News Analysis — No great breakthroughs occurred in the electric impasse between Vero Beach and Indian River Shores when Vero’s legal and rate-consulting team met recently with their Shores counterparts, and the voluminous public records requests and interrogatories exchanged by the warring parties just keep piling up.
The goal of the Jan. 27 meeting had been to somehow reconcile Vero’s $64.5 million price tag to let the Shores exit Vero’s electric system with Florida Power and Light’s $13 million offer to purchase the Shores customers from Vero.
That chasm has yet to be bridged, despite hopes expressed by Shores Mayor Brian Barefoot before the pow-wow that the sit-down might foster progress.
Vero’s attorney Robert Scheffel “Schef” Wright characterized the meeting as “constructive and cordial” in a three-page memo to City Manager Jim O’Connor. Wright explained that one of Shores’ attorney Bruce May’s first questions was whether or not the $64.5 million figure represented some sort of appraisal.
The response: “No, it’s a keep whole number derived from functionally using the Rate Impact Measure (RIM) test.” In other words, the huge figure would keep Vero “whole” by providing it with money to cover its fixed costs indefinitely, even though Shores customers would no longer be served by the system.
Wright’s memo summarized other topics discussed at the meeting, including how Vero’s team came up with the expense values and assumptions regarding bulk power supply costs. The teams also talked about the “take-and-pay nature of the Stanton I, Stanton II and St. Lucie II project contracts.” Those are the rights Vero has to purchase power from those projects, by way of its membership in the Florida Municipal Power Agency electric co-op.
Wright has said Vero has “virtual ownership” of a fraction of those generation assets – no real equity, but financial obligations to purchase power and pay for capital needs on the projects until the coal and nuclear plants are decommissioned. This obligation could last 50 years or more.
Attending for the Shores was Bruce May, who is Holland and Knight’s lead utilities attorney; rate consultant Terry Deason, a former member of the Florida Public Service Commission; and private citizen Bob Auwaerter, who serves in an advisory capacity as the Shores representative on Vero’s Utilities Commission.
Auwaerter, a recent retiree who as a top fund manager with Vanguard researched corporations and industries like utilities, has taken a keen interest in the Shores’ utility woes, spending countless hours studying the city’s contracts and the multitude of financial and legal paperwork related to the electric utility.
He said the meeting in Wright’s Tallahassee office was never seen as a trip to the bargaining table, but a fact-finding mission. “The purpose was to get a better understanding of where they were coming from. Bruce May and Terry Deason and I presented an alternative view, and they listened and took notes,” Auwaerter said. “It was very cordial. But it wasn’t a negotiation, and it wasn’t meant to be.”
The mission of the Shores’ team was to try to verify the assumptions that produced the $64.5 million number, and to find out where some of the cost projections came from and what data they were based on. Auwaerter said all the documents used in the meeting were items already in the public record, and that nothing new was revealed.
May and Deason reported back to the Shores Town Council last week that the meeting did not provide them with any confidence the city’s $64.5 million figure was based in reality or calculated according to industry standards.
“The information we gleaned from the meeting actually confirms many of the initial concerns of the Town’s consultants. Despite its title, the Rate Impact Analysis is not an analysis of the City’s rates that may result from FPL’s purchase of the City’s electric system in the Town,” May and Deason wrote in their five-page report.
What consultants did determine was that many of the numbers used in the calculations were provided by Vero city staff, and that the cost projections factored in steady annual escalators in rates and transfers into the city’s general fund.
“The Analysis is based on the premise that the annual subsidy of $473,000 the City currently derives from customers in the Town would increase each year by 2.5 percent for the next 30 years. The City Representatives did not explain or attempt to justify the basis for the 2.5 percent escalation factor,“ the report said.
“We continue to have concerns regarding the basis for the guaranteed 2.5 percent annual increase in ‘profits.’ To achieve this increase in profits, the City presumably would have to incur additional investments and operating costs to produce higher sales growth and higher profits. However, these costs would not be incurred for the Town’s benefit since the Town customers would no longer be on the City’s system,” May and Deason wrote.
Transfers into Vero’s general fund are only one bone of contention as the legal triangle of the Shores, Vero and Indian River County litigate pending cases in Circuit Court, at the Florida Public Service Commission and at the Florida Supreme Court. Like the Shores, the county is trying to extricate part of its territory from Vero Beach electric service.
The Shores has filed a request with the PSC asking for a ruling on whether that board of five political appointees claims jurisdiction to address questions the Shores has about what happens when an electric franchise agreement expires and a utility like Vero no longer has permission to operate within the Town’s rights of way or on public property.
The PSC staff recommendation in that case is expected this week, and the matter is scheduled to be heard on March 1 in Tallahassee.
Indian River County has taken its case to the Florida Supreme Court and is awaiting a ruling. Meanwhile the Shores’ breach of contract lawsuit against the City of Vero Beach is winding its way through the state court system locally, with some movement expected over the next few months as both sides collect ammunition against each other and the first depositions of public officials and government employees and consultants are taken.
In the case of the Shores and the County, taxpayers are funding the mounting legal bills for these battles. On Vero’s end, those same electric customers in the Shores and the unincorporated County including South Beach are, sadly and ironically, also funding the attorneys and consultants fighting to keep them as part of Vero’s 34,000 customer system.
