Leesburg repaying Cutrale $4.2 million for five years of utility overbilling

Article Courtesy of The Orlando Sentinel

By 

Published January 8, 2015

 

Poor, poor Leesburg. That city has been a bundle of mismanagement for a decade, resulting in one financial indiscretion after another.

Usually, these are not small messes. Every few years, it's another big one, and it's amazing to watch city commissioners waste massive sums of taxpayer dollars.

Commissioners in 2006 foolishly bought a slum condo instead of forcing owners to clean it up by enforcing their codes. Cost: $5.4 million and rising with each loan repayment. Then in 2009 they decided to install the not-so-smart grid in the city's electric system: $20 million. The system was to be functional five years ago and still isn't working.

And now comes the latest blunder: Leesburg accidentally has overbilled the Cutrale citrus processing plant $4.2 million for utilities over the last five years.

Soon, commissioners will be asked to reimburse the Brazilian company's overpayments for both natural gas and electric and to change the way the city bills in the future.

"I think we're pretty close to getting this done," City Manager Al Minner said. "Everybody understands how the error was created, and I think we're confident in moving forward."

Poor Minner. That fellow spent his first year in Leesburg learning trying to get a handle on smart grid and staunch the financial bleeding only to learn of the overbillings. Minner has a worthy goal of reducing the city's dependence on utility profits they account for more than half of the general fund and this latest debacle isn't going to help him achieve it.

So, what happened? Here's a summary of the explanation Minner and electric department Director Patrick Foster offered:

One person in the finance department had done the very complicated gas-department billing for Cutrale for 20 years until 2009 when he trained another employee to do it, then retired. Before Minner even arrived, the employee had found an error in the gas capacity charge over several years, and the city had stroked a check to Cutrale for $1 million in 2013.

Then, a second finance employee who had been handing the electric billing also retired, and the same employee who found the gas problems noticed discrepancies in the electric charges. He reported to Minner in early 2014, less than 60 days after the new city manager arrived. He told Minner that he'd tried to tell previous managers, but they took no action.

"We thought it was an error in our favor, and we approached Cutrale," Minner said.

Oops. Didn't turn out that way.

Cutrale and the city both hired consultants to figure out the complicated rate structure used to bill the plant. Cutrale uses electric, but it also has a 4,000-kilowatt generator that is putting power back into the grid at the same time. The rate charged depends on whether the generator is running at full capacity and whether the company has notified the city when the generator is putting out less electric.

The errors in billing were "arithmetic," Minner said. The city "put in the wrong factors" to come up with the total and also failed to bill properly when Cutrale's generator was not "running at full tilt." That's because the contract requires "proper notice," which the company believes it gave and the city says it didn't.

Leesburg officials say they owe Cutrale $2.6 million; the company says the discrepancy is $3.7 million. Since early fall, the two have been negotiating to come up with a middle ground, and by early December, talks appeared to have stalled and a lawsuit seemed to loom.

However, Minner offered three more creative choices for settlement, and late in the month, Cutrale made a counteroffer that Minner said is reasonable:

The city would repay Cutrale $3.2 million and would change the company's contract to more specifically define when the generator is operating fully and what type of notice Cutrale is required to give the city.

So, where will Leesburg get the cash for Cutrale if its commissioners agree to the settlement?

And this, folks, is the ironic part of this story. Those following the smart-grid saga may remember that the one successful piece of project before Leesburg's partners screamed foul involved Leesburg and its biggest electric customers cutting off the power and using generators during times of peak use.

Since the bulk cost of electric to the city is based on its peak use during any given month, this allowed Leesburg to bank about $3 million. (The city has since had to stop "shaving the peak" because its partners insisted it violated the terms of the agreements by which they all buy power.)

So the $3 million saved by smart grid likely will end up in the Cutrale pocket. That seems a shame, but it's better than a 12-percent electric rate increase, which is roughly what it would take to bring in the $3.2 million needed to repay citrus processor.

Sigh. What else can go wrong in Leesburg? City commissioners have made strikingly poor choices over the last decade, but let's hope for the sake of the taxpayer that once this mess is sorted, nothing else surfaces.


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