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Seems like nobody wants Big Blue

(Week of December 16, 2010)

Florida Power and Light neither wants nor needs to purchase Vero Beach’s antiquated power plant, the electric provider told four City Council members during private meetings recently.

FP&L also made it clear that it would take over all the customer service functions if it buys Vero electric, but said it cannot, as an investor-owned utility, purchase certain power assets of the city which are owned through the Florida Municipal Power Agency.

Details about how a sale of the City of Vero Beach Electric Utility might work are slowly coming to light, and a sketchy vision of what Vero Beach’s electric power structure would look like is coming into focus.

With goals of paying the city enough to clear its $58 million in bonds and give Vero customers FP&L retail rates, there still remain some questions to be answered.

First of all, Vero Beach will need to extricate itself from its 20-year, $2 billion-contract with the Orlando Utilities Commission. Second, city leaders will be challenged to pare down operations in proportion to the reduced workload once portions of the utility have been sold.

Part of that will mean laying off dozens of people -- 32 employees at the power plant for sure -- plus some cashiers, meter readers and technicians who work in transmission and distribution. The utility employs 113 people at present, many of whom are already vested in their retirement benefits, leaving the city potentially tens of millions of dollars in pension liability to fund over the next decades.

When there is no electric utility to provide an estimated $8 million annually to the General Fund, the pressure to trim municipal expenses to the bone will be overwhelming.

Finance Director Steve Maillet has stated publicly that operating the Electric Utility puts a strain on various departments of the city, from his own Finance Department staff and cashiers to the Information Technology, Human Resources departments and the offices of the City Attorney, City Manager and City Clerk.

For years, residents have complained about the big blue power plant taking up prime riverfront property on the northwest side of the 17th Street Causeway and it appears that the plant would go away if the electric utility were to be sold to FP&L.

Last week, in the presence of FP&L executives who did not refute her statements, Councilwoman Tracy Carroll said the electric giant would have no need for the city’s power generating plant and therefore no desire to purchase it.

That means the plant would need to be decommissioned, or shut down and rendered inoperable. The plug, so to speak, would need to be pulled on the city’s five generating units and all the accessory equipment.

Vero Beach resident Jose Prieto and his family have been in the business of consulting for and dismantling industrial facilities for more than 60 years. Prieto’s grandfather started the business in Cuba in 1948, mostly working on the design, construction and expansion of sugar refineries. After the family moved to Florida in the 1960s, Prieto’s father started the offshoot South Bay Trading Company to specialize in the asset recovery part of the business.

Taking apart big blue and selling her off part and parcel, Prieto said, could be done in as little as nine months to one year, if the City of Vero Beach does all the prep work such as emptying the fuel tanks and cleaning the site first.

“If you had to do a site cleanup, you can get into some money, but they probably keep up with that on an on-going basis,” Prieto said. “It may offset the value of a long-term lease on the property if you have to clean it up. That plant’s been around a while, you’d have to do an environmental study and an asbestos survey as part of the decommissioning process.”

As far as the cost goes, if the scrap-metal market at the time is favorable and the contractor in charge of the project has good contacts, the net cost could be minimized.

“There is value in the power plant, maybe not enough to totally offset the cost of the decommissioning, but there’s value there,” Prieto said. “The trickiest part is trying to maximize the return. If you can do that, generally speaking, the owner can walk away with little or no cost.”

Fort Pierce Utility Authority decommissioned its power plant in 2008 but has announced no final plans for the 8-acre site. The project took 15 months with a net cost of $200,000, which, according to FPUA Spokesperson Levette Dixon, “included the removal of some hazardous waste we encountered during the demolition activities.”

So who would buy the parts of Vero’s plant and where would they go?

“There are potential buyers all around the world. The boilers could go one place, the scrap steel, copper, stainless steel things like that could go somewhere else,” Prieto said. “The ideal situation would be to have enough notice to find buyers for the equipment and anything that doesn’t sell in a given period of time could then be scrapped. The market right now is pretty strong for the scrap metals.”

But the big-ticket items would be the five General Electric power generators, especially the three more recent purchases that are more fuel efficient. But to some buyers, how much fuel oil the unit uses wouldn’t be that much of an issue.

“You’d want to target countries where the oil is cheap and they need the power,” Prieto said.

Prieto said Vero’s power plant is a job he’d be interested in bidding on, and as his website reveals, he has contacts on just about every continent, from Pakistan to South America, who might be in the market for some second hand power generating equipment or scrap metals.

“I have a database of contacts and I would put the information out to them,” he said.

An environmental consultant would work with the City of Vero Beach to comply with all regulatory requirements.

After the nearly 20-acre site is cleared and cleaned up, there would be a multitude of potential uses -- many of which could produce income for the city.

Some ideas that have surfaced are a resort and conference complex, restaurants and shops or possibly an outdoor entertainment venue with boat slips. Uses that would give the city recreational and aesthetic benefits but which would not be money-makers would be turning the site into a park, greenway or nature preserve area.

Vero’s contract with the OUC contains exit penalties of $20 million to $50 million, which have been called the “poison pill” designed to keep Vero in the electric business. The $50 million penalty would only kick in if OUC had made substantial investments to the power plant and other infrastructure, which it has not in the less than 12 months since the contract took effect.

How much of a penalty the city would need to pay, if sued for breach of contract, is one unknown factor which will need to be worked out.

The 49 megawatts that Vero is entitled to purchase according to its relationship with the FMPA is the other big question mark. Since FP&L has said it cannot buy those assets referred to as “baseload generation,” what the city would be allowed to do with them is another question.

Utility Activist Glenn Heran has broached the concept of a “one-man utility.” One person employed or contracted by Vero could, in theory, receive and broker the very cheap power the city gets from the OUC Stanton I and II coal plants and FP&L’s St. Lucie nuclear plant.

Mayor Jay Kramer said he’s found in his research that Heran is misinformed about the City’s rights to broker that power.

“You can’t receive and turn around and sell them unless you are a utility with customers,” Kramer said. “If you try to do that, you’re not an electric utility, just a power broker.”

No impartial legal opinion has yet been rendered as to whether or not Vero could barter its baseload generation with the OUC to get out of part or all of the contract penalty, since OUC is already an FMPA member.

In a worst-case scenario, the one being promulgated by the Florida Municipal Electric Association which represents public power entities, Vero would be required to relinquish the asset, turning it back to the FPMA.

Should the City Council decide to push the envelope on any of these legal matters, a post-sale Vero could be mired in litigation with mounting legal bills for years. The opposition, namely the FMPA and the FMEA, is generously funded and legally armed for battle.