FPL bid for Homestead utility
2002 Homestead City Council Rejected This $115MM Offer
| Friday, July 19, 2002 |
JUNO BEACH -- Florida Power & Light Co. said Thursday that it has made a $115 million bid to buy out the city of Homestead's electrical utility.
If the deal goes through it will be the first time in a least 35 years the giant utility, a subsidiary of FPL Group Inc. (NYSE: FPL, $52.39), has bought a municipal utility, according to an FPL spokesman.
Homestead City Manager Curt Ivy said the city has asked FPL to come back with a revised proposal by Sept. 1, however. FPL was offering to pay $7 million to $9 million immediately for some of Homestead's assets, which the city believes are worth more.
The bid for Homestead Energy Services includes buying out existing power contracts. FPL would also take over 16,700 customers and buy most of the city's assets such as powerlines, poles, transformers, substations and customer accounts.
The Homestead electric utility's 65 employees would be offered jobs if they qualify, and FPL would pay the city severance costs for employees who are not hired.
The deal will not include buying the utility's approximately 50-megawatt power plant, which FPL officials said is outdated and would be inefficient to operate.
"We think our proposal provides a good opportunity to Homestead residents," said Betty Marsenison, an FPL spokeswoman. "We're always looking for good business opportunities and ways to enhance shareholder value."
She said the total annual savings to Homestead's residential and business customers would be about $6 million annually, or 20 percent on customers' monthly bills.
If an agreement is reached, residents might need to vote for approval through a city referendum.
Homestead has been providing city residents with power since 1915; its utility is one of the oldest municipal electric companies in the state. The city has been seeking ways to save money in all its departments because of a $6 million deficit.
The plant is a money-maker, generating $25 to $30 million a year in revenues for the city. But Ivy said the plant is aging. It is harder to get parts, he said, and it would be expensive to upgrade the plant.
"We don't take getting out of the business lightly. This is an institution to us," Ivy said.
FPL has sought to buy a municipal utility before. In 1994, it submitted a proposal to Lake Worth to buy its electric system and plant. Lake Worth ultimately turned it down because the two could not agree on the price and terms.
Lake Worth residents have recently struggled with outages after lightning struck the city's primary transformer on July 9.
FPL spokesman Bill Swank said the company has not determined how to finance the Homestead bid. It could be done through existing cash flows, debt financing or through customers' rates.
If FPL sought to pay for it through rates of all its 4 million customers statewide, the Public Service Commission would have to approve the request. The PSC would also have to approve any rate proposal if
FPL intended to charge different rates for Homestead customers than its current customers.
Under the bid proposal, FPL would also pay the city about $2.6 million annually in property and municipal taxes and franchise fees.
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