ATLANTA - The utilities commission of Sebring, Fla., last week failed to approve the sale of assets to the Florida Power Corp., throwing into disarray plans to head off a possible technical default on $85.5 million in outstanding debt.

In a board meeting held last Thursday, the proposal died after the commissioner of the Sebring Utilities Commission failed to second a motion by Chairman Ned Hancock, calling for sale of the electric power system for $17.8 million.

Mr. Hancock said that under the proposal he had presented to the board, proceeds from the sale of electric distribution assets would have been augmented by a $38.1 million loan from Florida Power, a private firm based in St. Petersburg. This $55.9 million total would then have been added to $21.5 million from the sale of the utility's water system to the city of Sebring and $10.7 million in reserve funds, allowing the commission to pay off its bonds and cover $2.6 million in closeout costs.

"Right now, I see no concrete reason why we would proceed with the deal," Mr. Hancock said, "What we have is a situation where somebody wants to buy the system, but a commission that apparently does not want to sell."

The city's agreement to purchase the water system is contingent on the sale of the electric power system and receipt of the loan. After the commission had paid off its bondholders, it had planned to dissolve itself.

Unless the commission arranges to pay off the bonds, Mr. Hancock said, it will be forced to sharply raise rates after the start of its 1993 fiscal year, which begins Oct. 1, to cover a substantial increase in debt service costs. But the commission's chairman noted that community resistance to such an increase makes it unlikely that the board would approve a rate increase, obliging the commission to tap its reserve fund, triggering technical default.

The commission's current debt was originally sold in 1986 and is insured by AMBAC Indemnity Corp.

But despite the rejection of the sale proposal last week, Mr. Hancock said he still hopes the five-member commission can reach an agreement with Florida Power this summer. He said the commissioners are considering meeting again July 8.

Terrill Morris, another member of the commission, said he would be willing to further discuss the sale to Florida Power next week, but was not prepared to approve the proposal recommended last Thursday.

"The contract was redrafted just prior to the meeting," he said. "They presented us with an updated contract that I want to have time to go through. I just did not feel comfortable approving it."

Mr. Morris said the commission should consider holding out for a greater purchase price than the $17.8 million tentatively worked out with Florida Power in staff discussions. He also said he would be reluctant to give his approval to the proposed loan from Florida Power, which would carry an 8% rate.

"I think we can do better than what we have negotiated so far," he said.

A third commissioner, Cliffo Rhoades, said he withheld support for the proposed sale because he favors having the city rather than Florida Power buy the commission's power distribution system.

But after learning on Friday that city officials would rule out any such move, Mr. Rhoades said he is prepared to continue discussions with Florida Power.

"My preference would have been to retain some kind of municipal control over the power system, but now that it is clear the city is not interested in the purchase, I predict that there will eventually be a sale [to Florida Power]," he said.

Ellene Fields, president of the Sebring city council, said she did not support city purchase of the electric system and felt that other city council members would not support such a proposal.

"I personally am against it, and it is my understanding that a majority of members of the city council share that feeling," she said.

Ms. Fields reiterated the city's insistence that it will not purchase the water system until the utility commission has sold its electric power assets.

Officials at Florida Power could not be reached for comment, but Mr. Hancock said the company still was willing to continue negotiations.

The Sebring Utilities 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 and steam power plant but soon found that power demand in the region lagged expectations.

Last year, the commission decided 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.

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