Vero Council to vote on plan to exit bad power deals
STORY
A key component of the Vero Beach electric utility sale to Florida Power and Light will come before the City Council for a vote on Sept. 18, but the eight-page document called the Memorandum of Understanding purposely leaves a great deal unsaid.
John Igoe, the attorney hired by council members to navigate the utility sale, said the memorandum, which does not address the purchase price or the benefits to the City of Vero Beach from the sale, is only designed to establish a framework to get the city out of its legal entanglements with the Orlando Utilities Commission and the Florida Municipal Power Agency.
“The MOU is an agreement between the City of Vero Beach, OUC, and FPL to negotiate in good faith the definitive agreements described in the MOU,” Igoe said in an email last week.
Vero is only two years into a 20-year, $2 billion contract with OUC and also a perpetual member of the FMPA power cooperative, which has current liabilities on the books that run at least until 2065.
Igoe and his colleague Rick Miller of the Edwards Wildman law firm have managed to do what many thought was impossible, to find “a path forward” and out the other end of these entanglements. The city will pay OUC $20 million to cancel the power contract and another $34 million to assume Vero’s share of the membership in the FMPA.
Getting out from under those contracts and into the FPL system will reduce ratepayers’ electric bills by 30 percent based upon comparisons between Vero Beach and FPL published rates for July 2012.
Vero Beach customers currently pay $330 for 2,500 kilowatts of power, where FPL customers pay $252 for the same. Financial modeling conducted by both FPL and by independent analysts have estimated that the city’s 33,000 residential and commercial customers will save between $18 and $26 million per year on their utility bills after the utility changes hands. The community could recoup the $54 million being paid to OUC in two to three years.
Vero Beach ratepayers have been following the saga of the sale to FPL closely over the past three years since the sweltering Summer of 2009 when rates skyrocketed to 58 percent higher than FPL, but utility activist and CPA Glenn Heran, who recently moved back into the City of Vero Beach from the county, has followed it intensely for more than five years.
Heran and Moorings resident Dr. Stephen Faherty have been credited with moving the issue forward with data showing the immense benefits from a sale. Heran, who has harshly criticized deals Vero has struck in the past, said he has no concerns about the limited scope of the MOU or any of the legalese in it because it’s not the final deal.
“The MOU is not the sale and purchase agreement; rather it is just a part of the process in the sale,” Heran said. “It is a narrow focus on that part of the Final Term Sheet that settles the costs of exiting the OUC contract and FMPA entitlements. The sale and purchase agreement is still being negotiated but will be based on this MOU and the other portions of the Final Term Sheet.”
The final term sheet referred to by Heran was delivered to the council on August 16 outlining a total compensation package to the City of Vero Beach of $179 million. In that term sheet, FPL upped the cash coming to the city from $100 million to $115 million. The complex agreement among FPL, OUC, the FMPA and the City of Vero Beach was also outlined in those terms.
The memo is not intended to spell out all the details of the sale, Igoe said. It also does not replace or negate the April 4, 2011 Letter of Intent. That letter started the due diligence phase, which led to formal negotiations toward a sale. The terms of the letter were extended in March by the city council and are set to expire on Sept. 30 if not extended again by the council. It is expected that, based upon the substantial progress made on the FPL deal, that the council will further extend the exclusivity ensured by the letter.
“The MOU does not address the terms of the LOI with FPL or the terms of the Purchase and Sale Agreement being negotiated between the City and FPL. That is not the subject matter of the MOU,” Igoe said. “The MOU addresses a path for the City to exit from its obligations to purchase power from OUC and FMPA (and its exit costs) assuming the City sells its electric utility to FPL.”
To push forward with that Purchase and Sale Agreement, the terms being agreed to by the city, OUC and FPL regarding the city’s long-term power supply agreements must be settled.
“The ‘benefits of the deal which have been promised to the City of Vero Beach,’ such as the $115,000,000 cash purchase price and assumption of certain pension liabilities will all be addressed in the Purchase and Sale Agreement between the City and FPL,” Igoe said.
After the City Council approves the memorandum, it will go back to the OUC board for a final blessing.
Three members – Mayor Pilar Turner, Vice Mayor Craig Fletcher and Councilwoman Tracy Carroll – have remained steadfast in their support of a sale, but after Nov. 6, no one knows what the makeup of the Vero Beach City Council will be with three seats up for grabs.
When asked if a new City Council could go back on or overturn the MOU after it is approved on Sept. 18, Igoe said, “Each party will be legally obligated to negotiate the definitive agreements in good faith.”
“All of such definitive agreements will be subject to the approval and execution of the definitive Agreement for Purchase and Sale between the City and FPL, and the closing of the sale of the electric utility to FPL. If the definitive Purchase Agreement between the City and FPL is approved and signed before the November 6, 2012 election, it too will be binding upon the City regardless of any change in the composition of the City Council.”
City Manager Jim O’Connor called the memorandum “a major hurdle and that after this is done, everything is under negotiation except for the power supply in the MOU.”
Among the loose ends that need to be negotiated, O’Connor said, are all the goods that come with the sale - the right of ways, the oil in storage, the bucket trucks.
“We want to get over this mountain first,” he said.
Provided the memorandum is approved by all parties, Igoe and his team will have until mid-October to nail the terms of the power contracts into a more formal legal document.
“We are focused now on the definitive agreements contemplated under the MOU. The next step will be to re-commence negotiations of the definitive Purchase and Sale Agreement between the City and FPL,” Igoe said.
