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Does Vero Utilities see fewer future customers?
BY LISA ZAHNER - STAFF WRITER (Week of January 28, 2010)

For the first time, the City of Vero Beach seems to be engaging the inevitability of defeat, and trying to spin it as a victory for city utility customers.

At a number of public meetings and in statements from top city leaders, Vero appears to be reconciling itself to the idea that come 2017, it may no longer be providing electric and water service to county and Indian River Shores residents, instead retreating to serve only customers within Vero Beach city limits.

“Six months ago, they said this would never happen,” said Indian River County Utilities Director Erik Olson. “Now they’re finally coming to the realization that it probably will happen.”

When the issue is fully studied over the next few months, Olson said, a clear direction will emerge.

“I can imagine what it’s like over there. They are probably thinking, ‘The elephants are coming, let’s save what we can’,” Olson said.

Some say the strategy of pulling back into the city’s borders is an effort to mollify critics, hoping they’ll drink their county water, pay their lower electric rates and never come back to a Vero Beach City Council meeting.

County Administrator Joe Baird, a vocal opponent of the way the city runs the utilities, said the plan to abandon customers outside the city just might work.

“I think that will make everyone happy,” Baird said.

Instead of fighting to the last gasp to preserve its current water, sewer and electric service customers, Vero Beach appears to be thinking about what it would mean to shrink its systems when franchise agreements with Indian River Shores and the county expire in October 2016 and March 2017, respectively.

No one in the city is calling it a defeat, however.

“We like to think that Vero Beach is a cut above,” said Finance Director Steve Maillet, during a recent presentation to the city’s Finance Committee, outlining how the city could “pull back within the borders” to keep providing personal, first-class service to city residents.

Although some 61 percent of its utility customers and 38 percent of its water base would be gone, Maillet said the taxpayers of the city would be better off, should this occur.

He did not say exactly how the city would be able to afford this, in light of summer studies by consultants which predicted a whopping 54 percent increase in water and sewer rates to meet operational costs and maintain the aging systems should the city lose the major part of its customer base.

A city resigned?

The first indication that the city was contemplating the possibility that it might one day serve only Vero Beach customers came on Jan. 5, when the City Council decided to add a seat for a representative from Indian River Shores to its Utility Advisory Commission. At the behest of Councilman Brian Heady, the council included a clause that the seat would evaporate should the Shores no longer fall within city utility territory.

The Shores would have to notify the city by October 2011 whether it intends to continue buying water, sewer and electric services from the city. The county must issue its five-year notice by March 2012.

A county committee which deals with utilities in September approved a resolution asking commissioners to give the city notice, within 45 days, that the county intended to serve its own customers come 2017. But in the interest of diplomacy, commissioners tabled the resolution and instead pursued a joint meeting billed as the “Utility Summit” in October.

A joint commission of six with equal participation from Vero, the County and the Shores has been working on the issue and this week is scheduled to choose a firm to study the situation and make recommendations.

Vero Water and Sewer Director Rob Bolton is one of the city’s representatives on that committee, and has been a staunch opponent of any kind of consolidation with the county.

On Jan. 19 during a meeting of the city’s Utilities Advisory Commission, Bolton announced that he would be proposing that the city freeze any capital projects outside the its limits until Indian River Shores and the County renewed their franchise agreements.

Over the summer during the water and sewer rate studies, Bolton had estimated all the capital projects on the slate to have a price tag of about $110 million. Construction of the $10 million deep-well injection facility to dispose of treated wastewater and wetweather discharge is going forward, leaving about $100 million in capital improvements on hold.

When asked to provide a list of which projects he considers “must dos” and which ones would be kept on hold pending the 2011 and 2012 franchise notice deadlines, Bolton replied that he was working on it and would bring something to the City Council soon.

Finance Director Maillet, in touting the option of keeping the city’s utility systems under city control, equated the premium that city customers would pay for service to insurance that protects city customers from lapses in service sometimes experienced by customers of other systems.

“All of you are city residents,” Maillet told the Finance Committee. “This is an opportunity to ask the people of Vero Beach, what do you want your city to be and how do you want it to be managed? Do you want to supply the citizens with water, sewer and electric?”

Maillet said preserving the utilities is not only a way for the city to control its own destiny, but also to have the flexibility of a revenue stream apart from property taxes. He said Vero residents have been dehumanized in all the talk about selling the power plant and consolidating water and sewer services with the county.

