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Proposal for electric price fix would deepen Vero entanglement

STORY BY LISA ZAHNER (Week of October 23, 2014)

The City of Vero Beach’s last great hope that a major re-do of the 20-year, $2 billion wholesale power contract with the Orlando Utilities Commission might help rescue ratepayers from high electric bills appears headed for the Vero graveyard of broken dreams.

The “big news” released Monday after months of negotiations turned out to offer pretty anemic short-term savings that were tied to new contractual commitments that could lock Vero into even higher future costs that it would remain obligated to through 2030.

If all the stars align, the city’s utility attorney Robert Scheffel “Schef” Wright says that Vero in the near term could get its rate down $10 per month, from the current $123.93 per 1,000 kilowatt hour to $113.93 per 1,000 kilowatt hour. This would still be roughly 17 percent higher than FPL’s rate for the same power.

But the real bottom-line question is whether yet one more Vero City Council – the one seated after the November 4 election – will go for what looks like a “short-term fix,” giving up on seeking to extricate Vero from the municipal electric business, and locking the city into one more long-term power contract that proves impossible to ever escape.

In a very simplistic form, the deal proposed Monday with Orlando Utilities gives Vero Beach some temporary relief to the tune of $7 million per year in discounts for three years, then smaller discounts of between $4.1 million to $5.3 million per year going forward, provided that some very big conditions are met.

Perhaps the biggest is that after Vero mothballs its Big Blue power plant, it would be required to purchase even more power, 54 megawatts of “peaking capacity,” from OUC.  In addition to that, Vero would still need to purchase a “minimum take” of 85 megawatts in wholesale power for the duration of the contract, which expires in 2030.

There’s no telling what those costs will be in the future, and it’s unclear if the replacement deal with OUC would still include the 3 percent escalator clause in the current deal – a guaranteed 3 percent increase every year for 16 years adds up to real money – or whether it would carry forward the contentious $20 million to $50 million exit penalties in the current deal.

Vero officials have been working to get the terms of this deal outlined before the five City Council members, the five Indian River Shores Town Council members and the five members of the Indian River Board of County Commissioners get together on Oct. 28 to try to settle the Shores’ lawsuit against Vero.

Of all the options Vero has considered so far to get rates down, Wright and City Manager Jim O’Connor have said that a major renegotiation of the OUC contract is Vero’s best shot at rate reduction.

The Shores wants FPL rates, and no solution that is far from that goal is likely to keep Vero out of circuit court.

Whether the proposal to hypothetically shave $10 per month off electric bills will impact the outcome of the Nov. 4 election is unclear.

Vice Mayor Jay Kramer began pushing last year to have the city approach OUC about renegotiating its terms after OUC cut a deal with the City of Lake Worth, giving that city a better wholesale price and shorter term than the one brokered with Vero in 2008.

On Monday night, Kramer had not read Wright’s nine-page memo in detail, but said he thought there were still many details to be worked out with regard to mothballing the power plant and added that “they’re still talking about some transmission issues.”

Utility activist Glenn Heran, upon reading the document released Monday, said, “It’s a pre-election ploy designed to help Dick Winger and Jay Kramer keep Vero Beach in the electric business and pretend that they can become remotely competitive with FPL. We’ve heard those promises before from councils led by Tom White and Sabe Abell.

“It’s really about half-measures,” Heran said. “They’re not doing what voters have repeatedly asked them to do, which is get out of the electric business altogether.”

Kramer responded that the plan does look line “a pre-election political ploy. I’ll give you that. Realistically I wish this wasn’t at this time of year. I wish we would have done this over the summer and we could have been saving a ton of money. I wish we would have done it last year. “

Will any of this news affect the Shores’ determination to proceed with the suit against Vero in circuit court?

“This is news to us. We’re looking at it,” said Bruce May, lead utility attorney representing Indian River Shores, who said he shared the document with Holland and Knight’s rate expert Terry Deason as soon as he received it.

May added that he had no official comment as of Monday afternoon, but said, upon seeing the best-case-scenario rate reduction to $113.93 “at full implementation” that Wright stated in the summary, “We applaud the city for trying to reduce rates. On a real quick read, I didn’t see where this would get the rates down to parity with FPL.” 

FPL’s rates are set to go down to $97.33 in January. 

That best-case hypothetical rate of $113.93 for Vero electric assumes that the city will have zero costs for transmission upgrades.

Yet FPL in its now moribund proposal to buy Vero electric had planned on spending $8 million in upgrades to shore up the power grid in order to gain regulatory approval to shut down Big Blue. The current plan being tossed around at City Hall would only mothball the plant in place, keeping the eyesore on the riverfront and failing to free up the land for another use.

The hypothetical rate also assumes that costs of fuel from the Florida Municipal Power Agency will not increase.  That is probably not a realistic assumption, based upon Councilwoman Pilar Turner’s reports back from recent budget talks she’s attended at the FMPA.

Vero Beach’s “virtual ownership,” as Wright termed the city’s massive investments in Stanton 1 and Stanton 2 generators through the FMPA, are heavily dependent upon the use of coal to produce electricity.

Potential regulation of greenhouse gases by the federal government via a cap-and-trade system could drastically increase the cost of coal-fired power. When OUC switches to natural gas to produce power because it’s cheaper than coal, ratepayers must still foot the bill for a portion of the staffing and operational expenses for the Stanton plants, even if they’re not generating power.

The hypothetical rate also assumes that employee pension and healthcare costs remain stable. In short, a number of economic and political factors completely out of the city’s control could prevent that $10 per month savings from ever materializing.

FPL also would have to agree that this new deal with OUC does not violate FPL’s sale and purchase agreement to buy the electric utility. That contract is now unenforceable, but it is still on the books.