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Electric deal dead; attorneys continue to pick at carcass

STORY BY LISA ZAHNER (Week of June 26, 2014)

Not one but two attorneys attended the most recent Vero Beach City Council meeting, as if the bad news about efforts to sell Vero electric would sound better if delivered in stereo.

Vero’s original transactional attorney, John Igoe, whom the Florida Municipal Power Agency refused to meet with, joined by Robert Scheffel “Schef” Wright, the attorney favored by FMPA top staff who supplanted Igoe as lead negotiator, both offered a somber update.

But the attorneys declared that they’re not ready, and that Florida Power and Light is not ready, to throw in the proverbial towel.  And why would they? With the clock still running and Vero’s fare to absolutely nowhere now approaching $2 million, why not keep tinkering with the deal a little while longer?

The attorneys’ newest project is a three-party letter to be signed by Vero, FPL and the Orlando Utilities Commission. This letter would do nothing to move Vero closer to a sale to FPL.

Vero wants to talk to OUC about two things – reducing the rates that Vero pays to OUC for wholesale power, and getting permission to mothball the Big Blue power plant. A flurry of letters was sent to and from City Manager Jim O’Connor’s office about all of this. OUC officials told Vero that they’re not comfortable discussing anything that might interfere with Vero’s agreement to sell the electric utility to FPL.

So attorneys are set to be paid to craft some sort of agreement that allows Vero to have these outside negotiations with OUC and not breach any provision of the contract on the table to sell Vero electric, a contract that is presumably unenforceable anyway. Big deal.

FPL has also agreed to amend the purchase and sale agreement, often referred to as the PSA, to allow Vero to power down and/or decommission Big Blue, one of the assets that was to be included in the sale.

Shutting down the power plant would likely change many aspects of the contract dealing with what is to be transferred and the disposition of the utility employees. It would also eliminate the $1 million per year lease revenue that FPL was to pay Vero while FPL constructed the transmission upgrades necessary for federal regulators to sign off on taking Big Blue offline.

How much will all these changes to a dead contract cost? No idea.

The other sticky wicket that attorneys are working on is whether or not Vero should have to pay $46 million to at least get out from under one of its many ill-fated, perpetual power deals with FMPA.

Hoping it was headed non-stop toward getting out of the electric business,  the City of Vero Beach gave the statewide public power co-op notice that it wanted to exit its membership in what’s called the All-Requirements Project, but now the city is faced with a $46.1 million tab to get out.

One of the hurdles the city needed to surmount to sell Vero electric to FPL was to fully exit the All-Requirements Project (ARP) in October 2016. Attorneys asked the FMPA to quantify how much it would cost to exit the ARP and the FMPA, after many months of delay, came back with the $46.1 million number.

That October 2016 date is Vero’s chance, possibly its only chance, to shed its ARP membership for good, and that may be a worthy goal whether or not the sale to FPL is still on the table. But without the cash sale proceeds from FPL, where on earth would Vero come up with $46 million?

City Manager Jim O’Connor did his best to fill the Utilities Commission in on the latest developments, saying it’s likely not worth trying to whittle the $46 million down via a legal war of attrition of challenging the contracts.

“About the $46 million: We don’t want to spend a whole lot of money fighting it and get it down to $30 million. It really doesn’t matter. The question is can we drive it below a number that’s do-able,” O’Connor said.

“When it gets up into double-digits, we just don’t have it,” he added.

Former Indian River Shores Councilman Mike Ochsner, who is the Shores’ new representative on the Utilities Commission, asked, “Is it a fair characterization that FMPA has made it as difficult as possible for us to get out?”

O’Connor responded, “We signed these contracts and we said we’re not going to leave FMPA. You can read all those contracts, but basically we said we’re not going to leave FMPA. We could hold FMPA responsible, but the fact is that FMPA is a group of member cities.”

To that O’Connor added his non-lawyer opinion that the signers would have only agreed to the many punitive clauses in the contracts if they had no clue that the city would ever want to get out of them. “Nobody would have ever expected to have that imposed upon them,” he said.

Vero’s membership in the Florida Municipal Power Agency is twofold. In 2010, Vero stopped taking power from the FMPA’s All Requirements Project  – a group of power generation facilities owned in part or totally by the FMPA – but the city failed at that time to fully exit the ARP as an entity. On top of that, Vero has a partial share in power purchase rights to the Stanton 1 and 2 coal plants operated by the Orlando Utilities Commission, and to FPL’s St. Lucie nuclear plant.

After exiting the ARP in 2010, Vero continued to take its monthly allotment of power from those sources not related to the ARP. The plan to assign these FMPA “entitlement” contracts to OUC at a cost to Vero of tens of millions of dollars fell through last month, rendering the whole deal unworkable.

The $46 million would be designed to cover any anticipated costs that Vero might have had to pay as an ARP member. Hypothetically, should the city pay that sum and get out, FMPA would hold that cash to fund future obligations for the life of the plants and projects.

“FMPA only gets one shot at setting their liability when we get out in 2016,” O’Connor said. “They keep 10 percent worst case, we pay them $46 million and they keep a minimum $4.6 million.”

Utilities Commission member Herb Whittall asked if the city would get any interest back if part of the 90 percent was eventually refunded. Negative, O’Connor responded.

 “If I had started this in 2006 I don’t know what condition I would be in today, probably in a mental institution somewhere,” O’Connor said.