BY MARK SCHUMANN

In a memo to City Manager Jim O’Connor, the city’s transactional attorney, John Igoe, indicated there could be additional costs to the city for withdraw from the Florida Municipal Power Agency’s All Requirements Project.   “It is important to get to a number so the City can prepare and budget for any such termination payment,” Igoe wrote.

The news that the sale of Vero Electric could actually cost the city more than the $179 million Florida Power & Light is offering for the system, came in a May 6 memo from Igoe to O’Connor.

Igoe’s memo was prompted by questions from Councilman Richard Winger, who has been critical of Igoe and his firm, Edwards Wildman, for not making more progress in resolving issues with the FMPA.

Last week, Winger asked O’Connor to arrange for Igoe, or his partner, Rick Miller, to attend this morning’s Council meeting. Before approving the transactional attorney’s request for authorization to bill an additional $200,000, a request which the Council will consider today, Winger said he wants answers to questions about how Igoe and Miller plan to resolve the outstand issues that could otherwise prevent the sale of Vero Electric to FPL.

O’Connor chose, instead, to request written answers from Igoe.

“We need to know what the solutions to the FMPA impasse are and what the time frame is.  While I continue to strongly support whatever it takes or costs (in legal fees) to complete the sale, without a time schedule, I cannot vote for more money for the transactional attorney,” Winger wrote in an addendum to his requested agenda item for this morning’s meeting.

Even without allowing for the possibility of additional termination costs, which Igoe raised in his May 6 memo, the city stands to net no more than a few million dollars on the $179-million transaction, this according to estimates by the city’s Finance Commission.

If the city must also compensate the FMPA for stranded assets and contingent liabilities, it may well have to draw on utility reserves, money which leaders had otherwise planned to use to restructure the city’s pension fund.

How much the city will have to pay in exit costs will largely depend on whether or not the FMPA is able to resolve the Taylor interest swaps.  If unresolved  these interest rate swaps could cost its All Requirements Project members million of dollars.

In 2006 the FMPA arranged for the financing of a power plant it planned to build in Taylor County.  Governor Charlie Crist’s administration later denied a permit for the coal-fired plant, leaving the FMPA with a commitment to borrow some $700 million at interest rates well above today’s historic lows. It has been estimated that if the interest rate swaps were called today, it could cost the FMPA some $90 million.  As a member of the All Requirements Project, Vero Beach would share in that cost.

The FMPA has until September 2015 to find a way to reduce or eliminate the cost of the Taylor swaps, possibly by borrowing some or all of the $700 million to refinance existing projects. What does seem certain about the Taylor swaps is that the issue will not be settled by the end of the first quarter of 2014, the target date Igoe said he is still working toward for the sale of Vero Electric.

Beyond the question of how much it will cost the city to cover its share of the Taylor swaps and other contingent liabilities associated with its membership in the All Requirements Project, there looms the larger question of when the city will be free to sell its electric system to FPL.

Without a waiver from each of the remaining 14 member cities, Vero Beach’s sale to Florida Power & Light will be delayed at least until October 2016.  Despite this increasingly likely delay, Igoe wrote to O’Connor, “The target for closing remains the first quarter of 2014.”

Igoe also indicated he continues to question the necessity of the FMPA seeking a Private Letter Ruling from the Internal Revenue Service as a condition to approving deal between Vero Beach and FPL.  FMPA officials have said they need official assurance from the IRS that the deal will not jeopardize the tax-exempt status of FMPA bonds.

Igoe said his firm is prepared to offer a legal opinion on the tax question, but for FMPA to not seek an IRS ruling would be much like the buyer of real estate not requiring title insurance.

To Winger’s basic question about how and when his firm plans to resolve the outstanding issues with the FMPA, Igoe only said that he thinks June 30, 2013 is “a reasonable target date for resolving with the FMPA an agreed plan of action for obtaining FMPA and related FMPA approvals.”

Igoe’s answer stopped short of actually projected when the issues would be resolved.

In a press report dated Feb. 23, FMPA lead counsel Fred Bryant was quoted as saying, “It’s going to be a difficult, long process.  It will probably take us every bit of Oct. 1, 2016, to accomplish this – if it is able to be accomplished.”

Speaking with FMPA officials and reading Igoe’s memo to O’Connor, in which he says he is still shooting for a closing in early 2014, it seems as if the parties must be reading different contracts.  Either they are not working with the same set of facts, or someone isn’t squaring with reality.

If the Council today approves the transactional attorneys’ request for an additional $200,000 in billing, the city’s cost for employing the firm will stand at $1.4 million.