A citizens group challenging the takeover of Vero Beach’s electric utility by Florida Power & Light Co. questioned the accounting underlying the deal Thursday as hearings opened before the Public Service Commission.
The commission has already preliminarily OK’d the transfer — that happened on July 2. Thursday’s hearing centered on the Civic Association of Indian River County’s challenge to an $116.2 million “acquisition adjustment” that FPL would levy against its ratepayers.
“They’re saying that without these special favors that they want from the commission that they just can’t do the deal,” said Lynne Larkin, an estates and transactional attorney and former city commissioner representing the watchdog group in her first foray into utilities regulation.
“Our position is that there hasn’t been enough negotiation, and enough putting your foot down and saying, ‘Yeah, you can make this better,’” she said. “This deal can go forward. But, for some reason, the will of our government has not been such to put their feet to the fire.”
The PSC is expected to decide the matter next month.
Vero Beach has been attempting to unload the utility — long beset by high customer bills — for roughly a decade. Voters have approved two referenda backing the sale.
Meanwhile, some 60 percent of its customers live outside the city limits, and have no say in electing the city council members who oversee operations. The sale would bring all customers under the jurisdiction of the PSC and allow the Office of Public Counsel to represent them in rate hearings.
FPL would pay $185 million for the city’s electrical assets, plus the acquisition adjustment representing the private company’s costs of completing the transaction. Taxpayers would net about $36 million, once the city satisfies debts and contracts associated with its utility.
“It’s the difference between what the hard assets are and what the actual payment is,” including intangibles, Larkin said of the adjustment. “That good will is not supposed to be part of what they can put into the rate system.”
Larkin spent most of the morning quizzing FPL executives about the assumptions underlying their accounting. Also testifying for the utility was Terry Deason, a consultant with Tallahassee’s Radey Law firm who served on the PSC between 1991 and 2007 (including two stints as chairman).
Deason said that in assessing the deal he drew upon the PSC’s experience in approving Sebring’s sale of its financially troubled utility in 1991, plus similar transactions involving gas utilities. The Sebring transfer, to date, has been the only other transfer of a public electric utility’s assets to a private company.
“It’s not only a good example; it’s the only example,” Deason said.
“All of this precedent supports the approval of the proposed accounting treatment of the Vero acquisition. Doing so would be consistent with precedent, and would constitute good regulatory and public policy.”
The public counsel’s office, meanwhile, supports the overall deal — with one major qualm.
“We’re concerned about the precedent of an acquisition adjustment of this magnitude. Especially if it is used as a precedent in future potential acquisitions of larger system,” Deputy Public Counsel Charles Rehwinkle said.
The office objects less to the overall accounting details than, specifically, to “the economic forecast of savings” to customers.
“They changed it three times, so it’s difficult to rely on it when it’s changed so dramatically. It’s gone up; it’s gone down,” he said. “Economic forecasts are more art than science, and they can change a lot based on just changing little assumptions.”
The office wanted the commission to bring in an independent expert to vet the figures. “As regulators, they should make their own judgment about if and how much of this acquisition judgment to allow. They regulate FPL, and FPL shouldn’t be coming in and saying, ‘Take it or leave it.’”
The Sebring transfer doesn’t represent a direct comparison to the Vero Beach deal, Rehwinkle cautioned.
“That acquisition adjustment was not passed on to the general customers; it was visited on the customers in Sebring. They had to bear it,” he said.