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Five cities in Broward County, Fla., have filed suit against Florida Power & Light Co. in Broward Circuit Court, alleging that the electric utility has been getting millions of dollars in property tax offsets that the cities had no constitutional authority to allow. Pompano Beach, Coconut Creek, Dania Beach, Margate and Tamarac allege that the reductions from the franchise fees that the utility pays to the cities amount to indirect exemptions from property tax. They are asking for at least four years’ worth of refunds. Under the Florida Constitution and statutes, only specific institutions, such as churches and government agencies, are entitled to the benefit, the cities allege. Under the 30-year franchise agreements that FPL has with each city, in return for the right to sell electricity and to use city rights of way, FPL pays franchise fees of 6 percent of its gross revenues from residential, commercial and industrial customers. However, as spelled out in the agreements, it deducts an amount equal to what it pays in property taxes on whatever real estate it owns there. The utility owns varying amounts of property in each town, from power plants to substations and customer service sites. Despite the fact that the reductions are spelled out in the franchise agreements, which were approved by the cities in the late 1970s, the cities say the provision is illegal and they’re demanding that FPL make refunds and revise the franchise agreements. They cite appellate court precedents in arguing their right to challenge as invalid and void a contract that they contend they had no power to execute. The attorney representing the cities, Jamie Cole, managing shareholder of the Fort Lauderdale, Fla., office of Weiss Serota Helfman Pastoriza & Guedes, says the suit is similar to one he settled three years ago on behalf of Hollywood, Fla., when he was city attorney there. That settlement resulted in a revised franchise agreement and an extra $1.5 million a year for the city, he says. He says his success with the Hollywood suit, which resulted in substantial savings for that city, prompted other cities to approach him. According to Cole, most FPL franchise agreements that predate the Hollywood settlement have illegal offset provisions. In agreements written since then, such as Weston’s, that wording has been removed, he says. Alvin Davis, attorney for FPL, dismissed the latest suit as Cole’s “theory du jour,” an attempt to squeeze money out of FPL by portraying it as a “nasty utility.” “We have a franchise agreement and agreed to pay them a fee,” says Davis, a partner at Steel Hector & Davis in Miami. The power company always has paid property taxes on real estate that it owns in the cities, Davis says. Ending the contested reduction would mean the power company would have to charge consumers more for electricity, or negotiate a revision in the agreements to provide the company with other benefits, he contends. The complexity of the agreements makes it difficult to estimate the potential financial impact of the suit on the cities and the utility, Davis says. The suit, filed May 15, is scheduled for a hearing on Nov. 19 before Broward Circuit Judge Patti Englander Henning. She will consider a motion to dismiss by FPL as well as a motion for partial summary judgment by the cities. Cole argues that Florida law gives cities the power to tax but not to exempt. Even though FPL makes property tax payments, the offset amounts to an indirect exemption, he says. “Florida law is well-settled that parties cannot do indirectly that which they are prohibited from doing directly,” he said in court pleadings. FPL’s effort to rely on the wording of the franchise agreement, he added, is “simply irrelevant.” FPL attorney Davis says the suit is just an attempt by the cities to raise money without increasing their tax rates. Either way, he adds, consumers will end up footing the bill. Davis predicts that the courts would be unlikely to expect FPL to provide the same level of service if the utility is required to pay more in franchise fees. “You’d have to balance the agreements again,” he says. “We negotiated a contract that said how much we were going to pay them and how we were going to pay for it, and they agreed to that years ago.” Davis says that if the cities want FPL to pay more in property taxes, they will have to give the utility something in return. Tamarac, Fla., City Attorney Mitch Kraft says that his city was aware of the Hollywood settlement and tried for some time to reach a similar deal with FPL without litigating. But after FPL rejected the city’s $3 million demand in November 2000, officials decided to sue. Cole acknowledges that the settlement he previously negotiated between FPL and the city of Hollywood did give the utility something in return. That something was a noncompete clause, which obligated the city not to buy electricity from competing power companies. He dismisses the utility’s threat that it will have to raise rates if it loses the property tax offset. “It’s really just a rationalization that any property owner could make to avoid paying taxes,” he says. He predicts that if his latest suit succeeds, other Florida cities will sue or attempt to negotiate revised franchise agreements.

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