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Lakeland Electric customers will see higher fuel charges starting April 1 after a late-January cold snap raised natural gas prices and drained millions from Lakeland Electric’s reserves.
City Commissioners voted 6-1 Monday, March 2, to raise the monthly fuel charge from $47 to $62 per 1,000 kilowatt-hours in April, May and June. That will add about $18 to the bill of a typical household using 1,200 kWh a month.
Fuel costs are passed directly to customers with no markup, utility spokeswoman Cathryn Lacy explained. They fluctuate with market conditions and are separate from the utility’s base rates, which cover operating costs such as personnel and infrastructure.
Commissioner Guy LaLonde Jr. objected, saying he would have preferred a smaller increase over six months.
A winter ‘anomaly’
Lakeland Electric Fuels Manager Sandra Ruede said six days of exceptionally cold weather from Jan. 29 to Feb. 3 were an “anomaly” that drove up demand and market prices for natural gas.
Generally, natural gas isn’t as vulnerable to weather as other fuels, she said. But the northeastern states had to shut down their solar and wind generation during the intense storm, and they struggled to get oil and coal to their power plants.
“So that meant we were competing with the northeast on that gas supply,” she said.
Lakeland Electric had budgeted $12 million for fuel in January and another $12 million for February. But demand surged at the same time natural gas storage levels were below the five-year average. As a result, the utility spent $22.2 million in January alone.
February costs aren’t final yet, but Ruede said intense energy use at the start of the month collided with high prices. In addition, Lakeland Electric’s main baseload generator — McIntosh Unit 5 — was offline for 12 hours in February, forcing the utility to pay a premium for electricity from the municipal power pool.
“The market’s back in check,” Ruede said Friday, Feb. 27, at a Utility Committee meeting. “But the three days in January and the three days in February were just extreme amounts of money.”
At the start of the year, Lakeland Electric’s reserves stood at $29 million. When February’s figures are finalized, Ruede predicted the figure will be about $10 million.
No good time
The fuel rate increase won’t take effect until April 1, so customers will pay the current $47 rate in March — even though the actual cost of natural gas could be as high as $58 per 1,000 kWh. The difference will be covered by reserves again, Ruede said.
LaLonde said strong reserves are important, but he objected to the size and speed of the increase.
“I don’t see why we can’t take a more phased approach,” he said. “Our residents are already experiencing higher-than-usual winter bills.”
Ruede acknowledged that there is no good time to raise residents’ bills. But she said customers typically use less power in April, May, and June because the weather is milder. Passing on a temporary increase when customer usage is lower would soften the impact slightly.
Lakeland Electric has several programs to help customers, including budget billing, payment arrangements, Pay As You Go, and payment assistance for low-income seniors.
For more information, go to lakelandelectric.com or call customer service at (863) 834-9535.
The new rate is a three-year high — but not a record-setting one. In early 2023, the rate was $75 per 1,000 kWh.
Ruede presented a tentative timeline showing the fuel rate dropping to $60 on July 1, 2026; $55 on Oct. 1, 2026; and $50 on Jan. 1, 2027 (page 16).
$18 now vs. millions later
Ruede added that failing to replenish the reserves could put Lakeland Electric’s bond rating at risk. The utility maintains a favorable rating by having a fuel reserve of at least 15% of its estimated budget and at least 180 days of cash on hand.
“Even though we have 12 months technically to recover on the fuel reserve, if they look at our numbers and we’re low in those reserves at the end of September, that can impact our bond rating,” she said.
Lakeland Electric relies on bonds to finance major projects, such as its new McIntosh Reciprocating Engine Plant and emergency repairs to McIntosh Unit 5.
It currently has about $435.3 million in long-term debt. If its bond rating slipped, borrowing costs would rise — potentially costing customers millions in higher debt costs over decades.
“You will pay a lot more interest over time that you will then have to recover through the base rates,” explained Willem Strauss, assistant general manager for fiscal operations.
Another increase on the way?
Immediately following the fuel rate discussion, Strauss gave members of the Utility Committee a preview of a rate study that is underway.
He said the current base rates, which make up about 55% of customers’ bills, aren’t generating enough revenue to cover the actual cost of service. The projected shortfall is about 11.39% over the next five years.
Strauss said the best option will likely be a multi-year increase, with base-rate charges rising 3.75% annually for the next four years.
Final recommendations are expected on June 12, with an ordinance submitted to the City Commission for a first reading on July 6 and a vote on July 20.
If commissioners approve changes, new rates would take effect Oct. 1, at the start of the city’s next fiscal year.
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