BY MARK SCHUMANN
When the City Council voted to hold a binding referendum on the sale of Vero Electric March 12, it adopted the following language.
Do you approve of the sale and disposition of the City of Vero Beach electric utility and substantially all of its assets for the purpose of exiting the electric utility business under terms substantially similar to the asset purchase and sale agreement between the City and Florida Power & Light Company?
At the time the wording of the referendum question was approved, the asset purchase and sale agreement between the city and FPL, as well as the power purchase agreements between the city, FPL and the Orlando Utilities Commission, called for a closing in January 2014.
Since December 8, when the council first approved the referendum wording, a key provision in the contract has changed substantially, namely the closing date. Because it is now obvious the city will remain obligated to the Florida Municipal Power Agency’s 15-member All Requirement Project through September 30, 2016, FPL, the OUC and the city’s transactional attorneys changed the contract to provide for a three-year window – from January 1, 2014 to December 31, 2016.
The negative consequences to the city and its customers of holding on to the electric system through late 2016 are substantial. Yet, none of the increased costs the city will bear have been addressed through corresponding changes to the terms of the contract.
There are at least seven reasons why a sales contract with a fixed price and a three-year closing window is not a good deal for the city, its taxpayers, or its 34,000 electric customers.
1. The power purchase agreements between the city, FPL and the OUC calls for the city to pay as much to exit its wholesale power contracts in late 2016 as had been agreed to when the closing date was set for January 2014.
City Manager Jim O’Connor has argued that the OUC is taking a risk because of the delay. In fact, the OUC will be much better off because it will have the benefit of selling power to Vero Beach for an additional three year. FPL will then step in to fulfill commitment for another three years.
Further, because natural gas prices are expected to rise in the short term, the value of the city’s coal-fired power entitlements will increase relative to the value of power generated with natural gas. Consequently, a three-year delay in the closing means for the OUC no risk and all reward.
2. According to O’Connor, the city may have to absorb potentially huge uninsured property and casualty loses, if the electric system sustains major hurricane damage, as it did in 2004. O’Connor recently told the members of the Utilities Commission that the cost to repair hurricane damage would likely not be covered by FEMA, so long as the city’s system is under contract to be sold to an investor owned utility, such as FPL. This uninsured exposure is a risk to all 34,000 customers of Vero Electric.
3. Over the course of a three-years delay, the city will have to pay an additional $5 million in interest expense on its utility system debt.
4. The proposed sales agreement calls for FPL to assume the pension obligations of all 100 employees of Vero Electric. Yet, no provision has been made to compensate the city for retaining the pension obligations for Vero Electric employees who retire before the closing date.
Beyond these additional costs and increased risks to the city, a delayed closing means lost opportunities as well.
5. A three-year delay will coast approximately $10 million in additional pension fund contributions, because the city will be prevented from moving sooner to restructure its pension plan.
6. FPL is offering $179 million for a 34,000-customer system, which comes to approximately $5,250 per customer. For the last several years, Vero Electric has been adding new customers to the system. If the growth rate in the city’s customer base continues, and there are indications that it will, there will be at least 1,000 more Vero Electric customers when FPL finally buys the system in late 2016. One thousand additional customers should be worth another $5 million to FPL. Why, then, wouldn’t this likely growth in the city’s customer base be accounted for in an adjustable purchase price?
7. Assuming the rate differential between Vero Electric and FPL is some $20 million a year, a delayed closing will cost the city’s customers some $60 million or more in higher electric rates. Given that rates for the city’s county customers could be reduced much sooner through a partial sale, one has to wonder why the utility activists aren’t arguing for a partial sale.
Signing a contract with FPL now, as the Council proposes to do, will put the city’s most valuable asset in limbo for as long as three years, while the attorneys, bond trustees, regulators, and possibly even the courts, determine if the sale can take place.
