Vero council warned not to bank on electric windfall
City Manager Jim O’Connor last week warned optimistic members of the City Council that Vero could be forced to sell some of its electric system if the courts rule against the City in its legal dispute with the Town of Indian River Shores over electric service – and the price won’t be anywhere close to what Vero is asking.
Vero and Florida Power & Light diverge greatly in what they think Vero’s customers and infrastructure in the Shores are worth. The City wants $64.5 million to get out of the Shores and let FPL take over as power supplier; FPL is only willing to pay $13 million.
The Town is so determined to get rid of Vero Electric and bring in FPL to get lower rates that it has filed suit for breach of contract and filed a territorial complaint with Tallahassee regulators to force a sale.
“We’re getting closer every day to having a judge in one of these court cases rule,” O’Connor said, adding that the pending disputes will all likely end up at the Florida Supreme Court. If the court sides with the Shores, Vero would lose leverage and might be forced to sell at a fire-sale price.
The unusual discussion at last week’s Vero Beach City Council meeting occurred after Councilwoman Pilar Turner asked for an update on the city’s legal woes, and Councilman Dick Winger reiterated that FPL’s offer does not take into account all of Vero’s contingent liabilities and potential “stranded costs” to the Florida Municipal Power Agency. The Shores, Vero’s legal team asserts, should absolutely cover a portion of those costs if they want to exit Vero’s system.
Winger insisted that comparing the $64.5 Vero would need to make it “whole” to the $13 million offered by FPL is akin to comparing apples and oranges.
“The problem is that we’re looking at making some estimates of how far underwater we are in those particular agreements,” Winger said. “The other thing is the contingent liabilities have never been looked at.”
O’Connor then pointed out the harsh legal reality. “We’ve got to remember is that we are in court. We’re being sued, and so therefore, we need to be mindful of that because a judge one of these days could say, you’ve got to abandon your utilities in Indian River Shores,” he told the council.
“Now when he says that, there’s going to have to be compensation to public facilities, and at that point you’re going to be negotiating a price that would have to more than likely be approved by a court somewhere,” O’Connor said.
O’Connor explained that a court-mandated sell-off would put Vero in a totally different negotiating position than voluntarily selling electric customers and assets to FPL. “If the judge says you’ve got to vacate the premises, then you don’t have a going concern. You just have a lot of assets sitting on poles, so you get down to another number.”
Any purchase of customers by a publicly owned, regulated utility also would need to be reviewed by the PSC. The Shores’ rate consultant, Terry Deason, a former 16-year PSC commissioner, analyzed the origins of Vero’s $64.5 million figure, and said the PSC would never allow FPL to pay that much for the Shores customers because the inflated price would not be fair to FPL’s nearly 5 million existing customers across Florida. Deason estimated what might be deemed an equitable price would be somewhere between $12 million and $19 million.
Councilwoman Pilar Turner urged her colleagues not to underestimate the Shores’ will to stick the fight out until the end. “I think there’s the real risk that if the court rules against us, we’re going to be in a fire sale,” she said.
Mayor Brian Barefoot has said that Shores customers pay $2 million extra per year in rates to Vero and even if it takes $2 million in legal fees to get the result they want, that’s still only one year’s rate disparity. Shores officials have dangled a voluntary sale as a way for Vero to make the lawsuits and regulatory complaints go away, leaving Vero with only the Board of County Commissioners left to fight.
Meanwhile, the County awaits a ruling from the Florida Supreme Court on similar, but not identical, questions about its powers and options related to choosing an alternate electric provider in March 2017. That’s when the county’s electric franchise with Vero expires and county officials say Vero will no longer have permission to use public rights of way to do business in the unincorporated county.
More than 60 percent of Vero’s 34,000 electric customers reside outside the Vero Beach city limits and cannot vote for members of the Vero Beach City Council, which sets electric rates and determines transfers of revenue into the city’s general fund.
Those customers on Vero’s system pay rates that are about 30 percent higher than their neighbors served by FPL.