Loading...
HomeMy WebLinkAbout12/17/2014JEFFREY R. SMITH Clerk to the Board December 17, 2014 THE TOWN OF INDIAN RIVER SHORES, CITY OF VERO BEACH AND INDIAN RIVER COUNTY MEDIATION Representatives from the Town of Indian River Shores (the "Town"), the City of Vero Beach (the "City"), and the Board of County Commissioners of Indian River County, Florida (the "County") met in mediation at the City of Vero Beach Community Center, 2266 14th Avenue, Vero Beach, Florida, at 9:30 a.m. on Wednesday, December 17, 2014. The purpose of the mediation was to promote a productive mediation effort as part of the .... conflict resolution process between the Town, the City and the County relating to the City's Electric Utility. CALL TO ORDER Carlos Alvarez, Esquire, Mediation, Facilitations, and Negotiations, called the meeting to order at 9:35 a.m. He introduced himself as the mediator the parties had retained through the mediation hearing and briefly summarized how he would conduct the hearing. 1. INTRODUCTIONS / PURPOSE OF WORKSHOP Present for the Town of Indian River Shores was Town Manager Robbie Stabe, the Town's Legal Counsel Bruce May and Kevin Cox from Holland and Knight and Terry Deason, Electric Utility Consultant from Holland and Knight, Mayor Brian Barefoot, Town Attorney Chester Clem, and Town Clerk Laura Aldrich. Present for the City of Vero Beach was City Attorney Wayne Coment, the City's Legal Counsel Robert Scheffel "Schef' Wright, City Manager Jim O'Connor, Mayor Richard Winger, and City Clerk Tammy Vock. Town of Indian River Shores - City of Vero Beach - Indian River County Electric Utilities Mediation December 17, 2014 Page 1 Present for the County were the County's Outside Counsel Floyd Self from Gonzales, Saggio, and Harlan LLP, Tallahassee, County Attorney Dylan Reingold, Commissioner Peter D. O'Bryan, and Deputy Clerk Terri Collins -Lister. Mediator Alvarez stated that the conflict between the Town, the City and the County fell under the Florida Governmental Conflict Resolution Act as set forth in Chapter 164 of the Florida Statutes. He explained mediation was a conversation between parties in which a neutral party gets involved to help them understand the matter better and to come up with ideas to resolve the conflict. He made it clear this was not an adversarial proceeding, but a collaborative effort from all parties. He added that some mediations could be solved within a day; however, some took more effort and any agreement reached during session would need to be taken back to their respective government bodies to be voted on. He discussed two important ways of negotiating: 1. Interest -Based Mediation - the position of the parties and the process which begins with understanding the problem and identifying the interests that underlie each side's issues and positions. 2. Analyze best and worst alternatives to any settlement proposed - the best and worst alternatives to a negotiated settlement and the parties needed to look at the time put into mediations, as well as the costs, time, relationships of parties afterwards involved in litigation. OPENING STATEMENTS ON THE ISSUES IN CONFLICT Mediator Alvarez turned the mediation over to the Town's, the County's and the City's representatives to give their opening statements, and said he would begin with the Town and the County, then the City of Vero Beach. The Town of Indian River Shores' Opening Statement Bruce May, the Town's Attorney touched on one part of the City's mediation which suggested the City may have misunderstood the Town's fundamental concerns. He referenced in the mediation statement by the City, the City stated the Town's dispute was really about their desire for lower electric rates. He added, while reasonable electric rates were important to the Town and its citizens, the City's history of extremely high rates and its disenfranchisement to the Town and its citizens were really just symptoms of a much more fundamental concern of which the Town believes the City has no real control over its destiny, electric utility and electric rates. He explained as part of the conflict resolution process, the parties participated in a series of local meetings in efforts to resolve the dispute. He said what was clear: 1) the City owns the electric utility which it has contracted to sell to Florida Power & Light Company (FPL), and the City said they were powerless when it came to making the sale happen; 2) the Town applauds the City for trying to lower its electric rates. The City confirmed it simply cannot Town of Indian River Shores - City of Vero Beach - Indian River County Electric Utilities Mediation December 17, 2014 Page 2 bring its rates down comparable to FPL because of the City's predecessors who have locked the City into a long-term power supply; and 3) the City continues to set its rates at a level which caused the Town and other captive non-resident customers to produce millions of dollars of surplus electric revenue, which the City transfers to its general operating fund. Attorney May said that faced with those three realities, the Town believes the City no longer has the power or the will to independently manage its electric utility business and thus unable to assure that the Town and its citizens would receive fair and reasonable priced