“Vero Beach city residents have been excluded from all the discussion of all these things,” he said.

It is unfair, Maillet said, that the tenor of most of the proposals on the table requires the city residents to “give up” elements of their assets and their system.

“We should have Rob (Bolton) come in and speak about what would be involved in just pulling back inside the city limits,” Maillet said. “A lot of the future capital needs lie outside the city limits.”

Ownership and cost

Big questions remain about the details of consolidating or potentially breaking up the system, the stickiest of which might be who owns all the equipment that carries the water, wastewater and electric to customers.

The issue is clear-cut when it comes to Indian River Shores, according to County Attorney Will Collins. The attorney negotiating the franchise agreement for the Shores shrewdly insisted on a clause providing that ownership of the infrastructure reverts to the Town at the expiration of the agreement.

The county’s agreements, however, negotiated by then-County Attorney Charles Vitunac, are missing such a proviso.

On Oct. 7, 2009, Collins read and interpreted the water and sewer franchise agreement at the request of Commissioner Wesley Davis and stated that the infrastructure would be owned by the City of Vero Beach upon expiration of the county franchise agreement.

“The infrastructure is the city’s unless we acquire it. Though they would no longer have the right to use it,” Collins responded in an email to Davis.

When asked by 32963 to go a step further in his analysis of the language as to whether the county would be required to purchase the infrastructure, Collins responded that the county could decide it was more prudent to start fresh and lay its own pipes, etc., and could require the Vero Beach to come out and dig up all of its lines and equipment — at the city’s cost.

This wrinkle might mean it would be less costly for the City to give the county the infrastructure.

County Commissioner Bob Solari, who served one term on the Vero Beach City Council, said the city should not look at the potentially saleable infrastructure as a solution to its financial problems going forward.

“Everything is coming to the end of its useful life,” Solari said. “What the city doesn’t understand is that, if the county should buy it, we would pay depreciated value, not replacement value.”

Solari agrees that getting out from under the city system — even at a cost — would be the best deal for county and Shores customers, considering the rate hikes already imposed, plus those coming down the pike.

“There are bigger financial issues that the city is facing, and they don’t have a pro forma to show what exactly the city is going to be facing,” Solari said.

If the day comes when the city’s utility enterprise funds are not subsidized by ratepayers outside the city, city customers and their elected representatives will need to decide whether they want to pay higher utility rates or higher property taxes.

Currently, the water, sewer and electric utilities pump nearly $11 million into the city’s general fund each year through direct and administrative transfers.

Something is going to have to give, Solari said, and it will be left to the city to figure that out. Councilman Brian Heady called a “brainstorming” meeting of the city’s Finance Committee to begin planning for tough times ahead and, in Heady’s words, “steer the ship in the right direction.”

The city is already facing a crisis involving its employee pension fund, which is underfunded by millions of dollars, not to mention rising health care costs for city employees. Potentially losing infusions of money from 20,000 county and Shores’ utility customers could significantly increase the strain on the city budget.

At that Finance Committee meeting where a variety of cost-saving and revenue-raising suggestions were discussed, former Mayor Warren Winchester opened the door to looking at the city’s revenue stream a different way.

“I think there’s a value to raising the (property tax) rate, which people can write off on their federal taxes, and lowering some of the other things, the electric rates and utility rates.”

Winchester added, “It would be very signifi cant if we had to withdraw water and wastewater to the city limits of the City of Vero Beach.”

Solari sees considerable challenges on the horizon.

“If you look at the numbers from their own consultants, they’re already raising sewer rates 52 percent and water rates 33 percent over the next five years, and from the numbers I’ve looked at, I would not be surprised if they had to double the rates again in years six through 10,” Solari said.

“The idea that the county is going to leave its customers in the lurch with those kinds of rates ahead isn’t reasonable and the Town of Indian River Shores is going to work to negotiate a franchise agreement that is good for the residents of Indian River Shores.”

As a city water customer, Solari said there’s nothing that unique about the city service that would justify such higher rates.

“Wherever I go, whether I’m in the city or in the county or in New York, I turn the faucet on and the water is there,” he said. “But it’s not something I’d be willing to pay double for just because it’s coming from the city.”