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Eye on The Villages: Fight over natural gas

Is a utilities deal between Leesburg, The Villages bad for taxpayers?

This map shows territory served by People's Gas and Leesburg. The purple dashed line is the existing Leesburg gas line that runs to the Coleman Correctional Facility. The green dashed line is the expansion from Leesburg to The Villages. (Source: People's Gas)

THE VILLAGES, Fla. – Late last year, The Villages, a retirement community about 45 miles northwest of Orlando, closed a $7.5 million deal to expand its reach -- already spanning across three different counties -- into the city of Leesburg.

The 1,127-acre transaction will create a new extension of the already 30-square-mile community called The Villages of West Lake that is expected to have 2,800 homes built just to the south and east of The Villages of Southern Oaks an area of more than 13,000 acres with a planned construction of 26,000 homes.

Commonly referred to as “the 470 property," the land is at the intersection of CR 470 and the Florida Turnpike and the deal was seen as a win for both The Villages and the city of Leesburg.

“The Villages partnership is like a three-legged stool,” Leesburg City Manager Al Minner told News 6. “I think it is a great opportunity for the region and for the City of Leesburg.”
 
The three main components to the deal are taxes, water treatment and gas.

Taxes: “It was really about building tax base and those perpetual property tax revenues that could come back to improve services,” said Minner. When fully built out, Minner believed the 470 property would add $600 million in new taxable value to the region with more than $10 million going toward Lake County.

Water treatment: The Leesburg’s Turnpike Plant, a wastewater treatment facility, was built with the idea of future expansion and is currently running at about 25 percent of what it’s capable of handling.

“We have excess capacity there, which we sold to The Villages,” said Minner. The price tag payable from The Villages to Leesburg for water treatment is $9 million paid in load-level increments that should net the city about $750,000 a year.

Gas: The last leg of this three-legged stool, however, is where the controversy has erupted: gas service. Traditionally, The Villages has always been served by TECO’s Peoples Gas, but this expansion isn’t going to be serviced by Peoples Gas – it’s going to be served by the city of Leesburg.

“We've been in the gas business since 1924,” said Minner, adding that Leesburg currently serves about 15,000 gas customers and with this expansion, that number will double.

The city plans on using a new pipeline built by a third party to provide service to future Villagers. The plan for expansion, however, is far from being a smooth transaction. It is, in fact, turning into a scenario tantamount to whacking a sleeping bear with a stick. The stick is held by The Villages, Leesburg, and the South Sumter Gas Company, the the third party. The bear is the aforementioned Peoples Gas.
 
“South Sumter Gas Company is a shell corporation,” Peoples Gas spokeswoman Cherie Jacobs said. “It’s a middle man that was created for The Villages to line their own pockets.”

South Sumter Gas Company, LLC is relatively unheard of because it doesn’t have any customers yet, no website and has only been in business since March 2017. SSCG also happens to be managed by The Villages Land Company, or TVL Company, the master developer of The Villages. Both TVL and SSGC have the same registered agent and address.

In fact, when News 6 reached out to Floyd Self for this story, a lawyer representing South Sumter Gas Company, he replied, “I’m not authorized to speak about this. Please contact The Villages directly.”

An unfinished gas pipeline and access point along CR-501. (Photo by Donovan Myrie/WKMG)

The legacy gas company

Peoples Gas has been the sole provider for natural gas for about 25,000 customers in The Villages for as long as anyone can remember. It came as a surprise to company officials when SSGC signed a multi-million dollar contract with the city of Leesburg in February 2018 to provide natural gas service to new customers of The Villages in parts of Lake and Sumter County. 

“[SSGC’s] sole purpose is to facilitate this scheme between The Villages and the City of Leesburg,” said Jacobs.

The “scheme” Jacobs is referring to is the opinion that in crossing what officials with Peoples Gas feels is a clear definition of its territory, SSGC is using a municipal utility as its proxy to make a profit for its sister company. 

Minner disagrees.

“The root of the issue here is we just have different business models,” he said. “From the development plans, we knew that The Village's growth was coming Leesburg’s direction, coming into what we saw as an area that we could service because we had existing infrastructure.”

That existing infrastructure of the city of Leesburg is dwarfed, however, when compared to Peoples Gas' infrastructure.

Aside from lines running throughout the city, Leesburg has a single gas pipeline that runs east to west between the city and the Coleman Correctional Facility along CR 470. The new pipeline that would provide gas to The Villages expansion would run as an offshoot going south to north along CR 501 between CR 470 to the south and CR 468 to the north.

