MARK SCHUMANN

Following unanimous recommendations from both the Utilities Commission and the Finance Commission, the Vero Beach City Council this week approved a directive to staff to seek competitive bids for wholesale power, including, presumably, from Florida Power & Light.

Since the City of Vero Beach negotiated a 20-year wholesale power supply agreement with the Orlando Utilities Commission in 2008, the price of natural gas has fallen from $13 to $3 and Florida’s power generation capacity now far exceeds demand. In fact, so much has change since the OUC agreed to supply Vero Beach with two-thirds of its electric power that city leaders are now considering paying up to $50 million in liquidated damages to breach the OUC contract. What once was described as a “poison pill” in the OUC contract now appears to be bitter medicine worth taking.

Special utility attorney Schef Wright told the Council he expects eight to ten potential power supplies to submits bids in hopes of selling power to Vero Beach. Wright said the city’s request for proposals should go out by July 3, with all responses back by the end of July.

During August, the Utilities and Finance Commissions plan to vet the proposals and to then make a recommendation for the city council to consider in September.

Unlike the 2008 OUC agreement, which went into effect in 2009 for a term of 20 years, city leaders now plan to stagger three to four contracts for periods of three, five, seven and possibly ten years. Every two to three years, then, Vero Beach would renegotiate the price it pays for at least a portion of its power.

Councilman Randy Old observed that if the price of natural gas stays low for many years to come, the council’s decision not to sign one long-term contract now may someday seem unwise.  But Old went on to explain that just such a long-term commitment, which appeared prudent in 2008, now has Vero Beach paying power rates well above market prices. The best strategy for remaining at or near the prevailing market, everyone agrees, is to enter several staggered, or laddered, contracts.

For the past several months, Wright has been working with OUC officials to negotiate terms for an amended wholesale power agreement. Wright said the OUC has been helpful and cooperative, and has offered a deal that would save Vero Electric customers some $889 million over the remainder of the contract.

But by Wright’s own calculations, even after paying up to $50 million in liquidated damages, Vero Electric’s customers could save some $4 million more a year, if the city breaches the OUC agreement and “goes to market” seeking more competitive rates.

“I believe there is more upside than downside,” said Mayor Richard Winger, in explaining his support for exploring alternatives to the OUC deal.

City officials have been working with representatives of the transmission division of FPL to ensure adequate inbound transmission capacity to implement any new agreement with a power supplier other than the OUC. Wright explained that for at least the next 12 to 18 months, the city may continue to operate one of five generating units at the power plant. By maintaining and operating just one unit to meet peak demand, rather than maintaining all five units, Vero Electric, Wright indicated, can save an additional several million each year.

Whatever deal Vero Beach is able to negotiate with the OUC, FPL, or some other wholesale power provider, the city will continue to receive one-third of its power through is much longer-term contracts with the Florida Municipal Power Agency.