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New twists as Shores battles for lower rates

STORY BY LISA ZAHNER (Week of March 5, 2015)

Indian River Shores has taken a surprising left turn in its battle to get all of its residents lower electric rates, which most people had assumed involved getting the southern part of the town out of the clutches of Vero Electric and bringing them the same lower Florida Power & Light electric rates already enjoyed by the northern part.

The town’s lawsuit against the neighboring city of Vero Beach accuses Vero of mismanagement of its municipal utility and seeks to establish the town’s control over who can provide electric service after Vero electric’s franchise expires in November, 2016.

However, the latest indications coming out of the town council are that it won’t be as simple as telling Vero electric to come and pick up its equipment and asking FPL to come in to join the Vero electric service area to the territory it already serves.

From discussions at last week’s Indian River Shores town council meeting and from information provided by sources close to leading council members, it appears that people driving the process are now seriously considering other alternatives to FPL, including:

n Forming the town’s own rate-regulation body, which would have to approve rate increases from a future power provider;

n Negotiating a separate deal for power – at much better rates than Vero gets – with the Orlando Utilities Commission; or

n Keeping Vero electric on the job, but at rates much lower than at present.

The town council voted 3-2 last week to give the city of Vero Beach another 75 days to try to figure out how to reduce electric rates before the town goes forward with its lawsuit. Then the council moved onto the next item on its agenda, vaguely entitled, “Discuss Potential Consumer Protection Measures After Franchise With Vero Beach Expires.”

Electric attorney Bruce May, rate consultant Terry Deason and several councilmen discussed the legal ramifications of an ordinance to make the town council itself the rate-regulating body for the town’s residents.

Outside the meeting, sources close to town officials said the Shores has not focused so much on brokering a deal with FPL as on negotiating a sweetheart deal with the OUC.

Then, with that bird in hand, the town could even go back to Vero and challenge Vero electric to match OUC’s offer. The town followed similar tactics a couple of years ago, getting a quote from Indian River County to provide water-sewer service, to then leverage a better deal with Vero’s water and system.

All the talk of “consumer protection measures” does clearly signal that FPL is no longer the clear front-runner to take over Shores’ service. FPL is already regulated by the Florida Public Service Commission and is therefore required to mount a rate case before the PSC whenever it wants to raise rates. The PSC typically approves a fraction of what FPL initially asks for over the months-long process.

FPL can only legally charge retail customers one rate across Florida – the rate approved by the PSC. The Shores would not need to bother with ordinances and experts to regulate rates if the town was close to a deal with FPL to take over the system.

On the other hand, OUC and Vero electric are unregulated. Vero’s staff can raise rates willy-nilly without even a City Council vote, though City Manager Jim O’Connor and Finance Director Cindy Lawson bring the rate recommendations before the Utilities Committee and the council each quarter for a blessing.

OUC has, since Vero began buying wholesale power from Orlando in 2010, raised rates on Vero several times a year – double-digit increases that far exceeded projections – and has refused to even respond to the city’s repeated requests for the reason or justification for the hikes.

Both Vero and OUC are members of the Florida Municipal Power Agency. OUC is heavily reliant upon coal, which in the current regulatory climate is a risky bet. Even when it’s too expensive to produce power by burning coal, rate payers must still bear the cost of staffing OUC’s Stanton 1 or Stanton 2 coal plants, the overhead being rolled into the cost per megawatt-hour passed on by OUC.

The FMPA found out what a cold shoulder coal is getting from regulators when it couldn’t get its planned Taylor County coal-fired generation plant permitted and got stuck with hundreds of millions in interest-rate swaps that the FMPA had already purchased for a bond issue.

Even if the Shores sets itself up as the rate-making board for the town, should OUC or Vero be able to prove that the costs it wants to pass along are being caused by unavoidable factors or increased regulation, the Shores’ town council might get stuck having to agree to justifiable rate increases anyway.

Mayor Brian Barefoot admitted that the town would need to bring in “experts” to handle the finer points of rate-setting strategy, and that the council should be cautious because elected bodies turn over every time there is an election and down the road, the five men or women on the dais may have no interest or no aptitude for the complex exercise of overseeing an electric utility.

After a half-century of operating its own electric utility, Vero officials still regularly appear flummoxed when it comes to the technical, financial, legal and regulatory nitty-gritty of running a $100 million-a-year electric company.

The business of rate-setting could be equally as – or even more – baffling to the uncompensated members of a Shores town council in the future.

A workshop on the topic is scheduled for Monday.