Here are the broad strokes of how the deal will work:

  • Leesburg will be providing gas to a new part of The Villages southeast of the Village of Fenney but is not building a new pipeline to bring gas into the area.
  • The aforementioned third party, South Sumter Gas Company, is financing the construction of that new pipeline to connect Leesburg’s gas infrastructure with The Villages expansion.
  • Once operational, SSGC’s pipeline will be leased to the city of Leesburg, which will then maintain the line.
  • In return for opening its customer base, Leesburg will pay SSGC a series of monthly and yearly fees.
  • At the end of the lease, Leesburg will not own the pipeline.

By building the lines privately and then leasing them back to the city, Jacobs said SSGC -- and in effect, The Villages Land Company -- is profiting, as the city of Leesburg will pay $2.2 million a year for the lease.

“The payments that the city of Leesburg is contracted to make are well in excess of the value of the pipe, even including a reasonable markup,” said Jacobs.

Minner said The Villages wasn’t even considering using gas in the 470 expansion because it was unhappy with Peoples’ previous performance when homes in Fenney started coming online in 2017.

“Developers do not get to choose which utilities serve their communities,” said Jacobs. “That's the job of the Public Service Commission.”

This map shows territory served by People's Gas and Leesburg. The purple dashed line is the existing Leesburg gas line that runs to the Coleman Correctional Facility. The green dashed line is the expansion from Leesburg to The Villages. (Source: People's Gas)

Who’s playing referee?

When the dispute between Peoples Gas, SSGC, the city of Leesburg and The Villages erupted, Peoples Gas turned to the state’s Public Service Commission (PSC) to resolve the matter. 

“The Commission is charged with resolving any [disputes] that are brought before it,” said Bev DeMello, assistant director of the PSC’s Office of Consumer Assistance and Outreach. “It has been our experience that more often than not, territorial disputes are resolved among the utilities in the form of a territorial agreement that is brought before the commission for approval.”

On Feb. 23, 2018, Peoples Gas filed a territorial petition with the Florida Public Service Commission citing infringement on Peoples Gas' territory without public utility oversight. In part, the complaint said: 

“The dispute exists because the natural gas facilities either under construction or to be constructed by Leesburg, or by South Sumter Gas for operation and maintenance by Leesburg, would uneconomically duplicate existing natural gas facilities currently operated by Peoples in many portions of the area covered and to be covered by the Gas System Construction Agreement. In addition, the Gas System Construction Agreement contemplates the construction of natural gas facilities by South Sumter Gas (to be operated by Leesburg) within areas capable of being more economically served by Peoples.” 

In August, PSC Chairman Art Graham determined the territorial dispute should be given to an administrative law judge in the Department of Administrative Hearings (DOAH) who would then make a recommendation to PSC commissioners. 

“Most of the issues or cases that are brought before the commission are infused with policy implications,” DeMello told News 6. “The territorial dispute at issue is a fact-driven complaint, and it made sense to send the dispute to DOAH to sort out the facts.”

But the sleeping bear’s defending of its territory wasn’t over. The following month, Peoples Gas filed a declaratory action in Lake County Circuit Court seeking to halt construction to the new pipeline.

“This agreement avoids regulation, it's avoiding property taxes and it violates the Florida Constitution,” said Jacobs. “In the end, it is a private developer making an underhanded deal to line their own pockets. This is at the expense of taxpayers.”

Those taxpayers are future Villages homeowners who will probably be paying more for natural gas from Leesburg because part of the agreement says Leesburg will match Peoples Gas rates but is not required to reduce the rates if Peoples Gas' rates go down. 

Future residents of The Villages might also get the short end of the stick because municipalities get an exemption on right-of-way taxes and exemptions are usually not extended to investor-owned utilities. If SSGC went about this on its own, they would have to pay taxes on the line. The city of Leesburg is however exempt. Peoples Gas officials said it paid Sumter County about $120,000 in property taxes last year on its lines running through rights-of-way.

“We are happy to compete for business,” said Jacobs. “We just ask that it's a fair and even playing field.”

PSC commissioners have scheduled an initial hearing for Jan. 28. The lawsuit filed in Lake County remains pending with no milestone dates set as of yet.

“The Public Service Commission action is scheduled for the last week of January,” said Minner. “We suspect sometime after that for the administrative law judge to make a determination.”


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