COMMENTARY

 MARK SCHUMANN

A letter from Florida Power & Light Vice President Sam Forest, which was read into the public record during Tuesday’s City Council meeting, raises questions about whether Vero Beach’s proposed power sale is headed off a cliff. Not only did Forrest’s letter raise questions, it drew sharp comments from a number of sources close to the negotiations.

Contrary to Forrest’s claims, the Florida Municipal Power Agency has long held that Vero Beach’s contingent liabilities will have to be covered, as was done when both Homestead Energy Services and Lake Worth Utilities sold their Stanton power entitlement shares to the Kissimmee Utility Authority, a fellow FMPA member. Both utilities, Homestead and Lake Worth, to this day retain the contingent liabilities. Despite this fact, Forest insists, “such a request is not commercially reasonable in any transaction and no responsible counterparty could agree to provide that kind of guarantee.”

Perhaps Forrest could direct his attorneys to ask the two municipal electric utilities closest to FPL’s Juno Beach headquarters how to properly structure the sale of FMPA power entitlement shares.

Forest claimed FMPA’s request that the purchaser of Vero Beach’s 34,000-customer base backstop the City’s contingent liabilities, “puts FMPA members and their bondholders in a far superior position than they currently enjoy today.”

That may be Forrest’s perspective, but from the other side of the table, the request that Vero Beach’s contingent liabilities be covered is nothing more than a reasonably request to honor the requirements of rating agencies and bond trustees, all of whom are insisting that contract provisions be enforced in order that FMPA members and bondholders be kept whole.

What Forrest referred to as the FMPA’s “latest request” has been a concern stipulated from the beginning. Vero Beach’s contingent liabilities are an issue FPL has known about and ignored for years. For Forest to characterize this as a “latest request” in a letter read before the City Council may make for effective public relations, but it is grossly misleading.

There may be another, hidden reason why FPL would like to avoid taking responsibility for Vero Beach’s contingent liabilities. Perhaps FPL believes that if it can buy Vero Beach’s electric utility without taking on this liability, it can use the model as a legal precedent to buy more FMPA municipal utilities without being responsible for their contingent liabilities? Certainly it seems plausible to assume FPL expects that in other small communities it can use the same overwhelming political influence it has exerted recently in Vero Beach and South Daytona. That would leave remaining FMPA members and bondholders with significantly greater liability, not less.

Mischaracterizing the proposed power supply agreement between FPL and the FMPA, Forrest wrote, “In February, with the intent to move the transaction forward, FPL accepted FMPA’s request for a lump sum payment of $52 million to compensate them for agreeing to the sale.”

At least from the FMPA’s perspective, the $52 million was never to “buy” agreement to fundamental contract concessions, but was simply to compensate the agency for taking on 38 megawatts of Vero Beach’s power supply entitlements for up to three years – nothing more and nothing less.

Forrest also wrote, “FMPA offered and FPL accepted, subject to technical issues that we believed, based on our previous conversations with FMPA, would be acceptable to them.”

Once source close to the negotiations said, “Mr. Forrest has fabricated this statement.”

According to several sources, the “technical issues” Forrest referred to are contingent liabilities and needed approvals from FMPA members and their board, as well as approval from third parties, such as bond counsel and bond trustees.

If FPL’s refusal to address contingent liability prevents the parties reaching agreement, will Forrest recommend terminating the FPL-Vero Beach purchase and sale agreement allowing Vero Beach to pursue other options to lower costs, such as partial sale of the electric utility to FPL, creating a municipal electric utility in Indian River Shores, mothballing the power plant, or creating a regional utility authority?  Or, does FPL intend to hold Vero Beach hostage through Dec. 31, 2016, the date when the purchase and sale agreement signed by Tracy Carroll, Craig Fletcher and Pilar Turner will finally expire?