service over the long term. He said the City to date has not acknowledged that the Town has an equally independent fundamental interest and responsibility to protect its citizens from unfair rates and utility prices. He continued that the legislature has given the Town specific expressed statutory powers to provide electric service to its inhabitants by either providing the service itself, or by contracting with other utility providers. He said the core issue was not the high rates, but municipal law and whether the City had the right to assert extra -territorial monopoly electric powers and abstract monopoly rates after the franchise agreement expires in November 2016. He referred to Florida Statutes Section 180.02, Powers of Municipalities. Attorney May indicated the Town had been working on ways to solve this issue for the interest of all parties. He asked the City to consider respecting the rights of the Town to furnish electricity to its residents, pursuant to the express powers granted to the Town in the Laws of Florida, Chapter 29163. Indian River County's Opening Statement Peter O'Bryan, Indian River County Board of County Commissioners, stated the County's long held best solution in the City's electric issue was the full and complete sale of the utility to FPL. He opined the City showed a lack of will to make a 100% commitment to complete the sale, or to explore all options due to their reluctance to pass along tax increases to the citizens of Vero Beach, or to give up their subsidies to the general fund. The County felt with the restrictions of the Florida Municipal Power Agency (FMPA), the City had no leverage being under contract with the FMPA, or bargaining position, and was forced to accept these contracts that continue to perpetuate additional costs passed on to the ratepayers and not the taxpayers. The City of Vero Beach's Opening Statement Robert Scheffel "Schef ' Wright, the City's Outside Counsel, stated the City's electric rates were higher than they wished. He said the decisions by the City throughout the years had put them in the position they were in today in terms of electric rates. He reiterated the City was committed to doing everything they could to reduce the electric rates. Attorney Wright pointed out the City signed a contract to sell the whole electric system to FPL and he expounded, "you just cannot walk away from a contract". He explained that the City and the Orlando Utilities Commission (OUC) had an agreement with FMPA, of which OUC Town of Indian River Shores - City of Vero Beach - Indian River County Electric Utilities Mediation December 17, 2014 Page 3 determined they could not take an assignment without violating their bond covenant and that FMPA would not change their bond covenants to accommodate OUC. Attorney Wright maintained that the City's interest was to provide safe and reliable service, and continue earning a reasonable return on their equity, as well as provide service at the lowest possible cost by discussions with OUC which provided 60% of the City's power, pursuant to the 2008 Power Purchase Agreement to get lower rates. He indicated OUC has been very generous and cooperative in working towards some options to assist the City in getting rates lowered. He indicated one option was to continue with the contract, which had 15 years remaining, for the full remainder 15 years with substantial discounts, in return for concessions, including an option to buy the St. Lucie output under the purchasing agreement and taking permanent assignment of the gas transportation contract. He pointed out another option was reducing the remaining period to nine years, shortening the term by six years, but with higher prices. Additionally, a rate study was being done by Public Resources and Management Group to evaluate costs, rates, evaluating a specific alternative, and finance capital expenditures, as opposed to paying annual capital expenditures. He anticipated the completion of the rate study sometime in March or April 2015. He concluded the City was on the threshold of issuing a contract to study the system efficiency/optimization of the City Electric System. It was noted the City adopted a resolution authorizing staff to work with the Town and the County with a referendum and a resolution to move forward with a utility authority to provide geographic representation to all customers with the authority to operate the business of the electric utility system. Attorney Wright concluded the City's position was that the electric rates were higher than they would like and that the City's rate of return was reasonable. The City felt the Florida Public Service Commission (PSC) had the superior jurisdiction to declare who served where, and the Town had the statutory power to run an electric utility system. Mediator Alvarez summarized that all parties were in agreement in that they wanted the electric rates lower and everyone/someone would need to suffer a bit or a lot financially going forward. He said everyone had done a great job identifying interests and took the parties through a problem -solving exercise. Mediator Alvarez identified the problems he perceived though the mediation statements provided by the Town, the County, and the City. Parties want Lower Electric Rates in