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Without merger, big water and sewer rate hikes ahead

(Week of March 17, 2011)

Photo of Dr. Stephen Faherty and CPA Glenn Heran

Providing a detailed analysis that’s become known as “the model,” utility activists Dr. Stephen Faherty and CPA Glenn Heran forever changed the debate about selling Vero Electric. Now the citizen duo is tackling the water-sewer regionalization quandary.

Heran and Faherty’s electric model demonstrated that the community as a whole would be $18 million better off by after a sale of Vero’s entire electric utility to Florida Power and Light (FP&L).

Now the duo’s new water-sewer model not only advocates that Vero turn its water-sewer utility over to Indian River County, but also issues a stark rate hike warning to South Barrier Island and Indian River Shores residents should either stay on the Vero system.

Rates for Shores and South Barrier Island customers are currently 20 to 40 percent higher than Indian River County Utilities customers, depending upon meter size and consumption. If Heran and Faherty’s numbers pan out, that spread will increase to roughly 112 percent higher in 2017.

The new model proposes that the County absorb the whole of the Vero system, from pipes to pumps to plants, plus absorb the debt. The County has enough cash on hand right now to pay off the city’s $27 million in bonds and loans from the Florida State Revolving Fund, according to County records.

“This is a good deal for the City of Vero Beach and for all the ratepayers,” Heran said.

Not only does it eliminate the different classes of customers – Vero, County, Shores, South Barrier Island – and give everyone the same rate, but Heran said it also achieves the goal of smaller, more efficient government.

Since presenting the model to the Board of County Commissioners March 8, Heran said he’s heard from a majority of the Vero Beach City Council -- but not from any Shores officials.

The Shores Town Council, now led by Mayor Tom Cadden, will not see Heran and Faherty’s model until its March 24 meeting, but the Vero Beach City Council had the presentation on Tuesday’s agenda. Meanwhile, the Shores Town Council was scheduled to do a line-by-line markup of a franchise and purchase agreement Wednesday that would hitch the Shores to Vero’s wagon for at least 30 and up to 90 years or more.

The agreement, as prepared by GAI Consultants while working for both the Shores and Vero, provides that the City would get the Shores’ business, plus the pipes and equipment owned by the Town, in exchange for eliminating the 10 percent surcharge currently tacked on to Shores’ customers’ bills.

This would create an annual $306,000 hole in revenue which Vero would have to tap its other customers to provide. As soon as the deal goes through, not only Vero city residents but also South Barrier Island and a few hundred mainland county folks would essentially be subsidizing Shores’ utility bills each month.

Vero ratepayers can vote two council members out in November and three more out in 2012 in response to this, but won’t be able to do much to change a 30-year agreement once it’s signed. The Moorings and everybody else on the South Barrier Island are stuck with the result with no representation at least until March 2017, when the county franchise agreement expires and County customers can be pulled out of the Vero system.

The South Barrier Island makes up about 20 percent of Vero’s customer base, so that outcome would further reduce the utility’s revenue stream. The treatment of potable water, wastewater and irrigation water is a volume game with about 87 percent fixed costs. The more gallons treated, the lower the cost per gallon. And unfortunately for the customers who will remain, the reverse is true.

That’s why County officials proposed regionalization nearly two years ago – to eliminate inefficiencies caused by having two distinct water and sewer systems for one small county. As background on the issue, Councilwoman Tracy Carroll submitted the following handout for Tuesday’s agenda packet. It sums up the harsh realities facing Vero and its customers on the barrier island as follows:

“The City WSI (water-sewer-irrigation utility) charges continue to be substantially higher than those rates charged to County residents. With contracts expiring in the future and the possibility of a large percentage of customers exiting the City system, the rates will only go up. The City paid a consultant for a rate study which required large rate increases, which were initially passed on to customers then repealed during the last election cycle.”

The staff has yet to show, with any specificity, how it will make up for that $13 million in scheduled rate increases.

“Long-term maintenance is not being included in the budget in order to show a profit,” Carroll continues. “The system is using funds for a transfer to the general fund without managing for its own future and cannot remain sustainable. The County has excess capacity, and the financial capability to possibly take over the $20 million debt the WSI now carries.”

The debt is actually $27 million, which includes nearly $11 million spent on the environmentally controversial deep-injection well and a hardened water-sewer administration building designed to be able to shelter utility employees in the event of a hurricane.

A 2009 rate study predicted that Vero Beach water and sewer rates would soar over the next five years to meet growing expenses, but the previous Vero City Council repealed rate hikes its predecessor council had passed in what was seen as a political move by three incumbent council members .

Vice Mayor Pilar Turner has been trying for four months to get Utility Director Rob Bolton and Finance Director Steve Maillet to demystify for her an alleged decline to the tune of $13 million in the city’s revenue requirements. Though she’s received some preliminary data, it’s still unclear what’s changed over the past 20 months since the rate study prescribed steady rate hikes.

Councilman Brian Heady said he hasn’t seen a plausible explanation of where the money will come from to sustain current rates.

“Nothing changed in the numbers from the rate study.  What’s changed is the public outcry,” Heady said. “There has been nothing that’s come across my desk telling the council how we can afford in the long-term to not have those rate increases.”

All four new Vero council members included water-sewer regionalization in campaign platforms, but Heady is getting impatient with what he sees as an unwillingness to take definitive action so far. Heady said his colleagues have taken their eyes off the ball.