VERO BEACH — The Vero Beach City Council voted Tuesday night to authorize its lead utility attorney to negotiate a new contract with the Orlando Utilities Commission to replace a wholesale power contract signed by the 2008 city council.
The contract is necessary for Vero to begin implementing a plan to mothball its Big Blue power plant to save money on overhead and hopefully reduce electric rates.
The council has not yet made a final decision to shut down Big Blue, but it’s been set out as one of many potential cost-saving measures on the table.
The vote, which was 4 to 1 in favor, charges attorney Robert Scheffel “Schef” Wright with solidifying a November offer from OUC.
Councilwoman Pilar Turner dissented on the grounds that the council voted on a multi-billion-dollar deal on the presentations section of the agenda without adequate public comment or detailed backup documentation upon which to base her decision.
The terms offered by OUC would reduce the expected demand charges paid by Vero’s customers for access to wholesale power, and it would shorten the remaining term of Vero’s commitment to OUC from 14 years to nine years.
Vice Mayor Jay Kramer asked, to verify, “So the November offer buys us freedom to change sooner than the October offer?”
To which Wright answered yes. The October offer referred to was the result of initial meetings with OUC, after which the council told Wright to go back and get something better.
The replacement deal would also provide for Vero to enter into a take-or-pay arrangement to purchase bulk power to replace the capacity now provided by Vero’s own power plant when the generating units are actually in good repair and operating.
On the flip-side, the deal gives OUC the freedom to exit the contract penalty free, with notice to the city, should OUC need the power to serve its retail customers, or for any other reason such as market factors.
The new contract, as proposed would also carry over the stiff $20 million to $50 million exit penalties contained in the 2008 contract — provisions that had been called a “poison pill” inserted at some point into the contract language to prevent Vero from selling its utility to FPL. But, the new deal only subjects Vero to these penalties, not OUC should it wish to exit by giving notice.
Should OUC exit the deal and Vero not be able to secure a suitable replacement contract with another provider, the city could be left purchasing power on the open market.
Wright and utility consultant Bill Harrington had in February presented the results of a sensitivity analysis of four options, showing the City Council what the effects might be of different scenarios with relation to natural gas prices. The terms offered by OUC in November, he said, when tested, performed the best in the analysis.
“Mr. Harrington’s analysis said this one kept us in the best shape regardless of conditions,” Councilwoman Amelia Graves said.
Wright had made presentations to the city’s Finance Commission and Utilities Commission and both groups voted unanimously to pursue the terms laid out in the November OUC offer.
Wright said he would work with OUC to draft a contract and bring it back to the council in April. The timing is important as Vero is involved in pre-trial mediation with the Town of Indian River Shores over a lawsuit, and the city is expected to bring back concrete rate-reduction proposals when the parties meet next in early May.
With regard to capacity to serve Vero’s needs, Wright said OUC had confirmed that it has the full 54 megawatt capacity that the city would need to supplement its current contracts upon mothballing Vero’s Big Blue power plant. He also said a transmission request to run that extra power over FPL’s lines has been submitted.
Wright cautioned the five members about the risk and the gravity of the decision they were asked to make.
“This is a long-term, hundreds of millions of dollars decision. There are risks in whatever you choose,” he said, re-emphasizing, “This is a significant decision you’re making under conditions of uncertainty.”
The substance of that warning, coupled with the fact that the five members of the council are not experts in energy or markets or the utility industry is the main reason why Vero’s critics say the city has no business operating an electric utility.
The proposed new contract would replace a deal that was negotiated in 2007 at the height of growth and demand in the Central Florida power market, prior to the economic collapse of late 2008 and 2009. That contract, with its built-in escalator clauses, has proved costly and relatively unpredictable for Vero’s nearly 34,000 customers.
The OUC deal was brokered to replace wholesale power that Vero had been purchasing from the Florida Municipal Power Agency’s All-Requirements Project. It was billed as a better deal that would get Vero’s rates less than or equal to Florida Power and Light rates. Those promises did not materialize.
Vero had attempted to exit the OUC contract, which took effect on Jan. 1, 2010, but in 2008 the City Council had approved an up to $50 million penalty clause, which was written into the OUC deal.
OUC officials had given Vero a figure of $54 million to get out of the contract and have OUC take over some of Vero’s long-term power contracts, but in 2014 OUC backed out of that deal, citing that it could not jeopardize the financial security of its bondholders by putting their interests behind those of the FMPA’s own bondholders.
When that part of the deal with OUC fell through, Vero was left with nowhere to turn to complete the planned sale of its electric system to FPL.