the Long Term A discussion ensued on the electric rates, and the County wanted the City's rates within the range of 5% of the present FPL rates now and going forward. Attorney Reingold stated if the FPL deal does not go through, the County wanted to see lower rates within a 5% range of FPL, plus or minus, an electric utility authority that was controlled by a governing board that fairly and proportionally represents the geographic makeup of the City electric utility customer base and the cessation of the subsidy to the City's general fund by the City of Vero Beach Utility. Attorney May spoke up for the Town and wanted it to be clear that all parties wanted lower rates for the long term. Town of Indian River Shores - City of Vero Beach - Indian River County Electric Utilities Mediation December 17, 2014 Page 4 Mediator Alvarez brought up the rates and felt the electric generation mix was dis- proportionate. He explained the rates were dependent on the prices of oil, coal, gas, or nuclear. It was one of the reasons for the difference in rates between the City and FPL. Attorney Wright replied in the affirmative and commented the City was coal heavy, whereas FPL rates were gas driven. No Representation of the Town or County Citizens in the Utility Decision Making Commissioner O'Bryan brought up the fact that there was no representation from the Town or County citizens and discussed the transfers between the electric utility and the City's general fund. He brought up the Return on Investment (ROI) and noted FPL's ROI goes to the shareholders. They were the ones who put up the money to buy the stocks and invest the capital, whereas with the City, it was the customers of the electric utility making the investment. He continued stating that when FMPA passed on their excessive fuel costs to the City, the City did not raise taxes to pay for it; they raised the electric rates. It was the County's contention that besides the issue of whether a government agency should be making a ROI, they felt the ROI should go back to customers of the electric utility. He concluded that the County's position to take the 60% paid for by citizens outside the city limits, and to use that to subsidize the taxes for the city residents was immoral and wrong. He stated the 60% included those residents in the County and the Town, who could not vote in the City elections or have a voice on how the money was spent. Mediator Alvarez wondered whether it would be in the interest of the County and Town to have a governance of the utility to be more representative of the citizens they serve, if the City electric rates were the same as FPL rates (long term) today. Attorney May said his research showed the percentage of non-resident customers today, with over 60% of the customers being outside the municipal limits, and currently disenfranchised with no say on utilities management, was unprecedented. He felt if a utility authority was created, it would have control over the utilities finances, operations, and rate setting, including whether to continue or discontinue the utility revenue transfer. Commissioner O'Bryan indicated the County recommendation was a full sale of the City's utilities to FPL to get out from under the FMPA. He said if the County signed a 30 -year agreement with the City, and they agreed to charge the County residents a rate equal to FPL, he felt it would be fair enough. Mayor Winger of the City, pointed out FPL was currently seeking $750 million to add to the rates in Oklahoma, as well as adding hundreds of millions of dollars to bills across their service area allowed by public law for engineering of nuclear reactors at Turkey Point. He indicated under Florida Law, a fair amount of engineering development of public utilities was actually paid by the ratepayers. Town of Indian River Shores - City of Vero Beach - Indian River County Electric Utilities Mediation December 17, 2014 Page 5 Attorney May said the Town has a responsibility to its constituents and wants to be in control of its public utility destination. He pointed out that the contracts the City had entered into in the past have essentially stripped away the authority of the City to set its rates. Mediator Alvarez recapped if FPL was to purchase the City's electric system, the rates would not be set by the Town. He added if there was an authority in terms of a settlement, if the authority was in the limits of customers presently being served by the City, how the Town would feel being a minority, even though the citizens outside of the City would be the majority. Attorney May said to have a full and fair Authority, you must have full and total control over the financial and physical operations of the utility, as well as the composition of the Board which would consist of proportionate representation elected from ratepayers residing outside the City. The City needs some Funding from the Electric Utility Business to Fund its own General Revenue Mediator Alvarez recapped the problem was that the City needs to fund its own general revenue and asked what would happen if the Town and County succeeded in going with a different utility provider, and the City was left with these obligations to serve only the City residents. City Manager Jim O'Connor replied there was an analysis