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Vero and county make no progress in dispute over utility service territory

STORY BY LISA ZAHNER | NEWS ANALYSIS (Week of September 16, 2021)

Vero Beach and Indian River County elected officials made zero progress last week on resolving a pending water-sewer utility dispute, with the parties unable to even agree why they were meeting.

Vero’s City Council hoped Indian River County would agree that Vero has the sole, permanent right to provide water and sewer service to the barrier island from Indian River Shores to the south county line, as Vero says a 1989 agreement dictates.

But County Commission members were hoping to re-open talks about a settlement offer made by County Administrator Jason Brown. That offer would control water-sewer rates for south barrier island customers of Vero Beach Utilities for 10 years. In exchange, the county would not challenge Vero’s claim of a permanent service territory.

Vero rejected that offer in July, and instead announced it would shift all water-sewer customers to new rates in 2022 to recapture the cost of building a $70 million sewer plant plus the cost of complying with new environmental mandates.

In the end, the two boards kicked the matter back to their managers and legal staff, with Mayor Robbie Brackett to represent the Vero Council and Chairman Joe Flescher to represent the County Commission at the staff-level meetings.

Flescher told the Vero council the county cannot agree to Vero’s claim of a permanent service territory because that very matter is pending before a federal court. Indian River Shores has filed a federal antitrust suit against Vero, asking for a declaratory judgment on the legality of the service territory, and for the court to prevent Vero from taking any monopolistic actions.

This federal suit is separate from the pending lawsuit Indian River Shores filed against Vero in state court in 2020 alleging Vero breached its 2012 franchise agreement with the Shores.

Though the talks between Vero and the county will proceed as prescribed by Florida Statute to try to avoid costly litigation whenever two municipalities have a legal dispute, it’s unlikely anything will be resolved until the federal court rules.

Shores Mayor Brian Foley said the Vero-county meeting turned out about as he expected.

“I can’t really comment on what the motivations of the (Vero) city council, but it seemed at best highly improbable that the county would reverse the position they took several years ago. They had legal opinions saying there was no permanent service territory,” Foley said.

In 1987, Indian River County contracted with Vero to provide water-sewer service to the unincorporated South barrier island water-sewer customers. That 30-year agreement was allowed to expire. Since 2017 Vero has served South Barrier Island customers without a valid franchise agreement because, based upon the legal opinions Foley refers to, the county refused to include language affirming Vero’s claim to a permanent service territory.

Another clear indication of the county’s position that Vero does not have a permanent service territory is the fact that county officials made a proposal – in direct competition with a proposal from Vero Beach – to provide Indian River Shores with water-sewer service in lengthy negotiations in 2011 and 2012 ahead of the Shores’ franchise expiration date in 2016.

Both Vero and the county made public presentations pitching for the Shores’ business and Vero did not assert the permanent service territory to prevent the county from making that bid. Ultimately, Vero matched the rates Indian River County was offering, undercutting the county’s proposal to seal the deal, so the Shores signed on for another 15 years with Vero, a term which will expire in 2027.

Time is running out the Shores to tell Vero that it will not renew the franchise agreement. The mere existence of a clause in the contract saying the Shores must give Vero four years’ notice of non-renewal seems to negate the existence of a permanent service territory.

The notice of non-renewal would presumably give Vero four years to plan for utility operations without the customers who are leaving the utility system. What would the purpose of the four years’ notice be if no customers are permitted to leave, ever?

Time is also running out for Vero to convince a lender to loan the city upwards of $70 million to build a new sewer plant at a time three major legal disputes are pending with one-third of the city’s customer base. Major delays in moving the sewer plant would mean the southern portion of the riverfront development could not go forward.

A ruling on Vero’s service territory will not likely come in 2021, as each pre-trial step takes time.

“As to the federal claim, the process will begin on a date sometime after the Council meeting on Sept. 23. The town would like to have the initial Conflict Assessment Meeting as soon as possible thereafter,” Town Manager Jim Harpring said. The Shores is expected to vote Sept. 23 to launch the same type of out-of-court conflict resolution process as Vero is now in with the county, with the question of the permanent service territory taking center stage. The Shores argues that a permanent service territory in this situation creates a de facto monopoly in violation of federal antitrust law.

Foley said if the town council approves the upcoming resolution, the town will faithfully follow the prescribed process, but he’s not sure how the town and Vero are supposed to resolve the disputed service territory without a judge’s ruling.

“There’s a real dilemma because there’s pretty much purely a legal issue. When you have a conflict resolution there’s typically an effort to try to get clarification on some facts and that’s not what we have here,” Foley said. “We are respectful of the process, but I think we’ve got pretty much a purely legal issue that the court needs to decide.”

Municipal-owned water and sewer utilities are not regulated by the Florida Public Service Commission, so the courts are the only remedy the Shores has.

“Speaking just for myself, as opposed to for the council, the whole exclusive, permanent service area, I don’t see us ever agreeing to that. Even back then (in 1989), it wasn’t intended to be permanent,” Foley said.

Commissioner Peter O’Bryan during last week’s meeting told the Vero delegation they might get rid of all these lawsuits by rectifying the reasons why their customers want to leave them. It’s likely too late for that kind of reconciliation with the Shores. Attempts to resolve the breach of contract dispute have been going on since 2019.

“There was plenty of time for the city to come to us and say, ‘How do we make you happy as a customer,’ and we have not heard anything like that,” Foley said. “I can’t comment on the things other people should have done and could have done, but there does come a point where things go past the point of no return. It’s what people do that leads you to a higher degree of trust than what they say.”