Electric Feasibility Study Rebuttal 11/2/15

Assessment of WHH Franchise Purchase Option Analysis (aka City of Bushnell’s “Electric Feasibility Study”)

Bushnell Substation

Substation photo

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Sumterville Substation

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Lake Panasoffkee Substation

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Dedicated Bushnell Transmission Line

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Franchise/Territorial History • Agreements expired March 2012 • Clause allows City to purchase SECO electric plant and facilities

• Florida Statute clause requirement repealed in 1973 but not removed • None of SECO’s 27 other municipal franchises still have this language • Intended to give rights to a City if utility defaults/abandons area

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WHH Scenarios – Three Options 1. Buy SECO’s system: keep members at the SECO rate - big loss to City

2. Buy SECO’s system: charge city rates - big gain to City 3. Buy SECO’s system: buy power on open market – claims the City makes $6.1 million

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But what is that claim based on?

Significantly flawed cost estimates

Plus $400,000 for another study and legal arbitration

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What are the flaws?

• Customer Acquisition Costs- calculation method incorrect

• Severance and Reintegration Costs - underestimated • Stranded Asset Costs – significantly underestimated • Open market power purchasing is complicated and risky

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Customer Acquisition Costs – Underestimated Problems with WHH’s $2,970,000 estimate: 1. Didn’t use precedent of RCNLD and going concern 2. Used market value of publicly traded, unrelated corporations 3. Underestimated significantly: SECO Energy estimate: WHH estimate Difference:

$4,750,000 $2,970,000 $1,780,000

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Severance and Reintegration Costs Problems with WHH’s $2,400,000 estimate: 1. “Assumed” 10 miles of distribution line extensions needed.

2. He should have actually measured – it’s 20 miles.

3. Underestimated significantly: SECO Energy estimate: WHH estimate Difference:

$4,800,000 $2,400,000 $2,400,000

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Line Extension Distance • Bushnell system in yellow • SECO system in red • Bushnell’s system must reach the Substation

acquired SECO customers 1.8 Miles

• But WHH study proposes solar for the “remote areas”…..

Remote Areas – Off grid and solar powered?

What are Stranded Assets?

Stranded Asset Costs Problems with WHH’s $331,000 estimate: 1. Didn’t include stranded generation assets 2. Underestimated transmission assets 3. Didn’t include substation assets 4. Underestimated distribution assets SECO Energy estimate: WHH estimate Difference:

$3,885,000 $ 988,000 $1,381,000* $ 260,000.

$6,514,000 $ 331,000 $6,183,000 *Bushnell substation only

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Net Present Value based on SECO estimates

A LOSS OF $4.3 MILLION

What’s wrong with the study?

• Methodology - WRONG

• Cost assumptions- WRONG • Wholesale market assumptions - WRONG • Mathematics - WRONG

Risks of buying power on volatile open market • No Florida municipalities exercised CROD per WHH recommendations • Requires 5-year notice to FMPA per the contract • WHH estimates built around a stable energy market – not sustainable • Natural gas prices have long history of volatile cycles • Excess capacity is projected to be eliminated in five years • Transmission access charge adds $3.89 per kW for delivery services • FMPA refuted CROD WHH option in 2011 letter to Fort Pierce

FMPA comments on WHH’s 2011 Fort Pierce study • Significantly overstates the benefit • Overstates robustness of Florida wholesale market which overstates projected utility savings • mismatch of inconsistent assumptions and projections • deficiencies could cumulatively contribute to extremely misleading results • analysis ignores significant costs associated with transmission, ancillary services, and replacement of real power losses in exercising a CROD option

City’s 2011 Consultant (ECG) Acquisition Study John Lansing (ECG) - City of Bushnell consultant paid to evaluate acquisition: • increases to be borne by the acquired commercial customers would inevitably lead to potential negative consequences for the City of Bushnell.

• the city has not performed cost of service study in 30 years

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Residential Comps – October rate

2012 Rick Shirley letter • could save a significant amount of money and annual utility cost by switching electric providers

• switching the South Sumter High School and West Street School to SECO is a relatively simple way to save the school district $100,000 or more annually

Why SECO Energy?

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Congressman Nugent

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SECO’s valuation estimates are preliminary. They are based on SECO’s initial analysis at this time of currently available data for customers and the distribution, transmission, and generation assets and/or contracts that impact the valuation of customer acquisition, stranded costs, and separation and reintegration. They are directionally correct, but they are subject to change upon receipt and analysis of additional data and the detailed economic and engineering analyses that will be performed by valuation experts for arbitration.

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