VERO BEACH — While top Vero Beach city leaders have said there were no changes to its contract with the Orlando Utilities Commission and one reviewed earlier by the City Council, our sister publication, Vero Beach 32963, has found 115 changes between the two, one of which could potentially cost the city millions of dollars.
In fact, the differences start at the Table of Contents where several sections of the contracts don’t match up. By far the most troubling change is how the contract defines which of the city’s bond ratings would be scrutinized by OUC, potentially triggering the need for the city to put up extra collateral – possibly in the millions — to ensure performance of the contract. All the while, city staff has denied the existence of the changes. When questioned by the State Attorney’s Office City Manager Jim Gabbard told an investigator that no unauthorized changes were made between a redacted (or partially blacked out contract) reviewed by the city council in private meetings April 7, 2008 and an unredacted version which was signed by City Attorney Charlie Vitunac on April 21, 2008.
Gabbard did not return calls seeking comment.
Former Councilman Charlie Wilson has said he’s looked at the contracts and found 25 differences between the redacted and unredacted versions. But he, too, was told by city staff that no changes had been made. Wilson said he’s not surprised that even a superficial review by 32963 found so many alterations.
“This is just part of a series of things, a pattern of how things happen at the city,” he said, referring to how he was assured by top city staff that no changes had been made to the contract.
“I don’t think the council ever approved the actual contract, there was no contract attached to the meeting agenda or minutes and the mayor exceeded his authority when he signed the contract,” Wilson said. “Clearly the OUC contract, in my opinion, is not valid and I don’t believe it would withstand a court challenge, but a court challenge is the only way to remedy the situation.”
On Dec.1, the city council directed Vitunac to bring back a written opinion on whether the changes made to the OUC contract were “material.” Vitunac said that he would need to consult Boston attorney Meabh Purcell, whose firm worked on the contract.
Assistant City Attorney Wayne Coment said the document is in the works.
“What they’re working on is a table showing the changes and the legal implications of the changes,” Coment said.
Coment said a contract is not like an ordinance, which is legislation, so attorneys have more leeway in making minor changes after an elected body approves a contract.
“If it’s just changes in language here and there, they can make certain changes that aren’t significant,” Coment said. “If the changes were made only to clarify something, the wording could change and it could be just fine.”
Should the contract be materially different, the legality of the executed document could be called into question.
Changes exist throughout the document, ranging from altered punctuation and capitalization of words to the addition and rewording of entire sections. It’s evident that what is marked “final draft” on April 7, 2008 was gone over again thoroughly by attorneys.
Whole sections were added, including one on page 4 under the conditions of the contract. This section, Firm Transmission Service, states the condition that “Vero Beach obtains Firm Transmission Service from FPL within a reasonable period after the Effective Date, and the terms of such service are reasonably acceptable to Vero Beach.”
This means the city had to negotiate rights to use FPL transmission lines to bring power from OUC to Vero Beach. An accompanying letter from OUC further clarifies this stating that “reasonable” shall be no more than $4 million. Since this was not included in the original contract, is this $4 million extra that the city is spending to switch to OUC?
Long-time critic of the city’s electric utility Dr. Stephen Faherty said he’s curious to see Vitunac’s report to the council.
“It will be interesting to see how they outline the changes and how they determine what is material, and if that materiality will have anything to do with the cost of whatever it is that was changed,” he said.
As an example of how any one of these changes could open up a veritable can of worms, take a look at one change in the Exhibit D – Definitions section of the contract.
On page D-1 a change altered the meaning of the word “bonds” in a way that could potentially cost the city millions of dollars. The redacted April 7, 2008 version states that “Bonds” shall mean the city’s obligations as they relate to ownership of part-interest in the Florida Municipal Power Agency and bonds held by FMPA:
The unredacted April 21, 2008 version, however, amends the definition of “Bonds” with the words “and (ii) Vero Beach Florida Electric Revenue Bonds.”
It is unclear why the city’s electric revenue bonds were specifically inserted into this definition and who asked for the insertion. The importance of this change is how it relates to another part of the contract, which lays out protections which cover the city and OUC against any financial instability that the other party may experience which would result in the downgrading of its bonds beyond an acceptable level.
The city currently holds $60-plus million in bonds on the electric utility. Over the summer, consultant Henry Thomas of Public Resources Management Group, warned city officials that the current cash situation of the city’s electric, water and sewer utilities put the city in danger of having its bonds downgraded.
At the time, the electric utility had burned through $12.5 in reserves in about nine months and was described as “broke” by Finance Director Steve Maillet. The water and sewer utilities were borrowing cash from other city funds to operate.
Thomas said his firm recommends utilities keep 90 days of operating cash to maintain good bond ratings because electric is a capital intense industry, with constant needs for repair and reinvestment. Former Electric Utility Director R.B. Sloan has previously stated that the electric utility costs $110,000 a day to run, meaning that the city would need to keep about $10 million on hand at all times to have 90 days of operating cash.
At fiscal year end, the electric utility had a little more than $5 million in operating cash, thanks to hikes in electric bills bringing in increased revenues over the summer and early fall. During the quarterly budget review meeting on Dec. 8, Maillet said the electric utility had less than $3 million in operating cash as of November 30.
“No one would probably go back and look at the existing bonds unless the city went out to borrow more money,” Thomas said. “But even without that being in a contract with OUC, they should be motivated to keep that up.”
Thomas said bond raters also look at the management and stability of a utility as a sign of fiscal health. With the steady procession of not only electric utility directors but also city managers, Vero might not score so high on that criterion.
Should the bond ratings slip and the city not be able to recover within a year, the dollar amount that the city would need to provide in collateral to ensure “due performance” would be a matter for the attorneys to interpret, as the total value of the 20-year contract has been estimated to be about $2 billion.