Over some protest, the Federal Energy Regulatory Commission on Oct. 7 approved Florida Power & Light to acquire the municipal electric system of the city of Vero Beach, Fla., including generating assets that will later be retired.
On April 12, Florida Power & Light (FPL) filed an application for authorization of a proposed transaction in which it will acquire certain electric generation, transmission and distribution facilities, and associated liabilities of the City of Vero Beach, a non-jurisdictional municipal electric utility. FPL is a wholly-owned subsidiary of NextEra Energy (NYSE: NEE).
Vero Beach assets include 150 MW of generation capacity and 42 miles of 138 kV and 69 kV transmission lines. Vero Beach’s peak demand was 180 MW in the winter and 153 MW in the summer. FPL told the commission that, although Vero Beach owns generating units, iy primarily purchases the power necessary to serve its load under long-term power purchase agreements.
FPL in this deal will acquire five small, gas-fired units with a total capacity of 150 MW, three of which (with a total capacity of 102 MW) are old, inefficient boiler units that operate only on an infrequent basis (with an average capacity factor below 1%).
FPL said that in 2010, Vero Beach asked FPL to explore a potential purchase of its municipal electric utility. Vero Beach’s intention was two-fold. First, to exit the business of providing electricity service, and second, to reclaim for public use the waterfront property where it generation assets are currently located.
There are three main elements of the proposed transaction: FPL’s purchase of the Vero Beach utility system; unwinding of Vero Beach’s existing power supply arrangements; and retirement of Vero Beach’s generation facilities.
- With respect to the purchase of the Vero Beach utility system, FPL said it will purchase or lease certain specified assets of the municipal utility system, and FPL will assume certain specified liabilities associated with the municipal utility system. FPL stated that, in exchange, FPL will pay a cash purchase price of $111.5m, subject to certain specified adjustments intended to reflect changes in circumstances after the date the PSA was executed.
- In order to unwind these agreements, Vero Beach has entered into agreements with the Orlando Utility Commission providing that, at the same time that it closes the proposed transaction with FPL, Vero Beach will also undertake the following: terminate its existing wholesale power supply agreement with Orlando; transfer Vero Beach’s Florida Gas Transmission Co. gas transportation rights to Orlando; and transfer all of Vero Beach’s Florida Municipal Power (FMPA) power entitlements in the St. Lucie, Stanton I and Stanton II projects to Orlando. FPL states that, in addition, it will enter into a three-year power purchase agreement with Orlando to purchase 383 MW of capacity from the Stanton I and II projects. The power purchase agreement will terminate no later than 2017.
- As to retirement of Vero Beach’s generation facilities, Vero Beach will give FPL a three-year lease to the site, subject to a one-year extension, during which time the generation units must be retired and dismantled. FPL stated that it commits to retire the three least economic of these units, totaling 102 MW, immediately upon closing of the transaction. It will retire the remaining two units, representing 48 MW of capacity, within four years of closing.
Deal ran into protest during FERC review
The Civic Association of Indian River County (called “Indian River” in the FERC order) protested this deal. “Indian River argues that FPL aims to control the Florida utility market and squeeze out competitors, adding that FPL has publicly stated its intent to take over the municipal power and cooperative utilities in Florida, and that many citizens of Vero Beach do not wish to be the ‘first pawn to fall’ in the ‘FPL scheme,’” the commission noted.
FPL answered that, almost without exception, the issues raised by Indian River are local political issues. Specifically, FPL pointed out that Indian River attacks the process Vero Beach used to decide to enter into the proposed transaction, the role certain individuals took in that process, and the reasonableness of the price negotiated by the Vero Beach City Council. FPL asserted that these arguments have nothing to do with the issues that the commission has stated it will consider in evaluating the transaction under section 203 of the FPA.
Indian River also alleged that FPL is trading on its position in the nuclear market to obtain Orlando’s cooperation. Indian River claimed that that Orlando had little interest in helping out Vero Beach with its FMPA obligations until FPL “waived the nuclear carrot in its direction.” Specifically, Indian River alleged that, for Orlando to agree to take 52.7 MW of allegedly above-market coal-generated power from Vero Beach, Vero Beach had to agree to pay Orlando $34m, and FPL had to agree to buy three years of above-market coal power back from Orlando, so Orlando would not have to take on power it cannot use. Indian River contended that without FPL leveraging its nuclear capabilities and its already substantial market power, i.e., by executing an option agreement with Orlando for Orlando’s potential participation in nuclear facilities that FPL is developing, FPL would not have been able to draw Orlando into the deal and the proposed transaction would be impossible.
Vero Beach said in response that FPL did not improperly manipulate Vero Beach into agreeing to sell its utility system to FPL. Vero Beach said it initiated the sale based on its own evaluation of how to achieve lower retail rates for its utility customers and obtain other benefits. Vero Beach emphasized that FPL did not improperly interfere with the process by which Vero Beach made its decision to enter into an agreement with FPL.
FERC in its Oct. 4 decision said: “Regarding challenges to the process Vero Beach used to decide to enter into the Proposed Transaction and the role certain individuals took in that process, we find these challenges are misplaced. Protesters, including Indian River, have not shown that these issues have any bearing on the factors that the Commission uses to evaluate under section 203 of the [Federal Power Act], that is, the effect of the Proposed Transaction on competition, rates, regulation, and cross-subsidization. With regard to Indian River’s allegations that FPL has inappropriately used its position to facilitate the Proposed Transaction, Indian River provides no specific evidence to refute or contradict the testimony and exhibits FPL provides demonstrating that the Proposed Transaction does not raise any competitive concerns.”