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Vero: Rate cuts to pump millions into economy

(Week of December 16, 2010)

The City of Vero Beach admitted last week -- no, actually it bragged -- that recent and pending electric rate reductions of 6.5 percent would pump $5.6 million back into the local economy in 2011.

For the average beachside residential customer, the cuts work out to a savings of about $150 to $200 over the course of a year.

The Indian River Board of County Commissioners expects to save $150,000 and the School Board another $150,000 in 2011 due to lower electric bills.

Those are pretty impressive numbers, and much welcome in these economic times.

However, $5.6 million is a pittance compared to the impact Vero ratepayers would experience if they had electric rates that were the same as those offered by Florida Power and Light.

A 30-percent rate cut from where Vero electric rates stood in mid-2010 would return nearly five times that, or about $27 million, to Vero Beach electric customers.

That’s cash in the pocket to be used for rent, mortgage payments, groceries, vacations, home improvements or even dinners out in local restaurants.

For businesses, that’s cash that can be invested in new equipment and vehicles, or used to make payroll.

For more than two years, utility activists Dr. Stephen Faherty and CPA Glenn Heran have been turning local residents, public officials and anyone willing to listen on to their traveling show, otherwise known as “The Model.”

The Faherty-Heran model demonstrates how lower rates -- net of any potential increase in property taxes -- would result in $18 to $20 million that would customers of Vero Beach electric would not need to spend on electricity.

When they presented The Model, Heran and Faherty were dismissed by city leaders for not using “real numbers” and presenting a pie-in-the sky scenario.

“Wow. (Acting Utility Director) John Lee’s numbers make our model look pretty conservative,” Heran said upon hearing about Lee’s statements that two small rate reductions combined would “return to our customers $5.6 million over the next 12 months.”

When asked to provide his formula or back-up documentation of how he got to the $5.6 million figure, Lee responded in an email.

“The logic is as follows – For each $1.00 that the Electric Service – Fuel Cost is reduced, there is an estimated average monthly reduction of $58,000.00, based on the current budget,” Lee wrote. 

“The Fuel Cost reduction effective October 1st was $4.50 and the Fuel cost reduction effective January 1st is $4.00 for a total of $8.50.” 

 The actual formula Lee used was $58,000.00 times 8.5 times 12 months = $5,916,000.  He then backed that down to $5.6 million.

“As this is an estimate and I do not feel that this January will be nearly as cold as last year, I was conservative with the estimated savings,” he stated.

Lee included a brief disclaimer on his calculation.

“Please remember that this is an estimate based on normal usage patterns.  Actual usage can change dramatically based on weather patterns,” Lee wrote.

The recent rate reductions are not due to staffing cuts, efficiencies in the city power system, but instead due to better than anticipated prices on the natural gas used to produce electricity.

Beginning with January meter readings, Vero will be charging $113 per 1,000 kilowatts of power as compared to just under $93 for FP&L customers.

One year ago, Vero ratepayers were being billed $158 for the same electricity.

Critics of the city are somewhat bemused at the timing of decisions to reduce rates.

“After thinking about it and looking at the numbers, I don’t think those rates are sustainable,” Heran said. “We’ll have to wait and see.”

Vero is under no obligation to maintain the lower rates should natural gas begin to climb in price in the coming year.

FP&L, however, must petition the Florida Public Service Commission and justify its revenue requirements every time it wants to increase rates.