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Electric deal sputters while consultant tab soars

STORY BY LISA ZAHNER, (Week of June 16, 2011)

Two Florida powerhouses have very publicly clashed about whether the City of Vero Beach would be better off selling its electric utility to Florida Power and Light.

In defense of 34 municipal-operated utilities and the revenues pumped into the general funds of cities and counties, Florida Municipal Electric Association Executive Director Barry Moline recently released a position paper criticizing FP&L. He criticized everything from FP&L’s reliability to its tree-trimming schedule.

The company’s response sent to City Hall just prior to the City Council meeting June 7 picks apart Moline’s analysis of the practices and reputation of the investor-owned utility, and FP&L Vice President Pam Rauch pulled no punches.

“It’s important to recognize that the FMEA has a vested financial interest in disrupting the potential sale of the city’s electric utility and that the arguments presented in the commentary are – at best – selectively self-serving,” Rauch wrote in a cover letter to the analysis. She said the purpose of the 10-page written response was to address some of association’s “most egregious assertions.”

The FMEA is a trade association which acts as the political and lobbying wing of municipal utilities and their umbrella organizations, including the Florida Municipal Power Agency. In other words, it’s the association’s sole job to protect and defend municipal utilities’ rights to operate their own electric systems – even if the rates are substantially higher than neighboring investor-owned utilities.

Vero and the other members pay millions of dollars – Vero’s share is $35,000 per year – for this representation in Tallahassee and on political battlefields such as negotiations to sell one of the municipal utilities in the pursuit of lower rates. The details of the association’s budget are a mystery, however, as it does not have to comply with public records law despite its acceptance and use of public dollars.

No matter how much FP&L or even the Vero City Council might not appreciate outside interference in negotiations, advocates of public power could end up holding all the cards.

First, there’s the exit penalty on the OUC contract, which could amount to $20 million worst-case; OUC is one of the largest municipal-owned utilities in Florida. Another key element in the sale will be Vero’s ability to offload its FMPA assets, more specifically its rights to purchase power from the Stanton 1 and 2 coal plants and the St. Lucie nuclear plant.

GAI Consultants employees are working on some options to free Vero from the agency, but even if a willing buyer can be found, the FMPA Board of Directors is reportedly the deciding body about whether the buyer is acceptable and creditworthy.

Vero officials met with about a dozen FP&L executives last week to lay the groundwork for further negotiations.

Overall, at this stage of the negotiations, Councilwoman Tracy Carroll said she’s pleased with the progress and hopeful for a good outcome for Vero. “The meeting went better than I could have ever expected,” she said.

Meanwhile, the city is paying $230,000 to GAI Consultants for an appraisal and analysis of all the city’s options with regard to the electric utility. That project is slated to be completed in about three months and FP&L has stated it might have a draft purchase agreement ready by September, but said details would take many more months to work out.

Going forward, Vero staff and FP&L representatives plan to meet monthly, to speak via conference call every few weeks and establish a document database on an Internet server to share information needed for due diligence.