City of Cocoa Beach Electric Municipalization Discussion Presented

City of Cocoa Beach Electric Municipalization Discussion Presented by : Gerald C. Hartman, PE, BCEE, ASA Negotiations Team : Skip Fowler, Esq. Raymer Maguire, Esq. GAI Consultants Others As Needed

Electric Municipalization | 2 Table of Contents + Section A: Historical Brief of Franchise Agreements – Slide 3 + Section B: Cocoa Beach Electric Utility System Options – Slide 4 + Section C: Key Elements of Cocoa Beach Existing Franchise + + + Agreements – Slides 5 -6 Section D: Key Elements of FP&L’s Proposed Franchise Agreement for Cocoa Beach – Slides 7 -13 Section E: Other Franchise Agreement Efforts – Slides 14 -15 Section F: Historical Case Studies – Slides 16 -21 Section G: Certain 30 Year Term Concerns – Slide 22 Section H: Cocoa Beach Franchise Agreement Recommendation – Slide 23 Section I: Cocoa Beach Decision Option Discussion – Slide 24

A Electric Municipalization | 3 Historical Brief of Franchise Agreements + Concerns regarding potential for City versus delegation to + + privatized monopolies 1899 Florida Statute (FS)167. 22 required maximum 30 year term and purchase option In the 1970’s language of FS 167. 22 changed to remove purchase option requirement of Franchise Agreements In 1973 FS 167, along with others, repealed – Home Rule Most investor owned utilities (IOU) oppose inclusion of purchase option in new franchise agreements

B Electric Municipalization | 4 Cocoa Beach Electric Utility System Options + Negotiate new Franchise Agreement with FP&L – No purchase option being given by FP&L – (negotiate to leave in for – the negotiated term) Inclusion of Most Favored Nations clause and other beneficial language + Exercise purchase option in existing Franchise Agreement – – Valuation considerations Purchase power options Administrative staff or outsource Technical staff or outsource

C Electric Municipalization | 5 Key Elements of Cocoa Beach Existing Franchise Agreement + Term of franchise – 30 years, Expires September 28, 2011 + Payment to City – 6% of FP&L’s revenues from the sale of energy and fuel adjustments – – to residential, commercial and industrial customers within the corporate limits 6% is the cap which includes any taxes due city- Net of taxes Payment due in advance by estimated monthly installments, final installment of fiscal year adjusted to reflect over or under payments + City reserves right to purchase utility assets upon expiration – Purchase price = depreciated replacement cost approach + severance cost + going concern value + closing costs

C Electric Municipalization | 6 Key Elements of Cocoa Beach Existing Franchise Agreement Cont. + Grant of authority – City gives FP&L full access to rights-of-way – The use of rights-of-way is non-exclusive + Work in the rights-of-way – FP&L can make excavations in squares, streets, avenues, alleys, – – thoroughfares, public grounds of the city FP&L can fasten, stretch, and lay along the lines of poles, conduits, pipes and cables necessary FP&L can trim, cut and keep clear all trees and limbs along + City agrees not to engage in business of distributing and selling electricity

D Electric Municipalization | 7 Key Elements of FP&L’s Proposed Cocoa Beach Franchise Agreement + Term of franchise (subject to negotiated terms and conditions) – 30 years from effective date requested- (term to be negotiated) + Payment to City (to be negotiated) – 5. 9% of FP&L’s billed revenues from the sale of energy to residential, – – commercial and industrial customers within the corporate limits, less actual write-offs 5. 9% is the cap which includes any licenses, excises, fees, charges or impositions of and kind (excluding ad valorem property taxes and non-ad valorem tax assessments on property) Payment due for monthly billing period 60 days prior + The above may well lead to a net reduction versus existing franchise

D Electric Municipalization | 8 Key Elements of FP&L’s Proposed Cocoa Beach Franchise Agreement Cont. + Most Favored Nation Clause (to be negotiated) – If FP&L enters into Franchise Agreement with any other municipality in – Brevard County with greater franchise fee, will amend franchise language to match higher fee for terms and conditions- (should be Florida) - dubious value Not total gross-up of franchise fee (excludes W. O’s, franchise fees, taxes, etc. All items and other businesses they do in Cocoa Beach)