done and property taxes would be impacted substantially as well as an increase in the electric rates. He did not anticipate any declaratory bankruptcy, because it was just one business unit of the City that had no real impact on the City's operation; however, the City may raise taxes or lower the services provided. Commissioner O'Bryan stated the Town does not have electric, water, and wastewater utilities to transfer to their general fund, so they provide a level of services to their residents based upon the taxes they collect. The Mediator called for a recess at 11:20 a.m. and reconvened the meeting at 11:40 a.m., with all parties present Mediator Alvarez wanted to discuss potential solutions and asked the parties for potential solutions and interests and referred to the Town. He asked if Attorney May wanted to share his thoughts on a potential solution. Attorney May referred back to the rates, and going forward he felt there was an impression that a regulator in Tallahassee, or a judge, would be making the decision as to whether the City rates were reasonable or prudent. The Town believed what was reasonable and prudent was a decision from a juror residing in Indian River County (IRC) who had paid what the Town believes to be excessive and high rates, and moving forward it would be the juror in Town of Indian River Shores - City of Vero Beach - Indian River County Electric Utilities Mediation December 17, 2014 Page 6 IRC to address: 1) whether the rates were reasonable or prudent, and 2) whether the City was being "unjustly enriched" on the backs of the Town and other non-resident customers as a result of this utility revenue transfer. Mediator Alvarez felt it was not in the advantage of anybody to go to trial. Attorney May agreed, and felt that before the Town went down that road, which they were prepared to do, they would make a good faith offer to settle this dispute in a way they felt was fair. Attorney May presented the "Settlement Structure Offered by the Town of Indian River Shores' Mediation Team" and offered to summarize the settlement terms. Attorney Wright wanted a copy of the settlement offer to be able to discuss during lunch. Attorney May stated the settlement structure would be for the purpose of settlement and in return for the Town continuing abatement of its lawsuit against the City for five months to allow the Town to exercise its statutory rights to explore all lawful options to provide electricity to its citizens (either by itself or contracting with another utility). He added as part of the evaluation process, the Town would invite and strongly encourage the City to submit a proposal to provide electricity to the Town citizens for the next 30 years, as well as solicit proposals from other utility providers. He continued, if the City was not selected to continue, then the settlement structure would be the City and the Town could enter into good faith negotiations to determine and agree upon the most appropriate means to discontinue the provision of electric service with the Town after the Franchise Agreement expires. He concluded on June 1, 2015, if the Town would agree, that the City should continue to provide electricity after the franchise agreement expires, then they would dismiss the lawsuit. If the Town and the City do not reach a formal agreement, the Town could proceed with its lawsuit against the City. He said this would give the Town and the City time to look into the matter, and to submit a proposal to give those efforts an opportunity to crystalize before the November 2016 deadline. Attorney May handed out the proposed "Settlement Structure Offered by the Town of Indian River Shores' Mediation Team" to all parties, and a copy was given to the Indian River County Clerk to the Board. Attorney May inquired if the City had done a fiscal analysis of the impact on taxes and rates, if the Town were to leave the City's Electric system. Jim O'Connor replied in affirmative and pointed out the Town represents between 7 to 8% of the City's customer base. He indicated the analysis did not focus on sensitivities, for example, the stranded costs involved in that transaction and the impact was not really significant because the Town represents primarily residential customers as opposed to having major commercial customers. He offered to provide the Town with a copy of the analysis. A discussion ensued on the Settlement Proposal regarding rate structure; risks such as an increase in the price of gas; the three scenarios: the existing contract, the 15 -year contract extension or the 9 -year contract extension; the scenario where no funds obtained from the customer go into a general revenue fund and the impact to the electric rates; franchise fees; the Town of Indian River Shores - City of Vero Beach - Indian River County Electric Utilities Mediation December 17, 2014 Page 7 municipal electric systems in the State of Florida; the referendum process at a City election; and the state legislature to resolve the electric issue. Mediator Alvarez indicated prior to breaking for lunch, he had a request from Dr. Stephen Faherty to speak. Dr. Faherty provided the mediator with a brief summary of electric issues stemming back to the summer 2007, when he got involved and highlighted the electric