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HomeMy WebLinkAbout05/01/2015Town of Indian River Shores – City of Vero Beach – Indian River County Electric Utilities Mediation Page 1 May 1, 2015 JEFFREY R. SMITH Clerk to the Board May 1, 2015 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 Indian River Shores Community Center, Indian River Shores, Florida, at 9:00 a.m. on Friday, May 1, 2015. This was the second mediation under the Florida Statutes, Chapter 164, Florida Governmental Conflict Resolution Act. CALL TO ORDER Carlos Alvarez, Esquire, Mediation, Facilitations, and Negotiations, called the meeting to order at 9:07 a.m. 1. INTRODUCTIONS Present for the Town was Mayor Brian Barefoot, Town Manager Robbie Stabe, the Town’s Legal Counsel Bruce May, from Holland and Knight, Electric Utility Consultant Terry Deason, Town Attorney Chester Clem, and Town Clerk Laura Aldrich. Present for the City was Mayor Richard Winger, City Manager Jim O’Connor, City Attorney Wayne Coment (arrived 9:25 a.m.), the City’s Legal Counsel Robert Scheffel “Schef” Wright, and City Clerk Tammy Vock. Present for the County was County Attorney Dylan Reingold, Commissioner Peter D. O’Bryan, County Administrator Joe Baird, and Deputy Clerk Terri Collins-Lister. Town of Indian River Shores – City of Vero Beach – Indian River County Electric Utilities Mediation Page 2 May 1, 2015 2. UPDATE ON MEDIATION PROGRESS SINCE THE DECEMBER 17, 2015 MEETING Mediator Alvarez asked the parties to give a brief synopsis on what has taken place since the December 17, 2014 Mediation and their stance at the present time. City Of Vero Beach Robert Scheffel “Schef” Wright, the City’s Outside Counsel had engaged in talks with the Florida Municipal Power Agency (FMPA), Florida Power & Light (FPL) and the Orlando Utilities Commission (OUC) with the intention to reduce the costs under the FMPA contracts and noted there was little response. He added there was a conversation regarding the prospect for closing the FPL transaction; however, without someone to take assignment of the FMPA Power Supply Contract, there was no real possibility of the transaction going forward. He explained that FMPA and OUC reached an impasse, in which they determined OUC could not accept the City of Vero Beach requirements under the FMPA contracts without violating its bond covenants and the FMPA would not change its bond covenant. Attorney Wright mentioned that the City’s rate study was under way and the consultants deemed the overall cost level, revenue and rate levels on target as for now. He said the System Optimization Study was being done by Power Services on various stage dates, with the last deliverable due in November 2015. Attorney Wright highlighted the City’s efforts to reduce the power supply costs, which represent roughly 73% of the total costs to service. He continued that the majority of the cost was paid to the FMPA with the remaining balance to OUC pursuant to the Power Purchase Agreements and Project contract the City entered into in 2008. He added the City paid $4 million a year to keep the existing Power Plant operational in order to maintain reserve obligations to the Florida Reliability Coordinating Council, the entity that organizes and ensures the reliability of the grid. Attorney Wright focused on the latest new and improved OUC offer in which they agreed to let the City modify the billing demand used to calculate the payment, for a savings of $1.1 to $1.2 million per year, plus an additional discount of $500,000 each year until the year 2018. Additionally, as part of their due diligence, the City continues to evaluate the Florida power supply and energy markets. Attorney Wright revealed two scenarios and emphasized there were risks either way: 1. Take the OUC contract offer valid until the year 2023, that would reduce the City’s demand charges and reduce costs over a period of five years. 2. Terminate the OUC contract and go to the market. According to an analysis by Bill Herrington, he indicated a savings of $32 million at present value through the analysis period which was either the year 2023 or 2029. Town of Indian River Shores – City of Vero Beach – Indian River County Electric Utilities Mediation Page 3 May 1, 2015 Attorney Wright pointed out if the City accepted the OUC offer and dependent upon the rate study, the City may be able to lower their power supply costs by $6.50 to $7 per 1000 kilowatts hours, if the sales and the price of natural gas remain static, pricing assumptions improve, and there were no unexpected costs in other aspects of the electric utility systems operation. Attorney Wright added the City may be able to reduce the power supply costs by an additional $1.50 to $2 per 1000 kilowatt hours of costs by going to the market, subject to the caveats described. He said another option would be to finance the capital expenditures for the next two to three years, over a ten to fifteen year period, that would significantly delay the rate impact for the next three years. He explained in the year 2019, there would be a significant reduction in cost for the FMPA’s Stanton Unit 1 Project, because the debt would roll off. He said the City was the largest participant in the project and the debt would change over to the City in the amount of $2.6 million a year when it rolls off. Indian River County County Attorney Dylan Reingold advised after the mediation held on December 17, 2014, the City filed a petition with the Public Service Commission (PSC). On February 3, 2015, the PSC ruled in favor for granting the declaratory statement for the City and declined one for the County. Since then, the County has filed a notice of appeal with the Florida Supreme Court and the proposed briefing schedule for both parties begins around the first week of June. At that time, the County plans on filing their brief and the Florida Association of County Attorneys decided to file an amicus brief in the support of the County. The Town of Indian