ATLANTA - Florida's utility regulators late Thursday approved a plan allowing the troubled Sebring Utilities Commission to sell its remaining assets to the Florida Power Co., a move the commission says will soon permit it to call all its outstanding bonds and dissolve itself.
Barring a possible legal challenge, the ruling by the Florida Public Service Commission will bring to a close two years of efforts by the Sebring utility to extricate itself from a potentially smothering debt load. The regulatory action is also very welcome news to AMBAC indemnity Corp., which has insured the utility's $85.6 million of tax-exempt bonds.
"We are very pleased with what we have been able to accomplish." Nancy Holloway, the commission's director of finance, said Friday. "We are assuming there will be no action taken to block the ruling and are now laying the groundwork to close [on the sale] by February and call the bonds by the beginning of March."
Holloway said she was aware of the possibility of a court challenge from a Sebring citizen's association known as the Action Group that has voiced objections to the asset sale, but has not received any notice from the group. Under Florida law, she noted, anyone objecting to an electric utility ruling by the Public Service Commission has 30 days to file an appeal with the state's Supreme Court.
Harold Seaman, president of the Action Group, said Friday that his association has not decided whether it will challenge the Public Service Commission ruling before the Florida high court. "We will probably not decide on our response until after the first of the year," Seaman said. "But you can be sure we'll contest [the ruling] in some way."
The group objects to the rate surcharge that will be charged Sebring customers after the sale is completed.
If the commission is not able to complete its asset sale and defease its bonds, it will be forced to sharply raise rates - which are already the highest in the state - to cover a substantial increase in debt service costs, Holloway said. But she also said this could lead to a revolt by ratepayers and possible outright default on the bond issue.
Holloway noted that although the utility has been able so far to meet all debt service payments, it has been in technical default for about a month because it has not maintained electric rates at levels needed to meet required reserve margins. The authority has about $13.5 million in its debt reserve fund.
With the financial pressure on the utility increasing, AMBAC officials also expressed relief on Friday following the regulatory ruling.
"We are very comfortable with the [Public Service Commission's] action," said Thea Okin, a vice president of public finance underwriting at AMBAC. "We expect everything to soon be worked out." Okin said AMBAC has not set aside any specified reserves in the event the asset sale is not completed and the bonds are not called.
Holloway said Thursday's ruling will enable the Sebring utility to sell off its electric distribution system and 12,500 customer accounts to Florida Power Corp. for $23.5 million. Under the ruling, Florida Power, a private utility based in St. Petersburg, will also be permitted to lend the commission about $32.5 million, to be covered by a 15-year surcharge on electric rates charged Sebring's customers
In addition to the approximately $56 million to be obtained from Florida Power, the utility commission can also count on another $35 million to raise the approximately $91 million needed to call in the 1986 bonds, pay accrued interest costs, and cover expenses needed to close down, said Holloway.
That $35 million will come from the commission's reserves of $13.5 million and proceeds from the sale of its water utility system to the city of Sebring for $21.5 million. The city has said it would not purchase the water utility unless the state utility regulator approves the Florida Power purchase of the electric distribution assets.
Jim Lentz, financial adviser to the Sebring utility, said that barring an appeal, the utility expects to be able to complete the sale of its assets to Florida Power by Feb. 1, permitting it to immediately deposit funds necessary to call its outstanding debt with First Union National Bank of Florida. trustee for the bondholders. Bondholders would then be given 30 days notice, with the bonds called about March 1, he said.
Sebring's customers will have to pay higher rates so Florida power can pay off the loan to the commission. The customers will pay $18 per 1,000 kilowatt hours more than Florida Power's standard rate base of $74.8 per 1,000 kilowatt hours.
Holloway said the Sebring utility would retain two employees after its asset sale next month and will likely stay open for 120 days to close out operations and complete an audit. She said that an act of the Florida Legislature may be necessary to formally dissolve the utility, which was established by state lawmakers in 1945.
Sebring city Commissioner George Hensley also hailed the regulatory ruling.
"The PSC ruling is a very positive step for all residents of Sebring," Hensley said in an interview Friday. "This will permit the healing process to begin over an issue that has been a burden here for far too long," he said.
Hensley said the city would finance purchase of the commision's water system by issuing revenue bonds at the end of January.
The commission has been wrestling with a burdensome level of indebtedness since 1981, when it sold $92.8 million of bonds to build a 41.7 megawatt diesel-steam power plant. Since then, because power demand in the region has lagged expectations, the commission has repeatedly faced the prospect of bond default as debt service requirements have threatened to overwhelm revenues. The last time it came to market was in 1986, when it sold $115.2 million of debt to refund outstanding borrowings. The 1986 sale included $94.3 million of AMBAC-insured bonds and $20.9 million of uninsured bonds.
In 1990, it decided to move forward with a plan to sell off all its assets, pay off its bonds, and dissolve itself. In March 1991, it completed the first part of that plan by selling its power plants to Tampa Electric Co. and using the proceeds to redeem outstanding uninsured bonds.