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Orlando proposals for new pact worse than current electric deal

STORY BY LISA ZAHNER (Week of November 27, 2014)

The Orlando Utilities Commission, which a month ago offered to make a variety of changes in its wholesale power contract with Vero Beach, has now further revised its offer but is insisting on keeping one provision that would be even worse than the deal entered into by Vero’s 2008 City Council.

The provision that Orlando wants in any revision of the contract is called “take or pay,” and would require that Vero each month purchase and take a minimum of 85 megawatts of power from OUC, or if it doesn’t need that extra power, pay for it anyway.

Currently, Vero’s wholesale power purchase agreement sets no minimum amount of power it must purchase from OUC from year to year.  Vero has other agreements that do require minimum purchases each month through the Florida Municipal Power Agency.

Vero’s lead utility attorney Robert Scheffel “Schef” Wright said Monday that the floor of 85 megawatts Orlando is seeking is “significantly less than what we have paid for or expect to pay for” to meet the needs of the current 34,000 customers on the system, but that the take-or-pay provision “gives them (OUC) some assurance.”

What it also does, however, is lock Vero into a potentially disastrous situation should it lose some or all of its 22,000 non-resident electric customers in the County and the town of Indian River Shores as a result of pending litigation and a petition the county has filed with the Florida Public Service Commission.

With the proposed floor of 85 megawatts, Vero would be stuck purchasing that power – whether its customers needed it or not.

Some of the other changes contained in OUC’s revised proposal appear, however, to eliminate some of the more objectionable parts of its earlier offer.

Wright presented the new terms being offered to Vero’s Utility Advisory Committee on Monday in a lead-up to Tuesday’s City Council meeting.

Concessions offered by OUC include shortening the term of the contract by six years – from Dec. 31, 2029 to Dec. 31, 2023.

Mayor Dick Winger, who cited his experience dealing in volatile commodities markets, and others had expressed a preference for a shorter rather than a longer contract, due to the unpredictable nature of fuel costs.

On top of the shorter term – which may or may not be good for Vero depending on market conditions a decade from now – OUC negotiators agreed to eliminate a clause in the deal presented in October whereby OUC would take over Vero’s interest in Florida Power and Light’s St. Lucie nuclear plant, the city’s cheapest source of electricity.

In this last proposal, OUC also gave up its bid for a unilateral right to exit the contract early, any time after 2020, with no penalty, provided OUC gave two years’ notice.

Such a breach by OUC – which under the current contract would cost Orlando tens of millions in penalties – might leave Vero out buying power in an unfavorable open market.

But in return for these concessions, the price breaks Orlando was proposing to offer Vero for the first three full years of a new agreement would shrink to $5.5 million annually in 2016, $5.7 million in 2017 and then down to $4.08 million in 2018.

Under the terms proposed in October, Vero ratepayers could have saved as much as $68 million if the contract had remained in force all the way to 2029, or as little as $29.2 million should OUC pull out as early as 2020. Under the new terms sent over by OUC, the total savings through 2023 would be $37.8 million.

So Vero is left with three options.

One is to simply endure the high costs of the 2008 contract through its termination in 2029.

A second is to accept the first set of terms proposed by OUC in October.

The third possibility is to accept this newest iteration of the deal brought forth on Monday by Wright.

Herb Whittall, who was selected chair of the Utilities Committee on Monday, said of the new proposed terms, “We probably would like to look at them again as we don’t have much in the way of detail.”