OUC wants far more than $20 million to settle electric contracts

Winger, Young decry lack of negotiations

NEWS ANALYSIS

“Who is looking at the financial implications of this deal? It is not being done.”  – Councilman Tony Young

“Given that, as candidates, Howle, Moss and Sykes were all heavily supported by FPL, perhaps Young should not be surprised to see them accept whatever FPL offers.”

MARK SCHUMANN

Tony Young
Richard Winger

In an email sent yesterday to Vero Beach City Manager Jim O’Connor, Orlando Utilities Commission Vice President Jan Aspuru put the City on notice that it will cost far more than $20 million to settle its obligations to the OUC. Aspuru noted that the letter of intent between Florida Power and Light and the City for the sale of Vero Electric provides no more than $20 million to release Vero Beach from its contractual obligations to the OUC. Vero Beach buys the bulk of its wholesale power from the OUC.

“I wanted you to know that the OUC’s damages will far exceed the $20 million if Vero Beach defaults on its contractual commitments to the OUC,” Aspuru wrote.

FPL is now offering some some $20 million less for Vero Electric than the company was willing to pay in 2014. Previous forecasts based on FPL’s offer suggested the City would net $30 million in cash from FPL. Aspuru’s caution raises the prospect that the City could wind up getting nothing from the deal.

Despite these developments, Council members Harry Howle, Laura Moss and Lange Sykes continue to insist FPL’s offer is more than fair. This week, over the objections of Councilmen Richard Winger and Tony Young, Howle, Moss and Sykes voted to impose a gag order on the City’s Commissions. Those boards are now forbidden from discussing or analyzing the impacts of the proposed sale.

Last week, Finance Commission Chairman Glen Brovont raised a number of questions about the sale in an email to City Finance Director Cindy Lawson.  (see below) With the Commissions forbidden from discussing the implications and impacts of the sale, it appears the Council will conclude the deal without advice or consultation from its advisory boards. This doesn’t seem to trouble Moss, who said, “Each of the five of us (Council members) is responsible for doing his or her own due diligence.”

Winger also raised concerns that no one is negotiating with FPL on behalf of the City. “If you try to conclude this sale without negotiating the best price possible for the City, you will not have my vote,” Winger told his fellow Council members. (see Winger’s full remarks below)

Young, who last month voted with Howle, Moss and Sykes to accept FPL’s letter of intent, appears disappointed and frustrated that the process has lacked any meaningful negotiations. “My support for the letter of intent was predicated on full and open scrutiny, and I was assured that we would have full and open scrutiny,” Young said.

Young then pointed out that neither the Finance Commission nor the Utilities Commission have been given an opportunity to consider the full implications of the proposed sale of the City’s largest asset. “Fundamental questions should be examined,” Young said, adding, “Who is looking at the financial implications of this deal? Is it not being done.”

Given that as candidates Howle, Moss and Sykes were all heavily supported by FPL, perhaps Young should not be surprised to see them accept whatever FPL offers.

Finance Commission Chairman Glen Brovont’s June 12 email to Finance Director Cindy Lawson:

Cindy:

I know you are busy with budget, etc, but frankly with what is going on, there probably is no good time. 

What the committee would like to initially review is the impact, on the rate payers & city finances, without considering the use of any new funds. I know you do not want to make assumptions about how new funds, if any, might be used.

 From time to time, you have indicated you can parse out the Indian River Shores data allowing the committee to review the actual number of customers, actual client KW usages, monthly billings, the seasonality of the billings, and the individual fuel sources drivers for those billings.

  • Who determines and how are the various fixed & variable fuel costs weighted to determine the billing rate?
  • With the loss of IRS’s volume, is the mix between the fixed & variable fuel costs being adversely impacted & by what amount?
  • since IRS’s distribution system is, relative to most of the city, upgraded & underground, is the remaining distribution system cost likely to increase by some percentage and if so, by what?
  • how much, if any, are capital expenditures anticipated to be reduced?
  • how much, if any, are administrative cost transfers anticipated to be reduced?
  • How much is the bottom line transfer do be cut, if any?
  • if the IRS partial sale is completed will the remaining client base still hold an economic interest for FPL or will it have already taken the cream off the milk?
  • What is the remaining incentive for FMPA members to take on Vero Beach liabilities?

I am sure the committee will have other questions, but these provide some issues of concern.

Glen P. Brovont

Richard Winger’s remarks made at yesterday’s Council meeting:

We need to endow the City!

Tonight I want to discuss the need to have the funds from the electric utility sale to endow the City.

The May 16, 2017 Florida Power and Light (FPL) Letter Intent Offer to buy the Vero Beach Electric Utility is a very good thing!  I continue to support the Full Sale, as I have for years. Moving forward is a good thing indeed!  But for me to vote for this, it must be a good deal for you the voter and rate payer, which I wanted to comment upon.

In a month, when we get to the budget session, I think we will find we have no money to keep up and pave streets, and will fall further behind.   And likely, while only 37% of the polluted run-off from the City is filtered, we will have little money to improve this ratio, let alone maintain an existing crumbling storm water system.

There is a model to follow as to what needs to happen, and that is the City of Royal Palm Beach sale of its utility February 2006 for $70 million.  After the bills were paid, $40,000,000 was left to invest.  It was a sufficient endowment so that City now has services comparable to the excellent ones the City of Vero Beach offers, and at an even lower ad valorem property tax than we have.    The parallel is the cash left to the City of Vero Beach, after the sale, has to be sufficient to prevent large losses of service or tax increases.

The $30,000,000 to $40,000,000 free cash, after the sale, envisioned now, will not endow that gap, especially with any negative surprises, such as the already lurking problem with Orlando Public Utilities.  State law mandates investments to be in low yield bonds. Invested at 2%, the earnings are less than $1,000,000, against the annual gap of $5,400,000 in a total $23,000,000 budget.  How is that gap to be filled?  Certainly not by deficit spending until the endowment is gone!

While the FPL offer of $185,000,000 is significantly below the March 4, 2014 FPL offer of $203,600,000 that expired December 31, 2016, it is a reasonable place to start negotiations.  Since that $203,600,000 offer, the City has invested $23,000,000 in upgrading the system.  The utility is more valuable now than it has ever been.

The City Transactional Attorney was authorized only to receive an initial offer, but not to negotiate or discuss the offer.  That is why I bring forth the need to negotiate a higher price tonight.

What Staff and City Council must immediately understand is how much is needed for the City to provide the services you want at a reasonable tax rate.  The time to do that is the July 10-12, 2017 Budget meetings.  Failing to figure it out, all sorts of bad things happen.  Do you want twice week garbage pick-up?  Do visitors have guarded beaches?  Do City children still have recreation facilities?  Do you still have parks?  Can the premier police protection be maintained? Can we afford to maintain our streets?  And, what about our storm water system?

It is time to understand what can be restructured, without losing services and increasing tax rates.  Then we must understand what the net proceeds of the sales must be.  Then we must NEGOTIATE a higher sales price based upon the greater value of the Utility now as compared to 2012 and 2014.

Failing to do this, will run the City you love, and the services you need, into a brick wall!

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