River Shores The Town’s Legal Counsel Bruce May expressed the Town’s frustration that they had not heard back from the City on some quantification as to what kind of rate relief they could expect. He recalled from the December 17, 2014 Mediation Meeting, the Town believes the optimal solution was for the City to sell its entire electric system to FPL; however, it was apparent that the FMPA had no intentions of allowing the City to sell its entire system. However, Attorney May explained the contractual provision that gives FMPA veto authority on the City’s ability to sell their electric system, found in Section 28(c) of the requirements, stating, “the project participant “the City” agrees that it will not sell, lease, abandon or otherwise dispose of all or substantially all of its electric or integrated utility system without the FMPA’s consent”. He called attention to the fact that FMPA’s consent was not required for the City to sell a small portion of its sys tem in the Town. Attorney May revealed that the Town wanted to propose to the City, a partial sale to FPL. Attorney May touched on the City’s concerns regarding the partial sale to FPL. He identified three basic concerns: 1) the City views itself in litigation with the Town and the County; 2) the City has a substation within the Town that serves as a backbone for the City’s overall distribution system; and 3) there were stranded costs. A discussion ensued on stranded costs and Attorney May referred to the South Daytona and Winter Park electric utility's acquisitions. Town of Indian River Shores – City of Vero Beach – Indian River County Electric Utilities Mediation Page 4 May 1, 2015 The Town Mayor Brian Barefoot hoped to resolve the issues today to avoid the costs and risk of litigation. He recalled at the December 17, 2014 Mediation Meeting, it was agreed upon to continue abatement of the Town’s lawsuit, during which time the City would pursue opportunities to reduce rates and provide concrete recommendations for doing so. The Town Council voted to further extend the abatement an additional 75 days to expire on May 15, 2015, to give the City time to explore these opportunities to continue negotiations with OUC and FMPA. Mayor Barefoot expressed his disappointment with the FMPA’s continued refusal to be part of the solution, their mismanagement, and their performance or lack thereof, before the Joint Legislative Auditing Committee. The Town continues to be disappointed that the City has not chosen to aggressively pursue amendments to the FMPA contract, or even attempted to cancel the contract through every legal means available. Mayor Barefoot compared FPL electric rates to the City electric rates and he explained when the cooling off period began, the rate disparity between the two electric utilities was approximately 25%. It has increased to almost 31%, which leads the Town to believe the City has no control over its electric utilities destiny. He indicated FPL has opened the door to discussions with the City about a potential sale of utility assets in the Town, which could solve the rate disparity crisis in the Town, provide the City with an influx of funds to enhance its financial viability and potentially provide cost reductions to be passed on to all of its remaining customers in the City and the County. Terry Deason, the Town’s Electric Utility Consultant, referred to his handouts on the Town of Indian River Shores Buyout. He reiterated the Town does not know what a buyout would be if one would take place, and explained there were various moving parts to be considered. He reviewed the information on the Transfer Coverage Range Analysis and indicated the Town was not taking a position on the transfer, whether it was the right thing to do or not. However, the impacts of a buyout on various levels could be beneficial. Mr. Deason turned the focus to the theoretical amount of savings in debt service payments that could be achieved on the buyout bonds. He emphasized that the Town felt strongly, given what they knew about other amounts of buyouts of utilities on a per customer basis. The Town presented an opportunity to the City for an infusion of capital dollars to be used as they see fit, whether it be a rate stabilization fund or cancellation of the OUC Contract. Mayor Barefoot summarized the $542,000 on the transfer coverage range analysis handout, which was the amount of the transfer lost without the Town’s customer base. Amy Brunjes, Area Manager with FPL, stated that for the last seven years, FPL has been focused on a whole Vero Electric sale and believed it still could be achievable. She pointed out that FPL continues to look for solutions to bring lower electric rates to as many of the Vero Electric customers as possible. She felt a sale or acquisition of the customer base in the Town of Indian River Shores was achievable and would not negatively impact the Vero Electric customers. Town of Indian River Shores – City of Vero Beach – Indian River County Electric Utilities Mediation Page 5 May 1, 2015 Mayor Barefoot called attention to the fact that the Town had a May 15, 2015 deadline and asked Mrs. Brunjes, if there was a timeframe when FPL could meet with the City regarding the additional analysis required for a buyout. Mrs. Brunjes detailed that FPL would need to do a full evaluation in order to determine the purchase price and was hopeful the analysis would be completed within the next two to three weeks’ timeframe, close to the May 15, 2015 deadline or shortly thereafter. Mayor Richard Winger questioned the Town’s buyout amounts on their analysis and referred to the $3,000,000 number. He felt it was rather an insult and the numbers were unrealistic because the FMPA power was expensive. Mr. Deason responded with an apology and indicated it was just a range analysis. General discussion ensued in regards to the range analysis and Commissioner Peter O’Bryan summarized the range analysis clarification. He referred to the Transfer Coverage