With sale dead, Vero seeks ways to cut electric rates
Now that the sale of Vero electric to Florida Power and Light has been pronounced dead, a stark analysis of the way Vero electric does business is expected to take center stage.
In May, the City Council voted to put a comprehensive rate study out for bid, with Mayor Dick Winger saying Vero needs to retain some experts, possibly even a “team” of consultants, to come up with innovative ways to get rates down.
City staff is in the process of preparing that request for proposals, City Manager Jim O’Connor said.
Also likely to get new consideration are more than a dozen ideas floated by members of the city’s Utilities and Finance commissions and by various council members.
Vice Mayor Jay Kramer is expected to press his proposal to seek to renegotiate the city’s 20-year, $2 billion wholesale power contract with the Orlando Utilities Commission, to see if Vero might be able to shut down part or all of the aging Big Blue power plant.
The contract, which was signed in 2008 and became effective Jan. 1, 2010, requires that Vero staff and maintain Big Blue in a state of readiness whether or not the power plant ever fires up its generators.
Kramer and Winger advocate shutting the power plant down, a move that could save upwards of $3 million annually. Presumably, Vero would lay off the 28 full-time power plant workers and could realize other savings from not operating the plant.
However, as part of its plan to shut Big Blue down, FPL had planned to spend $20 in transmission upgrades, plant decommissioning and relocating the riverfront substation to another piece of land across Indian River Boulevard from the power plant.
Councilwoman Pilar Turner has pointed out numerous times that the Kramer-Winger plan does not even begin to contemplate what upgrades Vero might be required by regulators to perform to maintain the integrity of the grid.
Winger told Vero Beach 32963 he is well aware of the potential need for transmission upgrades, and said staff has yet to get a handle on those costs. That is one reason, he said, why he wants a full-blown rate study done, to analyze the costs and benefits of every viable option.
Kramer also is hopeful that in addition to getting OUC agreement to shutting Big Blue, the Orlando utility might renegotiate other terms of the contract.
One onerous provision binds Vero to paying a portion of the operating costs of Orlando’s Stanton coal plants – whether or not those plants are actually producing power. When natural gas is cheaper than coal, as it is at the moment, OUC burns gas to produce electricity – but Vero still has to pay to help it staff and maintain its coal plants, just as Vero must staff and maintain Big Blue.
Another contract provision calls for annual increases in what Vero pays OUC of at least 3 percent.
The charges built into the OUC deal have driven Vero’s monthly bills way up beyond what was envisioned when the deal was approved.
When Vero transitioned from the Florida Municipal Power Agency’s All-Requirements Project to get its wholesale power from OUC in 2010, Vero ratepayers were promised the new deal would usher in “rates equal to or less than FPL.” That reality has not materialized.
Kramer also asserts that after Vero notified OUC it intended to exit the wholesale power contract and sell its utility to FPL, OUC violated the contract provisions by cutting a better deal with the City of Lake Worth for wholesale power.
That leverage should, Kramer has speculated, give Vero an opener through which to re-do the terms prior to the contract’s 2030 termination.
“The renegotiation of the OUC contracts may have some complication with our FPL sales agreement in place but we are discussing this internally. OUC has said they will be willing to talk about the contract so we have had brief discussions but not too much in detail,” City Manager Jim O’Connor said.
In addition to the rate study, which will be done by consultants, city staff has also been tasked with searching for efficiencies.
“We are still putting information together so we have nothing to release but in fact have already implemented some of the ideas, debt retirement and appointment of a Utility Director,” O’Connor said.
Utility Director Tom Richards, who was officially bumped up from Director of Power Resources, had been acting as the de facto utility director since he’d been hired. With more than three decades in the electric business, much of that in management or an executive capacity, Richards is apparently more than qualified to manage Vero electric going forward.
Kramer and Winger have suggested that Richards and O’Connor were somehow being prevented from efficiently managing the utility due to the pending sale agreement with FPL.
O’Connor has countered that the staff’s “hands were not tied” with relation to strategic management or day-to-day operations of the utility. Finance Director Cindy Lawson has been analyzing revenues, consumption and expenditures of the utility on at least a quarterly basis and she, O’Connor and Richards have been recommending regular tweaks of electric rates, when appropriate.
In late 2013, staff recommended a slight 1.9 percent increase in rates, but that was mitigated by two decreases, the first by 1.1 percent in the spring and the latest by 4.2 percent, effective June 1.
“I don’t see that the 1.1 percent and the 4.2 percent would get us down to Florida Power and Light rates,” Winger said after the May 20 vote to reduce Vero’s bulk power charge from $75 to $69.50 per 1,000 kilowatt hours.
At current rates, inclusive of the June 1 reduction, Vero electric customers pay $129.43 plus taxes, which is roughly 26.4 percent more than the $97.97 plus taxes that FPL customers pay for 1,000 kilowatt hours of power. It is this rate disparity that, in large part, has driven the five-year failed effort to sell the electric utility.