COMMENTARY

MARK SCHUMANN 

What will the City of Vero Beach do with its electric system if the proposed sale to Florida Power & Light falls through?  No one seems to know?  Though a number of ideas have been floated, such as selling the out-of-city customers, or creating a utility authority, the City has no real back-up plan for lowering rates and resolving nagging representation issues.

It has been more than two years since the signing of the first memo of understanding between the City and FPL on May 6, 2011.  Over that time the City has doggedly pursued a policy of selling the electric system to FPL.  At a cost of some $1.5 million, the City engaged the services of transactional attorneys. Working closely with FPL and the Orlando Utilities Commission, the cities $500-hour attorneys negotiated a sales contract and power purchase agreements that, as it stands today, simply cannot be executed.  By the transactional attorneys’ own admission, the current negotiations between FPL and the Florida Municipal Power Agency are out of their hands.

All along, FPL representatives have assured City leaders and the public of their confidence in concluding the sale by the end of 2014.  In truth, it would take nothing short of a miracle for the city to find a way out of its FMPA All Requirements Project contracts before Oct. 1, 2016.  This nearly insurmountable hurdle was known to everyone well before memos of understanding and contracts were signed, and yet the public was led to believe the FMPA could be pushed around and forced to abrogate the very contracts that secure some $2 billion in bonded indebtedness.

Having run headlong into reality, about the most honest, forthright statements FPL representatives can bring themselves to make today are their admissions that, “This is a extremely complex deal.”

No kidding! If FPL is unable to strike a deal with the OUC or the FMPA allowing the sale to go forward, where will that leave the City an the 34,000 customers of Vero Electric?  A number of high profile utility activists, who speak as if they know the minds of FPL executives, insist a sale of the 22,000 customers outside the city limits is simply not an option.  Others contend that even if FPL were willing to settle for 60 percent of something rather than all of nothing, a so-called partial sale would spell financial disaster for the City.  Vice Mayor Jay Kramer disagrees.  He thinks the City could run a smaller electric utility more efficiently.  Kramer may be right, but without a thorough, open-minded, independent analysis, who really knows? (Listen to interview with Jay Kramer)

Another alternative might be to form a utility authority, one that could afford out-of-city customers proportionate representation.  A utility authority representing all customers could pursue whatever credible options exist for executing a partial sale, or for operating the system more efficiently.

Even if the City could identify ways of lowering electric rates now, such as renegotiating its wholesale power contract with the OUC, upgrading transmission capacity and decommissioning the power plant, what freedom does the city have to act in its own best interest?  Council members Craig Fletcher and Pilar Turner and former council member Tracy Carroll signed a binding sales contract with FPL that will not expire until Dec. 31, 2016.

Perhaps it is time for the City to seek outside advice in identifying and understanding its options.  It would seem imprudent at this point to fire the transactional attorneys, but are they the ones to turn to for an impartial critique of their own work?  After all, they have already led the City down more than one dead end, including a somewhat bizarre scheme to convince the FMPA that Vero Electric is not being sold, but simply abandoned.

If no one within City government has the experience and knowledge to develop credible contingency plans, maybe it is time to engage legal advisors and utility experts who can do just that.  In a brief, lucid moment back in June, 2012 Councilman Craig Fletcher said it only made sense to develop options.  Someone must have gotten to him, because less than a week after making that statement on local radio, Fletcher withdrew his proposal to explore options to a full sale.

One utility activist, who is also a former council member, insists the solution is simply to hand the keys to Vero Electric over to FPL now, in total disregard for the City’s existing contractual obligations to the FMPA and the OUC, not to mention regulatory requirements.  This “solution” calls to mind a quote from legendary newspaper columnist H.L. Mencken.  “For every complex problem there is an answer that is clear, simple and wrong.”

It could well be that the sales contract signed by Fletcher, Turner and Carroll leaves the City no choice but to stand idly aside until as late as Dec. 31, 2016, while FPL explores its options, which might well include exerting its considerable financial and political muscle to influence the next City Council election.  With a more “compliant” Council in place, FPL could hope to gain still further concessions from the City.

With each passing year the City is paying down approximately $5 million more of its electric utility debt, not to mention $1.6 million a year in interest.  The less debt the City has to pay off at closing, the more it can expect to retain from the $111.5 million in cash FPL has offered, unless of course FPL tries to persuade a new Council to accept a correspondingly low payment in cash.  (If the sale were to close now, it has been estimated the City would net no more than a few million dollars.)

The City may have no choice but to wait it out, but it could also be that the City has every right to do what it can between now and late 2016 for the benefit of it customers.