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Vero Beach electric bills soar; municipal utility is now ‘broke’
BY LISA ZAHNER - STAFF WRITER (Week of July 2, 2009)

For the past several weeks, Vero beachside residents have been staggered by all-time-high monthly electric bills running in many cases $700-to-$900 or more, sparking new calls for the City of Vero Beach to get out of the electric utility business and turn its plant over to Florida Power & Light.

If one thing was obvious at a special call meeting on June 22, it was that City Council members were pretty much oblivious to the fact Vero’s municipal electric utility is “broke” and “limping along” financially – the words of City Finance Director Steve Maillet.

Council members listened largely in stunned silence not only to Maillet’s stark description of the financial position, but also to the equally dismal results of a long-overdue utility rate study – the first one conducted since 1991.

“The economy has changed a lot and we’ve learned a great deal about our systems from this rate study,” said City Manager Jim Gabbard. “We know we’ve had problems, but we have an obligation to look at our systems routinely, every four to five years.”

Though it started out the year with $14.5 million in cash, the electric utility now has a virtually empty bank account, Maillet said, after the City Council once again siphoned off the annual $5.9 million it milks from the electric fund to finance City activities that otherwise would be paid for by property taxes.

The City also charges $1.7 million to handle the utility’s personnel and payroll administration, for a total of $7.6 million shifted to the general fund.

Though we were told that surcharge receipts have no direct correlation to the money transferred to the general fund, the 10 percent surcharge levied on the many customers of Vero Beach utilities who do not live within the City brings about $3.3 million per year into the coffers.

It was obvious, even after the exhaustive and candid presentation of the rate studies and recommendations by Henry Thomas of Public Resources Management Group of Maitland, that Council members have no immediate ideas how to fix matters other than to further increase electric bills — which were hiked in both May and June.

Councilman Tom White indicated that he, for one, is opposed. “I pay these bills every month,” the former mayor said. “I’m not up for re-election and probably won’t be. How are we going to keep hitting up retired people with higher rates?”

Despite being shocked and “appalled,” as Council Member Debra Fromang put it, by the results of the rate study and the budget numbers, no action was taken to shore up the utility, which will soon be in a “negative cash position” according to Maillet.

White suggested that a better flow of accurate information is needed from staff when a major city department is in such financial trouble.

“The City Council, on the whole, does not get involved in the day-to-day operations of the City. We rely on staff and the City Manager,” he said. “We need a downto- earth communication system and not to be told all the time that we’re going to be fine.”

Council asked for a recommendation on how to deal with the situation from the cadre of political appointees who make up the Finance and Utilities commissions after the consultants come back with a menu of new rate structures, which are expected in late July or early August.

Initial recommendations included a 7.8 percent increase in base rates. Any changes would take effect on January 1. Thomas also recommended more frequent rate studies and, at a minimum, annual adjustments of at least 1 percent.

“Like Henry said, we need an inflation adjustment even if we don’t do a rate adjustment,” said Mayor Sabin Abell.”If you let the Utilities Commission set rates, you take the politics out of it. If we raise rates, we might not get elected.”

The big problem, of course, is City Council members also fear that if they raise property taxes, they might not get elected – which is why for years the easier course has been to divert huge sums from electric bills to the city’s general fund.

One option for dealing with the current crisis, which Maillet put on the table in two separate meetings but has since backed away from, is incurring new debt of up to $7 million to balance the electric utility’s books. The problem is prospective lenders want to see between 45 and 90 days of operating cash in the bank.

Forty-five days of operating cash for the Vero Beach electric system would be nearly $12.4 million, which the City does not have in the electric account. Maillet said the City would have to show that it was making “significant efforts” to get the utility in the black to get a good deal on a loan.

The utility currently pays 6.5 percent interest for a total of $6.7 million annually in debt service on $64.6 million in existing debt incurred for capital projects.

In recent years, the City Council has blamed higher and higher electric bills on a “bad” deal struck by a previous city government with the Florida Municipal Power Agency (FMPA), which supplies virtually all of the power to City of Vero Beach utility customers.

Rarely mentioned in discussions of higher electric bills is the fact the Vero Beach utility’s operating and maintenance costs also have risen more than 22 percent since 2006.

As Thomas presented the results of a rate study, the untenable future of the municipal utility without continued rate hikes became crystal clear.

“The electric services you provide are not going to be viable without a rate adjustment,” Thomas told the Council members. “The projected deficit for 2010 is $5.3 million.”

The promise we keep hearing from City Council members is that when we get out of the old deal with the FMPA and get into a new “good” deal with the Orlando Utilities Commission next January, rates should go down and be “closer” to FPL rates.

“The real test will be what we’re looking like in March and April of next year,” Gabbard said.

No one has explained either why anyone should believe things will be better than they were this past March and April – details of the OUC bid have not been shared with the public — or why if the best City of Vero Beach utilities customers can hope for is electric rates “close” to FPL, we would not be better off switching to FPL.

“There’s no way that the City is going to be able to match the cost of FPL,”said Steve Faherty, a retired treasurer of a government- owned corporation and active participant in the South Beach Property Owners Association.

Faherty has made understanding our utility situation a personal crusade since 2006 and he has attended or presented at no less than 20 meetings of boards and local residents, explaining the issue with detailed graphs and charts.

Commissioner Joe Flescher, who lives in Sebastian and is an FPL customer, has seen Flaherty’s presentation.

“The problems people have with the City of Vero Beach are not about service, they are about cost and that’s what makes it difficult to compare and contrast. People should have an option, but it’s tough with utilities because of infrastructure and delivery,” Flescher said. “I talk to people who are disconnecting their freezers, using the fluorescent light bulbs, not using their ceiling fans and trying to conserve and their bills are still $400 a month.

“Change can be good and I should hope that it will reduce the cost factor because people are losing their jobs, they’re losing their homes and losing their cars,” he said. “Either the grid needs to be redesigned or Dr. Flaherty should prevail,” Flesher said.

Commissioner Wesley Davis, current chairman of the County Commission, said he supports electric customers who live outside the Vero City limits who are forced to get their power from the city.

“I’m with those people and Steve Faherty is right on this issue,” Davis said. “Where I fault the City of Vero Beach is not having representation available to county residents. It’s taxation without representation and something’s got to be done.”

Until this latest dose of bad news about the City of Vero Beach Utility, the discussion over the fairness of electric rates has largely centered on calls for the utility to be managed by an independent commission – made up of non-city as well as city residents – rather than leaving all decisions to the Vero Beach City Council.

The City Council thus far has succeeded in stonewalling efforts to create an independent utility authority, clearly fearing an authority that represented all the geographic areas served would end the city’s ability to use electric bills as a cash cow, and force the Council to consider raising property taxes to fund city activities.

But the question that seems certain to be increasingly heard in the days ahead is whether things have gotten so bad that we are past the independent authority option, and now should be focused solely on getting the City of Vero Beach out of the utility business entirely.

County Commissioner Bob Solari, who represents the disenfranchised communities in the South Beach who get their electric from the City, said the whole utility situation – encompassing electric, water and sewer – is pricing businesses out of the city as they’re often paying 30 to 40 percent more for utilities than competing shops served by FPL.

But he is not hopeful that any serious headway will be made by the City Council, as he served on it from 2005 to 2007 and knows the way the City Council and the utility operate.

“There are two business models for a utility: the first is meant to serve the utility customers and the second is meant to provide revenue for the general fun,” he said. “And as long as the business model is to provide revenue for the general fund, they’re not going to change the way they do business.”