NEWS ANALYSIS

MARK SCHUMANN

In advance of the referendum on the sale of Vero Electric, voters were told the value of Florida Power & Light’s offer was some $179 million, including $40 million the company said it would spend to fund the necessary power purchase agreements between FPL and the Orlando Utilities Commission. If the closing cannot take place until late 2016, as seems increasingly likely, the actual cost to FPL could be much less than $40 million. Certainly, the cost of the power purchase agreements comes down the longer the closing is delayed.

“If the closing of the FPL/COVB transaction were to take place on December 31, 2016, the delivery period between OUC and FPL would end on December 31, 2017…,” transactional attorney Rick Miller confirmed in an email response to Inside Vero.

Essentially, the OUC has agreed to assume Vero Beach’s Stanton I and Stanton II power entitlements beginning January 1, 2018, which means the longer the closing is delayed the less it will cost FPL to pay the OUC or the Florida Municipal Power Agency to assume the power entitlements in the interim.

The initial approach, often referred to as “Plan A,” called for FPL to buy Vero Beach’s Stanton I and Stanton II power entitlements for three years following the eventual closing date, or through December 31, 2017, which ever date came first.  That plan was shelved months ago because of tax issues, and FPL has since been working to convince the FMPA to absorb Vero Beach’s power entitlements from the date of the eventual closing through Dec. 31, 2017.

According to sources familiar with the negotiations, FPL would make a fixed payment to the FMPA, with a pro rata reduction in the payment if the closing takes place less than 36 months prior to December 31, 2017.  In other words, if the FMPA has to assume Vero Beach’ power for less than three years, the cost of making this deal work will come down for FPL.

Given that FPL has already told Vero Beach voters it will spend some $179 million to acquire the electric system, should any savings on the power purchase agreements be offset by an equal increase in FPL’s cash payment to the City?  Don’t count on it. Under the contract Council members Craig Fletcher and Pilar Turner former Council member Tracy Carroll signed with FPL, the company has no obligation to pass along to the City any savings. Ironically, three of the same people who have been harshly critical of previous councils for entering into one-sided agreements have their signatures on just such a contract.

Imagine a homeowner agreeing to sell their house by signing a contract giving the buyer both a three-year closing window and an inherent incentive to delay.  FPL representatives are talking as if they are making every effort to close the deal as quickly as possible, and that may well be the case.  But the fact remains that the longer the closing is delayed beyond Dec. 31, 2014 the more FPL will benefit financially.

There are costs to the City, and thus ultimately to rate payers, because of a delayed closing, including additional capital maintenance expenses and assumed risks.  At least in one respect, though, the City will benefit, for with each passing month the City is paying off more its electric system indebtedness.  The net effect of less debt will be an increase in the City’s cash proceeds at closing.

The stakeholders with the most to lose because of a delayed closing are the 34,000 customers of Vero Electric who, collectively, are paying some $2 million more a month in their power bills. When the transactional attorneys presented a contract allowing for a closing as last as Dec. 31, 2016, even the mildly skeptical should have questioned FPL’s assertions that it was confident of wrapping the deal up in 2014.  As things now stand, for that to happen would take nothing short of a miracle.