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Vero turns to ‘greenmail’ in water wars

STORY BY LISA ZAHNER, (Week of June 16, 2011)

Is the City of Vero Beach trying a new type of “greenmail”  to persuade the Town of Indian River Shores to sign on for another 30 years of water and sewer service rather than switch its allegiance to the county?

That question arose last week when it became known that the Vero water utility – apparently unbeknownst to the Vero City Council – has been sending notices to Shores homeowner associations telling them it does not intend to renew contracts for the reuse water they rely on for irrigation when they expire at the end of the year.

“Reuse water” in the form of reclaimed, treated wastewater is the veritable lifeblood that flows through pipes to the Shores. Millions of gallons of reuse water per day are pumped and sprinkled onto grass, landscaping and golf courses, keeping the town the lush, green paradise to which residents have become accustomed.

The City of Vero Beach, which a generation ago was begging Shores private communities to take treated wastewater which it could no longer dump into the Lagoon, has more than doubled the price it charges for reuse water in the past two years, and now seems to view it as a pressure point to get the Shores Town Council to vote to stay with Vero for potable water and sewer service.

Reuse water is not encompassed within the Shores’ 1986 water and sewer franchise agreement with Vero, so short-term service agreements with individual homeowner associations have been entered into over the years.

Councilwoman Tracy Carroll said the non-renewal notices to homeowner associations were news to her, and that the issue has not been brought before the Vero Beach City Council.

Last week, when the topic of reuse water for the Shores came up before the Vero Utilities Advisory Commission, Shores Town Councilman Jerry Weick asked the Vero officials and staff point-blank about reuse.

“If we do not sign with the city for water and sewer, are you not going to supply us with reuse?” Weick asked. “I would like to know if we will continue to get reuse water either way.”  Weick lives in Bermuda Bay, one of the Shores communities that relies totally on Vero reuse water for irrigation.

The answer was not comforting.

“There are a lot of communities in the city that would like reuse water,” said Utilities Advisory Commission Chairman Herbert Whittall. “If you (Weick and the Shores) don’t go with us, it might be in the city’s best interests to give it to city residents. As a citizen of the city, it would nice if you supplied the city residents with reuse water.”

Indian River County Utilities Director Erik Olson has said Vero and the county need to work together to meet the Shores’ demand for reuse water, that neither utility can do it on its own.

The county has offered to sell Vero a million gallons per day which it could then re-sell to the Shores. That was based upon the assumption that it would be the Shores that would be getting the water -- and Indian River County would be getting the Shores as water-sewer customers.

Along with the uncertainty about whether the Shores would have access to reuse water from Vero regardless of what direction the town goes with the franchise agreement, Indian River Shores has gotten some mixed messages from Vero recently about its desire or even its intention to serve the Shores with water and sewer.

After six months of urging from Vero Vice Mayor Pilar Turner, and six months of excuses ranging from short staffing to lack of computer software, Vero Water and Sewer Director Rob Bolton finally put forth his best guess about the future of the system.

In a nutshell, he said Vero would be financially better off without the Shores and South Beach.

Based upon some bold assumptions, such as Vero being able to sell water and sewer mains running to the Shores and South Beach for $18 million so it can pay off debt, Bolton says the utility can increase its profits from $1.7 million in 2016 to $2.4 in 2017 and finally to $2.57 million in 2018 once the Vero system pulls back into the city limits.

Bolton projects no rate increases for the scaled-back system through the year 2023, when Vero would need to float some bonds to move the sewage plant off the Indian River Lagoon to the airport property.

“I feel very comfortable that we’re in the 95 to 98 percent accuracy (range) with this,” Bolton said.

Keeping Vero Utilities afloat would involve cutting operation at the water plant to 12 hours per day and at the sewer plant to 16 hours per day because of the reduced volume and cross-training water and sewer plant workers.

Bolton said the water plant could process water for 12 hours and pump stored water for 12 hours. The sewer plant could take a break for eight hours a day, storing effluent.

This would mean massive layoffs – 35 jobs or nearly 50 percent of the utility’s 73-person staff would be gone.

According to Bolton’s numbers, water-sewer revenues would dip about $7 million per year when 40 percent of the customers go away, but the layoffs and reduced debt payments would trim expenses by $8 million per year.

The $18 million figure for the water and sewer mains Vero expects to sell to the county, Bolton said, are based upon the city’s hired utility experts GAI Consultants’ $24 million appraisal, which he called “book value,” depreciated to the end of the franchises in 2016 and 2017.

Last week, when pressed by Councilwoman Carroll, Bolton said $9.8 million is the value of the Shores assets and $8.2 million is the value of South Beach assets.

The understanding up to now has been that most of the utility assets in the Shores revert back to the town in 2016, but that the water main, water tanks and underwater crossing remain under Vero’s ownership.

That reality has changed, too, from Vero’s perspective.

Bolton last week told the Utilities Commission and Shores Town Councilman Weick that the only assets that revert back to the Shores are the actual pipes that were in the ground in 1986 when the franchise was signed. Anything added in the past 25 years, he said, such as the gravity sewer and millions of dollars in upgrades, belong to Vero in 2016 when the 30 years is up.

The plan assumes the Shores will blindly accept this revisionist reading of the carefully crafted franchise agreement.

Another large chink is in Bolton’s plan to glean $18 million from the county for water and sewer mains running to Shores and South Beach customers. The county’s not necessarily buying.

“The county has assumed that these lines that revert to the city are not specifically needed by the county,” said Indian River County Utilities Director Erik Olson.

Is the county bound somehow to buy what Vero wants to sell?

“The county has no obligation to purchase the city’s facilities at the end of the existing franchise,” said County Attorney Alan Polackwich, who looked at the issue in detail last fall.

If the scaled-back Vero plan assumes a value – meaning what the county might pay for the assets lock, stock and barrel – there could be a big hole in that business model. The numbers might not work if the utility cannot pay off the debt.

There is an easy solution, according to Bolton. “If they (the Shores) stay with us, there is no cost,” he said.

Bolton’s plan, plus the big question mark about reuse water leaves the Shores in a bit of a quandary, not knowing whether Vero really wants the town’s business.