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FPL purchase of Vero Electric hits roadblock


Orlando Utilities Commission’s slogan is “The Reliable One” and the utility seems intent on once again demonstrating that it can reliably thwart Vero’s every effort to get out of the electric business – this time landing the city in yet another sticky legal dispute.

In May 2014, three years into complex sale negotiations to sell Vero electric to Florida Power & Light, Orlando Utilities surprisingly objected to the plan for it to take over Vero’s stake in three power generation projects in exchange for $34 million, belatedly saying its lawyers had decided the deal would violate OUC’s covenants with its bondholders.

Now, nearly a month after FPL presented a $185 million offer to Vero, which included $20 million to pay off OUC for letting Vero exit its wholesale power contract, it suddenly comes out that OUC wants $50 million – not $20 million.

This presents a major, $30 million hurdle to the carefully crafted $185 million deal currently on the table.

While city officials, including Mayor Laura Moss, assured the public that OUC had been looped into the talks with FPL and the Florida Municipal Power Agency as FPL developed its latest offer, OUC announced the $50 million demand only after the FPL offer was made public.

The dispute erupted on May 11 when OUC Vice President Jan C Aspuru wrote to Vero Beach City Manager Jim O’Connor at 12:30 p.m., according to public record, “Yesterday, OUC learned that FPL has submitted a Letter of Intent (LOI) to the City of Vero Beach for the purchase of its electric system. The LOI states that an amount not to exceed $20 million would be allocated for the full release of Vero Beach’s contractual obligations to OUC.”

“I wanted you to know that OUC’s damages will far exceed the $20 million if Vero Beach defaults on its contractual commitments to OUC. The agreement sets forth two thresholds for limitation of liability: the $50 million dollar limitation of liability applies if a Party to the agreement defaults for economic reasons and it is OUC’s position that this would be the applicable threshold in this case,” Aspuru said. 

This disturbing news never came up five days later on May 16, however, when FPL’s offer was formally presented to the Vero Beach City Council.

FPL’s presentation showed that Vero could pay off its $20 million penalty to OUC, its $108 million exit penalty to the Florida Municipal Power Agency co-op, all of its utility debt and other electric obligations and still have some $20 million cash left over.

The Council then voted 4-to-1 to accept FPL’s letter of intent, in concept, with the details to be worked out in the coming months and a goal of closing the deal by Oct. 1, 2018.

City Manager O’Connor said Monday that he and Vero’s lawyers and FPL’s lawyers have been trying these past few weeks to neutralize this latest wrinkle in the decade-long Vero electric saga, but that OUC didn’t appear to be budging.

Vero and OUC are now at a point of impasse on the differing interpretations of the contract language.  “I’m recommending to the Council on Tuesday that we enter into non-binding mediation with OUC, as is laid out in our 2015 contract with them,” O’Connor said.

O’Connor explained that the OUC contract clearly sets out the circumstances under which Vero would be on the hook for the $20 million penalty, and when a higher $50 million penalty would kick in. And he says the new FPL deal was negotiated based on several legal opinions that the transaction Vero is trying to accomplish falls squarely within the conditions of the $20 million penalty.

“It’s the city’s position that we are not exiting the contract to go with another power supplier,” O’Connor said. “We are getting out of the electric business entirely, not dropping OUC to buy power from another wholesale provider. The 2015 contract says we’d have to pay $20 million to cancel the contract, or $50 million to get out of the contract to go with another supplier for economic advantage.”

O’Connor said he expects Nat Doliner of the Carlton Fields Law Firm to continue to represent Vero throughout the mediation process, but that this time, city ratepayers won’t be shouldering all the hefty legal bills. “FPL has said that they would share the legal costs of the mediation as they want to get this worked out as much as we do,” O’Connor said.

Mediation is not only laid out in Vero’s contract with OUC.  It’s required by Florida law whenever a public entity has a legal dispute with another entity. The idea is to keep the matter out of the courts and save taxpayer dollars. O’Connor said each party would recommend a handful of certified mediators and then Vero and OUC would agree on who would handle the job of referee.

When Indian River Shores and Vero entered mediation over a suit filed by the Shores for breach of its electric franchise agreement with Vero, city and town officials had to meet prior to declaring an impasse and moving onto the formal mediation stage. O’Connor said in this case, OUC and Vero can skip the first, informal meeting phase and go straight to non-binding mediation.

If that is unsuccessful, Vero could very well wind up in court, unless the city wants to abandon the very promising deal now on the table to sell Vero electric.

Will the mediation be public? “That will be up to the parties,” O’Connor said. “But if it’s not in public, that means that only one city council member can be in the mediation session. Having more than one council member in there if it’s not in public would be a violation of the Sunshine Law.”

With the current political climate on the City Council and the open hostility displayed between Mayor Moss and Councilman Dick Winger, getting the council to agree on who would go into any closed mediation sessions would be a challenge, to say the least.

Winger has expressed a serious distrust in Moss’ negotiating skills and strategy. Moss has called Winger out in public about needlessly revealing information that she said put Vero in a weaker negotiating position. She’s also questioned whether Winger is truly in Vero’s corner.

And all this will be going on amidst the lead-up to a contentious City Council election in November where Winger and staunch pro-sale Vice Mayor Harry Howle are up for re-election and already have declared challengers. Former Vice Mayor Randy Old hopes to take Howle’s seat, and local physician Val Zudans has made it clear that he wants to take Winger out, openly provoking him into debate from the public podium at recent council meetings.

Even if the sessions are public, O’Connor said they would likely be held in Orlando, or somewhere in Orange County. He said the defendant in the potential litigation – which in this case would be OUC if the Vero sues – gets to have the mediation on its home turf.

O’Connor said all due diligence currently being undertaken by the city, FPL and FMPA would continue despite the city going into mediation with OUC. FMPA plans to vet the Vero deal at its June 21 board meeting in Orlando and FPL has promised to bring a formal sale and purchase agreement this summer for a first look.

Meanwhile, there is a provision in the proposed deal that if the entire sale falls apart once again, that Vero and FPL will pursue the partial sale to FPL of Vero’s Indian River Shores customers for $30 million cash.