Vero abandons bid to cut electric rates by playing the wholesale power market
The latest effort by a Vero Beach City Council to lower electric rates – this time, by having Mayor Dick Winger lead a crack city team in speculating in the wholesale power market – has gone down in flames even before the first round of bids was in.
Instead, Vero seems to be again placing its dream of lower rates on the wistful hope that its primary wholesale supplier, the Orlando Utilities Commission, will generously come up with a great new proposal for scaling back the deal agreed to by the 2008 Vero Beach City Council – which gets worse every year.
The current Council in June had voted to move forward with a plan to cancel the previous Council’s 20-year, $2 billion contract with the Orlando Utilities Commission, pay the $50 million exit penalty and enter into multiple new contracts for power to meet Vero’s peak demand.
The idea was to take advantage of the current soft power market and escape the costly long-term mistakes of previous city leaders via short-term speculation.
But the previous Council’s deal is so bad for Vero and so lucrative for Orlando, that OUC made it clear that a $50 million golden handshake was of no interest. OUC threatened to sue and told Vero it wanted to begin mediation proceedings post-haste. OUC also warned that any bidder might also be at risk of getting sued for tortuous interference in its contract with Vero.
So last Friday, Vero’s Purchasing Manager, John O’Brien, sent an email notice to 21 interested parties as far away as Houston and Morristown, NJ, thanking them for their interest in pitching bulk power to Vero, but saying: “The City and its advisors have recently reassessed the City’s initial procurement strategy to replace the City’s current bulk power supply contracts. As a result of this development, the City has decided to withdraw and cancel this Request for Proposals effective immediately.”
Councilwoman Pilar Turner on Sunday had not seen the cancelation notice that went out, but she said she was aware that Vero was no longer in the open-market power business. “Jim (O’Connor) called me Friday morning to tell me after meeting with OUC, they were pulling the RFP to avoid litigation,” Turner said.
O’Connor confirmed that the move was the result of a meeting the previous day with OUC. As for a new, improved deal with Orlando, O’Connor said that if all goes well, he expects to have a draft or at least a presentation of a new proposal for the City Council to consider on Aug. 18, the only regular council meeting scheduled this month.
“Yes we met with OUC on Thursday and feel we have an improved deal from the November offer, but (it) will take some time to put into contract form,”O’Connor said, adding, “Devil in the details, you know.”
Meanwhile, the legal fight between the city of Vero Beach and the Town of Indian River Shores – which is attempting to free itself of Vero electric is 2016 – is not abating.
The town has strongly rejected the Florida Public Service Commission’s attempt to insert itself on Vero’s behalf in the local court battle between the two municipalities.
That lawsuit is now in full swing, with the first oral arguments expected in mid-September. City officials have shrugged off the threat of losing, saying the Shores’ case has no chance of prevailing; but still, Vero’s powerful friends are attempting to intervene by turning the case into a jurisdictional squabble.
In February, the state Public Service Commission ruled steadfastly in Vero’s favor in two matters with Indian River County, the PSC both defending Vero’s right and responsibility to serve its whole PSC-granted service territory including areas outside the city limits.
And by defending Vero’s territorial rights, the PSC also made a point of protecting its own exclusive powers when it comes to which utilities serve which areas. The county is appealing those decisions to the Florida Supreme Court.
Not content to rule only on questions that come before its five commissioners, the PSC now asserts that the Shores’ circuit court case against Vero is not a matter for the courts at all, but instead should be decided by the PSC.
The PSC filed a motion on July 23 to submit an amicus curiae brief in the Shores vs. Vero case. “The Commission believes that it is uniquely situated to inform this court of the nature and extent of the Commission’s jurisdiction. In particular, the Commission believes that it is best able to inform the Court of the adverse effect this case could have on the Commission’s regulatory responsibilities.”
In short, the PSC says Judge Cynthia Cox should dismiss the Shores complaint against Vero and let five unelected bureaucrats in Tallahassee make the decision instead.
Vero’s electric franchise agreement with the Shores expires in November 2016. After that, the Shores says Vero has “no organic right” to operate inside the Town limits without permission.
The Shores is asking the court to validate the Town’s home rule powers as granted by Florida’s state constitution. If the Town prevails in court, the Town would petition the PSC to modify its territorial boundaries to conform with the court’s ruling. Only then could a provider like Florida Power and Light begin serving the Shores.
This is a scary proposition for all those utilities around the state that encroach into sovereign municipalities to serve customers – especially if the rates they offer those outside customers, like Vero’s, are not competitive; or if they’re a municipal utility that pads its general fund on the backs of outside customers as does Vero; or if they tack hefty surcharges on those outside customers, as Vero electric did until it caved to political pressure in 2011.
When Vero and the County went before the PSC with similar questions about the role of franchise agreements in February, several utilities and power co-ops lined up to testify to the PSC that they don’t even have valid franchise agreements in place with their customers and that they’d be sunk if those customers were granted their freedom to broker a deal with another utility for competitive rates.
Should the fact that utility managers failed to secure or renew franchise agreements be the Shores’ residents’ concern? Or what about the fact that other outside customers might bolt in search of lower rates when their own franchise agreements expire? The PSC seems to be hinting at this when it mentions “the adverse effect this case could have on the Commission’s regulatory responsibilities.”
The Shores’ legal team responded to the PSC motion last week saying, in so many words, that the PSC should butt out and confine itself to its own regulatory sandbox.
The Holland and Knight lawyers first of all say the PSC’s request to file an amicus curiae brief is “inappropriate” as this is a circuit court case and not an appellate case. To allow such an intervener would be contrary to both Florida’s Rules of Civil Procedure and the local court’s rules.
“Moreover, the jurisdictional proclamations in the memorandum show that the PSC fundamentally misunderstands the nature of the declaratory relief that the Town is asking of the court,” the Shores response says. “The PSC wrongfully suggests that the Town’s entire Amended Complaint should be dismissed for lack of subject matter jurisdiction without indicating how the PSC could possibly have jurisdiction over claims for breach and anticipatory breach of Franchise Agreement, or for unreasonable rates – which it does not.”
Attorneys Bruce May and Karen Walker point out that the PSC does not regulate Vero’s rates like it does the rates of an investor-owned utility such as FPL. So whether or not Vero’s rates rise to the level of unreasonable, which the Shores says is a violation of its franchise agreement, is not within the PSC’s jurisdiction.
May, when asked on Friday to boil down the Town’s response, said it’s all about the Town’s rights under Florida’s Constitution as a sovereign municipality. That point of law, he said, falls squarely within the jurisdiction of the courts, not the PSC.
The response attempts to clarify what the lawsuit is, and is not, about: “The PSC, however, fails to grasp this case is not about the Territorial Agreement or the PSC order approving that agreement. Nor has the Town asked the court to modify the Territorial Agreement.”
What the first and central count of the Shores lawsuit does ask, the Shores’ response states, is “whether the City has the requisite organic statutory authority conferred by general or special law to furnish electricity to areas outside of its corporate boundaries and within the corporate limits of the Town without the Town’s consent.”
“The Town respectfully believes that the Court – and not the PSC – is the appropriate tribunal to make these threshold constitutional and legal determinations,” the Shores’ response states.
So once again, Vero Beach’s legal issues have attracted powerful statewide players, as the saga of 34,000 customers struggling for lower rates drags on through another sweltering summer.
The coming months will reveal whether the long arm of the PSC and its well-staffed legal operation will pressure Judge Cox to toss out the case, or whether the local court will stand up to outside influence from Tallahassee to let the dispute play out.