D Electric Municipalization | 9 Key Elements of FP&L’s Proposed Cocoa Beach Franchise Agreement Cont. + Grant of authority/work in the rights-of-way – City gives FP&L right, privilege and franchise to construct, operate and maintain in, under, upon, along, over and across the present and future roads, streets, alleys, bridges, easements, rights-of-way and other public places throughout all of the incorporated areas of Cocoa Beach (needs adjustment) + Non-compete in electric business (to be negotiated : AEP, undergrounding, participating with State or Federal ownership, other cities, etc. ) – City agrees not to engage in distribution and/or sale of electric capacity and/or electric energy to any ultimate consumer of electric utility service or to any electrical distribution system established solely to serve any retail customer formerly served by the FP&L

D Electric Municipalization | 10 Key Elements of FP&L’s Proposed Cocoa Beach Franchise Agreement Cont. + Non-compete in electric business (to be negotiated) cont. – Not to participate in any proceeding or contractual arrangement, the – – purpose or terms of which would obligate FP&L to transmit and/or distribute, electric capacity and/or electric energy from third party to any other retail facility(ies) Not to seek to have FP&L transmit and/or distribute electric capacity and/or electric energy generated by or on behalf of the City at one location to the city’s facility(ies) at any other location(s) (golf course, WWTP, etc. ) Nothing in Franchise shall prohibit City from engaging with other utilities or persons in wholesale transactions which are subject to Federal Power Act – dubious value

D Electric Municipalization | 11 Key Elements of FP&L’s Proposed Cocoa Beach Franchise Agreement Cont. + Non-compete in electric business cont. (to be negotiated) – Nothing prohibits city, if permitted by law: + From purchasing electric capacity and/or energy from any other person + Seeking to have FP&L transmit and/or distribute to any facility(ies) of City + + electric capacity/energy purchased by City from another City must notify FP&L if elect to purchase from another FP&L will have 90 days to evaluate offer of another and if offer equal or better terms then City must purchase from FP&L + City grants another provider rights (unacceptable now) – FP&L can determine if terms are more favorable and if so terminate – franchise if terms of existing franchise not changed FP&L shall give City at least 60 days advance written notice of intent to terminate. Notice will advise terms deemed more favorable and City has the 60 days to correct

D Electric Municipalization | 12 Key Elements of FP&L’s Proposed Cocoa Beach Franchise Agreement Cont. + Failure of FP&L (to be negotiated) – Failure to comply in substantial respect shall be grounds forfeiture – unless protested by FP&L If protested then must be adjudicated and final determination (after exhaustion of appeal) is FP&L did fail then FP&L has 6 months after final determination for cure + Failure of City (to be negotiated) – Failure to comply in substantial respect shall constitute breach of – – franchise Breach allows FP&L to withhold all or part of franchise fee until final determination or remedy City agrees that nothing in Franchise Agreement shall constitute a waiver of FP&L’s right of condemnation

D Electric Municipalization | 13 Key Elements of FP&L’s Proposed Cocoa Beach Franchise Agreement Cont. + City’s right to examination of records – City may, with reasonable notice and within 90 days after anniversary – – – date of franchise, examine records of FP&L relating to franchise fee payment calculation - dubious value Examination shall be during normal business hours at FP&L’s office where records are maintained - dubious value Records requested not prepared during normal course of business may be provided at city’s expense Customer records identifying customers by name or their electric consumption shall not be taken from FP&L’s premises Audit findings must be presented to FP&L Examination cannot be by third party whose fee for conducting audit is contingent on findings of the audit

E Electric Municipalization | 14 Other Franchise Agreement Efforts + City of South Daytona Beach – – Franchise Agreement with FP&L expired June, 2008 City began evaluating alternatives in 2005 City hired consultant to evaluate alternatives 12/19/06 City scheduled final consultant’s report for February, 2009 + Could not get continuing property records from FP&L so City consultant + + did physical inventory City valuation of $4. 283 m with $3. 7 m separation & reintegration FP&L valuation of $8. 7 m, S&R of $3. 5 m – $5. 7 m, + sep. value of $3. 5 m $4. 7 m for Reed substation – City and FP&L operating under old franchise during negotiations – City voted at 2/17/09 meeting to continue moving forward but keep negotiations open

E Electric Municipalization | 15 Other Franchise Agreement Efforts + City of Fruitland Park – – – – Franchise Agreement with City of Leesburg expired Oct, 2008 City began evaluating alternatives City hired consultant to evaluate alternatives Both parties agreed on GAI Consultants for report City of Fruitland Park and City of Leesburg operating under old franchise during negotiations Report due in April 2009 Purchase and sale negotiations next 90 days

