Vero’s latest deal: As always, it’s what’s in fine print
The Vero Beach City Council last week appeared to be falling in love with a new Orlando Utilities Commission deal for bulk power on the basis of the same kind of sales pitch you usually get in the first 90 minutes of a timeshare sales tour.
Robert Scheffel “Schef” Wright, the city’s outside utilities attorney, asked the City Council to envision the potential benefits of the OUC deal, but saved all the details for the high-pressure sit-down in the sales office after the tour.
Look to the left to see reduced electric rates, an estimated $750,000 per month. Look to the right and see a shorter time commitment. Look straight ahead and envisage the scenic riverfront without Big Blue, because this deal will, in time, allow Vero to tear down the power plant.
Just like the time-share salesmen who swear the deal they’re offering is good “today only,” Wright has even got the element of urgency on his side.
If the council doesn’t sign the contract immediately, within the next several weeks, they won’t see the benefits of the deal before November’s election. Wright says the deal on the table expires if it’s not made effective Oct. 1.
A week ago Tuesday, Wright got four of five members of the City Council to bite – a good percentage for a timeshare salesperson – but there was one skeptic in the group.
“I wouldn’t buy a car with the information I have, and you’re asking us to commit to a multi-billion dollar contract,” Councilwoman Pilar Turner told Wright. She pointed out that Wright was asking the council to make a major decision with long-term consequences based upon a sketchy, three-page outline and an amateurish line graph billed as a depiction of Vero’s potential “savings” if they sign onto the plan.
“This contract deserves the utmost scrutiny,” Turner said.
Councilman Randy Old responded with a confounding statement that could explain how Vero, not to mention the Florida Municipal Electric Agency, has justified getting itself mired in every single half-baked deal over the past 30 years.
“I’m thinking we’re in a contract already. What we’re doing is reducing the contract, reducing the term, getting the rates down and shutting down Big Blue,” Old said. “We’re already committed to buy the car.”
During the public comment portion of the meeting, former councilman Charlie Wilson reminded the Council of all the lofty promises made every time a new deal is brought to it for a vote, not the least of which was rates lower than or equal to those of Florida Power and Light.
He reminded the council that all the bad, long-term deals that now shackle Vero to high rates from the Florida Municipal Power Agency and from OUC were sold just as enthusiastically by some attorney or consultant.
“For the last 35 years, we’ve gotten into one deal after another. Every single one of them had a lawyer standing here telling you this is a really good deal. Not one single deal that we’ve made that got us here had a lawyer standing here saying you all really shouldn’t do this,” Wilson said.
Wilson added that the Indians who sold Manhattan were better negotiators than the City of Vero Beach.
After the meeting, Turner, who was derided for being the lone vote against a measure that would finally give Vero electric customers some rate relief, said she plans to remain vigilant throughout the contract process, despite the fact that she knows she’s outvoted.
“Orlando Utilities is not a philanthropic organization,” Turner said, adding that OUC would not offer Vero a deal that did not reap significant benefits for OUC.
Sadly, Vero does not currently employ any independent experts who will give the Council a straight answer about where the payoffs for OUC are buried in the deal.
Among the highlights of the deal that were presented by Wright was the duration of the contract, which is eight years, six years shorter than Vero’s current deal with OUC.
After the proposed deal’s expiration in 2023, Wright and Vero’s consultants show Vero electric going out to buy power on the open market.
In his trajectory of “savings,” Wright bases his data on Vero expertly playing that power market, resulting in significant future “savings” that would be passed down to customers in lower rates.
There are a few problems with this assumption, however.
First of all, Wright is assuming that the five members of the City Council in 2023 will have the collective risk tolerance to speculate on the open power market.
The majority of the current Dick Winger-Jay Kramer led council apparently possesses that kind of risk tolerance (a critic might say foolhardiness) to think they can beat the market. Woe to Vero residents if this same bunch is in power in 2023.
