A Duke Energy-commissioned analysis estimates St. Petersburg could spend between $2.75 billion and $4.1 billion to create a municipal electric utility, and local business leaders say it reinforces their concerns about the city’s pursuit of utility municipalization without financial justification.
Duke retained Concentric Energy Advisors to conduct the preliminary analysis, which estimates it could take seven to 10 years for St. Petersburg to acquire, separate and independently operate the company’s electric system. The firm’s projections assume a municipal utility would begin operating in either 2033 or 2036.
The analysis puts the current net book value allocated to Duke’s St. Petersburg customers at approximately $693 million. Concentric projects the assets themselves could cost between $1.25 billion and $1.65 billion by the time a potential acquisition is completed.
Buying the assets, however, accounts for only part of Duke’s estimate. Concentric projects that an additional $1.18 billion to $1.88 billion would be needed to separate St. Petersburg’s electric system from Duke’s surrounding network and rebuild infrastructure necessary for both systems to operate independently.
Work could require approximately 150 miles of new distribution lines, 16 miles of transmission lines, four new substations and two subaqueous transmission crossings. The study identifies additional projects around Gateway and the Pasadena, Gulfport, St. Pete Beach and Treasure Island portions of the system.
Jason Mathis, CEO of the St. Petersburg Downtown Partnership, said the new estimate does not change concerns he raised before the city’s 30-year franchise agreement with Duke expired July 31. He has questioned whether St. Petersburg should spend billions creating an electric utility while facing other, more urgent infrastructure needs, saying, “Whether it’s $1 billion, $2 billion or $4 billion, it’s money that the city doesn’t have. Our city is facing incredible strain and there are bigger priorities.”
Chris Steinocher, president and CEO of the St. Petersburg Area Chamber of Commerce, echoed those concerns: “The $2.9, $4 billion doesn’t shock me,” Steinocher told the Catalyst. “We saw Clearwater’s study. It’s not the right time for us right now, and those numbers show how serious and big this conversation is. I understand those getting priced out of communities due to utility rates, but we have so many other systems that need attention and relief, like stormwater and sewage. This just isn’t the right time.”
Mathis said the city could address some of the affordability concerns that helped drive interest in municipalization without purchasing Duke’s system. “If the push for municipalization was for affordability,” Mathis said. “The city could get rid of the franchise fee and the utility tax. That would address affordability immediately.”
Before the franchise expired, Duke collected a 6% franchise fee from customers and remitted about $23 million annually to St. Petersburg in exchange for its use of public rights-of-way. Mathis previously told the Catalyst that allowing the agreement to expire without a new deal created uncertainty for businesses and questioned the city’s decision to spend up to $590,000 on its own municipalization study.
That study is being conducted by NewGen Strategies and Solutions, the same firm that previously studied municipalization for Clearwater. The St. Petersburg analysis is intended to determine the financial and operational feasibility of the city acquiring Duke’s infrastructure and operating its own electric utility.
Mathis said St. Petersburg’s system presents another complication, because Duke infrastructure within the city is interconnected with surrounding communities.
“Detaching St. Pete from Gulfport and all the beach communities would be more complicated than the feasibility study in Clearwater,” Mathis said. “Clearwater spent a lot of time and money investigating this idea, then abandoned it when they realized how expensive it would be.”
Concentric’s estimate identifies that separation as one of the largest potential expenses. The firm says portions of Duke’s system would have to be reconstructed to maintain service to customers in St. Pete Beach, Treasure Island, Gulfport, Tierra Verde and surrounding areas of Pinellas County.
“We need to negotiate the best deal, the best terms with Duke — that’s the city’s job,” Mathis declared.
Steinocher also questioned whether the city’s independent study will reach substantially different conclusions from Duke’s analysis: “My belief is that the numbers will be similar to Duke’s study. Some of this is real figures that can’t be fudged. It’s a math problem not up for interpretation. It’s an intriguing effort but not worth its weight in gold.”
Ana Gibbs, director of communications and public affairs for Duke Energy Florida, released a prepared statement, writing “This study makes clear a government takeover of St. Petersburg’s electric service is unaffordable and irresponsible. Our residents deserve a clear understanding of the costs, risks, and long-term implications of this unprecedented proposal.”
Gibbs said Duke believes that “a government takeover could cost as much as $4 billion, and our customers would ultimately be asked to shoulder the burden through higher taxes and increased fees or worse, a reduction in public services,” Gibbs said. “Duke Energy Florida and its predecessors have delivered cost-effective, reliable, electric service for decades and we are committed to continue providing the same level of service as the city learns more about the risks of this proposal.”
Concentric estimates St. Petersburg would need between $185 million and $330 million to establish an independent utility. That includes staffing, vehicles, control facilities, billing and outage-management systems, cybersecurity and other operational infrastructure. Transaction costs and initial financial reserves could add another $144 million to $240 million.
The report also identifies potential costs that are not included in its $2.75 billion to $4.1 billion estimate. Concentric says St. Petersburg could face $300 million to $550 million in stranded generation and power-supply costs, depending on how the city obtains electricity after separating from Duke.
Concentric also did not quantify the potential cost of replicating portions of Duke’s automated grid technology that could be affected by separating the systems. The firm cautions that a more detailed feasibility study could identify additional costs.
That being said, the city’s NewGen study may provide an independent estimate of whether municipalization is financially viable and give city officials a basis to compare its assumptions with Duke’s – or at the very least, provide new knowledge for better negotiating power.
This content provided in partnership with StPeteCatalyst.com
