Editor’s Note: Responding recently to questions from the media, Florida Municipal Power Agency Assistant General Manager Mark McCain offered extensive answers explaining the history of the FMPA power projects in which the City of Vero Beach participates.

Question: What is the origin of FMPA’s St. Lucie Project? (Fractional ownership in FPL’s St. Lucie Two Nuclear plant)

Before FMPA was formed, Florida Power & Light Company (FPL) announced plans to build a nuclear power plant, and several municipal electric utilities, including Vero Beach, were interested in purchasing an ownership interest.

A group of 20 Florida cities, including Vero Beach, came together and asked for ownership interests in FPL’s nuclear units. FPL denied the request, so in 1974 the cities intervened in FPL’s application for a license to construct St. Lucie Unit 2. In addition, the cities filed an antitrust lawsuit against FPL.

In 1976, the Nuclear Regulatory Commission ruled that the cities had the right to participate in St. Lucie Unit 2. This decision resolved the nuclear license intervention, but the antitrust lawsuit continued for several years. Finally, in 1982, FPL and the cities reached a comprehensive settlement for participation in St. Lucie.

Cleared to participate in St. Lucie Unit 2, it was time for each city to negotiate a participation agreement with FPL and to finance its ownership interest. During the eight years since the legal action began, FMPA had been formed in 1978, so the cities turned to the Agency to coordinate and finance FMPA’s first joint power supply project. The cities felt it would be more efficient and cost effective to hold their ownership in St. Lucie Unit 2 through FMPA, rather than each city have individual ownership interests, so the cities worked together to create FMPA’s St. Lucie Project.

The cities, FMPA staff, consultants and bond underwriters developed the St. Lucie Project contracts. The cities were involved in directing the development of the contract provisions, and the cities approved the final contracts. The project was structured so that FMPA’s St. Lucie Project has the actual ownership interest in St. Lucie Unit 2, and each of the participating cities has a power entitlement share to a specific percentage of the output of the generating unit. Each participant selected the amount of its power entitlement share (within the total amount made available by the unit’s primary owner/operator, FPL). Vero Beach has the third largest power entitlement share among FMPA’s St. Lucie Project participants. FPL made available to FMPA an 8.8% ownership share in St. Lucie Unit 2, and of that Vero Beach is 15.202% of the 8.8%.

Because FMPA was a new legal entity using its statutory authority for the first time and since its first bond issue was large—$290 million—it was important to assure investors, who purchased FMPA’s tax-exempt municipal bonds to finance ownership in Unit 2, that the bonds and the purpose of the St. Lucie Project were lawful. To do so, FMPA’s enabling legislation and contracts were submitted to the courts and ultimately validated by the Florida Supreme Court in 1983.

The St. Lucie Project contracts served as the model for FMPA’s subsequent power supply project contracts, including the FMPA Stanton Project and Stanton II Project, in which Vero Beach also is a participant. The Stanton Project and Stanton II Project contracts were validated by the circuit court.

The contracts for each project are for the life of the unit or until all project obligations are satisfied, whichever is longer. Specifically, the agreements are in force until the unit’s primary owner/operator shuts down the unit and all the Project’s obligations are extinguished, including repayment of all debt and decommissioning of the unit.

· For the Stanton Project, which has an ownership in Stanton Unit 1, the primary owner and operator, Orlando Utilities Commission (OUC), cannot retire the unit within the first 30 years of operation, which is 2017, without FMPA’s consent. Exactly how long the unit will operate is not known at this time. Presumably, OUC will continue to operate the unit as it is economical and as long as it can economically comply with environmental regulations. Currently, all Stanton Project debt will be retired as of Oct. 1, 2019.

· For the Stanton II Project, which has an ownership in Stanton Unit 2, the primary owner and operator, OUC, cannot retire the unit with the first 30 years of operation, which is 2026, without FMPA’s consent. Again, exactly how long OUC will operate the unit is not known at this time. Currently, all Stanton II Project debt will be retired as of Oct. 1, 2027.

· For the St. Lucie Project, Unit 2 is licensed by the Nuclear Regulatory Commission to operate until 2043; however, the decision to operate the unit until that date is determined by the unit’s primary owner/operator, FPL. Currently, all St. Lucie Project debt will be retired as of Oct. 1, 2026.

Question: What is the origin of the Stanton Project? (Two coal fired plants east of Orlando)

In the 1980s, OUC was planning to build a coal-fired generating unit in Orlando. OUC invited FMPA and its members to consider partnering in the unit.

One of the primary advantages of a joint action agency, like FMPA, is that cities can work together to build large, more efficient generating units and share in the operating expenses, which lowers individual city’s costs. Many municipal electric utilities, like Vero Beach, are too small to build their own coal-fired generating unit. Coal-fired units typically need to be large to be economical, like the approximately 450 megawatt units at the Stanton Energy Center.

