EDITORIAL

To date, the failure of the City to reach closure on its effort to lower the electric rates, generally believed to be running about $2 million per month over prevailing market rates, raises concerns and questions about accountability.

Vero Beach has a history of entering into long term electric utility contracts that, in retrospect, have proven to be financial failures.

First, there are the City’s contracts with Florida Municipal Power Agency. These commitments to participate in the FMPA’s All Requirements Project and to buy into three separate FMPA power projects (Saint Lucie II and Stanton I and Stanton II) were entered into decades ago. These power projects involved a consortium of municipalities that issued long-term bonds to build primarily coal-generated power plants. Today, coal fired power is expensive, which is why exiting from these contracts has proven to be a daunting task.

After concluding its commitment to buy power from the FMPA All Requirements Project in 2008, the City moved all of its eggs into another basket, so to speak, and entered into a long-term wholesale supply contract with Orlando Utility Commission. That 20-year agreement obligates the City to buy power from the OUC at rates that have turned out to be well above market, and are likely to remain so for another 10 to 15 years. Consequently, the City’s contract with the OUC has a negative value and can only be exited at a significant cost.

In February 2013, the City entered into the third of its problematic contracts. This one is a 4-year contract with Florida Power and Light to sell the electric system. The problem is that at the time of the contract signing, and still as of today, no feasible sales transaction exists. The City unwisely bound itself to a four-year contract when, in fact, there was at the time no deal on the table and no realistic structure for a deal in sight.

At the heart of the sales contract was a so-called “Plan A,” designed to permit the City to exit the FMPA contracts. The plan was fatally defective because it did not comply with the requirements of federal tax laws.  The City’s $500-per-hour transactional attorneys told the Council that in their opinion the tax problems were not significant.  Presumably, based on this advice council members Craig Fletcher and Pilar Turner and former councilwoman Tracy Carroll signed the sales contract on behalf of the City.

The City’s transactional attorneys neglected to tell the Council that, to the contrary, tax experts viewed the tax issues to be substantial and indeed difficult to overcome. This past June, when it became obvious the tax issues cold not be overcome, Plan A was abandoned.  Efforts to date to find a workable alternative plan have been unsuccessful, notwithstanding continued assurances from FPL to the contrary.

What is now apparent is that instead of receiving sound professional advice from its transactional attorneys prior to committing to a four-year contract, the City was given advice designed to influence the Council and City voters to approve a sales agreement that has proven to be fatally flawed. Surely the City was and is entitled to better advice.

This long trail of missteps and bad advice could be viewed as a comedy of errors, except that the rate payers remain bound to pay $2 million a month over market for electricity, and the City remains encumbered by a four year contract that has essential elements missing. The only thing that is clear is that the situation is a mess, and the City has been badly served by its current transactional attorneys.

What to do? It is obvious that FPL and the OUC must be pushed to complete the current contract, and sooner rather than later, by filling in the missing elements, even though they are apparently under no obligation to do so.

Alternatively FPL, the OUC and the FMPA must be encouraged to work out a transaction that will bring more immediate rate relief to the 22,000 customers outside the City, and that leaves the City’s electric operations in a viable financial position. This will not be an easy task, and it is clearly not a task that the City can expect to navigate with its current attorneys and consultants.