Range Analysis and implied that the City could invest in some type of financial investment that would generate various rates of return. Based upon that return, that would be how many years the amount would cover the $540,000 transfer. Mr. Deason agreed with Commissioner O’Bryan’s summary with a slight clarification that the City could take the funds and invest them, or use the money, which would preclude them from having to go to some other source of funds. Commissioner O’Bryan viewed the second handout regarding the Series 2003A Electric Refunding Revenue Bonds. He pointed out that if the City took the buyout amount and paid down a portion of their revenue bonds, the savings would be the reduced interest from paying down those bonds. Mr. Deason added it would not only reduce the interest from paying down the bonds, but reduce the requirement to pay the principal. The Mediator called for a recess at 10:30 a.m. and reconvened the meeting at 10:43 a.m., with all parties present. Mediator Alvarez wanted to hear the City’s thoughts regarding the Town’s proposal. Attorney Wright looked forward to receiving FPL’s proposal. In response to Mr. Deason’s analysis of two possible applications of a buyout payment, he explained there was a lot more components involved with any loss of sales based on kilowatt hours sold to the City’s overall cost structure under the various power purchase agreement. He revealed the City strongly preferred to see the City electric issue wrapped up sooner, rather than later. Mediator Alvarez seemed to think that the end of the cooling off period of May 15, 2015, was too short of a period of time for the City’s consideration of the Town’s proposal and questioned if the Town could extend their lawsuit another month. A discussion ensued on the lawsuit, and Attorney May’s concern was that the franchise agreement would expire in November 2016. He believed even with the Town pursuing the Town of Indian River Shores – City of Vero Beach – Indian River County Electric Utilities Mediation Page 6 May 1, 2015 lawsuit, the parties could still continue to negotiate in litigation. He indicated that if the City and FPL were productive in their talks, then the Town would be glad to accommodate the schedule of the lawsuit. Mediator Alvarez said if the Town and the City put the litigation to the side, then there would be a better chance of reaching a settlement. He had no problem with the Town instituting the lawsuit, but asked if the Town would extend the cooling off time period to June 1, 2015. Mayor Winger wanted the parties to know that he would not support anything done in this venue that was not equitable to all of the customers of the Vero Electric. Mediator Alvarez sensed from the Town’s proposal that the remaining Vero Electric customers would not bear a huge burden. Mayor Barefoot hoped the negotiations between the City and FPL would get to the point where everyone would benefit. He commented in regards to the lawsuit from the Town’s perspective, it could not be any worse than it was now, so they had nothing to lose. He continued, if there was some role the Town could play in the negotiations between the City and FPL that would facilitate a favorable conclusion, he would be more than happy to participate in that discussion. Mediator Alvarez led a discussion regarding the near end of mediation and the parties not reaching an agreement. He said in this mediation there was frustration from all of the parties, but at the same time there were a number of things already happening to better the situation. Mediator Alvarez inquired on a discussion from the December Mediation, regarding a Utility Board beyond the City. Attorney Wright in response to Mediator Alvarez, indicated that creating a Utility Board was still on the high priority list; however, the City’s efforts had been devoted toward trying to get lower rates and costs from power supply sites. Attorney May revealed the Town was moving forward with adopting a Rate Ordinance in the event the litigation was unsuccessful; they would have the legal authority to adopt their Rate Regulatory Ordinance within the Town limits. Commissioner O’Bryan thanked the Town for bringing forward a potential sol ution and reiterated the County’s position was that the only true and equitable solution was the full and complete sale of the entire electric utility to FPL. He indicated the County feels that progress would be made toward a solution for a full and complete sale of the City of Vero Beach’s Electric Utility by sending a letter to the legislature requesting the Joint Legislative Auditing Committee to tell FMPA: 1) to give the City the value of their assets; and 2) to provide the exit costs for the City. The Mediator announced a recess for discussion at 11:05 a.m. and resumed at 11:13 a.m., with all parties present. Town of Indian River Shores – City of Vero Beach – Indian River County Electric Utilities Mediation Page 7 May 1, 2015 Attorney May for the Town, proposed to allow the cooling off period to lapse and would file the necessary paperwork to reinstate the lawsuit, but agreed to give the City an additional 30 days, on top of 20 days already allowed to respond to the lawsuit, upon the Town Council’s approval. Attorney Wright for the City said 50 days was completely reasonable from the date the lawsuit was reinstated. Attorney May announced the Town would be holding a Special Call Meeting after the mediation at 2:00 p.m., and should be able to provide their position to Mediator Alvarez. Mediator Alvarez indicated after the Town Council Meeting, letters would follow to verify the Town’s proposal. He asked the parties to keep in mind that other entities would weigh in given the issues involved, and aired his concerns on going to litigation. Mediator Alvarez announced the end of the FL Statutes, Chapter 164 Mediation and terminated it at 11:20 a.m. ADJOURNMENT There being no further business, the meeting adjourned at 11:20 a.m. Mediation/TCL/05012015