BY MARK SCHUMANN

The local daily newspaper splashed a headline across its front page Saturday indicating Vero Electric customers may need to brace for a rate increase as early as July.  The headline  (“Vero Beach will discuss possibly increasing electric rates this summer”) read as if someone in the public relations department at Florida Power & Light had written it.

Notice that the Press Journal, whose publisher is the husband of a key FPL employee, gave nowhere near this kind of attention to the recent news about about FPL’s record profits or its base rate increases, including one coming in June.

The newspaper reported that Vero Electric’s revenues are below projections for the year, which is true.  Through the first six months of fiscal year 2012/2013, the city’s electric revenue was 43.9 percent of budget. Expenses, however, were only 40 percent of budget.  More importantly, wholesale power costs were just 38.7 percent of budget for the first six month of the fiscal year.

In comments posted to the Press Journal’s story one utility activists suggested O’Connor is raising the prospect of a rate increase because April’s power costs were more than budgeted.  As of Monday morning, though, Electric Utility Director Tom Richards had not had an opportunity to look into April’s aberration in fuel costs, since, he said, the bills from the Florida Municipal Power Agency and the Orlando Utilities Commission only arrived last week.

If would be a stretch, then, to conclude O’Connor is prepared to ask the Council to approve a rate increase based on numbers his utility director has yet to have an opportunity to investigate.

What the Press Journal’s story did not explain is that Vero Electric’s profits have been negatively impacted by City Council’s decisions that have increased expenses.  Further, it is important to note that the city manger only has the authority to raise rates on the fuel portion of the electric bill.  Increasing rates to pay for rising or higher than anticipated fixed costs requires Council action.

For example, the $500-an-hour work of the city’s transactional attorneys is being added to the costs of operating the electric system.  To date, the attorneys have billed for $1.2 million for their work on the proposed sale of the electric system.  Additional rates to cover these costs will require Council approval.

As utility activists point out, the cost of the transactional attorneys is a small percentage of the expected savings to come from selling Vero Electric.  But that doesn’t change the fact that the cost of their work is contributing to the need for any rate increase, if indeed there is such a need.

The city’s budget calls for a $5.6 million transfer from the electric system to the general fund, which amounts to approximately 6 percent of the projected revenues of $91.8 million.  If the revenue trend for Vero Electric continues through the remainder of the fiscal year, revenues will total just $81.9 million.  Electric system revenue for the 2011/2012 fiscal year was $84.5.

If the city were to adjust its take from Vero Electric based on the revenue trend, it would transfer $4.9 million to the general fund.  But if the city is instead determined to milk its electric utility for the budgeted $5.6 million, regardless of actual revenues, that should be proof enough that at least part of the city’s budget woes are due to its over reliance enterprise funds to pay for the cost of operating city government.

Just scanning the headlines, one could easily get the misimpression the city’s electric rates are out of control because it cannot competently operate an electric utility.  Digging beneath the surface-level facts, though, reveals more profound truths.

First, Vero Beach’s city government and its taxpayers are addicted to artificially low tax rates.  In fact, the city’s tax rate is just half that of comparable Florida cities.

Second, the most recent electric rate increases are directly attributable to the current Council’s decision to pay cash for some $3.4 million in capital improvements, despite historically low interest rates.   Electric rates have been further inflated because the city’s 34,000 customers are paying for the work of the transactional attorneys.