ON OCTOBER 5, 2015 THE FLORIDA LEGISLATIVE AUDITING COMMITTEE (JLAC) MET TO DISCUSS THE FLORIDA AUDITOR GENERAL’S REPORT OF THE FLORIDA MUNICIPAL POWER AGENCY (FMPA) that was presented to the Committee during the 2015 legislative session.
Nicholas Guarriello, General Manager and CEO of FMPA updated the Committee on the actions FMPA has taken / will take to comply with the 15 findings the Auditor General had recommended for correction.
FMPA CEO Nicholas Guarriello
The FMPA has five power generation projects that consist of cash, investments and power generation assets and debt. However, the fair market value of the generation assets, the single most important assets of the FMPA, is unknown to the public.
Mr. Guarriello was asked what FMPA’s power generation projects are worth and aren’t the taxpayers who own the FMPA assets entitled to know the value of what they have invested in?
After 37 years of the public ownership in the FMPA by 20 member/owner cities, is FMPA solvent or underwater?
In response to this question, Mr. Guarriello said he “would have no problem doing that (determining the value), if that’s what you want to do.”
So does this mean that the CEO of a multijurisdictional entity does not know the value of his entities’ assets?
In terms of the City of Vero Beach getting out of its FMPA contracts, an issue raised by Representative Debbie Mayfield, he indicated that if Vero gave notice to exit FMPA in three years, “to keep us whole the calculated number (due to FMPA) amounts to $ 45 million.”
Further, if FMPA’s financials improved after the exit, such as with reduced costs of gas transportation, Vero would have the opportunity to recover some of the $ 45 million by way of refunds.
But should there be a condition that prejudices FMPA’s financial condition, such as increased gas rates, in no event would it cost Vero more than $ 45 million.
What he apparently failed to mention is that according to FMPA contracts the 20 municipalities who are member/owners of FMPA would have to unanimously agree to Vero’s exit.
Now to some financials:
Vero Beach customer’s monthly electric bill, based on 1,000 KW per month is $ 123.93. Meanwhile, Florida Power and Light’s (FPL) rate using this same 1,000 KW scenario would be $94.78.
Based on current Vero Electric consumption, FPL rates would save Vero’s 33,000 customers approximately $22 million per year.
FPL has offered Vero $111,500,000 in cash to purchase it’s electric utility. It would also allow Vero to liberate roughly $47 million it has in its Electric Utility fund in the form of cash, investments and other assets. The offer stands until 2016.
As such, should FPL purchase Vero’s electric utility it would realize the $ 111,500 million + $ 47 million in trapped reserves.
Then, and after paying off Vero Electric utility liabilities (roughly $50 million), OUC penalties (a maximum of $ 50 million according to the City’s read of the contract), closing costs of $5 Million and the FMPA exit penalty of $45 million, the City of Vero Beach would net roughly $8 Million for use in funding underfunded pension liabilities.
In addition, the FPL offer includes taking over Vero’s underfunded electric employee pension liability of $14 million, paying $ 4.7 million to decommission Big Blue, paying $ 15 million for relocating the substation and transmission upgrades, $ 4.5 million for leasing the power plant for three years and guaranteeing employment to city electric employee for two years.
But the FPL offer expires in 2016 and exiting FMPA requires a three-year notice. Did Vero Beach miss the ball?
In his remarks Mr. Guarriello indicated that since 2009 FMPA at the peak of wholesale electric prices, FMPA rates have gone down 30%.
Asked by Committee Co-Chair Representative Daniel Raulerson how FMPA rates compare with other electric utilizes throughout the State, Mr. Guarriello said that they are lower than one large investor-owned utility and somewhat higher that another; and that they are lower than the average wholesale rate of investor-owned utilities in Florida.
With respect to FMPA’s liabilities on its interest rate swaps, Mr. Guarriello indicated that on June 16, 2015 FMPA exited all swaps and in order to do so issued $ 130 million of bonds to pay off all counter-parties.
An interest rate swap is an agreement between two parties (known as counter-parties) where one stream of future interest payments is exchanged for another based on a specified principal amount. A company will typically use interest rate swaps to limit or manage exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate than it would have been able to get without the swap. (Source: Investopedia)
He further indicated that the impact of the issuance of these bonds on a ratepayer with a 1,000 KW monthly bill would be $ 1.00 to a little over $ 2.00.
At the conclusion of the JLAC meeting on October 5, Indian River County Attorney Dylan Reingold was given time to speak about FMPA’s response the their audit.
Attorney Reingold said he had “troubling observations of the report that was provided by FMPA (Mr. Guarriello). Their steps do not show true reform and true modification of past practices.”
Further, “as you heard from the Auditor General, one of the critical issues wasn’t that they didn’t have policies, it was they didn’t follow their policies.”
“So I don’t have an understanding of how merely amending or adopting new policies solves that issue.”
At the conclusion of the JLAC meeting, Co-Chairman Raulerson indicated FMPA is a multi-jurisdictional entity and asked Attorney Reingold if he recommended government oversight. Representative Raulerson said he didn’t want “too much government intrusion, but just enough.”
Attorney Reingold deferred to Representative Mayfield, who he indicated was exploring this issue.
Step by step Representative Mayfield and others will move this along and eventually, perhaps, a bill will be introduced in the Legislature to deal with the monopoly of FMPA.
The Florida Legislature created FMPA and now it will has to deal with it.
Should you question the figures in this article, or it’s content, please respond.