MARK SCHUMANN

City Manager Jim O’Connor learned late yesterday that if and when Vero Beach sells its electric system and withdraws from the FMPA’s All Requirements Project, the City will be obligated to pay the Florida Municipal Power Agency $46.1 million to cover stranded costs.

Essentially, stranded costs represent the FMPA’s investment in power generation, transmission and distribution capacity, all built with the anticipation of serving the 34,000 customers of Vero Electric. In accordance with the All Requirements project contracts, any member withdrawing from the project must pay upfront an estimate of the stranded costs.  In Vero Beach’s case, those estimated costs include up to $3.5 million to clean up possible ground contamination at the power plant site, which may have happened while the plant was operated as a part of the All Requirements Project.

O’Connor said today he had expected the total estimate of stranded costs to be closer to $30 million to $35 million. The only practical means of raising the money, O’Connor said, would be to increase rates on Vero Electric’s customers.  Hypothetically, if the City’s electric system were sold to Florida Power & Light on Dec. 31, 2016, electric rates would have to be raised approximately 18 percent, or $1.5 million a month for the next 30 months.

In a five page letter itemizing the estimated costs, FMPA General Manager and CEO Nicholas Guarriello explained that if the actual costs to the FMPA turn out to be less than estimated, Vero Beach could, over time, be reimbursed up to 90 percent of its initial payment.  Regardless of how much money is ultimately returned, if Vero Electric is sold to Florida Power & Light, the City will still be faced with the task of raising $46.1 million to cover the FMPA’s stranded costs.

In addition to the $46.1 million, Guarriello’s caution that Vero Beach will also share in any liability associated with the development of the Taylor Energy Center, a project that was essentially halted by former governor Charlie Crist.  The total liability for the “Taylor Swaps,” an interest rate hedge, could amount to as much as $143 million, with Vero Beach’s share being up to $3.8 million.

In total, Vero Beach may have to pay the FMPA as much as $49.9 million up front, in cash, if and when it closes on its purchase and sale agreement with FPL.

Yesterdays news of the City’s $46.1 million stranded cost liability is not the only recent setback in FPL’s effort to acquire Vero Electric.  Just two days ago, the Orlando Utilities Commission walked away from the deal, leaving the City without a “buyer” for its power entitlement shares in three FMPA power projects.  In reality, rather than buying Vero Beach’s interest in the power projects, the OUC was to be paid $34 million in cash and was to receive an assignment on gas transmission rights valued at approximately $10 million.

OUC Vice President and General Counsel Chris Browder explained that the bond covenants in the contracts to be assigned to the OUC would conflict with its existing bond covenants.  (See: OUC pulling plus on FPL-Vero Beach power deal)

Without another party willing to assume Vero Beach’s position in one nuclear plant and two coal-fired generators, the sale of Vero Beach’s electric system simply cannot go forward.

See also: Attorney’s memo alludes to additional costs to selling Vero Electric

See also: Understanding Vero Beach’s commitment to the FMPA