MUST ASK QUESTIONS FOR THE JANUARY 11th JOINT CC/UC WORKSHOP
The City and Utilities Commission have a joint workshop scheduled for Jan 11, 2006. This may prove to be an extremely important meeting if the City Commission steps up to the plate and does their job by demanding answers as outlined below.
It has been about 2 ½ years since Vaden resigned as General Manager of the U C. He resigned stating the City Commission lead by the efforts of Bill Rogers appointed Diesen and Para to the UC. He stated that after speaking with both Diesen and Para he felt they both had personal agendas that would lead to the destruction of the UC. It has been 1 ½ years since Turano was terminated after not following Diesen and Para’s agenda.
On the Telecom side they took a profitable $12 million per year business of which the city was receiving $3/4 million to offset taxes, shut it down, and lost over $9 million in the process.
Please take note of the fact that in FY03 telecom had a profit of $525,000, in FY04 there was a loss of $862,000, prior to the auditor’s adjustments that expensed out an amortized cost of $1.1 million), FY05 showed a loss of $3.5 million, and the auditor moved an additional loss of $1.5 million back into FY04. In FY06, there was a loss of $2.8 million, and in the first month of FY07, the loss was $60,000.
The current plan is to keep the fiber Head End Building, remove all the equipment not internet related, which drastically reduces the value of that asset, and utilize the residual equipment and connectivity to provide only service to City and UC buildings, not the public who pay the bills. If they were unable to run a profitable telecom business, perhaps they can run a successful fiber network for themselves and let the public pay for it through their utility bills. The current plan is a waste of assets, and will lead to additional losses, year after year, that will also be attributed to telecom, another cover up. The Fiber To The Home tangible assets and business should have be sold as a complete package.
On the Electric side, there has been one base-rate increase and two other increases, one attributed to the cost fuel, and the other to the cost of purchasing power shown on the customer’s bill. They have broken a record by making the UCNSB the third highest electric utility among 35 in the state. The stated reason for the base-rate increase was due to customer growth, and that the two increases for fuel and purchased power were due to cost increases for purchasing these two commodities. This is simply not true. The reason for the rate increases is the overall UC cash flow.
Rate stabilization funds for the various utilities were set up several years ago at the request of City Commissioner Hathaway. The reason given for the request was to establish a means for the city to track cash flow at the UC. This turned out to be an excellent tool for the City and UC. In September of 2006, the UC transferred $8.8 million from the electric rate stabilization fund to the telecom; water, wastewater, and reuse water rate stabilization funds to remove the negative balances of these funds. This was the reason for the increase in base-rates.
They also transferred $1.1 million from the fuel and purchased power rate stabilization fund to the Renewal and Replacement fund. Public Service Commission (PSC) tariffs do not allow this practice because it is a surreptitious means of raising electric rates without proper disclosure at public meetings. These transfers account for about 25% of the latest increase in the fuel fund. Natural gas and oil prices have been declining for a year and these decreases will flow down into the UC energy cost. As with the base-rates increase, the only reason for this increase is the overall UC cash flow.
After eliminating $9.9 million in cash reserves held in the rate stabilization funds, they abolished the funds making it difficult for the City to track cash flow. The UC is now funding the entire utility from one general reserve fund that has a negative balance. Cash flow is manipulated by borrowing from funds set up to make debt payments, customer deposits and funds set aside for projects, and so on. In other words, they are borrowing from Peter to pay Paul!
The UC has a debt reduction fund set up by Vaden with a balance of around $1 million to cover future debt payments. The UC received $3 million in payment for a land sale that was ear marked to pay debt that was incurred to purchase acreage west of I95.
The alleged reason for the joint meeting is to discuss building local generation in an effort to convince the City they need more money to burn. This is only a smoke screen to take attention away from the real issues outlined in this article. It is much more costly for a city the size on New Smyrna Beach to generate instead of purchase their electricity. Bottom line,
In summary, the path steered by Diesen and Para over the past 2 ½ years has lead to the demise of the Telecom business. Depletion of $9.9 million in cash reserves, unnecessary increases in the electric rates. Interest income lost from cash reserves leads to rate increases, rate increases lead to fewer purchases, and fewer purchases lead to more rate increases, and so on.
The City Commission should ask questions demanding straight forward answers or the City of New Smyrna can soon boast as having the highest rates in the state.
Questions
1. When the UC determined they could not run the phone business profitable why did they continue to run the business for two years draining the UC reserve funds instead of selling the business as a whole?
2. When the UC determined they could not run the fiber business profitable why did they shut down the TV and phone over FTTH greatly reducing the value of the asset instead of selling the business as a whole.
3. Why is the UC planning on stripping out parts of the equipment and using the Head End for IT and connecting City and UC facilities?
4. Did the UC transfer $8.8 million from the electric rate stabilization fund to cover negative balances in the rate stabilization funds for Telecom, Water, Wastewater, and Reuse and increase electric base rates to cover the transfer?
5. Did the UC transfer $1.1 million from the fuel, purchase power fund to the R&R fund, increase the fuel, and purchase power fund?
6. Did the UC abolish these funds?
7. Are there any plans to use the $1 million debt reduction fund and the $3 million for land sale for any purpose other than debt reduction?it.