On June 5, 2018, the Florida Public Service Commission (FPSC) approved the $185 million purchase of the Vero Beach municipal utility by Florida Power & Light (FPL). The approval came after debate on the portion of acquisition costs to recover from customers and the precedent such a deal may set for future acquisitions. FPL had shown an interest in this acquisition as far back as the 1970s. The FPSC’s approval came amidst increasing interest in utility asset sales and consolidation.

Key Details

• FPL, a subsidiary of NextEra Energy Inc., purchased the Vero Beach utility for one of the largest-recorded deal premiums in Florida’s history:
  • FPL’s purchase price of $185 million represented a $116 million premium on Vero Beach’s net book value of $69 million.
  • The FPSC approved the deal without accepting a recommendation from its staff to reduce the total value of the deal by about $90 million.
  • The FPSC’s vote was the final step in the process, as approvals had already been gained from the Federal Energy Regulatory Commission, the Florida Municipal Power Agency, and the 20 municipalities served by the Vero Beach utility.
• The deal is expected to close on October 1, 2018, when Vero Beach’s assets, customers, and employees will be incorporated into FPL:
  • Vero Beach’s customers, roughly 35,000 in total, are expected to see a 21% decrease in rates after integration into FPL.
  • Vero Beach currently purchases electricity from other entities, as it shuttered a two-unit plant in 2015, which housed a 13 MW gas-fired steam turbine and a 35 MW gas-fired combustion turbine.
  • FPL expects to easily handle the additional load from Vero Beach, particularly with construction of the Okeechobee Clean Energy Center, a 1,700 MW gas-fired combined-cycle plant, which is approximately 25 miles from Vero Beach.

Implications

• With a vote of three to two, the FPSC decided to allow FPL to incorporate the deal premium of $116 million into the rate base.
• The additional revenue from the sale will allow the Vero Beach area to invest in smart meters and other grid modernization technologies that were previously considered too costly.
• In addition to lower rates, city officials from Vero Beach expect to benefit from the improved emergency storm response capabilities of FPL.
• Potential future acquisitions of utilities in Florida could be impacted by the “premium precedent” paid for Vero Beach’s municipal utility.

Conclusions

As mentioned by the Vero Beach city manager in 2017, “the primary driver for [the municipal utility] is rates.” With power purchase costs rising based on wholesale market conditions and the utility facing large potential capital costs associated with technology improvements, the utility determined that a sale to FPL was the most viable option to maintain affordable customer rates. Other smaller municipal utilities may be faced with similar decisions, as they shutter small, inefficient generation units or work to meet renewable standards. Even larger public power utilities, such as JEA, have explored the benefits of a potential sale to private entities (although JEA has tabled the exploration of privatization until a permanent CEO is appointed). It will be interesting to see how this plays out across the public power sector as the energy landscape continues to evolve.

This report is part of the Public Power Minute series. To view all featured Minutes, please click here.

Additional Information

S&P Global Market Intelligence: “Fla. regulators approve FPL purchase of Vero Beach utility”*

Miami Herald: “State regulators override staff objection, approve FPL’s acquisition of Vero Beach utility”

Orlando Sentinel: “OUC braces for loss of its biggest customer: Vero Beach”

Florida Power & Light: “FPL Okeechobee Clean Energy Center”

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Additional Contributing Author: Benjamin Lozier