F Electric Municipalization | 16 Historical Case Studies + City of Apopka – Franchise Agreement with FPC expired June, 2002 – Enters into litigation regarding franchise fee payments after end of – – Franchise Agreement and valuation of utility Franchise fee payments after expiration ultimately upheld as long as electric company still uses right-of-way for plant Enters into settlement agreement accepting cash payment and new 30 year Franchise Agreement effective January 2004 + 6% of retail revenues net of customer credits + Most Favored Nations clause + Option to purchase after 30 year term

F Electric Municipalization | 17 Historical Case Studies cont. + Town of Belleair – Franchise Agreement with FPC expired October, 2001 – Enters into litigation regarding franchise fee payments after end of – – Franchise Agreement and valuation of utility Franchise fee payments after expiration ultimately upheld as long as electric company still uses right-of-way for plant Enters into settlement agreement accepting cash payment and new 30 year Franchise Agreement effective June 2006 + 6% of retail revenues net of customer credits + Most Favored Nations clause + Option to purchase after 30 year term

F Electric Municipalization | 18 Historical Case Studies cont. + City of Altamonte Springs – Franchise Agreement with FPC expired April, 2001 – Enters into litigation regarding franchise fee payments after end of – – Franchise Agreement and valuation of utility Franchise fee payments after expiration ultimately upheld as long as electric company still uses right-of-way for plant Enters into settlement agreement accepting cash payment and new 10 year Franchise Agreement effective April 2001 + 6% of retail revenues net of customer credits + Most Favored Nations clause + Option to renew for an additional ten (10) years with the prior written approval of the parties after completion of initial ten (10) year agreement

F Electric Municipalization | 19 Historical Case Studies cont. + City of Casselberry – Franchise Agreement with FPC expired April, 2001 – Enters into litigation regarding franchise fee payments after end of – – Franchise Agreement and valuation of utility Franchise fee payments after expiration ultimately upheld as long as electric company still uses right-of-way for plant Enters into settlement agreement accepting cash payment and new 30 year Franchise Agreement effective July 2003 + 6% of retail revenues net of customer credits + Most Favored Nations clause + Option to purchase after 30 year term

F Electric Municipalization | 20 Historical Case Studies cont. + City of Winter Park – Franchise Agreement with FPC expired January, 2001 – Enters into litigation regarding franchise fee payments after end of – – – Franchise Agreement and valuation of utility Franchise fee payments after expiration ultimately upheld as long as electric company still uses right-of-way for plant Arbitration complete; City votes to municipalize in September 2003 City municipalized June 2005; issued bonds for $49. 8 mm

F Electric Municipalization | 21 Historical Case Studies cont. + City of Port Orange – Franchise Agreement with FP&L set to expire July 2008 – Entered into new Franchise Agreement before expiration of existing + 30 year term + 5. 9% franchise fee – Billed revenues including fuel adjustment charges less actual write-offs + Most Favored Nations Clause – Includes Volusia, Brevard, Seminole and Flagler Counties where customers less than or equal to 60, 000 + No buy-out provision + Similar in terms to proposal from FP&L to City of Cocoa Beach

G Electric Municipalization | 22 Certain 30 Year Term Concerns + 2011 to 2041 proposed 30 year term + Priority to undergrounding may increase due to worse weather + + patterns Technology in alternative energy changing rapidly Global warming may change circumstances by 2021 + Consider shorter terms

H Electric Municipalization | 23 City of Cocoa Beach Franchise Agreement Recommendation Based on issues discussed in Section D regarding FP&L’s proposed Franchise Agreement and experiences with other Franchise Agreement efforts as related in Sections E and F we offer the following recommendation: + No electric case ever fully adjudicated at PSC, all settled + Should the City accept the FP&L standard agreement – NO + Should the City accept the proposed FP&L agreement sent + + June 2008 – NO Should the City negotiate with FP&L- YES Should the City investigate acquisition- YES

I Electric Municipalization | 24 City of Cocoa Beach Decision Option Discussion + If the City agrees with the recommendation then proceed forward to: – Phase 1: Develop information for acquisition and attempt to negotiate + Expert Cost: $150, 000 + Legal Costs: Hourly – If Commission approves franchise renewal stop here. – If Commission does not approve franchise renewal then: + Phase 2: System valuation and acquisition negotiation + if settled then stop here + if not then: – Phase 3: Litigation