FPL hoping to close purchase of Vero electric in 24 months
STORY BY LISA ZAHNER, (Week of February 2, 2012)
The draft offer by Florida Power and Light to buy Vero electric would give the city and its attorneys 24 months to untangle the city's contractual obligations so the sale could go through.
Under the provisions of the 77-page document released Monday, closing the deal – the exchange of $100 million for the power plant, customers, assets, records and distribution systems of the utility – would need to take place within two years of the Vero Beach City Council approving the agreement.
That $100 million figure would vary a bit up or down depending upon some items in the agreement – such as inventory in stock at the time of the sale, which would be bought by FPL, and banked city employee sick and vacation time, which FPL wants paid by Vero.
"Paying the $100 million to us in payments with interest was a new one, something I hadn't heard before," said Mayor Pilar Turner, who read through the document Monday. "Maybe they'll offer a really good interest rate on the payments, better than we could get if we invested the money."
Turner said there are lots of notes and blanks in the document and it is clearly marked a draft.
"First of all it is a work document, so I want to get that clear in peoples' minds," Turner said. "I was delighted to see that Vero customers would be receiving FPL rates, nice to see that in print, but the two-year window I was a little surprised at."
The two big concerns for the city with regard to that two-year window are things which could nix the deal with FPL. Listed as contingencies in the offer are Vero extricating itself from a 20-year, $2 billion wholesale power contract with the Orlando Utilities Commission, and the transfer of power entitlements the city owns through the Florida Municipal Power Agency.
Should Vero be unable to get out of the OUC contract or be unable to transfer the FMPA assets within 24 months from the effective date when the agreement is approved by the council, the city could be on the hook for $4 million in penalties.
Both Turner and former Councilman Brian Heady noticed this clause in the agreement and said it raised an eyebrow considering the city's history with penalty clauses and contracts.
Vero would also need to obtain the required regulatory approvals to sell the utility, and FPL would need to gain approval from the Florida Public Service Commission to charge Vero Beach customers the same low rates paid by the company's nearly five million customers elsewhere in Florida.
Finally, there could be no injunctions or actions by government entities still pending upon the date of closing.
The document relies upon the fact that the City of Vero Beach has been forthright, truthful and complete in all the information it has given FPL executives during the extended due diligence phase.
It also demands that the city continue to maintain and operate the power plant and distribution system according to its capital plans in place and in line with industry standards. The closing could also be put off if the city does anything to harm the utility's value.
For the closing to go through, Vero needs to place in escrow an amount of money determined sufficient to pay off all the debt of the utility.
As part of the agreement, Vero also needs to obtain long-term rights to any land or easements or poles which FPL would need to provide power to its new customers. If any of those agreements needs to be renegotiated, FPL reserves the right to monitor the negotiations to make sure the long-term interests of the utility are represented.
In other words, city officials could not execute an overly generous lease knowing that FPL would be the one paying the property owner long-term.
To facilitate the transfer of the customers and the billing system, the city would be required to work with its software company Cayenta to translate and transfer customer data from the Vero system to the FPL system.
In order to make sure that all of the above activities were being done in good faith between the effective date when the City Council executes the agreement and the closing date when the utility actually changes hands, FPL wants the right to place observers at the power plant, in City Hall and at the transmission and distribution facility. The city must provide furnished office space and utilities for the FPL observers.
As promised in last April’s letter of intent, FPL agrees to employ electric utility workers for a period of 24 months, unless any of the workers had been previously employed by FPL or its affiliates and fired for cause. FPL would maintain a retirement system comparable to what city employees already have in benefits, in effect taking on Vero's nearly $14 unfunded pension liability as it relates to the 113 electric utility employees.
City Manager Jim O'Connor sent the document to the city e-mail addresses of Council members Saturday afternoon, but they did not begin accessing the file until Monday morning.
As of Monday afternoon, Councilwoman Tracy Carroll and Councilman Craig Fletcher were still working through a cursory reading of the document. Both said they had not been notified the document was available for review over the weekend, but they did have a "head's up" that it was coming soon, because a request had come in last week from former City Attorney Charles Vitunac for all information and documents related to an agreement for the sale of the utility.
Fletcher, who prior to retirement worked on missile contracts with McDonnell-Douglas, said at lunchtime that he'd done a very quick read-through of the first 20 pages or so and expected to take several days to pore over the contract. The only comment he would make was that he was surprised at how concise the document was.
The document provides for FPL to lease the real property underneath the power plant and for Vero to be responsible for any environmental cleanup that was precipitated by damage caused prior to the closing date. FPL has done environmental surveys as part of its due diligence and city officials have stated that there is "no known contamination" on the site.
FPL would be responsible for paying taxes on the utility assets after it takes over the system. FPL officials estimated this will result in about $1.7 million in new revenues to the city.
There are provisions in the contract for compensation should either party breach the agreement, with the city being required to pay damages only if the material harm to FPL exceeded $1 million. The maximum liability to the city as seller for breaches, as stated in the draft agreement, would be $15 million.
Heady, the former councilman who now sits on the city's Utility Commission, said he heard at City Hall on Friday that the offer had come in. He requested a copy and received the document Monday. He said he wanted to make sure the offer got out to the public so the city does not repeat mistakes made when the power contract with OUC was kept at a consultant's office in Boston and not made public for two years.
As of Monday afternoon, Heady said he'd only skimmed the document and did not have adequate knowledge of it to make a meaningful comment.
The Vero Beach City Council meets Tuesday. Mayor Turner said transactional attorney John Igoe of the Edwards Wildman law firm will be at the meeting. "We'll take comments and input from the public and we'll workshop it," she said.