State regulators on June 5 approved Florida Power & Light Co.'s acquisition of the Vero Beach municipal utility, following a debate over how high a deal premium FPL could recover from customers.
The Florida Public Service Commission unanimously voted to greenlight FPL's $185 million purchase of the Vero Beach utility, and to apply FPL rates to the 35,000 city customers. The PSC decision was the culmination of decades of effort by Vero Beach to sell its utility, coming after the transaction was approved by federal regulators in January and another Florida agency in March.
Vero Beach's elected officials at the state and local levels said the deal will lower rates for city customers and give them proper representation before the PSC, along with consumer protections by the commission's ratepayer advocate. The city purchased virtually all its electricity from other entities, and its power plants had been retired due to budget constraints and broader market pressures.
While no stakeholders, including commissioners, opposed the transaction, regulators were divided over whether FPL, a NextEra Energy Inc. subsidiary, should be allowed to recover from customers $116.2 million, the premium FPL is paying over Vero Beach's net book value of $68.8 million. They narrowly approved the amount in a 3-2 vote.
Stephanie Morris, a staffer with the Office of Public Counsel, said the $116.2 million is the largest-ever premium, formally known as a positive acquisition adjustment, in Florida PSC history. She and her colleagues believed the amount deserved more scrutiny.
Jon Moyle, an attorney for the Florida Industrial Power Users Group, questioned what impact the approval of recovery for such a deal premium might have in the future if a Florida investor-owned utility were to acquire Jacksonville's city-owned power company, which could be valued at $11 billion.
"It sets a bad precedent, in my opinion, with respect to going forward. What's the JEA premium going to be?" he said in reference to the Jacksonville municipal utility, which has weighed whether to put itself on the market.
The PSC's legal standard for permitting a positive acquisition adjustment is only if a transaction occurs under "extraordinary circumstances." Commissioner Julie Brown said that "if ever there was a case in recent history, this is the pinnacle of extraordinary circumstances," referring to the numerous failed attempts to make a Vero Beach deal happen.
Chairman Art Graham, who voted against allowing the premium, disagreed with Brown. "Just because a utility chose to spend three times the book value, I don't know if it's the duty of us to make them whole on that issue," he said. "We're opening up a can of worms."
Wade Litchfield, FPL's general counsel, said if the Vero Beach premium were to be barred from cost recovery, that "would send a very direct and sobering message throughout the state of Florida to the future ability of constituents, of customers and even of other municipals who of their own volition look to work out a mutually beneficial transfer of service providers."
"If those types of commercial solutions are to occur, this body, this commission has to be able to find a way within its existing jurisdiction and policy to do that," Litchfield added.
The Jacksonville utility's board in May tabled all privatization activities after an acrimonious public debate between JEA leadership, city officials, and local business and labor interests. A transaction was not permanently ruled out, however, and discussions can resume once the utility appoints a permanent CEO.
FPL said in a news release the target closing date for the purchase is Oct. 1, when Vero Beach customers and the city's electric assets and employees would be absorbed into the FPL system.
