New regulations severely limiting coal-fired electric generation in Florida could leave the City of Vero Beach out scrambling to buy power in a very unfavorable market as early as 2020.

In an effort to get electric rates down and secure peaking power to enable Big Blue to be mothballed, Vero officials and their lead utilities attorney Robert Scheffel “Schef” Wright have been working to renegotiate the 2008 power supply contract with the Orlando Utilities Commission that runs through 2029.

The proposed new deal would let OUC exit the contract without penalty as early as 2020 – the same year the Environmental Protection Agency is expected to clamp down on coal, requiring a reduction in coal utilization by 90 percent to cut carbon emissions by 35 percent.

Currently, according to a presentation given to Florida Municipal Power Association policy makers last week, Florida electric generators produce 1,238 pounds of carbon dioxide per megawatt. The EPA’s benchmark for those carbon emissions is 794 pounds per megawatt for 2020.

To achieve that goal, the EPA expects – in addition to the near-elimination of coal – an increase in nuclear power generation and in renewable energy like solar, hydropower and wind.

FMPA’s System Planning Manager Michele Jackson told a group of member cities that FMPA would need to make some major, costly changes in its fuel mix to meet the new requirements. The most drastic of those changes could be the closing of OUC’s Stanton 1 coal plant in 2020 after the current debt on the plant is paid off in 2019.

If OUC closes its Stanton 1 plant, relying solely on Stanton 2 and natural gas alternatives, that might lead Orlando to exercise its right to exit its agreement to provide power to Vero as soon as it can in 2020.

With utilities all over the state scrambling to achieve a more carbon-friendly fuel mix for their own customers, it could be a really dicey time for Vero to be left without an assured power supply.

City Manager Jim O’Connor is in the process of analyzing the potential implications of these new rules, but at first blush, his reaction was that Vero might want to keep OUC committed until 2029 under the current contract, which went into effect in January 2010.

“We might be better off sticking with what we’ve got,” O’Connor said last week upon hearing about the likely effect of the proposed EPA rules.

What would the status quo mean for Vero ratepayers? It would mean the chances of short-term cost reductions via a re-do of the OUC contract are probably out the window.

It would also mean that Vero would have to go back to the drawing board when it comes to finding the peaking power required to mothball Big Blue.

Without a contract for peaking power in hand, regulators won’t allow Vero to shut down Big Blue and the current OUC deal requires the availability of some of Vero’s generation capacity. Vero’s generators are required to kick on when there’s congestion on FPL’s transmission lines and sometimes when demand peaks due to residents cranking up their heaters in the winter.

The jobs of about 23 Vero power plant employees – mostly long-time workers represented by Teamsters Local 769 – hang in the balance while Vero studies its options.

The proposed new OUC contract would offer cheaper rates in the short term, saving tens of millions of dollars, but would include a take-or-pay provision requiring Vero to purchase a minimum amount of power each month. That’s a change from the current OUC deal, which does not set a floor for how much wholesale power Vero must buy.

In accordance with Vero’s FMPA contracts, ratepayers use what is called the FMPA “entitlement” power from the Stanton 1 and 2 and St. Lucie nuclear plants first, then Vero buys power the system needs over and above the entitlements from OUC. Vero’s contracts with OUC prohibit the city from going to market for cheaper wholesale power from a source other than OUC.

Interestingly, one of the types of electric generation that the EPA wants to see more of by 2020 is the natural gas combined-cycle unit. Vero has one such unit, combining Unit 2 and Unit 5 in a closed system which captures the steam from Unit 2 to run Unit 5. The FMPA’s Jackson said Florida Power and Light has been busy retrofitting older plants, turning pairs and clusters of generators into these more efficient, combined-cycle units.

Between the combined-cycle units and its investment in nuclear power (23 percent of its fuel mix), Jackson said FPL is well positioned to meet the new EPA rules.

Vero Beach and Indian River Shores are scheduled to meet on May 1 in a last-ditch effort to mediate the Shores’ lawsuit against Vero.

A big part of what Vero was supposed to bring to the table during mediation was a concrete plan to reduce rates – a plan that hinged on savings from re-doing the OUC contract and from shuttering of Big Blue, which also depends on a new OUC deal.

For now, Vero officials might find it prudent to take a wait-and-see approach, meaning ratepayers may also have to wait-and-see whether their electric bills will ever go down.