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Copyright 1999 The Tribune Co. Publishes The Tampa Tribune
The Tampa Tribune
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September 3, 1999, Friday,
LENGTH: 677 words
HEADLINE: Fairness for
Deregulating the production and sale of electricity is raising issues that
would challenge the
wisdom of King Solomon.
One is how to treat the many taxpayer-owned utilities and the
tax-exempt bonds they have sold.
The proceeds from these bonds have built supply lines and power plants for what
has until recently
been a protected market.
What happens when these city- and county-owned power companies face competition
customers, or sell outside their jurisdictions? The risk is growing that their
bonds will suddenly
become taxable, shocking bondholders and jeopardizing the financial viability
of the customer-owned
President Clinton proposes protecting the
tax-exempt status of existing bonds, which is good,
but he would also prohibit the companies from issuing new
tax-exempt debt, which doesn't make
sense. Florida has wisely taken a cautious approach toward the
deregulation of electric utilities,
and its municipal utilities, such as those run by Lakeland and Orlando, are in
no rush either to
expand or to change their
A better compromise is offered by the Bond Fairness and Protection Act, which
sponsorship in the House and Senate. It would allow a city-owned utility to
sell electricity to
outside customers without jeopardizing the
tax-exempt status of its old bonds, but if the utility
expanded capacity to compete for additional outside customers, the bonds sold
for such expansion
would be taxable.
Lakeland, for example, would retain the flexibility to sell electricity to
surrounding areas in
times of regional shortages without jeopardizing the
tax-exempt status of its bonds.
Lakeland got into the electricity business in 1904 and boasts that its
residential rates are
among the state's lowest. City Finance Director Jerry Reynolds tells us that
the city treasury gets
an annual dividend from its
electric company of about $ 19 million a year, plus the donation of
electricity for city uses.
And sometimes its coal-burning plant can produce electricity cheaper than can
its neighbors, and
so it sells its excess. Such limited sales benefit both the city and the
"These guys run good operations," says Joe Garcia, new chairman of the state Public Service
But because it is usually easier to raise
electric rates than to raise
taxes, cities typically
electric revenues to subsidize other aspects of government. It is
reasonable to place limits on
how far their
tax-sheltered operations can extend. The Bond Fairness Act strikes a good balance
leaving it up to the cities to decide when or if to expand into new markets.
decision, it is one locally made after being discussed in public meetings.
Statewide, Florida has 17 customer-owned
electric utilities with a total bond debt of $ 6.5
billion. It would not be fair to bondholders to revoke the
tax-free status of these bonds. Nor
would it be fair to investor-owned utilities to allow these
tax-sheltered companies, which pay no
taxes, to issue more
tax-free debt to steal customers from a
The American Public Power Association warns that without the special protection
of this bill,
customers of municipal utilities could face higher rates and
taxes because cities would be
forced into a marketplace they might prefer to avoid.
"My constituents are deeply committed to keeping local control of our municipal
utility in the
hands of their elected representatives here in Orlando," says Orlando Mayor Glenda E. Hood.
and Fairness Protection Act will protect
tax-free financing, enabling my city to keep its promise
to its citizens to preserve municipal power without imposing retroactive or new
taxes on municipal
bonds and utility revenues."
deregulation of electricity is a number of years away for Florida. In the meantime, there
is no good reason to rob cities of their
tax-sheltered utilities and hit bondholders with a
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