Second, he’s assuming that those leaders will have the judgment and the expertise to play the market well enough to bring lower rates. Third, he’s assuming that the economic factors and the regulatory environment will be favorable in 2023 for Vero to embark in market speculation for power. Those are massive assumptions.
Fourth, the proposed deal with OUC still contains the “take or pay” provision whereby Vero must purchase 85 megawatts of power from OUC. Vero’s current deal does not provide for a minimum or floor in what Vero is required to purchase from OUC.
This “take or pay” provision is this year’s poison pill. Should some brilliant person come up with a breakthrough that would allow Vero to sell its entire electric system to FPL, the city would still be on the hook for that 85 megawatts of power through 2023.
Speaking of poison pills, the $50 million poison pill from last time, according to Wright, carries over into this new OUC deal. It would have seemed these negotiations would have been the perfect opportunity to strike the $50 million exit penalty that was one of the biggest mistakes in the 2008 OUC contract. Not so, according to Wright.
The 2008 deal also contained an escalator clause under which OUC could – and did – increase Vero’s costs every single year, resulting in the rate creep Vero customers have seen over the past five years.
The new deal also contains an escalator clause and, guess what, Vero’s costs in the final year of the contract are actually higher than today’s costs.
Today, Vero’s demand charge is $8,331 per month. In October (just in time for the November election) that rate drops to $5,566 per month. Then it creeps up every single year, to $6,105 per month in 2018, to $7,146 in 2020 and finally to $8,708 per month on January 1, 2023. So under the proposed new OUC deal, rates could be higher in 2023 than they are today.
Next, the deal provides for Vero to purchase “peaking power” from OUC, which will enable Vero to shut down Big Blue.
Shutting down Big Blue should mean cutting overhead for operating the plant. A couple dozen city employees would be cut loose, many of those shifting over to the city’s pension plan.
What Wright’s analysis of “savings” doesn’t contemplate, however, is that all of those employees have been banking their sick and vacation time for decades. Those benefits will be due in cash when those employees collect their last paycheck from the city.
Also, dumping up to two dozen people into the pool of municipal pensioners at once might cause the city’s actuaries to adjust what taxpayers need to pump into the nearly $40 million hole of the city’s unfunded pension plan.
Then there’s the unknown of decommissioning the plant, and the cleanup of the site. At this point, the true cost of taking down Big Blue is unknown. Whatever the cost is would surely cut into the estimated $750,000 per month of “savings” touted in the deal highlights.
Last but not least, it’s still unclear whether or not Vero even has the authority to enter into this sweet deal with OUC while the city is still under contract with FPL to sell the entire system. Wright brushed this off as a minor detail. He said the only thing that would violate Vero’s agreement with FPL is shutting down Big Blue.
But the plan calls for the shutting down of Big Blue. That seems like kind of a big deal. FPL could potentially sue for breach of contract. That would pit Vero against not only the Town of Indian River Shores and the Indian River Board of County Commissioners, but also against the vast legal resources of FPL.
All these details will certainly be explained, all the risks fully identified and all these problems ironed out when Wright takes the five members of the Vero Beach City Council into the sales office at the conclusion of the time-share tour, presents them with a contract, and tells them it’s a “today only” offer. Once they walk away, the opportunity will be gone. Forever.
But Wright assured the council and the public that he’s “committed to transparency.”
Winger, however, set the council up for quick turnaround.
“We’re going to have to decide because if we’re going to have a power rate decrease hopefully Oct. 1, we’re going to have to make some decisions today, not final decisions but we’re going to have to give him (Wright) guidance and we’re going to have to be ready to pass material to the finance and the utility commissions,” he said.
Vero’s Utilities and Finance commissions are supposed to get some sort of draft of a contract with OUC before a joint meeting that is now scheduled for Sept. 14.
Then the City Council, it would appear, hopes to move forward the very next day on the deal.