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The search for a ‘unique’ way to extricate Vero from power ties

STORY BY LISA ZAHNER, (Week of June 28, 2012)

No city has ever left the Florida Municipal Power Agency, but Vero Beach officials are still cautiously optimistic that they can find a way out that’s a perfect fit for the city.

As city attorneys try to advance the sale of Vero Beach electric, untangling the Gordian knot that ties Vero Beach to the FMPA in a way that frees Vero – but only Vero – is key to extricating 33,000 power customers from rates more than 30 percent higher than Florida Power & Light.

“Whatever we find to get out of these contracts is going to have to be unique to Vero Beach because otherwise it would threaten the whole FMPA,” said Vero Mayor Pilar Turner, who represents the city on the FMPA board. 

If a solution that cannot be replicated by other FMPA member utilities is found, she feels her fellow FMPA board members will vote for it to get this matter behind them.

The FMPA is a power cooperative owned by the member municipal electric utilities. Membership in the FMPA brings with it the right to buy power from FMPA-owned generation assets including FPL’s St. Lucie nuclear plant and the Orlando Utilities Commission’s Stanton coal plants.

FMPA membership also carries heavy responsibilities. As a member, Vero shares more than $500 million in bond debt floated to buy and build generation capacity.

Vero is also committed to pay for part of the overhead and operation of the plants in which the FMPA owns a share until the plants are decommissioned, which could be decades distant. This expense is incurred whether the plants produce power, close for maintenance or regulatory issues, or are not being used because the method of production is not cost effective.

Before a sale of all of Vero electric can occur, the city needs to buy itself out of the cooperative. It’s the job of the transactional attorneys to negotiate the best price tag and terms for that buyout, and they’re pressing up against a Sept. 30 deadline to solve the puzzle.

Turner sits in a precarious position on the FMPA board as an elected official trying to extricate her city. She is surrounded by career utility directors and city managers of the other member cities, who depend on the continued viability of municipal electric for their living.

With a few FMPA board meetings under her belt, is Turner discouraged?

“No, on the contrary, I’m very optimistic. Each meeting I go to, I think the FMPA is realizing how serious we are that we want to get out,” she said. “We want to get some respect, we want to try to find a way to get rid of this and if we don’t there’s going to be a hailstorm.”

Does the topic of the Vero sale come up during meetings? “No, they don’t discuss it,” she said.

The FMPA board faces a judgment call. If it lets Vero sell to FPL without imposing a crushing penalty, two things could happen: other cities might try to escape, or things will settle down in the other FMPA cities.

Utility activist and CPA Glenn Heran agreed with Turner’s assessment of the situation. “I think the FMPA fully understands how significant their own problem is. Membership to the FMPA means on average you pay 30 percent more than FPL with some cities paying as much as 53 percent more,” he said.

“The FMPA might structure a deal that works for Vero Beach only.  But refusal to structure any deal for Vero may mean a wider war against this inefficient and unregulated agency.  As we have seen in Vero Beach, the public is awakened and will not stand for this.”

Though no city has gotten out from under FMPA obligations, Homestead successfully transferred part of its rights to buy power to Kissimmee in 1995 after Hurricane Andrew. 

But when Kissimmee took over part of Homestead’s share, Florida’s population was rapidly expanding and power demand was high. Today, there’s plenty of power to go around.

In what appeared to be a helpful move, the FMPA agreed to help Vero market its baseload generation assets to a qualified buyer, which most experts argue must be another municipal utility.

“FMPA has agreed to facilitate putting together a group of cities who may be interested in our power supply contracts possibly at a discount,” said Vero City Manager Jim O’Connor.

“I believe if we can figure out a way to market the power we are contracted to purchase and guarantee a revenue stream that retires the bond debt service, that FMPA would agree to the City of Vero Beach terms for the sale of the electric system,” O’Connor said.

City Attorney Wayne Coment, who O’Connor said has been on hand to review all  correspondence which passes through City Hall, concurred with the city manager’s assessment that no doors have slammed in the city’s face as of yet. He said the transactional attorneys are immersed in a variety of complex challenges – not only FMPA, but also figuring out the nuts and bolts of shuttering a utility with more than 100 employees.

“They (the transactional attorneys) continue to review the various legal perspectives going forward from FMPA bond issues to employee pension issues and beyond and are handling the actual negotiations whether it is with FMPA or FPL,” Coment said.

Despite the legal and economic challenges to getting out of the FMPA and closing the sale, FPL’s spokespeople expressed unwavering optimism, saying that the negotiating team is making “substantial progress.”

“I think having the support of a company like FPL is a huge asset in finding a solution to extricate ourselves from these contracts,” Turner said.

Turner said the seemingly contagious nervousness expressed in recent weeks by Vice Mayor Craig Fletcher and others on the City Council has not infected her.

“I think we just need to be patient. We’ve got September as a deadline. We all know the status quo is not an option – but I am still optimistic.”