Sale of Vero Electric now a real possibility

NEWS ANALYSIS

MARK SCHUMANN

The Florida Municipal Power Agency’s executive committee yesterday authorized General Manager Jacob Williams to begin discussions with Vero Beach officials to enable the City to exit the power agency. As a point to begin negotiations, the FMPA is suggesting it might be able to assume all of Vero Beach’s power purchase and power supply contracts, as well as contingent liabilities, for approximately $108 million. Williams is to address the City Council next Tuesday evening.

With yesterday’s development, what has long been an insurmountable wall of contractual obligations to the Florida Municipal Power Agency may soon be reduced to an intermediate hurdle, one that can easily be cleared, if Vero Beach leaders focus their efforts and work together to achieve the sale of Vero Electric to Florida Power and Light. Though $108 million may seem to many like a lot of money to exit contracts, it is significantly less than the $200 million to $300 million some had speculated would be needed to ensure other FMPA cities are not negatively impacted by Vero Beach’s exit from the joint action agency.

Some Vero Beach officials, including Councilman Richard Winger and Finance Commission chairman Glen Brovont, believe that, based on the price FPL had previously been willing to pay for the full electric system, it might now be possible to sell the electric system in a way that will not require tax increases for the people of Vero Beach.

The original deal for the sale of Vero Electric called for FPL to pay $180 million. A few months after the initial purchase and sale agreement was signed, FPL offered to put an additional $26 million into the deal.  With $206 million to work with in structuring a new purchase and sale agreement, Vero Beach could pay $108 million to exit the FMPA, pay the Orlando Utilities Agency another $20 million to exit that power purchase agreement, retire some $30 million in electric system debt, and still have a few dollars left to pay the City’s new high-priced attorney, and cover other transaction costs. (Ironically, Council members Harry Howle, Laura Moss and Lange Sykes recently fired Tallahassee attorney Schef Wright, the one Florida utility attorney in perhaps the best position to work out a deal with the FMPA.  Given the FMPA’s obvious desire to strike a deal with Vero Beach, perhaps it will not matter that the City has hired a far more expensive attorney who has no experience working with the FMPA.)

Even if Vero Beach’s “seller’s costs” total the full purchase price, so long as the City retains the utility system’s reserves of some $30 million, and so long as that money is used to pay down pension fund obligations, Vero Beach residents may not be faced with a tax increase as a result of the sale. Currently the City transfers $5 million from the Electric Fund to the General Fund. That annual transfer will be lost with the sale. But the City is also now paying some $5 million a year to catch up on unfunded pension obligations. If the City retains the electric system reserves, and if that money is put toward pension fund obligations, the General Fund would not then need an infusion of an additional $5 million in tax revenue.

However, another $1.7 million a year in administrative costs are charged to the electric system. To make up for the loss of this additional transfer from the Electric Fund to the General Fund without increasing taxes will require City leaders to do some belt tightening.  Certainly Winger and Brovont believe it can be done.

Simply retaining reserve funds of some $30 million is far short of the $180 million utility activists Glenn Heran and Stephen Faherty once projected the City would net from a sale, but it is better than a tax increase. Since utility activists began advocating for the sale, FPL’s rates have risen as Vero Beach’s rates have come down. Consequently, savings on electric bills will be less than promised. Still, given the years of struggle, tension and divisiveness the power sale issue has caused, leaders on all side profess a desire to put the issue to rest, if at all possible.

Ironically, the current impediment to moving ahead with a sale of Vero Electric to FPL is the fixation of three so-called “pro sale” Council members have on first selling the Indian River Shores portion of the system.

2 comments

  1. My question, if we don’t have income from the electric company where is the money coming from to run the city?

  2. The City is dealing with the results of many years of financial mismanagement – not the least of which was the vastly over-paid purchase of the Dodgertown property. If they’re not careful the current council could leave another decades long financial mess for future councils to clean up Fact is the City faces an inevitable rise in service costs coupled with a static tax base. COVB has a choice – either grow its tax base, raise taxes or severely cut services. The last two options are, in the long term, self defeating and will likely result in further erosion of the tax base. The council’s determination to ignore financial data from its advisory committee is nothing short financial malfeasance.

    Bob Swift

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