MARK SCHUMANN

As negotiations drag on with little if any progress, it is difficult to view the city’s strategy for selling Vero Electric as anything more than hopes within hopes.

Over the past two weeks, the city’s transactional attorneys, along with City Manager Jim O’Connor, have twice huddled with representatives of the FMPA, the OUC and FPL, but with nothing tangible to show for their efforts.

In early May, transactional attorney John Igoe said the first quarter of 2014 remained a realistic target date for a closing on the sale.  At the same time, he agreed to June 30 as a target date for resolving key issues with the FMPA.  It is now unavoidably clear neither target is reachable.

If the truth be known, the city’s negotiators may be further from a deal today than they were in early May.  “Plan A,” as it has been called, for funneling Vero Beach’s power entitlements through the OUC to FPL, simply will not work and is now off the table.  FMPA counsel Fred Bryant recently reported to his executive committee that all parties now agree the scheme would never receive Internal Revenue Service approval.

The six bullet points comprising the outline of a substitute proposal have not yet gelled into a viable “Plan B.”  Essentially, negotiators are right back where they started, holding a blank sheet of paper.  Unfortunately, the proposal the transactional attorneys have in mind could reasonably characterized as subterfuge, for what was a “power” sale they now intend to term a “system” sale, as if IRS regulators wont’ be able to see through that.

As a solution to the contingent liabilities Vero Beach will retain after the sale, the city’s transactional attorneys proposed an insurance policy.  Additionally, the city would pledge revenue from the 6 percent franchise fee and 10 percent utility tax, should the OUC ever be unable to fulfill the obligations it will be assuming on Vero Beach’s behalf.

Also addressed was a process date for the city to exit the FMPA’s All Requirements Project.  Vero Beach is asking the FMPA to overlook the deficient notice given last fall.  If proper notice had been given, the city would be free to leave the ARP Sept. 30, 2015.  As it stands, the city must remain a member through September 30, 2016, and will on that date have to pay for strandes costs yet to be calculated.  The city is also asking the FMPA allow it to seek a waiver to leave the ARP early without seeking approval from each of the ARP’s 14 member cities.

Between the proposed insurance policy and the costs of exiting the ARP, the city will almost surely need to use utility reserve funds to cover the cost of the deal.  Any hopes of netting $3 million are gone, and any plans for how to use an estimated $30 million in reserve funds that were to become unencumbered are premature.

To improve City Councilwoman Tracy Carroll’s prospects for re-election in November, or simply to delay the pain of the inevitable, the Council majority of Carroll, Craig Fletcher and Pilar Turner may continue through the long, hot summer months to insist the prospects are good for resolving the contractual issues standing in the way of the sale.

The Council troika might even pull it off, not the sale, but the charade.  Eventually, though, just as a drop of oil works its way to the top of a barrel of water, the truth will come out, and Carroll, Fletcher and Turner will have to admit the failure of their attempt to force the FMPA to make concessions to contracts that are the very foundation of the joint action agency – contracts that protect FMPA’s members, and more importantly, its bondholders.

The approach Carroll, Fletcher, Turner and the city’s transactional attorneys have taken for more than a year now is proving to be, not a path forward, but an expensive detour to nowhere.

Not only are Vero Electric’s 34,000 customers no closer to rate relief than they were when this process began in late 2009, rates have actually been driven higher, as the city pays cash for work that should have been capitalized, and as large sums of cash are shelled out each month to pay the transactional attorneys.

By any fair assessment, the negotiations are bogged down, and not by any fault of the FMPA, despite what some might claim.

Beyond what is known as the private use issue, there still remain questions about who will take on Vero Beach’s contingent liabilities.  These are not problems the FMPA created, and there are not ones the FMPA can solve.  Quite simply, Vero Beach’s negotiators have, over many months, failed to bring workable solutions to the table.

Since the Council authorized an additional $300,000 for the transactional attorneys, who have now billed nearly $1.2 million, there have been two more months of negotiations, but no progress in resolving the FMPA issues.  Many have argued these questions should have been addressed before the transactional attorneys racked up a seven-figure bill pounding out the details of a purchase and sale agreement between the city and FPL.

Next to holding his infamous temper in check during last Tuesday’s Council meeting, the wisest thing the peevish Councilman has done of late, and the brightest idea he has offered, was to call for a thorough study of the city’s options, should a sale of the full system prove impossible.

Fletcher floated the idea during a radio interview last June.  Mysteriously, less than a week later, he backed away from his own proposal.  At the time, some speculated that Fletcher had been pressured by FPL to drop the idea.  The theory seems plausible, given the way Fletcher and his fellow member of the troika seem inclined to do FPL’s bidding.

Among several options, the city could turn the electric system over to an independent utility authority.   That approach certainly would not please FPL, but it would address the battle cry of utility activists Glenn Heran and Stephen Faherty, who argue the city’s county customers are the victims of “taxation without representation.”

A utility authority would also take at least some of the politics out of the running of electric system, which presumably would lead to sounder strategic thinking.

Another alternative would be a partial sale, in which the city would sell its customers outside the city limits to FPL, or to some other interested buyer.

As a result of a partial sale, the system’s 22,000 county customers would enjoy FPL rates as FPL customers.

Councilmen Jay Kramer and Richard Winger both maintain a partial sale is a viable option, though Kramer is more optimistic about the city actually matching FPL rates.

Winger has said the remaining 12,000 customers, all within the city limits, could have rates within 10 percent of FPL, while also benefiting from transfers from the electric fund to the general fund.

By all estimates, a partial would also net the city $20 million to $30 million more in cash.

It may be some time before Carroll, Fletcher and Turner are willing to explore alternatives to the path to nowhere, and it may be that the transactional attorneys have one more trick up their sleeve, one that will finally do the magic.

If not, the Utility Commission needs to be prepared to suggest alternatives.

Utility Commission Chairman Scott Stradley took great exception to my reporting that he had not given the concept of a partial sale the “slightest” thought.  At the time I made that observation, Stradley had, by his own admission, done no more than to invite Kramer to present his ideas at a Utility Commission meeting.

Asking someone to share his or her thoughts with you is quite different from putting your own mind to work, but perhaps that is just a matter of semantics.

If and when Stradley and his fellow Utility Commission members get the green light from the troika and FPL to explore a partial sale, Chairman Stradley, mentioned by some as a possible candidate for City Council, will have an opportunity to demonstrate his willingness and ability to wrap his mind around something other than a forgone conclusion.