The ties that bind: Vero still tied to FMPA power contracts until 2043
In 2009, as electric bills skyrocketed, the City of Vero Beach clung to the mantra that once it got out of the Florida Municipal Power Agency contract on Jan. 1, we would be finished with the cooperative for good.
Except we are not finished with the cooperative for good.
As a result of our contract through FMPA for power from the St. Lucie 2 nuclear plant, we will have to buy enough power from this nuclear plant to supply about 3,000 Vero Beach homes every day until 2043. We also, as a result of long-term contracts we entered into together with FMPA, will have to buy power from the Stanton 1 and Stanton 2 coal plants for the life of these plants – facilities that are majority owned, ironically, by the Orlando Utilities Commission, our new power provider.
In fact, Vero Beach 32963 has learned the city still buys about one third of its normal daily power needs through these FMPA contracts, and it may never get out of all of its responsibilities.
When these plants live out their usefulness, Vero will also have to pay a portion of the cost of decommissioning them.
These findings come as FPL begins the task of putting a value to the city’s utility operations in trying to get a handle on what Vero owns, owes or has a stake in as part of the assets of the electric utility.
The city has repeatedly said it doesn’t have figures for stakes in power it receives from three power plants because it agreed, under FMPA agreements, to back a portion of some $500 million in outstanding bonds used to purchase FMPA’s assets in those plants.
However, in one phone call to 32963, Mark McCain, FMPA spokesman, laid it out this way:
Prior to Jan. 1, Vero Beach was a member of four power projects with FMPA. The St. Lucie Project (St. Lucie 2 nuclear plant), the Stanton I and Stanton II projects (Stanton 1 and 2 plants), and the All Requirements Project.
The city was permitted to reduce its wholesale purchase of power from the All Requirements Project to zero after much negotiation, $3 million in consultant fees and five years’ notice, but Vero is still on the hook for St. Lucie, Stanton I and Stanton II and some percentage of the $500 million dollars of still outstanding bonds used to purchase FMPA’s stake in those plants.
In short, Vero still gets about one third of its power every hour on a normal day from these projects, and is tied to the debt – and expenses – associated with operating the plants, even if OUC is now its main power provider. The city’s obligation ends only when the plants are no longer operational.
However, at City Hall, no one seems to know exactly what, if any, liability the city has as part of these agreements.
Nothing on the books
On Jan. 20, FP&L responded to a tepid invitation from the City of Vero Beach to start talks about a sale of the city’s electric utility. That response asked for some information vital to the process -- information the city admits it doesn’t have. FPL asked for “at minimum” the contracts related to the assets, as well as final, unexpurgated copy of the city’s contract with OUC.
Presumably the city clerk or city attorney has retained and can furnish copies of the contracts, but it seems that producing any details beyond the bare minimum about the city’s investments in what’s called the base load generation assets -- namely the value of Vero’s rights to power from the St. Lucie 2, Stanton 1 and 2 plants -- has caused a bottleneck.
Stephen Faherty and accountant Glenn Heran said they have been asking for the same information for about four months now, and have also come up empty.
“We just can’t get the data, we’re just trying to get the information,” Faherty said. “We have no idea how it was purchased, with what funds and if it was on an installment plan,” Faherty said.
Vero Beach 32963 examined the most recent audited financial statements of the city and obtained a detailed schedule of the city’s electric utility assets. The investments in St. Lucie 2, Stanton 1 and Stanton 2 are not on the books as assets. The only assets listed are the power plant at a depreciated value of $39.8 million, transmission and distribution at a depreciated value of $82.6 million and capital improvements in progress at a value of $1.5 million. There is no mention, for example, of how much in cash, guaranteeing of bonds or other consideration the city sunk into FMPA’s $290 million buy-in for 8.8 percent of the St. Lucie nuclear plant or what that, depreciated over time, is worth. McCain said it would be nearly impossible to place a value on an entitlement to purchase power. It would be a head-scratcher even for FMPA to value its partial ownership in the projects.
“We know how much we paid for them and we know what we still owe on the bonds,” McCain said. “And we have an idea of the depreciated value, but that’s about it.
“The city does not technically own part of the St. Lucie Project or the other projects. FMPA owns part of St. Lucie (2), Stanton 1 and Stanton 2,” McCain said. “The cities did not put up any of the initial money. That is the way the cities wanted it.”
FMPA, a not-for-profit corporation, floated bonds to purchase a percentage interest in the power plants. Members signed contracts to be part of the deal. The City of Vero Beach, as a member, is entitled (and required) to purchase a total of 49 megawatts of power every hour (MWH) from the three plants.
Forty nine MWH per day, given the Vero Beach utility’s insistence that the typical residential customer uses less than 1,000 kilowatt hours per month, would supply the needs of almost 15,000 local customers.
