a unanimous vote) was to pursue both a new franchise agreement and the purchase of LCEC assets within the City. Though a purchase option no longer exists, we presume from our discussions that the City Manager and staff continue to follow that Council direction.

Q) Didn’t the City of Winter Park purchase the electric system and form a municipal electric utility?
A) The most recent municipalization in Florida occurred in Winter Park, and the issues involved in that municipalization were vastly different from what is seen today in Cape Coral.

  • Winter Park’s electric utility provider at the time had a substantial reliability problem with numerous outages. LCEC has a demonstrated history of strong reliability.
  • Winter Park was served by a for-profit electric utility. LCEC is a not-for-profit member cooperative.
  • Citizens overwhelmingly supported a takeover in a public vote. Feedback LCEC has received shows that Cape Coral citizens do not favor a takeover, and the City Council has suggested that a public vote is not required.
  • Winter Park is much smaller than Cape Coral, and thus the financial investment required was much smaller. The financial risks would be much higher in Cape Coral.

Q) Why would a city want to municipalize its electric utility?
A) In most instances, cities have pursued municipalization as a result of problems with reliability or escalating rates or to gain access to hydro power. These are not issues in Cape Coral. In the last decade, only four cities have elected to municipalize their electric systems, but all were just a fraction of the size of Cape Coral.

Q) If the City were to form a municipal electric utility, would or could they raise rates?
A) We cannot predict what the City would do with rates; however, the financial outlook developed by the City’s consultants projected annual sales revenues that we believe could only be achieved by yearly increases. LCEC is proud of the fact that we haven’t raised rates in seven years and actually decreased rates four times over the last two years.

Q) If the City pursues municipalization, would there need to be a filing with the Florida Public Service Commission (PSC) for the change in service territory boundaries?
A) Yes. While the City has the right to municipalize, it would have to ask the PSC to modify its prior orders approving LCEC’s service territory boundaries. It’s also likely that the PSC would expect LCEC and the City to enter into a new territorial agreement delineating their respective service territories and service obligations after the municipalization.

Q) Can another utility, such as FPL, come in and serve Cape Coral?
A) No. Florida law prohibits the transfer of service territory from one utility to another without agreement between both parties and approval of the Florida Public Service Commission.