rates and FPL rebates. The Mediator called a recess for lunch at 12:35 p.m. and reconvened at 1:37 p m., with all parties present. Attorney Reingold referred to the Town's proposal and the dialog between the City and the Town. He wanted to make everyone aware that the County was in favor of the proposal and the County also wanted to be included in the Town's proposal. Mediator Alvarez asked for the City's thoughts on the Town's proposal. Attorney Wright said the City's mediation team reviewed the proposal and was not in support of it, but would take it to the Vero Beach City Council Meeting on December 17, 2014. He referred to paragraphs one (1) and two (2) of the proposal: Settlement Terms For purposes of settlement, and in return for the Town continuing to abate its lawsuit against the City, the City would: 1. Expressly acknowledge that the Town may provide electric service to its citizens upon expiration of the Franchise Agreement either through direct provision of such electric service or by contracting on behalf of its residents with another electric utility provider in accordance with the Special Act creating the Town. 2. Honor the Town's right to conduct an evaluation, which may include but not be limited to a Request for Proposal ("RFP") process, of the most appropriate means for the Town to provide electric service to its citizens upon expiration of the Franchise Agreement In the event the Town issues an RFP, the Town would recognize the City's right to submit a proposal in response to the RFP as a potential provider of electricity to the Town and its residents after the Franchise Agreement expires Attorney Wright pointed out in Paragraph 1 of the settlement terms: (1) the City was asked to expressly acknowledge that the Town could serve its citizens when the franchise agreement expires. He felt the wording relayed that the City was giving up their position. Mediator Alvarez questioned if Paragraph 1 was removed, what about Paragraph 2. Attorney Wright stated it was the consensus of the City's mediation team that Paragraph 2 was closely related to Paragraph 1. Town of Indian River Shores - City of Vero Beach - Indian River County Electric Utilities Mediation December 17, 2014 Page 8 Mediator Alvarez felt it would be beneficial to have more analysis on the issue, so all parties could base their decision on the best data possible. He suggested having a six-month cooling off period to analyze the situation and review the options. Mediator Alvarez reviewed some potential solutions: • The settlement terms in the Town's Proposal • One or more of the following actions: a. Some type of independent/representative electric authority b. Reduction of general fund contribution from electric utility revenues c. Amendments of OUC and/or FMPA obligations d. Other rate reduction initiatives through the rate reduction study e. Outside determination of reasonable rates f. FPL purchase g. Expert on the issue retained by all parties Mediator Alvarez said it would be to the benefit of all parties, that further efforts be done over the next six months, and recommended continuing talks with OUC and FMPA with the Town and County parties to such talks to understand the difficulties and legal ramifications of the negotiations. Attorney May clarified the Town envisioned that during the six month cooling off period, they would be able to conduct evaluations, which may include a potential RFP from providers of electricity. The mediator announced a recess for discussions at 1:57 p m. and resumed at 2.02 p.m., with all parties present. Attorney Wright stated the City agreed to the six-month cooling off period, but would not agree to the document proposed by the Town. He added the Town could do anything they want in terms of conducting a RFP to evaluate its position and alternatives going forward. He indicated the City would continue negotiations with OUC, proceed with the rate study and the system optimization/efficiency study. The City supported having the Town and the County representatives at the OUC, FMPA and FPL meetings as long as those entities agreed. Attorney May said what was missing from Attorney Wright's comments was the core issue for the Town to exercise its right to provide electricity to its citizens, whether it was provided by the Town, or by another provider. Attorney May referred to Florida Statutes Section 180.02, Powers of Municipalities - Any municipality may extend and execute all of its corporate powers applicable for the accomplishment of the purposes of this chapter outside of its corporate limits...provided, however, that said corporate powers shall not extend or apply within the corporate limits of another municipality. He indicated that the Town needed to be in a position that when the franchise agreement expires, there was an agreement with the City that there would be no Town of Indian River Shores - City of Vero Beach - Indian River County Electric Utilities Mediation December 17, 2014 Page 9 discontinuance of service or gap. He pointed out that the City has the right to submit a proposal in response to the RFP as a potential provider of electricity to the Town and its residents. A discussion followed and the Town expressed its concern of tortious interference with the contract by the City if