Our price for that power is determined by the costs of running the plant. FMPA has all the responsibilities of an owner, including upkeep, insurance and other overhead. Whatever it costs to run the plant, FMPA gets billed its percentage of that -- for example 8.8 percent of operational costs of the St. Lucie nuclear plant -- and those costs are then assessed to Vero Beach and the other members of that project as the charge for the power.
“It’s a take or pay contract. Even if you don’t take the power, you have to pay for the costs,” McCain said. “The good news is that this is very costeffective power production.”
Buying power from and through FMPA
The city, through its ties with power cooperative FMPA, is entitled to purchase 1.4 percent of the power generated at FPL’s St. Lucie 2 nuclear plant, 4.5 percent and 3.4 percent of power generated at OUC’s coalfired Stanton 1 and Stanton 2 plants, respectively. Those three holdings combined give the city’s electric utility the rights to roughly 49 MWH of capacity every day, 7 days a week.
The wholesale electricity we’re buying from OUC under our new contract is in addition to that power we’re already entitled to via agreements brokered through FMPA. The OUC power replaces the power we used to purchase from the FMPA All Requirements Project.
According to recent reports provided by the city, Vero’s electric load, on average is 70 to 140 MWH. During the cold snap in early January, the peak load topped 200 MWH and during the hottest parts of the summer the peak load creeps up sharply.
The 49 MWH we’re entitled to by our part ownership of the three plants is quite an important part of our electric puzzle and the entitlement to buy that cheap power at cost has a tangible value, but we don’t know how much.
We also don’t have a value on the books for our monthly liability as members of FMPA for the costs of running a percentage of those plants.
“This is a very complex question,” City Manager Jim Gabbard told Councilman Ken Daige at a recent meeting. “We don’t have a value of the electric system. If the Council wants us to answer, we’re going to have, we’re going to need to to hire someone to give us an evaluation.”
There is also a question as to whether or not interests or entitlements could be sold, traded or assigned should the city -- or the people via referendum -- decide to sell the utility.
Faherty said he had been told by former Electric Utility Director R.B. Sloan that the assets have “no equity” and that getting out from under them would be sticky. FMPA supposedly places restrictions on how, when and who a member or former member can sell its interests.
FMPA spokesman McCain said getting the answers to those questions would require careful analysis of the city’s contracts with FMPA regarding the St. Lucie and Stanton projects, though Vice Mayor Sabe Abell has a theory.
“There is no value if they are sold to an investor-owned utility,” said Abell during the Jan. 19 council meeting, confirming what Faherty had heard from Sloan, but added, “It only has value if it is transferred somehow to a municipal utility. There is a problem if these assets cannot be sold to an investor-owned utility.”
No exit from FMPA debt
Most worrisome is that the city also doesn’t know what its potential bond obligations are in relation to the money which purchased these assets, whether they are paid off or whether it could pay off that debt service early to completely extricate the city from FMPA.
According to McCain, the answer to that is that the city’s monthly obligation would be reduced -- just like the day that old car gets paid off -- but that Vero would still have to pay for the cost of operating the paid-off plant.
On top of the operational costs, FMPA and its members were obligated to pay down the $632 million in bonds it issued to purchase the share of the plants. About $126 million has already been retired, with $506 million left to pay off.
As a participant in those contracts, Vero Beach is required to pay off its portion of that debt. Vero is still a full, voting member of the FMPA. Should the city be allowed to sell or assign its purchase rights to the 49 megawatts of power, it still doesn’t completely sever the relationship with FMPA.
For example, the City of Homestead, McCain said, needed to get out from under its requirement to buy power after most of its customers’ homes were destroyed in Hurricane Andrew in 1992. Homestead didn’t have the revenues to cover its obligations, so it cut a deal with FMPA member Kissimmee to take over its share.
“The Kissimmee Utility Authority was growing significantly and said it would be interested in purchasing Homestead’s entitlement share,” McCain said. “But if at any time, the Kissimmee Utility Authority defaulted, the contract would revert back to Homestead.”
For how long, one may ask?
“The term of the contract for the project is for the life of the power plant,” McCain said.
The St. Lucie 2 nuclear plant is licensed by the federal government and recently got a 20-year extension to operate until 2043. The coal-fired Stanton 1 and 2 plants are not assigned a particular licensing lifespan.
With adequate repair and renewal efforts -- becoming increasingly expensive with age, akin to keeping an old car running -- a coal-fired plant could, theoretically, be maintained indefinitely.
After waiting four months to find out that the city has no idea how to answer his questions, Faherty, though not completely shocked, was disappointed. He said this issue gives further evidence that the city is in over its head in operating a complex electric utility.
“It shows me that they simply do not understand their assets. They don’t understand who owns what assets and they don’t understand what they’re worth,” he said. “They’re simply not capable of running a highly efficient electric utility. FPL, given the fact that they’re in the business, would clearly understand these things.”