In addition, at that time in history, on the heels of the oil crisis in the 1970s, electric utilities were prohibited from building gas- or oil-fired generating units, which had been the fuel of choice for municipal utilities because gas- or oil-fired units could be built in smaller megawatt sizes suitable to individual municipal utilities. Thus, the opportunity to jointly participate in a coal-fired unit was desirable.

The industry dynamics in Florida were similar to conditions throughout the United States. Joint action agencies, like FMPA, were created in almost every state to enable municipal electric utilities to jointly plan for their future power supply needs and achieve economies of scale. Joint action helps cities capture economies of scale to be more efficient and allows municipal utilities to diversify their generation resources among fuel types (i.e., coal, nuclear, natural gas and others) and among different generating units, which increases reliability.

Five cities, including Vero Beach, decided to work together through FMPA to create the Stanton Project. Vero Beach has the largest entitlement share among the FMPA Stanton Project participants. Modeled after the St. Lucie Project contracts, the Stanton Project was structured so that the project has the actual ownership interest in Stanton Unit 1, and each of the participating cities has a power entitlement share to a specific percentage of the generating unit’s output.

What is the origin of the Stanton II Project?
The origin of FMPA’s Stanton II Project is much the same as the Stanton Project. In the 1990s, OUC was planning to build a second coal-fired generating unit at the Stanton Energy Center in Orlando. OUC invited FMPA and its members to have an ownership share.

Eight cities, including Vero Beach, decided to work together through FMPA to create the Stanton II Project. Vero Beach currently has the second largest entitlement share among the Stanton II Project participants. Modeled after the St. Lucie and Stanton project contracts, the Stanton II Project was structured so that the project has the actual ownership interest, and each of the participating cities has a power entitlement share to a specific percentage of the generating unit’s output.

As is the case for all of these projects, when the unit is retired and decommissioned and all obligations of the project are met, assets (monies) remaining in the project, if any, will be distributed to the project participants.

Question: How did the contracts come together?

As explained in the preceding stories, the contracts for the St. Lucie, Stanton and Stanton II projects are essentially the same. There are some factual differences, of course, to account for unit-specific considerations, but the essential tenants of the contract remain unchanged, as validated by the Florida Supreme Court. The contracts were developed by FMPA’s member cities directing FMPA’s staff, consultants and bond underwriters.

Related to your question, below is the “bare basic” process of how the projects come together. It’s important to understand this process so that you realize participation is completely voluntary. Here’s the typical process:

1. A power supply opportunity, like participation in a nuclear or coal unit, is proposed.
2. FMPA member cities make an initial expression of interest.
3. FMPA conducts an economic feasibility study to determine if the proposed generating unit is economical for each city. A city is free to hire its own consultant to conduct this study.
4. The city reviews the economic analysis. The city can hire its own experts to review the report and its conclusions, if desired.
5. A city, if interested in participating, approves a non-binding letter of intent to continue the process of developing the project.
6. Contracts are developed. Contracts are approved by FMPA governing board (made up of representatives from the cities). The contracts are presented to each municipal utility’s governing body for approval.
7. When the project contracts are executed, FMPA issues tax-exempt municipal bonds to finance the ownership interest. The bond issue is approved by FMPA’s governing board, which is made up of representatives from the cities.

Are new plants built to accommodate growing electric needs?
Growth in electricity usage is the principle justification for a new plant. There conceivably could be situations when retiring an old generating unit or replacing an expiring power purchase agreement could be the justification to build a new plant, but more often than not the driver is the need for more generating capacity to serve the growing demand for electricity from customers.

Do openings come up at plants when demand drops?
FMPA’s power plant commitments are long-term commitments for the life of the unit, so even though electricity demand might decrease, such as in a recession, the plant commitments remain. Generally, utilities have experienced increasing demand over time.

There have been a couple cases where entitlement shares were transferred among FMPA members, as allowed and prescribed for under the project contracts. Two such transfers became effective when Stanton Unit 2 began operation in 1996:

· The city of Homestead transferred to KUA approximately 50% of Homestead’s power entitlement share in FMPA’s Stanton and Stanton II projects. The transaction involved approximately 16 megawatts at the time.

· The city of Lake Worth transferred to KUA all of its power entitlement share from FMPA’s Stanton II Project, which was approximately eight megawatts at the time.

In each case, one member expected to have excess generating capacity when Stanton Unit 2 began operation while the other could economically use and desired to obtain more capacity. Also, KUA is a tax-exempt utility and a member of FMPA, so KUA was eligible under the contracts and Internal Revenue Service tax law to take the assignments. In each case, as specified under the project contracts, Homestead and Lake Worth remain contingently liable for the entitlement shares transferred to KUA should KUA default.
Question: Why are the contracts done for so many decades?

Purchasing ownership interests in power plants requires financing for the facilities. Municipal utilities typically finance power plants over the useful life of the facility. The useful life for many major power plants is 30 years or more. The contracts have to be in place through the financing life of the facilities. Otherwise, no bonds could ever be issued to enable FMPA’s members to participate in these projects.