Threatening letters exchanged

“Vero Beach buys two-thirds of its power from the OUC, with the remainder coming from three Florida Municipal Power Agency power projects. Which begs the question, who is preventing Vero Beach from lowering its electric rates, the FMPA or the OUC?”

NEWS ANALYSIS

MARK SCHUMANN

Letters exchanged recently between Orlando Utilities Commission General Counsel, Chris Browder, and attorneys for the City of Vero Beach suggest the city and the OUC may be headed for mediation, if not litigation.

The OUC has been enjoying windfall profits selling Vero Beach wholesale power at prices well above market rates. Now the OUC, one of the state’s largest municipal utilities, is not pleased with the Vero Beach city council’s decision to explore alternatives to remaining in a 20-year power purchase agreement. That contract between Vero Beach and the OUC was negotiated in 2008 and went in to effect in 2010.

Sharp declines in natural gas prices that were not anticipated in 2008, and falling power demand resulting from the recent recession and Florida’s housing market crash, left Vero Beach paying the OUC rates well above the current market price for wholesale power. What appeared to be a fair deal in 2008 is now completely one-sided in favor of the OUC.

Vero Beach buys two-thirds of its power from the OUC, with the remainder coming from three Florida Municipal Power Agency power projects. Which begs the question, who is preventing Vero Beach from lowering its electric rates, the FMPA or the OUC?

The 2010 deal has been sweet for the OUC, but the burden is so great on the customers of Vero Electric that city leaders are now looking for alternatives.

The much criticized and misunderstood $50 million “poison pill” in the city’s contract with the OUC gives either party the right to terminate the agreement in exchange for paying up to $50 million in actual, so-called liquidated damages.

On behalf of the OUC, Browder now argues that termination provision in the contract does not mean what it says. He wrote, “OUC may also seek the legal remedies of specific performance and injunctive relief,” thus requiring the city to fulfill its 20-year contract.

Attorneys for Vero Beach contend that Browder’s claim is “frivolous,” and if litigated would entitle the city to sue for attorneys’ fees.

Vero Beach leaders and their advisors believe that even after paying the OUC damages of up to $50 million, the customers of Vero Electric could be better off, if the city seeks a deal with one or more alternate supplies of wholesale power, including, possibly, Florida Power & Light.

For several months, representatives for Vero Beach and the OUC have attempted to negotiate revised terms to their existing 20-year agreement. And while OUC negotiators have offered what they believe are significant concessions, Vero Beach leaders say they think a better deal can be had on the open market.

In response the city’s decision to seek competitive bids from potential power providers, the OUC, in a letter dated July 1, threatened to sue any company responding to Vero Beach’s request for bids for wholesale power.

Browder wrote, “Florid law recognizes the cause of action for ‘tortious interference with contractual rights’ in circumstances where a third party interferes with a contract by influencing, inducing or coercing one of the parties to breach the contract…”

Vero Beach’s attorneys responded, “…the City rejects the OUC’s novel theory that a potential supplier, e.g., a Bidder who makes and offer in response to the City’s RFP, can be held liable for tortious interference with any right of the OUC.”

Vero Beach’s attorneys went further, asserting that the OUC’s letter was a “blatant attempt to scare off potential Bidders.” Browder’s July 1 letter, they wrote, “may very well constitute intentional tortious interference by the OUC…”

The OUC’s threat to sue potential bidders, Vero Beach attorneys wrote, is “anti-competitive in that it is plainly intended to chill potential suppliers from even responding the City’s RFP.”

Vero Beach’s attorneys demanded that the OUC retract its threat to sue potential wholesale power providers who might respond the city’s request for bids.

The city’s attorneys also formally invoked a dispute resolution clause in the contract and called for a meeting of OUC leadership and representatives of Vero Beach to include Mayor Richard Winger, City Manager Jim O’Connor as well as counsel for the city.

For its part, the OUC called for mediation, while also threatening to seek an injunction to prevent Vero Beach from issuing a request for competitive bids from potential wholesale power providers.