Appeals process in utility case gives Vero cash windfall

Vero Beach City Hall [Photo: Kaila Jones]

News Analysis

As Indian River Shores and Vero Beach await the outcome of the town’s appeal of a ruling in the city’s favor in a breach of contract dispute over reuse irrigation water rates, how Florida’s Fourth District Court of Appeals interprets state statute could have broad implications on the enforceability of utility franchise agreements across Florida.

The three judges who heard 30 minutes of arguments from each side now have as long as it takes to weigh the complex civil case.

“After the judges confer, a decision is made, and an opinion may be written. Each case presents its own issues and difficulties; in most cases the decision is made within 180 days from the conference,” Shores Town Attorney Pete Sweeney said last week.

Since a ruling is not expected anytime soon, and Vero benefits from the status quo of Shores utility customers paying rates they feel are unjust, time is definitely on Vero’s side.

Meanwhile, the Indian River Shores Town Council faces two timely issues while the 4th DCA ponders the case.

How should the town handle the fact that Vero recently hiked Shores customers’ water-sewer bills by double digits – a move town officials called a clear violation of the franchise agreement with Vero?

The new “One Rate” plan Vero Beach imposed in January seems to be a separate and distinct breach of contract from the reuse irrigation rate issue of 2019 that’s in the appeals court. Will the town sue Vero anew?

Also, the Shores was under a deadline of Oct. 1 to tell Vero whether it will require the city’s utility services after October 2027 when the water-sewer franchise agreement is set to expire. Vero extended that deadline by six months. That gives the town one year to strike a deal with the county for Indian River County Utilities to serve the Shores customers starting Oct. 1, 2027.

Former county administrator Jason Brown had intimate knowledge of the Shores’ predicament, and had been speaking with town officials, but he departed in December and no progress has been made in the interim.

“We are going to wait until the new county administrator takes office,” Town Manager Jim Harpring said last week.

The lower court agreed with Vero’s claim that the city could not comply with a clause in the 2012 water-sewer franchise agreement whereby it promised to charge Indian River Shores utility customers Indian River County Utilities rates for published rate classes, in effect matching county rates for the duration of the franchise term of 15 years, with an option to extend to 2042.

When the county reduced its rate of 67 cents per 1,000 gallons of reuse irrigation water to a “disposal rate” of 21 cents per gallon, Vero kept the Shores’ customers’ rate at 67 cents.

Vero’s attorneys claim the city cannot afford to collect wastewater, treat it and pump it back out to Shores customers for 21 cents per 1,000 gallons. A 46-cent reduction to match county disposal rates would force the city to provide the Shores reuse water at a financial loss – a loss that, in theory, would be passed along to Vero’s other utility customers. That, Vero claims, would violate state law in two ways.

Under state law, Vero says it cannot give up its rate-making authority to Indian River County. Vero also claims that it cannot subsidize Indian River Shores customers rates on the backs of its other customers.

Vero’s lawyers have made the argument that Indian River Shores officials should have known these provisions of state law in 2012.

Before the appeals court, Vero’s attorney told the three-judge panel that Indian River Shores could simply leave Vero’s utility system if they object to the rates – thus arguing that there’s a permanent remedy on the table for these two warring parties who obviously do not enjoy being in business with each other.

Technically, that’s true, as Vero last year gave the Shores permission to negotiate a deal with Indian River County. But that does not solve the dispute over whether or not Vero can completely disregard a franchise agreement entered into in good faith. It does not make the Shores whole for rates imposed by Vero until 2027.

If the appeal is decided on pure lawyering, Vero will likely prevail, as the city’s outside counsel Rachael Crews from the GrayRobinson law firm made forceful, if overly simplistic arguments and commanded much more authority in the courtroom than did the Shores’ outside counsel.

After losing the circuit court case to Vero, the Shores changed representation from a local law firm to Holland and Knight’s lawyers specializing in utility matters.

Attorney Bruce May, who heads up Holland and Knight’s Utilities Division, represented the town exceptionally well in electric utility matters before the Florida Public Service Commission, with attorney Kevin Cox, a Harvard Law graduate, as second chair.

But May was not brought in to argue the appeals case, and while Cox does an excellent job researching and writing pleadings, May’s decades of trial experience going toe-to-toe against GrayRobinson’s attorneys in court on contentious utility matters might have been quite useful to the town on April 4 before the appeals court in West Palm Beach.

Vero City Manager Monte Falls said he was pleased with the city’s outside counsel’s performance. City Attorney John Turner concurred.

“From our perspective we are of the opinion that oral arguments went well for the city and that Ms. Crews did an outstanding job in answering the panel’s questions and presenting the city’s position in the litigation. It’s now up to the court to judge the arguments, and the case as a whole, and make a decision. Oral arguments can be persuasive particularly when it’s a close call or some of the justices may be undecided after reading the briefs,” Turner said. “I think we’ll find out shortly.”

Should the court decide that Vero Beach can scrap a legal promise because the city signed a bad financial deal that makes them lose money, it will not only be very bad for Indian River Shores, but it could also expose other outside-city utility customers with franchise agreements all over the state to unexpected changes in the terms of their utility service.

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