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A reminder of how Vero got stuck with $50M exit penalty


As news broke earlier this month that the promising deal to sell Vero electric to Florida Power & Light has hit a multimillion-dollar roadblock that may entangle Vero in a court battle with the Orlando Utilities Commission, the question people are asking is:  How did we get in this mess?

The immediate problem, which led to Vero to formally trigger the mediation provision in its OUC contract, is simple enough to describe.

Vero’s contract to buy power from OUC includes two alternate exit penalties if the city pulls out of the deal. Under certain circumstances, the penalty is $20 million, and that is what Vero and FPL figured on in their agreement. But there is also a $50-million exit penalty that kicks in under other circumstances, and that is what OUC now says it wants.

So how did a $50 million exit penalty get into the city’s contract with OUC in the first place?

Well, that is a very long story, and those who haven’t followed city politics from 2007 forward may find it hard to believe.

In the 1980s, Vero helped found the Florida Municipal Power Agency.  The idea was that 30 or so member cities could pool their resources and benefit from their collective purchasing power. Over the next decade, Vero joined the FMPA’s All Requirements Project and took on “virtual ownership” of a sliver of FPL’s St. Lucie nuclear plant, and OUC’s Stanton 1 and Stanton 2 plants – 67 megawatts total.

Costs under that deal escalated in the 2000s and the city decided it needed to find another source for power. To that end, Vero hired a Boston-based consultant, Sue Hersey, to negotiate the city out of the All Requirements Project and into a sweet, new wholesale power deal.

Three companies submitted bids to supply wholesale power to Vero Beach – Constellation Energy, OUC and FPL.

Vero City Council members were not allowed to see the bid documents, and the ranking of the bids was done behind closed doors by the city’s consultants, plus top city staff at the time, including Utility Director R.B. Sloan and City Attorney Charles Vitunac.

Those officials ranked FPL low enough in several categories – including a poor score for reliability – that OUC was ensured victory.

All the documents related to the bid, the selection process and even the contract itself were squirreled away at Hersey’s office in Boston for three years to keep them away from City Hall and out of the jurisdiction of Florida’s Sunshine Law. City Attorney Vitunac and Sloan flew to Boston for some of the negotiations to maintain all this secrecy.

Based on these stealthy dealings, city officials promised electric customers that a new contract with OUC would give Vero rates “lower than or equal to FPL rates.

City Council members were briefly shown a copy of the voluminous contract, but not given a copy. Instead, Hersey gave them a Powerpoint presentation, and it was on this basis that they voted to enter a 20-year, $2 billion wholesale power deal with OUC.

When the contract finally became public in the fall of 2009, with its $20 million and $50 million exit penalties, city officials seemed mystified about how those huge penalties got into the paperwork.

Those pushing for a sale to FPL speculated Vero officials inserted the exit penalties as a “poison pill” that would forever keep Vero in the electric business so the city could keep benefitting from the $6 million the city transferred from electric revenue to the general fund each year.

Former Vero City Councilmen Charlie Wilson and Brian Heady were elected in November 2009, after a summer of scorching electric rates, on a mandate to get Vero out of the electric business. They were two of the three who voted to invite FPL in to talk about buying the utility.

Wilson soon discovered that the contract with OUC he was examining was different than the one voted upon by the prior City Council.

“I called Jan Aspuru (OUC vice president) and asked him why [the $50 million penalty] was there,” Wilson said. “He told me point blank that OUC did not require it. It was put there at the insistence of Vero Beach.

“It cost city taxpayers more than all the hurricanes in history combined. It’s the gift that keeps on giving,” Wilson added.

A Vero Beach 32963 investigation into the contract discrepancies found 113 changes in the contract between when it was briefly shown to the City Council to vote on it and when then-Mayor Tom White signed the final draft.

Besides onerous exit penalties, the OUC deal contained punishing annual escalator clauses. Beginning in 2011, the amount Vero was paying for its contracted electricity spiked and kept trending upward, so in 2014 the City Council and its utilities attorney at the time, Robert Scheffel “Schef” Wright, began trying to renegotiate the deal.

The city managed to shorten its time commitment to OUC by six years in the renegotiation and to get a somewhat better price per unit of power, but the contract contained a guaranteed “floor” of power the city had to purchase from OUC from now until the end of 2023, no matter what. The new contract also contained the two-tiered exit penalty, which OUC demanded be retained from the previous contract.

The sale to FPL looked dead at that point because an anti-sale majority controlled the City Council, so no one focused much on how the renegotiated OUC contract could thwart a new deal with FPL.

Then after the 2016 election, a new three-vote majority of pro-sale city council members, led by Mayor Laura Moss, began pursuing a full sale of Vero electric in earnest – with apparent cooperation from the FMPA this time around.

FPL came through last month with a $185 million offer that would get the city out of its contractual obligations, pay off the $20 million exit penalty to OUC, pay off utility bonds, relieve the city of some of its pension debt and leave Vero with $20 million in cash plus a $10 million cash pre-payment of a lease on city property FPL needs to operate electric equipment.

Then OUC pulled the rug out, with Jan Aspuru (the same OUC vice president involved in the negotiation of the 2008 contract) saying Orlando’s attorneys interpret the contract to mean Vero is on the hook for the $50 million penalty, not the $20 million penalty. Vero’s attorneys and FPL’s attorneys disagree, and the parties are headed for mediation in an effort to avoid a full-blown lawsuit over the dispute.

As for the current situation – the pending mediation with OUC and what comes next – Vero has suggested eight potential mediators with solid qualifications, and has asked for a prompt response from Orlando to proceed.

Most of the city officials involved in the 2008 OUC contract have exited public life with the exception of former Councilman Ken Daige.

Daige, according to records eventually released by the State Attorney, would not meet with investigators or answer questions over the telephone about the secret negotiations.

Despite being deeply involved in this shameful period in the city’s history, Daige continues to rise to the public podium at nearly every City Council meeting – ironically sometimes taking current city leaders to task over what he views as a lack of transparency in the current efforts to sell to FPL.