VERO BEACH — The City of Vero Beach’s last great hope that a major re-do of the 20-year, $2 billion wholesale power contract with the Orlando Utilities Commission might help rescue ratepayers from high electric bills appears headed for the Vero graveyard of broken dreams.
The “big news” presented to the Vero Beach Utilities Commission Tuesday after months of negotiations turned out to offer pretty anemic short-term savings tied to new contractual commitments that could lock Vero into even higher future costs that it would remain obligated to through 2030.
If all the stars align, the city’s utility attorney Robert Scheffel “Schef” Wright said Vero in the near term could get its rate down $10 per month, from the current $123.93 per 1,000 kilowatt hour to $113.93 per 1,000 kilowatt hour.
This would still be roughly 17 percent higher than FPL’s rate for the same power.
But the real bottom-line question is whether yet one more Vero City Council – the one seated after the November 4 election – will go for what looks like a “short-term fix,” giving up on seeking to extricate Vero from the municipal electric business, and locking the city into one more long-term power contract that proves impossible to ever escape.
“I’m concerned that the net effect of this is to lock us into the utility business,” Utilities Commission Chairman Scott Stradley said Tuesday during Wright’s explanation of the deal he and Vero City Manager Jim O’Connor have cooked up with the top brass at the Orlando Utilities Commission.
That appears to be exactly what the new OUC deal is designed to do, and it’s wrapped up in $21 million worth of sugar-coating to make the medicine go down.
The headline city officials hope ratepayers take away from the discussion is that OUC has generously offered to give Vero Beach a $7 million per year “discount” on its capacity charge for three years, and then a lesser $4.1 to $5.3 million discount in subsequent years.
But any seasoned businessperson might ask, why would OUC officials do that when there’s nothing compelling them to do so?
“They value us as customers,” Wright said.
What’s in it for them? A whole lot, it turns out.
The proposed deal locks Vero Beach into a “take or pay” arrangement for 85 megawatts of wholesale power.
Under the current agreement, Wright conceded, “there is presently no minimum” amount of power the city must buy from OUC. He added that this provision was put into the new agreement to protect OUC.
But if Indian River Shores wins in court the right to exit Vero’s system when its franchise expires in November 2016, or the Florida Public Service Commission tells Indian River County it can leave when the County’s franchise agreement expires in March 2017, Vero would be obligated to pay for 85 megawatts of power regardless of how much the 12,000 customers inside the city limits actually use.
Plus after the power plant is shut down, the new agreement commits Vero to purchase 54 megawatts of “peaking power” from OUC as well.
On top of that, the new deal with OUC gives our Orlando partner the right to take over Vero’s natural gas contracts once the power plant is shut down. Those contracts were valued at $10 million by the city’s own consultants as part of the negotiations to sell Vero electric.
But it gets better, for OUC, and worse for Vero.
OUC would also have a one-time right to take over Vero’s share of the power it’s entitled to purchase from the St. Lucie 2 nuclear plant. Most times, this is the cheapest power available to Vero.
Stradley told Wright that he thought OUC had cut a deal to cherry-pick Vero’s power portfolio, leaving city customers with the more expensive power that nobody really wants.
Later, pinning Wright down, Stradley asked whether shedding the gas contracts and the nuclear power entitlements would put Vero in a stronger position, or a weaker position, if an opportunity arose to sell the electric system?
“I think you’re in a weaker position because these assets have some value,” Wright said at the end of a nearly 90-minute discussion.
Then after OUC has stripped Vero of all its valuable assets, OUC has the right, under this new deal, to cancel the whole agreement with Vero 10 years early in 2020 should metropolitan Orlando grow and the homes served by OUC need the power.
“OUC is looking to add capacity in 2020 to serve their native load,” Wright said.
Wright also said he anticipates no material cost savings from mothballing the power plant and instead buying peaking power from OUC.
“We see it as an approximate wash,” he said, but shutting down Big Blue would protect Vero from the risks associated with continually patching up an aging power plant.
When asked what he thought the chances were that the deal – potentially bad as it is for Vero – would surmount all the hurdles it need to clear to actually take effect, Wright said he was “cautiously optimistic.”
Whether the proposal to hypothetically shave $10 per month off electric bills will impact the outcome of the Nov. 4 election is unclear.
Vice Mayor Jay Kramer began pushing last year to have the city approach OUC about renegotiating its terms after OUC cut a deal with the City of Lake Worth, giving that city a better wholesale price and shorter term than the one brokered with Vero in 2008.
On Monday night, Kramer had not read Wright’s nine-page memo in detail, but said he thought there were still many details to be worked out with regard to mothballing the power plant and added that “they’re still talking about some transmission issues.”
Utility activist Glenn Heran, upon reading the document released Monday, said, “It’s a pre-election ploy designed to help Dick Winger and Jay Kramer keep Vero Beach in the electric business and pretend that they can become remotely competitive with FPL. We’ve heard those promises before from councils led by Tom White and Sabe Abell.
“It’s really about half-measures,” Heran said. “They’re not doing what voters have repeatedly asked them to do, which is get out of the electric business altogether.”