OUC braces for loss of its biggest client

Vero Beach to sell utility to Florida Power & Light

Orlando’s biggest electricity customer — the city of Vero Beach — is getting ready to pull the power plug.

It’s a potential hit for the cityowned Orlando Utilities Commission, which is a significant funding source for city hall, paying for police, fire, parks, administration and other services that otherwise would be covered by taxpayers.

Contending that OUC’s price is too high, Vero is pushing ahead with a sale of its utility to the state’s biggest power provider as a more affordable option.

“OUC has been actively seeking a means to make up for some of the lost

revenues,” spokesman Tim Trudell said.

This year’s OUC contribution to Orlando government is $90 million.

OUC, which has 230,000 customers in Orange and Osceola counties, stressed that it has been able to protect the city and its customers from negative consequences, including a rate increase to compensate for the loss of energy sales to Vero Beach.

According to Vero Beach authorities, that city’s utility has been paying roughly $1 million a month to OUC, a figure that fluctuates seasonally.

Vero’s utility has 34,000 power customers in and outside of the city. The city is looking for a nearly 20 percent drop in rates under Florida Power & Light Co.

“The primary driver for us is rates,” Vero Beach city manager James O’Connor said.

Statewide, demand for electricity has been flat or gradually rising during the past decade, as appliances are becoming less energyhungry and as homeowners and businesses have better engaged in efficiency practices.

That’s left a surplus of electricity and no readily available buyer for the more than 130 megawatts of power Vero Beach has been purchasing from OUC for most of this decade.

The Orlando utility also is challenged with continuing to pay debt on a pair of middle-aged power plants, each costing about $1 billion.

They use coal for fuel at a time when natural gas has risen dramatically in popularity among utilities because of its price, convenience and cleaner emissions when burned to generate power.

Jacob Williams, general manager and CEO at the Florida Municipal Power Agency, said it’s a buyer’s market for utilities of Florida cities that purchase wholesale power.

Cities are negotiating for significant drops in rates for short-term contracts, said Williams, whose agency is owned by cities and generates power for them.

But when it comes to selling wholesale power, as OUC does, prices are not attractive, especially for electricity generated with a mix of natural gas and coal.

“You have a bit of a head wind,” Williams said.

As part of dropping Orlando’s utility as a power provider, which is on track to happen next year, Vero is offering to pay OUC $20 million in compensation.

An OUC administrator previously told Vero Beach that such a settlement sum would not nearly cover Orlando’s potential losses from the exit of such a big customer.

“I wanted you to know that OUC’s damages will far exceed the $20 million if Vero Beach defaults on its contractual commitments to OUC,” vice president Jan Aspuru said in May of power sales originally expected to continue until 2023.

However, OUC’s board decided this week to agree to a $20 million payment from Vero Beach.

Also pending in a breakup with Vero Beach is an agreement with FPL that it would buy as much as 85 megawatts of OUC electricity for two years “starting immediately upon the termination” of sales to Vero.

The Orlando Utilities Commission has not had the smoothest relationship with Vero Beach, a city in Indian River County about 90 miles southeast of Orlando.

A power-purchase contract between the cities in 2010 would soon be challenged by Vero as too costly. Negotiations resulted in a new contract with lower cost power.

That, too, would prove unwanted; Vero voters called for their city to get out of the utility business. Vero Beach shut down its power plant years ago but retains its poles, lines and transformer network.

But before Vero stops buying OUC power, “many things have to happen,” FPL spokeswoman Sarah Gatewood said, citing steps that would include a state review.

With nearly 5 million customers, FPL is offering to pay $185 million for Vero’s utility.

Most of that would be for a variety of costs, including covering the $20 million for OUC and $108 million for the Florida Municipal Power Agency.

O’Connor, said his city would be left with $30 million to invest, lower rates and the promise of smart meters and a modernized utility.