MARK SCHUMANN

As work begins in earnest to develop a general fund budget for the fiscal year to begin Oct. 1, many are asking when Vero Electric is likely to be sold.

At another level of negotiations, though, the question of “when” has been preempted by the question of “if,” as representatives of the City, the Orlando Utilities Commission, Florida Power & Light and the Florida Municipal Power Agency look for an alternate way to structure a deal that is more likely to be approved by the Internal Revenue Service.

Yesterday, FMPA’s executive committee met in Orlando and heard from their counsel, Fred Bryant, who reported that the deal as proposed by Vero Beach’s transactional attorneys is not going to work.

According to Bryant, all four parties to the negotiations now agree the proposed entitlement transfer agreements between Vero Beach and the OUC, and the power purchase agreements between the OUC and FPL are not likely to be approved by the IRS.

Bryant explained that a new “Plan B” is being considered.  The central issue is a provision in the agreement calling for FPL to buy from the OUC 30 megawatts of power for three years.  The OUC has agreed, on Vero Beach’s behalf, to assume this power from FMPA’s share in the Stantion I and Stanton II coal-fired generators.   In exchange, the OUC will receive for $34 million in cash, $10 million in gas transmission rights and FPL’s commitment to buy 30 megawatts of Stantion I and Stantion II power for three years.

Because the Stantion I and Stantion II plants were funded with tax-exempt revenue bonds, IRS regulations restrict the sale of the power to investor-owned utilities such as FPL.

To work around IRS restrictions, a new deal is being considered that would have FPL buy power, not from the portion of the Stantion I and Stantion II plants owned by the FMPA, but from the OUC system as a whole.  The challenge, though, may be differentiating OUC electrons from FMPA electrons.

As Bryant explained, for the purposes of illustration, if FMPA’s electrons were red and the OUC’s blue, because they are all produced by the same generating system, the power turns purple before it ever reaches transmission lines.  The challenge, Bryant said, will be to convince the IRS that FPL is not buying FMPA’s power.

Bryant reiterated his earlier position that whatever shape the deal finally takes, the IRS will first need to approve the sale before the FMPA board will be comfortable signing off on it.

Bryant also explained that all four parties to the deal will have to attest, under penalty of perjury, that the facts submitted to the IRS are accurate and complete.  Since the IRS will also be looking for assurances that the deal is market based, the absence of a competitive bidding process and a side deal struck between the OUC and FPL for an option agreement on FPL’s planned Turkey Point 6 and 7 nuclear units may prove problematic.