Press Journal again misreports power sale story

COMMENTARY

“If ever there was a case of media malpractice, this is it.”

MARK SCHUMANN

In an “analysis” story published yesterday, Press Journal reporter Colleen Wixon wrote, “There’s no amount of money the city of Vero Beach could pay to buy its way out of the Florida Municipal Power Agency.”

Wixon’s analysis needs some review, for it could not be farther from the truth.

From the time Vero Beach began serious efforts to sell its electric utility, city leaders were given a clearly-drawn path which FMPA officials said would need to be followed. Tracy Carroll, Craig Fletcher, Pilar Turner and their high-priced transactional attorneys knew better, or so they thought.

The contract negotiated with Florida Power & Light, signed and then hastily put before voters is dead – as in six feet under. That contract, now shelved and not worth the paper it is printed on, represented $2 million in ratepayer dollars down the drain.

In seeking a scapegoat for the deal gone bad, many point fingers at the Orlando Utility Commission for backing out. While it is true that the OUC represented the only interested and qualified “buyer” for Vero Beach’s position in three FMPA power projects, it is also important to understand that the transactional attorneys working for the city failed to structure a deal in a way that met the FMPA’s requirements. They also failed to understand that the deal would create an unacceptable conflict with the OUC’s existing bond covenants.

Most significantly, the purchase and sale agreement signed by Carroll, Fletcher and Turner left unaddressed Vero Beach’s contingent liabilities to the FMPA and its bondholders. FPL was unwilling to accept those liabilities, and no provision was made in the purchase and sale agreement to secure those obligations in any other way.

So, what are Vero Beach’s contingent liabilities? The City shares ownership in three FMPA power projects: the Stanton I and Stanton II coal-fired power plants in Orlando and FPL’s St Lucie II nuclear plant. Vero Beach can only shed its obligations to those projects, if it can find a willing and qualified utility to take its place. With the OUC having backed away from the deal, no such buyer has been found.

The term “buyer” is used loosely in this context, for even if a qualified utility were willing to assume Vero Beach’s position in the three FMPA power supply projects, the City would have to pay that utility tens of millions of dollars to do so. Quite simply, Vero Beach’s investment in these projects is deeply under water.

Further, assuming Vero Beach were able to offload its FMPA power supply contracts, the City would remain obligated to step in and fulfill those agreements, if the “buyer” were ever to default. Though FPL badly wanted to acquire Vero Electric, negotiators for the utility giant steadfastly refused to accept this contingent liability.

Though some utility activists and newspaper pundits insist the FMPA’s contracts are unreasonably restrictive, the state Auditor General sees it differently. Following an exhaustive audit of the FMPA last year, the AG found the agency’s contracts to be similar to those of other joint action agencies around the country, with one exception. According to the AG, the FMPA’s exit provisions are more lenient, more flexible and less restrictive than is the industry standard.

The AG also found that the FMPA’s estimates of Vero Beach’s cost for exiting the All Requirements Project were reasonable and were calculated in accordance with the agency’s contracts.

Membership in ARP is the City’s fourth obligation to the FMPA. Leaving the ARP, which Vero Beach is eligible to do as of October 1, 2016, simply involves making the other members whole.

To put it another way, Vero Beach is free to leave the ARP as of October 1, 2016, so long as it pays enough in exit costs to prevent the remaining member cities from getting stuck covering stranded costs, namely the obligations that were assumed by the ARP in order to serve Vero Beach. Those stranded costs have been estimated at $46 million, a significant obligation which was not provided for in the purchase and sale agreement between Vero Beach and FPL.

Press Journal readers remain unaware of these facts, largely because the newspaper has failed to report on them.

Sadly, Wixon’s latest “analysis” could have been written years ago, long before the Press Journal editorial board urged voters to approve a purchase and sale agreement so flawed it can never be executed, and long before Press Journal pundits assured the newspaper’s readers FPL rates were “just around the corner.”

If ever there was a case of media malpractice, this is it.