OUC’s concessions make for a significantly better deal for the customers of Vero Electric

COMMENTARY

MARK SCHUMANN

Anyone who earned a grade of “C” or better in Logic 101, and who has any measure of intellectual honesty, would easily conclude the benefits of revising the City’s wholesale power agreement with the Orlando Utilities Commission far outweigh the potential costs.

Vero Electric receives two-thirds of its power from the OUC under a contract that, as it currently stands, will not expire until 2029. That deal, which seemed good at the time it was negotiated in 2008, has left Vero Electric paying wholesale power rates well above current market. At least one rate analyst concluded that, if the Vero Beach-OUC deal is not revised, between now and 2029 Vero Electric will pay the OUC $171.4 million more for wholesale power than it would otherwise pay on the open market.

Vero Beach leaders have three options: live with the terms of the current agreement, attempt to exit the contract by paying some $50 million in liquidated damages and face certain litigation from the OUC, or work with the OUC to strike a better deal for the customers of Vero Electric.

In pursuing the third option, negotiators for Vero Beach and the OUC have reached an agreement that will, in net present value, reduce rates a total of $51.8 million between now and 2023. The revised agreement also shortens the term of the contract from 2029 to 2023, saving the customers of Vero Electric another $67.9 million over what they would otherwise pay during the last six years of the existing contract.

The projected benefit for 2024-2029 is an estimate, since no one can be certain where rates for coal and natural gas will be in eight years.  The irrefutable fact, though, is that the rates Vero Beach is currently contracted to pay the OUC during 2024-2029 are well above the open market. There can be no question, then, that it is a significant benefit to the Vero Beach to be released from it contract with the OUC at the end of 2023.

Importantly, the revised agreement will also enable Vero Beach to decommission the power plant, saving rate payers millions of dollars more each year.

Offsetting these benefits, Vero Beach is signing over to the OUC gas transmission rights. These rights to natural gas have no value to the City but are of some benefit to the OUC.  Whether the number is as much as $10 million, as some claim, or $5 million, or some lesser amount, the fact is that with the decommissioning of its old and inefficient power plant, Vero Beach will have no use for natural gas. Further, any value that can reasonably be assigned to these transmission rights pales in comparison to concessions the OUC has offered.

Over the remainder of the term of the shortened contract, the OUC is also asking Vero Beach to commit to buy a minimum of 85 megawatts of power. This provision is contingent on the outcome of any litigation or the passage of any legislation that would require Vero Beach to stop serving its customers in Indian River Shores and/or in the unincorporated areas of Indian River County.

There is always the possibility, of course, that Vero Electric could lose demand for other reasons. For example, a tsunami could wash away all development on the barrier island, an intriguing possibility, and one that might well be applauded by Mother Earth.

Mass outmigration from Vero Beach would also result in reduced power demand. Who knows?  Many of the retirees who have settled in Vero Beach could one day decide they would rather be living somewhere else, like Fargo, North Dakota. As Councilwoman Pilar Turner agues, anything is possible.

More likely, but still far from certain, would be another sever economic downturn. A deep recession could also lead to reduced power demand in Vero Beach, and could leave Vero Electric paying the OUC a premium for taking less than 85 megawatts of power.

Hypothetically, if Vero Beach were to lose as much as 10 percent of its power demand in 2016, the premium paid to the OUC would be $1.3 million, a number dwarfed by the net present value savings of an average of $6.5 million a year.  One has to wonder what Turner is thinking when she gets herself so worked up over this provision in the revised contract.

Listening to State House of Representative candidate Lange Sykes argue for more analysis and delay, you’ve got to wonder, not what he is thinking, but if he is thinking.  An incredibly good deal for the customers of Vero Electric is now on the table.  That isn’t to say, though, OUC leaders won’t begin asking themselves why they have bent over backwards to help people who can do little more than complain. Until the proposed revisions to the City’s wholesale power agreement with the OUC are officially accepted, OUC leaders are free to withdraw their offer.

Finally, there is Charlie Wilson’s argument that because the original OUC contract has not worked out well for the customers of Vero Electric, City leaders should avoid the “risk” of trying to negotiate a better deal. Wilson’s argument is sheer lunacy.

Only those who want to keep Vero Electric’s rates high in hopes of continuing to pursue a mythical sale to FPL would oppose revising the City’s contract with the OUC.  Quite simply, opponents of this agreement are not looking out for the residents of Vero Beach and the customers of Vero Electric.