Gainesville Regional Utilities (GRU) residential and commercial electric customers may see rate relief due to the biomass facility buyout and might have utility provider choice if electricity freedom comes to Florida. Here is a review of what it may mean to you.
What Is GRU?
GRU is a comprehensive utility service provider owned by the City of Gainesville. It offers electric, natural gas, water, wastewater, and telecommunications services to customers in Gainesville and surrounding areas. GRU is the 5th largest municipal utility in Florida and one of the largest in the nation. It has approximately 93,000 customers, over 800 employees, and a budget in excess of $420 million. Approximately $36 million is transferred each year to the city general fund to support city operations.
Who Governs GRU?
The Gainesville City Commission, which is chaired by the Mayor of Gainesville, governs GRU. It is the final decision-making body, according to the City Charter. The Commission’s authority includes setting utility rates, determining how much money is transferred to the city’s general fund, and hiring/firing the general manager for utilities. The Utility Advisory Board (UAB) is a panel of private citizens appointed by the Commission to provide expert advice and guidance on GRU and utility matters.
Why Buy Out Biomass?
In 2017, the City of Gainesville decided to purchase the biomass facility in an effort to lower electric rates for GRU customers. Based on financial analysis conducted by GRU in conjunction with Goldman Sachs and Public Financial Management, the City concluded that savings would be realized from terminating the biomass Power Purchase Agreement (PPA) with Gainesville Renewable Energy Center, LLC (GREC) and owning the facility outright.
What are the Projected Savings?
Under the PPA terms, GRU was obligated to pay GREC approximately $1.9 billion over the next 27 years for the right to purchase biomass-sourced power. The City decided to purchase the plant for $750 million and priced $416 million in 30-year fixed utility revenue bonds in October to partially finance the transaction (the remaining financing will be raised through private placement security sales). The bonds were rated Aa3/AA-/AA-. Based on bond pricing, GRU is projected to save at least $768 million by terminating the PPA and assuming plant ownership.
Will Electric Rates Go Down?
GRU estimates an 8 – 10 percent drop in electric rates due to the termination of the PPA and the favorable conditions associated with the bond pricing. This would bring some relief as GRU residential and commercial electric rates have ranked the highest – or among the highest – in Florida for the past several years, according to the Florida Municipal Electric Association.
When Could Electric Rates Go Down?
New lower rates could potentially take effect February 1, 2018. “Purchasing what is now known as the Deerhaven Renewable Generation Station (DHR) and buying out the power purchase agreement is a transformational moment for the city and GRU. After just 30 days of operating DHR, the results are even better than we had anticipated,” said GRU General Manager Ed Bielarski. There are electric rate structure “options that will save customers – whose meters are read after February 1st – between 8 and 10.3 percent on their electric bills,” added Mr. Bielarski.
Would the Electric Rates be Competitive?
“GRU’s proposed charges would make our electric rates nearly $9 less than Duke Energy’s proposed charges and move us closer to Clay Electric and FPL’s new electric rates, based on electric consumption of 1,000 kWh per month. We are delighted to be bringing these competitive services to GRU customers and City of Gainesville taxpayers,” said Mr. Bielarski.
Biomass Buyout Timeline
- November 2017: GRU takes ownership of the biomass plant and renames it the Deerhaven Renewable Generation Station.
- October 2017: GRU prices bonds to partially finance the buyout.
- September 2017: Mayor of Gainesville signs biomass facility asset purchase agreement.
- August 2017: Gainesville City Commission votes to approve the asset purchase agreement, as recommended by the Utility Advisory Board.
- April 2017: GRU and GREC execute Memorandum of Understanding memorializing intent to negotiate a $750 million biomass facility purchase by GRU.
- March 2017: Goldman Sachs presents biomass buyout financial analysis to GRU.
- December 2016: GRU signs Non-Disclosure Agreement to launch buyout talks.
- October 2016: GRU General Manager desires to begin discussions with GREC regarding a potential biomass facility purchase.
- June 2015: GRU staff reviews Power Purchase Agreement under the direction of the new GRU General Manager.
- April 2009: City of Gainesville enters into Power Purchase Agreement with GREC for the supply of power from a biomass-fired production facility.
Florida Energy Freedom, an organization founded by Infinite Energy, Walmart, and the Florida Restaurant and Lodging Association, supports bringing electricity freedom to Florida. If successful, residential and commercial electricity users in the Gainesville region and throughout Florida would have the right to choose their electricity provider. This would be akin to someone having the right to determine their mobile telephone carrier and not be limited to one provider.
Local business leader Rich Blaser, who is president and chair of Florida Energy Freedom and CEO of Infinite Energy, believes freedom has its benefits as “choice in markets brings lower prices, innovation, and improved customer service.” Mr. Blaser also contends that a choice-driven market would “increase solar usage dramatically” as electricity users would be free to purchase power directly from third party solar providers.
Florida Energy Freedom supports restructuring the electricity market in Florida through an amendment to the state constitution or via state legislative action. An amendment could be placed on the November 2018 general election ballot by the current Constitution Revision Commission or through a citizens’ signature gathering initiative. Alternatively, a state legislator could introduce a bill in the legislature for review and consideration.
By Kamal I. Latham