Partial sale of electric system could be a full disaster for the people of Vero Beach

“Old, and others who once had serious questions about opening the door to higher rates and higher taxes, now seem to have concluded that a partial sale would be the lesser of two evils. The even less attractive alternative, they seem to believe, is to stand up for what is best for the residents of the City and the remaining customers of Vero Electric, for doing so will likely result in Indian River Shores monied interests and FPL continuing to poison politics in Vero Beach.”

Peter Gorry

Editor’s note:  In the summer of 2016, the Vero Beach City Council voted 3-2 to reject Florida Power & Light’s $30 million offer to acquire Vero Electric’s 3500 customers and transmission and distribution lines in Indian River Shores. At the time, Councilmen Randy Old, Richard Winger and Tony Young argued the partitioning of Vero Electric for $30 million would lead to higher taxes for the residents of Vero Beach and higher rates for the remaining customers of the City’s electric system. (Harry Howle and Pilar Turner supported the deal.)

Citing the work of independent consultants, Old, Winger and Young  concluded it would take closer to $45 million to ensure the carving up of Vero Electric would not negatively impact the City, its residents and electric customers. (At the time, Old said approving the partial sale at $30 million would be constitute a breach of a council member’s fiduciary responsibility to the City and to the people of Vero Beach. Old, and others who once had serious questions about opening the door to higher rates and higher taxes, now seem to have concluded that a partial sale would be the lesser of two evils. The even less attractive alternative, they seem to believe, is to stand up for what is best for the residents of the City and the remaining customers of Vero Electric, for doing so will likely result in Indian River Shores monied interests and FPL continuing to poison politics in Vero Beach.

Following the Council’s rebuff, FPL and Indian River Shores residents set about electing a Vero Beach City Council majority that would approve the deal. Lange Sykes received 90% of his campaign money for Shores residents, and Laura Moss took in some 70% of her campaign funds from these same outside interests. Both Sykes and Moss were also supported by a campaign committee that raised more than $100,000 from Shores residents and from FPL.  Most of the money was use to run political advertising that made exceedingly outlandish promises for how the sale proceeds could be used. The Shores-FPL PAC was, quite simply, a PAC of lies. But voters fell for the PAC’s deceptions, electing Sykes and Moss into office.

Now the Council majority of Howle, Moss and Sykes is set to approve a purchase and sale agreement with FPL that will commit the City to sell the Shores portion of the electric system, if the full sale cannot be concluded. 

At its meeting last week, the Finance Commission gave its blessing to a sale of the full system, but was unwilling to support a partial sale. Finance Commission member Peter Gorry summarized in a memo his concerns about carving up the electric system. His memo, presented below, is now in the possession of the City Clerk’s Office, and is thus part of the public record. 

At last week’s FC/UC meeting I strongly endorsed the full sale but was adamant in expressing concerns regarding a partial sale. The UC recommended both, the FC only the full.

For me, the results of a partial sale upon rates, COVB financials / services and VB tax payers are an issue because:

  • Proceeds are the assets of VBE (Vero Beach Electric) and can only be used to reduce debt or for capital improvements inVBE, not for GF (General Fund) operations or pension contributions, according to the Bond Covenants applying to a partial sale. The impact on GF and VBE operations / finances are not quantified.
  • IRS (Indian River Shores) as the most profitable entity with a greater cash flow ratio to VBE. Operating costs are marginally reduced as fixed and variable costs increase as a percentage of total expenses.
  • The $108M and $20M  to FMPA (Florida Municipal Power Agency) and OUC (Orlando Utilities Commission) , as well as the $20 M in VBE debt will remain, reducing proceeds from a future sale Since IRS is worth $30M, OF THE $185, then 16.2% ($24M) of the proceeds from IRS sale should be sequestered for a future liquidation of the utility.
  • Rates for the remaining customers in the VBE System would increase due to very limited reduction of operation expense and fixed costs. The mix of purchased power, variable cost is different by supplier; to the degree higher cost suppliers have a greater portion of the mix, expenses increase.
  • Since the System is capitalized for 35K customers, with fixed costs, VBE will strand  non performing assets; for example, no T&D (transmission and distribution) employees will be reduced and the G and A transfers ($1.8M) from the GF are marginally reduced.  
  • A resultant smaller entity has increased risks and higher expenses
  • IRS outside plant is newer with hardened infrastructure; future VBE capital will be towards the system outside IRS which has minimal T and D operating costs.  For every $1M in capital; virtually none is for IRS, at 9% of the system revenues, the Shores contribution would be $90K annually.
  • In transition there are issues regarding joint access use by the union contracts. VBE pension and OPEB (post employment benefits) costs are all retained.
  • The transition allocation of unknown expenses are potentially a significant problem
  • FPL will spend additional expense / capital millions as would VBE, in a partial are which not required in a full sale. 
  • Extensive pro-forma / timelines / due diligence analysis was either inadequate never applied to the partial sale. There are significant uncertainties regarding the details of the proposed sale – and future contingent liabilities continue. None of these crucial is addressed or considered in the LOI (letter of lntent).

Peter Gorry

 

 

 

Peter Gorry

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