City now mulls GREC's contract requests and terms
Published: Wednesday, August 28, 2013 at 4:04 p.m.
Last Modified: Wednesday, August 28, 2013 at 4:04 p.m.
In a turnabout from recent years, the city of Gainesville now might have found itself negotiating from a position of strength with the biomass plant company.
On Friday, the Gainesville Renewable Energy Center dropped its $50 million arbitration counterclaim against the city without conditions and subsequently asked the City Commission for voluntary, temporary contract changes to ease the potential sale of the plant.
In exchange, GREC offered to reimburse the city for its legal bills associated with the arbitration, which are estimated to be in excess of $1.2 million.
With the City Commission scheduled to discuss its next move at its Sept. 5 meeting, some commissioners say the offer from GREC is not enough to make the changes the company wants.
"I certainly don't sneeze at that amount," Mayor Ed Braddy said of the city's legal tab. "But we're talking about an asset in the hundreds of millions of dollars and a $70 million annual fixed cost whether the plant runs or not."
Braddy said that if GREC does sell the plant, the city potentially could seek a percentage of the money from the sale.
Commissioner Todd Chase said that if a sale is in the works, the commission should decide if the city will make an offer or work to get something of value in return for not exercising its contractual right of first offer.
"In my mind, we're at a clean slate," Chase said. "There's no legal action. There's nothing but a contract that's in place that both parties are operating under, and they are seeking concessions from us … There's clearly some value in the concessions they are seeking."
Chase said the "value" he'd like the city to seek is not necessarily a payment of money. It could be something along the lines of lowering the cost the city will pay for power for a period of time, he said.
Commissioner Thomas Hawkins said with the arbitration gone, the City Commission does not necessarily have to take any action.
"We're neutral," he said. "We don't have to do anything … It's going to depend a lot on professional guidance from staff whether that waiver is worth the dollar amount."
GREC has specifically asked the city to waive for 120 days its contractual right of first offer before the company may sell the plant. GREC also asked the city to waive for that same 120-day span its approval authority over the sale of all interests in the plant as long as the purchaser is among the 10 largest utilities in the country or an affiliate of one.
That list includes two companies with a major presence in Florida: Duke Energy and Florida Power & Light, which is a subsidiary of NextEra Energy. The list of the 10 largest utilities also includes Southern Company, the owner and operator of a sister biomass plant in Texas that was first proposed and permitted by the companies initially behind GREC.
"To our knowledge, we are not involved in this company at all either to purchase power or attempting to purchase it outright," FPL spokesperson Sarah Gatewood said Wednesday.
A Duke Energy spokesperson said it is company policy to neither confirm nor deny whether there are negotiations to purchase a plant. Southern Company spokesman Tim Leljedal said the company does not comment on potential acquisitions.
GREC Chief Financial Officer Al Morales would not comment on any specific electric company that might be in talks with GREC.
Morales said the 10 largest utilities in the country had the resources to purchase the plant and enough income to benefit from its tax benefits as a renewable energy project. Morales said the primary goal for GREC is to seek tax equity investors, not to sell the plant outright. He said the company had a "very short window" of time to complete that type of transaction.
To take advantage of an accelerated depreciation tax break for renewable energy projects, Morales said a transaction has to be completed before plant construction reaches the benchmark of substantial completion sometime in late September or early October.
That federal accelerated depreciation tax benefit allows a company to deduct from its taxable income the declining value of equipment and machinery faster than the value of those assets actually declines.
If the city makes a counter-offer, Morales said GREC would review it and decide how to respond.
"We would have to evaluate it at that point," he said. "Every day that passes makes it less likely that a tax equity transaction will take place."
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