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Clock ticking in Shores suit over Vero electric rates

STORY BY LISA ZAHNER (Week of July 24, 2014)

When the Town of Indian River Shores sued the City of Vero Beach last Friday for unreasonable electric rates and for failure to prudently manage its electric utility, it started a mandatory 100-day mediation process during which the parties must attempt to work out a settlement.

At the heart of the Shores’ argument is the fact that its residents have no voice in the management of the utility, and that the city, under the then leadership of manager Jim Gabbard and attorney Charlie Vitunac, deliberately phonied up its customer count  to avoid state regulation that would have given Shores residents a voice.

With no input from or accountability to Shores ratepayers, the suit says the utility has been mismanaged. One aspect of mismanagement of the utility has been the misuse of millions of dollars per year in utility revenue to subsidize the cost of Vero city personnel, facilities and services that in no way benefit residents of the Shores.

Of the 4,239 electric customers in the Shores, 739 in the north end of the Town are served by FPL and 3,500 in the central and south part of the Town pay 30 percent higher rates to Vero Beach, amounting to $2 million in excess rates per year. During the now-infamous summer of 2009, Vero customers paid 58 percent higher rates than FPL customers for the same power.

In short, the Shores alleges that Vero has breached the terms of its franchise agreement by preying on Shores ratepayers to keep its own residents’ property taxes artificially low. Former Shores councilman Michael Ochsner, who now sits on the Vero Beach Utilities Commission, has joined the suit as a plaintiff, an individual who has incurred specific damage as a customer and ratepayer.

The Shores is seeking a refund for its residents and wants the City of Vero Beach to cease operation in the Town and vacate the public right of way when the current franchise agreement expires on Nov. 6, 2016.

During the 100-day conflict resolution period, which is mandated by state statute when two municipalities enter into litigation, the law prescribes at least two public meetings at the 30th and 50th days, plus a last-ditch mediation session on the 81st day. If there is no settlement by the 100th day, the lawsuit then winds its way through the circuit court system.

Coincidentally, the end of the 100 days falls just prior to the Nov. 4 city council election in which three Vero Beach city council seats – those held by Vice Mayor Jay Kramer, Councilwoman Pilar Turner and Councilman Craig Fletcher – will be on the ballot.

So far, none of the incumbents has announced plans to seek re-election. Only newcomers Randy Old and Brian Curley, plus former councilman Charlie Wilson, have filed paperwork to open campaign accounts. Former councilman Brian Heady has indicated that he will run, but since he traditionally does not solicit contributions, has not yet opened a bank account.

Challengers may make a fuss about how the lawsuit is handled, but unless the process is delayed by mutual agreement or out of consideration for another plaintiff that wants to join the process, the decision on whether or not to settle during the mediation period will be made by the five council members currently on the dais in Vero Beach.

Whether or not Vero should cut some kind of deal with the Shores to settle the lawsuit, or whether it should let the case play out is sure to be a polarizing issue in November’s election. Making concessions to the wealthiest community in the county while the rest of Vero’s 30,000-plus ratepayers are still stuck with high rates would be politically unpalatable.

But if the Shores is victorious, a judgment of this type against a municipal electric utility could create a legal precedent that might undermine the very core of operations of dozens of other government-owned utilities that skim off the top to pad their own general funds.

About 38 percent of the ratepayers served by Florida Municipal Power Association member cities live outside their utility provider’s city limits. Other FMPA cities could exert pressure on Vero to make this lawsuit go away, at any cost.

Right now, the city is not saying much in response to the suit.

“I have been in contact with Indian River Shores to set a conflict assessment meeting date. As you probably know, that is the first step in the correspondence we received from the Town,” Vero Beach City Manager Jim O’Connor said Monday.

“I do not have any plans to call a special Council meeting until the conflict assessment meeting has been held; at that time we will have more details of the lawsuit.”

Shores Mayor Brian Barefoot has served as the point-person for the town on the lawsuit, and said he expects to continue to do so.

While former Mayor Tom Cadden and others have been working on the electric issue on an inter-government level for the past five years, Barefoot said he first became aware of the problem when he saw how it affected the bottom line of St. Edward’s School to the tune of $237,000 per year, and how electricity costs have contributed to Indian River Medical Center’s financial woes.

Barefoot serves on the Board of Directors of the IRMC Foundation. The plight of these educational and health care organizations located outside the city limits opened his eyes to how high electric rates have served to poison, or at least stun into a stupor, the economy of the area.

“One of the challenges of the Vero Beach community has been about attracting businesses and keeping them and electricity is a cost of doing business. I didn’t recognize the impact this was having on the growth of the city,” Barefoot said.

He said he feels the electric issue is the “reason why I was elected, and the reason I was elected mayor.” Barefoot’s term runs through March 2017, four months after the Shores is telling Vero to pack its electric things and vacate the premises.

Barefoot said the timing of the lawsuit had nothing to do with the recent disintegration of the deal to sell Vero Electric to Florida Power and Light.  He said the allegations in the complaint have been taking shape for a while. “As Mr. (Councilman Dick) Haverland put it a few months ago, it was apparent that the Florida Municipal Power Agency was never going to let Vero out,” Barefoot said.

The lawsuit asserts the rights of the Shores residents as customers who live outside the Vero Beach city limits. In 1986 the Shores signed on with Vero for electric service based upon the assumption that the city would charge “reasonable rates” and that it would properly manage its utility. That, attorney Bruce May of the Holland and Knight law firm argues, is not what has transpired.

Barefoot said he doesn’t personally care whether the Shores and Vero cut some sort of a deal on rates to reach a settlement in the 100 days, or whether the Town exerts its rights under the franchise agreement and forces Vero out in 2016. “We only have one goal here and that’s rate relief,” Barefoot said.

It should be pretty apparent, Barefoot said, by the 50-day conflict resolution meeting whether or not the city has a solution to put forward.

“If the City of Vero Beach can create incentives to keep Piper here or to bring any business here, could they create incentives to keep the Shores?” Barefoot asked rhetorically.

Fortunately, Barefoot said, the Shores has a “crack legal team” from Holland and Knight’s utilities division representing the Town.

Vero recently added utilities attorney Robert Scheffel “Shef” Wright to its team, a pick that will come in handy now that the city is being sued.

Attorney May suggested that other parties might file similar suits, including the Indian River Board of County Commissioners, the Indian River Hospital District and the Indian River County School Board, as they, too, have been damaged by the unreasonable rates and the mismanagement of the electric utility.