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Volunteer panels tell Vero Council to ‘cease’ sales talks

STORY BY LISA ZAHNER, (Week of September 8, 2011)
Photo: Herbert Whittall, chairman of the Utilities Commission, listens to the explaination of the GAI's apparaisal of the electric system.

Vero's utilities and finance commissions, volunteer panels set up to provide “recommendations” to the City Council, are seeking to exercise some real power by telling the Council to pull back from current efforts to sell the electric, water and sewer utilities.

In the case of Vero electric, the panels told the Council not to try to work out a purchase price with Florida Power and Light until every one of nine outstanding contractual obligations is "settled" – a process that could take years.

As for Vero water and sewer, the advisory panels told the Council to “cease” talks with Indian River County about water-sewer regionalization unless the county agrees to pay at least $77 million – and preferably $100 million – for the system.

At least one Council member seemed disinclined to heed the commission’s instructions, which were set for discussion at Tuesday’s meeting.

"I was outraged at the lunacy of their resolutions," said Councilman Brian Heady. "Who are they to tell me I can't talk to anybody about anything, any time I want to."

The figures the advisory panels set as a precondition to further water-sewer talks came from Gerry Hartman of GAI Consultants. The $77 million, he said, would be just enough to cover the city's liabilities and what it would lose giving up the water-sewer system.

"Any less than that and you're paying somebody to take over your utility," Hartman said.

Currently, the county proposes giving Vero $24 million to pay off its debt, after which the county would assimilate Vero's territory into its Vero, Shores and county customers.

Hartman estimated Indian River County rates are at least 10 per cent lower than Vero Beach rates for the average 6,000-gallon water user.  Small water consumers would save the most, while those who use more than 12,000 gallons per month could be better off with city rates, although the county is cheaper overall on sewer service.

The advisory panels also seem at cross-purposes with the Council’s approach to selling the electric system. Last month, the council hired West Palm Beach law firm of Edwards Angell to expedite negotiations with FPL on a sale of the electric utility.

But the advisory commissions both took the position that the Council should not work out a purchase price with FPL until the city knows what the implications of exiting or assigning those contracts might be.

GAI valued Vero Beach Electric at $185 million – a figure Hartman said could have been much higher depending on the cost of exiting contracts like those with the Orlando Utilities Commission and the Florida Municipal Electric Agency.

"You have a lot of unresolved business," Hartman said. "A lot of balls in the air that, when they come down, affect this valuation."

Hartman told the panels that the "uncertainty" of having all those pending contracts out there caused his appraisal team to reduce the value of the electric utility in its recent report. He said electrical systems are "hard to sell and they're hard to buy."

The city's complex utility matters and the different interpretations of various contracts have the potential of spawning lawsuits, Hartman said, and could get dragged out further if complaints or lawsuits are filed by "interveners," people or agencies which might seek to challenge the sale.

One thing not in dispute is that Vero Beach utilities are unregulated monopolies and can charge whatever they want.

That, according to Hartman, was a positive factor in the valuations he conducted. "The city, because it's a monopoly, and all utilities are this way, they can adjust their prices to match inflation," he said.

Municipal utilities have especially low levels of risk because they do not have to go to the Florida Public Service Commission in order to increase rates.

Finance commission member Richard "Dick" Winger, who plans to run for a seat on the City Council, called the sketchy details now known to city officials merely the tip of the iceberg.

"I don't know how any negotiations are possible until we know the whole iceberg," he said. "We have to know the price of getting out of all the contracts."

As for Hartman’s estimate of what Vero should get at a minimum for the electric system, it’s just shy of $160 million.

"It doesn't make a whole lot of sense," he said, to do a deal for less than that figure. "You need to make sure you have that covered."

Hartman said it was tough to find comparable sales for both the electric and water-sewer systems because systems of Vero's quality "that are not under duress" are rarely offered for sale.

"We seem to be under duress because we're the fifth or sixth lowest (cost) utility in the state out of 55 but unfortunately we're surrounded by the number one and that's causing the problem," said Utilities Commission Chairman Herb Whittall.

FPL has historically offered the lowest rates in the state and, depending upon Vero's fluctuating rates, has been 15 to nearly 60 per cent lower than Vero Electric. Currently, Vero rates are about 20 per cent higher than FPL, with double-digit increases on tap.

So the bottom line, according to the commissions, is that the City Council and its new transactional attorney can negotiate side issues, can help resolve these nine contracts, but can't hammer out a sale price with FPL until all the red tape is cleared up – and that could take years.

Even Vero Beach City Manager Jim O'Connor expressed impatience about the commissions' attempts to drag out the proceedings. He mentioned some creative solutions to the contractual issues, such as hiring FPL to re-market some of the city's power.

O'Connor has gone on record saying his marching orders from the City Council are clear. They want him to bring forth a contract and bring the utility matters to a satisfactory conclusion – sooner rather than later.

FPL stated in a conference call with city officials and the new transactional attorney that it hopes to have a preliminary purchase price to Vero by October.