Because Council members Craig Fletcher, Tracy Carroll and Pilar Turner are willing to keep the city’s $100-million-a-year utility business in a holding pattern for another three years, they are preventing the city from taking meaningful steps to lower rates. And make no mistake about it, despite their statements to the contrary, much could be done now to lower rates, including selling the 22,000 county customers to FPL, or to some other power provider who would be willing to match FPL’s rates for a few years.
The group Citizens for a Brighter Future emphasizes the rate differential between the city and FPL, claiming it is now $25 million a year. Notice, though, that spokespersons for the group remain silent about the fact that if the deal between the city and FPL falls apart, county customers, who represent 59 percent of the customer base, will have needlessly paid an additional $45 million in electric bills than they would otherwise pay if the city issues a request for proposals and move quickly to “set the county customers free.”
Indian River Guardian 
Some of the claims made need further community discusion. These are:
1. FEMA does not make determination of financial need based on the ownership of the property.
2.The addition of 1,000 new customersn by 2016 does not seem realistic in this economic environment.
3. Non-city residents have been paying for the higher rate differential for decades. Yet the COVB “leaders” have found the situation acceptable.
4. The potential exists for FP&L rates to be lower even more since a portion of the costs have been diverted to a fund for building a new nuclear power plant that is highly improbable. Remedies for this situatoin are going to be considered by the Florida legislature.
5. “Setting the county customers free is a logical conclusion to the repeated failures of the COVB “leadership. It is residents of the south barrier island who have been the impetus befhind getting rid of the “dinosaur.” Thee COVB :kedership has yet to convince the almost 60% of their ratepayers that they are considering their best interests.
1. Can you issue an official opinion on behalf of FEMA? O’Connor did, in fact, say what was reported.
2. This may not “seem” realistic to you, but the city has, in fact, been adding customers the last couple of years. Additionally, Indian River Medical Center is just about to complete a new wing, and has plans for another 140,000-square-foot building. Also, a new shopping center, for which Publix will be the anchor store, is now under construction on the southeast corner of 51st Street and US One. The typical Publix story spends about $300,000 a year on electricity.
3. What to say?
4. The potential exists for FPL’s rates to be lower? The potential exists for FPL’s rates to be higher. The Public Service Commission just this month approved a four-year agreement with FPL which will see residential base rates rise beginning in June. If you doubt this, read the following story. http://www.miamiherald.com/2012/12/13/3140764/regulators-agree-to-give-fpl-four.html
5. Again, what to say?
The things to say on #3 & 4 to Ms. Lavins is that no matter if you think the 60-plus years of an agreed-to deal where customers are not annexed into the system and have not paid any taxes to the city for all those years, THIS DEAL AND THIS PROCESS are bad for everyone.
If you want to change the deal for the outside customers, do it with some intelligence and good planning. This deal does not do that in any way, and also has NO guarantees for the outside customers that FPL will actually give you lower rates and fees. They can do anything they like once they have you in their grasp.
Why not focus on the fact that your city neighbors, who shoulder the taxes for all the city services and assets, are going to be devastated by this deal. Perhaps a better deal is possible, but that has not been pursued.
And I can certainly prove, without doubt, that big blue plant is not a dinosaur, is in good shape, better than most of FPL facilities, and that line of argument has bogus.
I do not think that any real estate broker when they were working with those who purchased a home on the barrier island ever signed any documentation that tied them to subsidizing the city into perpetuity. The funds that the COVB used to provide electrical services to those outside the city limits were repaid decades ago because of the high monthly payments generated by non-city residents. Costs expended 60 years ago have been paid back mulltiple times!
There is no such thing as a perfect deal However, the FP&L offer that is the subject of the March referendum is the best thing that has produced in decades of discussion. If this deal was such a good one, for non city residents the COVB “leadership” would have allowed all rate payers to vote on the issue. As things stand now, we are suffering taxation without representation.
Intelligence and good planning are precisely what has been offered by the citizen activists who initiated the community discussion. Of course, there is no guarantee that either the city or the non-city residents will save a great deal on their monthly utility bills. However, as they say — The Past is Prologue — and FP^L has a long track record of having lower rates.