the Town talks with other potential providers of electricity during the six month cooling off period. Attorney Wright responded the City was good with the six month cooling off period and agreed to no tortious interference if the Town chooses to conduct an RFP with other providers of electricity; however, the City does not agree to the document, but would sign a separate waiver of tortious interference claim. Mediator Alvarez brought up the Town's proposal and suggested adding the wording, the Town may conduct a RFP evaluation with the tortious interference clause inserted in Paragraph 2. The mediator called for a recess at 2:19 p.m. and resumed at 2:31 p.m. with all parties present. Attorney May stated the Town team could not agree with the standstill agreement structure proposed by the City, but agreed to remove Paragraph 1 and add the language discussed in Paragraph 2, and shorten the abatement to May 1, 2015, since the City would wrap up its rate study sometime in March 2015. The concern was the delay and upcoming franchise agreement expiration in the year 2016. Attorney Wright stated the City does not agree to the Town's proposal, but would agree to the tortious interference clause, and to shorten the standstill until May1, 2015. Attorney May wanted clarification on what the City was proposing. Mediator Alvarez replied there was an agreement to a cooling off period until May 1, 2015 and the Town conducting a RFP with the City's participation. Mediator Alvarez felt the abatement would be an opportunity to look at every option and suggested the Town rewrite their proposal. Attorney May was opposed to rewriting the Town's proposal because it captured what the Town was looking for to resolve the dispute. A discussion ensued on moving forward without an interim settlement, but talking with other providers. Mediator Alvarez summarized that the parties agreed to a certain time period for options review and agreed that the litigation would be held in abeyance, and continuing with the mediation. The mediator called for a recess at 2.53 p.m. and resumed at 2.59 p.m. with all parties present Town of Indian River Shores - City of Vero Beach - Indian River County Electric Utilities Mediation December 17, 2014 Page 10 N1111... Attorney May wanted certainty, and proposed that the Town agree with the abeyance of lawsuit for two months, until Monday, March 2, 2015. He asked the City to pursue all options to reduce electric rates, and provide the Town with an outline of their efforts prior to March 2, 2015. Attorney Wright stated the City agreed to no tortious interference and would sign a letter to that effect. Attorney May inquired whether the City could get the agreement in place by January 1, 2015. A discussion ensued regarding FMPA and due to the upcoming holiday season the parties agreed to January 8, 2015. A discussion ensued on the status update requested by the Town and it was determined Attorney Wright would get the update to the parties by February 18, 2015; the mediator would call the impasse if no agreement was reached by March 2, 2015. Attorney May agreed to write the draft Interim Mediation Agreement. Mediator Alvarez asked if the County would delay their meeting with the PSC on February 3, 2015, regarding its Petition for Declaratory Statement. Attorney Reingold was not comfortable telling the Indian River County Board of Commissioners there was a deferral of a month of their PSC Petition hearing. He was set to go forward with the February 3, 2015 meeting. Mr. Peter Gorry, a volunteer on the Finance Commission for the City of Vero Beach, spoke on the City's contract in place with FPL until the end of the year 2016, and noted that rates were set by PSC. He touched on dividends, ROI, the difference between rates and bills, and bond ratings. Mr. Charlie Wilson, President of the Vero Beach Chamber of Commerce, mentioned the City had been promising its residents lower electric rates than FPL for the last 36 years for a cost of $20 million a year, so the cost of litigation does not even come close to the funds spent on a yearly basis. He mentioned the only means of solving the utility issue was either an agreement from FMPA (of which he felt would never happen), so legislation and litigation have replaced negotiations as the only two means of solving the electric utility issue. Mr. Mark Mucher, City of Vero Beach resident, was concerned about the long-term risk of the City being in the electric business. He referred to the Utility Authority and argued that representation was a "feel good" thing, but would not make a difference in terms of the decisions made or the rates paid. Mediator Alvarez concluded that Attorney Wright would write a letter of Waivers and Consents by the City and FPL, and asked Attorney May to draft an Interim Mediation Agreement by Friday, December 19, 2014. He thanked all parties for handling this difficult situation in a cooperative and collaborative fashion. Town of Indian River Shores - City of Vero Beach - Indian River County Electric Utilities Mediation December 17, 2014 Page 11 ADJOURNMENT There being no further business, the meeting adjourned at 3:33 p.m. Town of Indian River Shores - City of Vero Beach - Indian River County Electric Utilities Mediation December 17, 2014 Page 12