NEWS ANALYSIS

MARK SCHUMANN

If the proposed sale of Vero Electric to Florida Power & Light is not dead, it now appears, at best, to be on life support. Quite simply, the Orlando Utilities Commission’s willingness to assume Vero Beach’s position in three Florida Municipal Power Agency power supply projects is the linchpin in the deal; and that linchpin may be slipping out of place.

In an April 30 letter to Florida Municipal Power Agency General Counsel Fred Bryant, Orlando Utilities Commission Vice President and General Counsel Chris Browder wrote, “…a straight assumption (of Vero Beach’s FMPA obligations) without some modifications of the PSA and Support Agreements would be very difficult, if not impossible.”

With the announcement in August, 2012 that the OUC had agreed to permanently assume Vero Beach’s position in three FMPA projects, a sale that seemed to be going nowhere took on new life. In exchange for $34 million in cash and other considerations, the OUC agreed to take Vero Beach’s position in the FMPA’s Saint Lucie Two and Stanton I and II power projects as of Jan. 1, 2018.

That assignment agreement between Vero Beach and the OUC was codified in contracts written by Vero Beach’s transactional attorneys. However, those agreements, the ones that breathed new life into what appeared to be a dead deal, were never reviewed or approved by the FMPA. Those contracts, the FMPA has made clear, will have to be changed.

Now, more than a year and a half later, comes a four-page letter from the OUC enumerating more than half a dozen “modifications or clarifications” the OUC will need to the Power Supply Agreements and Project Support Agreements.

The issue, explained City Manager Jim O’Connor, is that the OUC does not want to fundamentally alter its business model simply to accommodate the sale of Vero Electric. Currently, the OUC is a supplier of power to the FMPA. After taking Vero Beach’s position in the FMPA power projects, the OUC would essentially be a customer of the FMPA.

The difference between “supplier” and “customer” is far more than semantics, O’Connor explained. As a customer/member of FMPA’s power projects, the OUC will be assuming liabilities and agreeing to covenants that would subordinate some of its existing obligations.

Those subordinations, Browder made clear, are unacceptable to the OUC. “This priority will not allow OUC to manage its bonds in the manner it currently does and would need to be qualified to recognize OUC’s ability to put certain obligations ahead of the FMPA bonds,” Browder wrote.

Further, the OUC would be agreeing to possible restrictions on and reviews of its existing business practice of marketing excess power. “This type of limitation would have to be eliminated or greatly modified in order for the OUC to agree,” Browder wrote.

Browder concluded his letter by recommending a meeting with the OUC, FMPA and possibly O’Connor and City Attorney Wayne Coment.

The following day, Bryant responded to Browder by indicating he would forward his letter to FMPA’s bond counsel for review. “After he (FMPA’s bond counsel) has been able to review your letter, we would like to have a meeting between OUC, FMPA and Vero to discuss and explore any possible solutions to the issues you have raised,” Bryant wrote.

Beyond the need to redraft the Power Supply Agreements and the Project Support Agreements in a way that will work for both the OUC and the FMPA, other issues remain, including the still pressing and unresolved question of who will assume Vero Beach FMPA power entitlement shares through Dec. 31, 2017.

Also still to be resolved, are Vero Beach contingent liabilities and stranded cost obligations to the FMPA. A final obstacle to a sale any time soon is the fact that, without a waiver, Vero Beach will remain a member of the FMPA’s All Requirement through Oct. 1, 2016.