City Council chips in $8 million to stabilize electric rates for OE customers

File photo: Jay Musleh of the Ocala City Council speaks during the Ocala City Council meeting at Ocala City Hall in Ocala, Fla. on Tuesday, Jan. 4, 2022. [Bruce Ackerman/Ocala Gazette] 2022.

Ocala City Council voted unanimously on Jan. 4 to stabilize electric rates for Ocala Electric Utilities (OE) customers by applying $8 million from the city’s Rate Stabilization Reserve (RSR) to combat rising fuel costs.

Had council not made this decision, OE customers would have been facing an estimated “$14 or 12% increase to the average 1,000 kWh residential customer,” according to city staff analysis provided to the council.

The RSR fund is used to: a) stabilize rates for customers due to fuel cost volatility; b) address local economic conditions; and c) for other lawful purposes, per city records.

Councilmember James Hilty, District 5, explained that Ocala received the money in the RSR fund when the city’s former electricity partner, Duke Energy in Crystal River, closed down in 2013.

“They shut it down and decommissioned the plant, and there was a settlement amount…let’s say $27 million or something like that…all that money went into the Rate Stabilization Reserve,” Hilty explained. “And the reason it went into [the RSR] is that we were no longer able to receive the power from that plant, but we still had customers that needed power.”

Essentially, the settlement money from the nuclear plant closure went into the city’s RSR as a rainy-day fund.

“The money went into that fund to help for situations like this,” continued Hilty. “So therefore, when fuel costs rise, unlike the individual that has to pay at the pump, we don’t have to pass that [raise in rate] on to the consumer right away—in hopes that maybe it’ll go down.”

If the RSR can handle the rise in fuel prices without passing it on to the consumers, then the funds served their purpose, Hilty added.

After losing its previous partner in power, Ocala joined the Florida Municipal Power Agency (FMPA), which enables municipal electric utilities to work together for mutual advantage on joint projects, such as power supply resources, fuel supplies and transmission facilities, according to city documents.

FMPA currently supplies all the power needs for 15 municipal utilities, including OE, through a contractual arrangement.

FMPA indicates that the Power Cost Adjustment (PCA) rate will increase from $0.014 to $0.028 per kilowatt-hour (kWh) effective Feb. 1.

The PCA rate is the mechanism by which the positive and negative fluctuations in the cost of power is passed through to the customer, according to city documents. Power costs and sales are reviewed monthly to project over or under collections for the year.

Ocala is unique from most municipalities in that the city has its own electric company. The city government has the ability to step in and keep electric rates stable when necessary. While the PCA can be adjusted as often as monthly, the recent practice by the city has been to make minimal adjustments in order to maintain stable rates to customers.

The last increase to the PCA rate went into effect on August 1, 2017. Since July 2018, the PCA rate has experienced numerous reductions. The last reduction went into effect on October 1, 2019, and has maintained current levels with the exception of a two-month moratorium in fiscal year 2020 due to the pandemic and declining economic conditions, according to the city.

Councilmember Jay Musleh, District 3, said that the city attempts to adjust the monthly electric rate because, due to rising fuel costs, it can be quite volatile from time to time.

“We have been lucky up until a year ago,” said Musleh. “That was a pretty stable market for a number of years, probably 10 years or so. But rates became unstable. This is the first time that I’ve been on the council that we’ve used [the RSR] to this extent to keep from passing [higher rates] on to our rate-paying customers. But there’s only so long you can do that, and we’ve had to bite the bullet and raise the rate. Just simple math.”

Typically, the major factors contributing to fuel costs are natural gas prices and weather, according to city documents. Today, there are other economic factors driving market fuel costs and creating volatile rates. While fuel costs have steadily increased, the PCA rate has remained at the current level by utilizing the rate stabilization reserves.

Different than Duke Energy or some other private company, Musleh said, the City of Ocala having its own electric company allows the city to use its own profits to benefit its citizens, mentioning that all councilmembers live in the city as well and are affected by rising rates.

“A private company is going to use its profits to pay its shareholders. We’re using our profits to benefit our citizens,” said Musleh. “The benefit is twofold: Number one, it produces something like the reserve fund, which keeps our overall taxes down…which is not really part of the [RSR] but that’s one of the benefits of the City of Ocala having an electric subsidiary to hold prices low.

“And number two,” he continued, “it helps us provide the level of service that we think our citizens want and deserve.”