Jan 15, 2002

Florida Water Rejects $515 million Offer for Marco Water, Sewer Operations

After four months of negotiations, officials with Florida Water Services' parent company shot down a $515 million offer by a co-op of publicly owned utilities hoping to buy Marco Island's water and sewer operations.
The bidding floor is now open to private companies.
"The ALLETE board decided to basically reject the offer from (the Florida Governmental Utility Authority) and are moving forward. They'll be talking with other companies who are interested," said Tracy Smith, Florida Water's spokesman.
Disappointed city leaders forecast rate hikes if Marco's operations go to a private company. They say needed improvements to the aging system will likely be shelved.
"I'm very disappointed and very concerned. We're wide open for possible rate increases in the future ... We don't know where it's going to go now," said John Arceri, who was part of the city's negotiating committee and is a candidate for City Council.
The $515 million offer from FGUA included all of Florida Water's 152 water and wastewater systems. Marco Island's operations were valued at $110 million.
Exclusive negotiating rights set by ALLETE Inc., Florida Water's Minnesota-based parent company, expired Jan. 11.
FGUA owns systems in Golden Gate as well as in Citrus, Sarasota, Polk, Hillsborough and Nassau counties. The co-op is governed by a board of officials drawn from communities where FGUA owns systems.
As Florida Water holds out for a higher price, city officials worry the steep price tag a private company may pay would eventually fall on the ratepayers' backs. Not to mention that companies, unlike the co-op, are in the water business to make a buck.
"I thought it was a very, very generous offer. Now I'm concerned someone will come in and pay a much higher price, which can't be supported by utility rates," said City Manager Bill Moss. "The reality of it is anybody acquiring a system is going to need to have a rate of return and it's going to result in one way or another in pressure to increase rates."
In the meantime, city officials say Florida Water's decision to put the systems on the global market will put much-needed improvements — like a reuse, or recycled water system to help irrigate the island — in a holding pattern.
"(The systems) will receive minimal improvements until the company is sold," Moss said. "(Florida Water) will just maintain status quo. We won't see the reuse system. We won't see improvements to the water quality or the sanitary and sewer system."
City officials also say the possibility of Marco buying its own operations would go down the drain if a private company bought out Florida Water.
If the co-op would purchase island utilities, Marco Island would be free to buy the system back from FGUA at the original purchase price at anytime.
Robert Sheets, FGUA systems manager, who just days ago thought the deal was solid, said he received a "cryptic" fax from Florida Water 8 a.m. Monday at his Tallahassee office saying the offer was no good. Sheets said it was the best FGUA could offer.
"They've not really given us a specific point except a cryptic letter that said 'we've rejected your offer,'" he said. "This is the best that we can offer."
Sheets said FGUA's board will meet soon to decide its next steps.
Florida Water officials said the dollar amount and the deal's terms caused the ALLETE board to reject it.
"It was a combination of the overall package and the value placed on it plus the terms and conditions," Smith said.
He would not elaborate on the specific terms that caused the board to turn it down. And he said all of the properties were still being offered as a package.
Despite the rejection, Smith said FGUA can still participate in the bidding process.
"The FGUA is still certainly welcome to provide another bid if they so choose."
Plenty of big-name utility companies are knocking on Florida Water's door wanting to buy, said Smith, who would not name any specific companies.
"Utilities are hot commodities. Companies are paying anywhere from two-and-a-half to six times the book" price, said Smith, adding that ALLETE hopes to close a deal by the year's end.
Co-op advisers outlined three companies as possible competitors: RWE AG, a German company; Kelda Group, a United Kingdom-based company; and Nyon NV, a Dutch company.
After hearing of the offer's rejection, Marco Island City Councilman Kjell Pettersen, a longtime Florida Water foe, sent a memo to Moss and other council members urging them to take over the water operations in a condemnation lawsuit.
"Why should Marco Island continue to leave its vital water supply in the hands of a company that cannot be trusted. The City must consider condemnation of the water service serving our residents," Pettersen wrote.
Pettersen said Marco leaders' trust in Florida Water put the city's water operations in this now shaky situation.
"Entirely too many of Marco Island leaders put their trust in Florida Water, as a result we were led down the path to where we are now," Pettersen said.
But a co-op lawyer said the group will not give up with the rejection, pledging to maintain contact with Florida Water and ALLETE officials.
"It's kind of like round one. We'll be in contact," said Bob Nabors, a partner from the Tallahassee firm representing the group.