In the many years that the electrical rate issue has had the focus of the communit discussion, there has been claims made that the city residents “shoulder the taxes of all city services and assets. If this claim had any validity, the topic of selling the utility system would not have arisen in the first place. No one yet has identified what alleged city assets are provided to county residents other than policce protection when we shop and dine within the city boundaries.
Rather than presenting weak arguments against the sale, city residents should be sending thank you notes for the fact that the non-city residents have kept city property taxes artifically llow for decades.
60 years? Just one of many “facts” and assumptions you might check.
Yes, I would be appreciative if Lynn Larkin could identify how she determined the 60 years that was identified in the first paragraph of her comments. It has been my understanding that the Moorings was the first residential development on the barrier island and the first homes were constructed in 1971.
The first lines into county land didn’t happen in the Moorings, it was on the mainland, according to city records. I mis-typed, as I meant to say 50 plus years but was not sure how much more than 50 since records indicate service was added outside the city even before that. I am not assuming anything, you can check the records yourself. The Moorings could not have been built without the city extending it, nor could most of the extensive overbuilding done on the barrier island.
Those funds used to extend lines outside the City were never repaid — you make the common mistake that people do, assuming outside customers ever paid more than city customers. They did not. But the residents didn’t have to pay any taxes, ever. City residents pay taxes, and their utllity money also goes into reducing the tax rates, and we pay county taxes, as well.
The museum, the parks, the beaches, the recreation, the theater, the upkeep of the area, sunset sat., subsidizing, along with downtown friday, parades, art shows, the fountain at royal palm point, the upkeep for all those venues, and many others all are shouldered by the city
People do not have to sign onto a pre-existing easement or agreement, it runs with the land, as you may know. The amounts paid were for many, many years less than FPL would have been. Taxes to the city would have been much, much higher than the difference between the two utillities when FPL was lower.
Again, the amount of actual dollars contributed to city assets OTHER than the utility is really quite small. The profit the utlity makes is also contributions from the city ratepayers, and so the real proportions of the $8 million profit do not equal what the SELL crowd says it does. No breakdown was done by the council and staff in order to hide this aspect of the deal.
There is no evidence to support the claim that there has been any “overbuilding” on the barrier island.
The acknowledgement that the utility money goes to reducing the tax rates for city property owners is the crux of the problem.
It is not appropriate to inlcude either the museum or the theatre in those things that the city pays for non-city residents. First, anyone who uses these attributes pays dearly for the opportunity. Second, these attributes are the things sought out by the tourists and snowbirds who contribute sustantially to the economy of the city.
Beaches, recreation, parades, art shows, the fountain at royal park and he upkeep of these venues are not paid for by those who rent in the city so it is not appropriate to make the claim that they exist for the use by county residents who do not pay property taxes. These are means of attracking people to purchase food and products from local businesses. So these are just more examples of how the county residents support the city.
If dollars contributed to the city are indeed small, why was the COVB so fearful of having all ratepayers vote on the March referendum?
Pat, one of the points being made here is that going forward the city is not going to be able to offer such generous land leases as the Museum and Theatre now have. Regarding your suggestion that renters living in the city are not paying their way, I think you’ll find that for the most part the cost of real estate taxes is reflected in rents, both for residential and commercial properties. If property taxes rise as a result of the sale, as almost surely they will, the increased taxes will eventually be reflected in higher rents. However, the property owners are able to work the increased taxes to their rental rates, renters will enjoy the electric savings, while owners of investment properties will be left to pay the higher taxes.
Let me also add that I am not making assumptions about overbuilding on the island — State Rd. A1A has been at “F” levels during season for many years and it has been known before all the new building occurred that this road cannot be widened. Thus infrastructure is inadequate to the number of units built, and exceptions were made to developers could maximize their property and profits. We are now stuck with long back-ups at lights and on the bridges — that is the definition of overbuilt.
And electric was extended over the city line in at least the early 50’s north of 43d Ave. and south of 17th Street. That is at least, and probably earlier. Lynne Larkin