BRADENTON, Fla. - After nearly a decade of negotiations and legal challenges, a Florida city has inked a preliminary deal to sell its municipal electric system to an investor-owned utility.
Vero Beach told bondholders Friday that it signed a non-binding letter of intent to sell its system to Florida Power & Light Co., in a $185 million transaction that would provide $20.4 million to retire the city’s outstanding electric utility bonds.
The LOI also sets the stage for due diligence to begin on the final terms of the sale, in which FPL is also expected to pay $108 million to terminate the city’s contractual obligations in the Florida Municipal Power Agency’s bond-financed projects and $20 million to buy out energy contracts with the Orlando Utilities Commission, a notice on the Municipal Securities Rulemaking Board’s EMMA filing system said.
“FMPA has been working for the past several months to provide an option for Vero Beach to exit its FMPA projects,” Assistant General Manager Mark McCain said in an email Monday. “The non-binding Letter of Intent between Vero Beach and FPL is one step toward a binding, definitive agreement.”
McCain said the agency’s governing boards are still discussing the proposal, but have not approved it.
Vero Beach’s current contract entitles the city to 51 megawatts from FMPA’s All Requirements Projects –two coal units and one nuclear unit – in which 13 other Florida cities participate, General Manager Jacob Williams said May 16, before the city council voted 4-1 to approve the LOI.
“The [other] cities would need to be compensated for them taking on power they don’t need,” Williams said, adding that risks associated with the city’s termination will also require compensation.
Williams said a preliminary analysis indicates that the city must pay $76 million for the cost of power and $32 million for a risk-adjusted premium, although advisors are still reviewing the numbers.
Once the final termination price is determined, he said FMPA will consult with rating agencies and obtain approvals from bondholders, bond insurers, and third parties before consent is requested from each of the 13 cities remaining in the All Requirements Project - a process that could take a minimum of seven months.
As part of the deal to sell the city’s electric system, FPL would also make a $20 million cash payment to Vero Beach, pay $10 million to lease the city’s power plant substation for 99 years, and pay $6.6 million for the city’s pension liability associated with employees who transfer to FPL.
The deal could close by Dec. 31, 2018, according to the EMMA notice.
For years, Vero Beach residents have complained about the city’s high electric rates, attributing some of that cost to power purchased from FMPA. About 16,000 people live in Vero Beach.
FPL officials have made a number of presentations to the city, saying it could offer residents lower electric bills.
Vero Beach voters have passed non-binding referendums twice urging the city council to sell the municipal system.
Some speakers at the May 16 meeting said they questioned the deal now, because FPL’s electric rates have been rising while the city’s bills have decreased.
Williams also told council members that he wanted to dispel the notion that FMPA’s rates are too high.
“Our rates are now some of the lowest rates in the state,” he said. “So this isn’t about large savings any more that citizens may or may not see because, frankly, our rates are going down and some rates are going up.”
FMPA had $1.3 billion of All-Requirements Project revenue bonds outstanding as of Sept. 30, 2016.
Those bonds are rated A-plus by Fitch Ratings and A2 by Moody's Investors Service.