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Mediation fails; litigation’s next for Shores, Vero

STORY BY LISA ZAHNER (Week of May 7, 2015)

The Town of Indian River Shores and the City of Vero Beach are headed to court later this month over disputes centering around Vero’s electric utility, but Shores officials still hope Vero will accept an offer from Florida Power and Light to purchase the roughly 3,000 customers in the town now on the Vero system.

During a mediation session on Friday, Shores’ rate consultant Terry Deason laid out what the Shores is offering up as the benefits of a partial sale to Vero’s ratepayers and taxpayers. FPL officials have not yet put forth the price they’d be willing to pay, but Vice President of External Affairs Amy Brunjes said she expects to have a firm number in the coming weeks.

Vero’s attorney Robert Scheffel “Schef” Wright said the city would certainly consider FPL’s forthcoming offer, but that all the ramifications of a partial sale of the Shores customers and assets would need to be vetted through Vero’s Finance Commission, Utilities Commission, its consultants and its Finance Director.

To accomplish this, Shores officials agreed to give Vero an extra 30 days to file a response to the Circuit Court lawsuit, pushing that date to roughly July 4.

In an effort to open up a discussion of the partial sale, Deason presented two spreadsheets laying out how a cash purchase price of between $3 million and $10 million might help offset the lost revenue from not having the Shores customers paying Vero electric rates. For discussion, Deason used the city’s figure of $542,000 annually skimmed from the electric bills of Shores’ residents that goes into the Vero general fund.

Deason suggested two possible scenarios in which he said the partial sale would be good for Vero.

The first scenario was one where Vero would use the cash it would get from sale of Shores customers to FPL to pay off electric bonds early.  The second was where Vero would either set aside the cash or invest it, annually transferring $542,000 to the general fund to replace the loss from Shores customers.

Deason chose Vero’s Series 2003A bonds, which carry a 4.11 percent interest rate, as an example. Should FPL offer Vero $10 million, Deason claims that if Vero were to use that cash to pay down debt early, the annual savings would be $1.83 million.

Should Vero choose to bank that same $10 million in some interest-bearing account or financial vehicle, Deason calculated how many years the city could use that cash to even up its transfer into the general fund to the current level.

Based upon the Shores’ estimates, if Vero was able to earn a 3 percent annual return on a $10 million purchase price, the city could subsidize the general-fund transfer with that cash for 26 years. If managers were somehow able to find a security that would pay a 6 percent annual return, the draws off that money could perpetually replace the $542,000 that Shores customers now pay into Vero’s general fund.

In a published statement, Shores Mayor Brian Barefoot said he was disappointed that Vero has seemed to, so far, reject even the idea of a partial sale out of hand. To Barefoot, Vero seems to be missing the silver lining that stretches far beyond potentially settling the lawsuit.

“I see no reason to dismiss this option so quickly. The city’s own analysis shows that ‘losing’ the town as a result of our lawsuit would have an insignificant impact on remaining customers’ rates, and that analysis assumed that the city would get nothing in return if it lost the opportunity to serve within the town,” Barefoot said.

“But the partial sale would bring additional revenues to the city that it could use for a rate stabilization fund, municipal improvements, or any other municipal purpose that the city deems appropriate.”

What Deason’s analysis failed to emphasize was the total impact on Vero’s electric budget should the Shores be bought out by FPL. The Shores customers make up nearly 10 percent of Vero’s annual $90 million in electric revenues.

Due to the city’s high cost of not only power from long-term contracts, but also the cost of salaries, health benefits and pensions, the fixed costs of the electric utility have been estimated to be between 70 and 85 percent. Theoretically, Vero could shave the 15 to 30 percent in variable costs now paid by the Shores, but Vero electric and its remaining ratepayers in the city limits and Indian River County would still need to absorb the 70 to 85 percent fixed costs of between $6 million and $8 million dollars annually.

Indian River Shores’ electric franchise with Vero expires in November 2016, after which the Shores argues that Vero has no right to operate within the town or use the town’s rights of way. Indian River County’s franchise with Vero expires four months later in March 2017.

The “partial sale” of the Shores customers to FPL would still leave unincorporated Indian River County customers such as those on the south barrier island and parts of Grand Harbor on Vero’s electric system.

The Board of County Commissioners was meeting Tuesday morning to discuss last week’s developments. Indian River County still has a pending appeal with the Florida Supreme Court of a Feb. 3 ruling in which the Florida Public Service Commission defended Vero’s right to a permanent service territory.

During Friday’s mediation session, Commissioner Peter O’Bryan reiterated the county’s position, that “the only equitable solution is the full and complete sale of the Vero electric system to FPL.” O’Bryan said the county will continue to work on that via legal, regulatory, political and legislative means.

At a Tuesday morning Vero Beach City Council meeting, the lawsuit with the Shores was expected to come up. Vero has hired litigator John W. Frost of Bartow to handle the court battle for the city.

The Shores Town Council has scheduled a “shade meeting” with attorneys about the electric lawsuit at 7:30 a.m. May 21. Under Florida’s open-government laws, an elected body may meet behind closed doors with its attorneys and a court reporter to narrowly discuss certain aspects of pending litigation.

Shade meetings must be publicly noticed and held at a date, time and place certain, with the case title of the litigation to be discussed published in an agenda. The shade meeting is closed to the public, but a regularly scheduled town council meeting open to the public will follow at 9 a.m. that same day.