Preliminary Analysis of Costs to the City of St. Petersburg, Florida to Assume Duke Energy Florida’s Distribution System

Concentric Energy Advisors (Concentric) was retained by Duke Energy Florida (Duke Energy) to analyze the potential costs for the City of St. Petersburg, Florida (St. Petersburg or the City) to assume Duke Energy’s distribution grid within St. Petersburg.

The results of our preliminary analysis indicate that the cost to acquire Duke Energy’s operations within the City may range from $2.7 billion, assuming a transaction date of January 1, 2033 (2033$), to $4.1 billion assuming a transaction date of January 1, 2036 ($2036).

This analysis was conducted following the St. Petersburg City Council’s decision to examine the feasibility of assuming Duke Energy’s operations within St. Petersburg.

We developed a high-level valuation analysis based on:

• The value of Duke Energy’s assets and operations in Petersburg.
• The costs associated with separating the City’s distribution grid while ensuring service in other communities is not impaired.
• The startup and transaction expenses for establishing a new city-owned.
• The financial reserves the City’s utility would need to have to launch.

The basis for valuing Duke Energy’s assets is the net book value of its physical assets, such as poles, wires, transformers, meters, other equipment, and ongoing system investments. However, Florida statute suggests that the purchase price of utility assets should not be just the underlying book value. Instead the purchase price should be reflective of the market value of the assets. Concentric calculated the market value of Duke Energy’s assets by applying a market-based transaction multiple to the net book value. The market value multiplier is based on other purchases of utility assets and the value reflected in publicly traded utility stocks.

Additional costs include separating the portion of the grid that lies within St. Petersburg and replacing substations and underwater cables that serve St. Petersburg. This process will be complicated by St. Petersburg’s city boundaries around Gulfport and adjacent to Treasure Island and St. Pete Beach. The City would also need to establish new administrative and operational functions to operate a new electric utility.

All views expressed by the authors are solely the authors’ current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, related companies, or clients. The authors’ views are based upon information the authors consider reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.