Pointing to higher than predicted wholesale power costs, and stressing the need to maintain Vero Electric’s reserve funds, City Manager Jim O’Connor proposes to increase power rates effective Oct 1.

According the Finance Director Cindy Lawson, the rate for the average residential customer of Vero Electric will increase 1.9 percent. In a presentation given yesterday to the Utility Commission, Lawson said the Oct. 1 rate hike will bring in just under $1 million in additional revenue in the 2013/2014 fiscal year, money she says is needed to maintain the electric system’s reserve fund at $27 million to $28 million.

Along with Utility Director Tom Richards, Lawson presented a rate sufficiency study to the Utility Commission.  They both contend the study justifies the need for a rate increase.

Not everyone agrees.  Commission member Rock Tonkel, a resident of Grand Harbor, voted against accepting the rate sufficiency study.  Tonkel proposed postponing any rate increase until at least Jan. 1.

Like Utility Commission member Tonkel, City Councilman Richard Winger is not ready to accept the need for a rate increase.  “I don’t want to increase rates until all options to bring the utilities costs down are exhausted, similar to what was done in every other department and Enterprise the City has. The City just has not done the hard homework and in all probably a rate increase can be avoided by such an effort,” Winger said.While there are many variables in the rate study, the prime factor in the needed rate increase, according to Lawson, Richards and O’Connor, is the cost of wholesale power.  But even that cost comprises numerous variables.

Though Lawson did not cite legal costs as a factor, the original Vero Electric 2012/2013 fiscal year budget for professional fees was $585,000, with charges to date totaling closer to $1 million.  Billings from the law firm of Edwards Wildman were just over $800,000, with an additional $250,00 recently approved by the City City Council.  The city also received bills totaling $114,000 from Nixon Peabody, the Florida Municipal Power Agency’s bond counsel.  The city also paid $100,000 in consulting fees for work hired out to a consultant through Edwards Wildman.

Despite some $500,000 in charges for professional fees over what was budgeted, Lawson, Richards and O’Connor focused their argument for a rate increase on wholesale power costs.

Though the city’s wholesale power agreement with the Orlando Utilities Commission is often criticized by local utility activists a a prime factor in the city’s relatively high rates, the power costs from the OUC are actually down from last year.  During the previous year, the city paid the OUC an average of $75.78 per MKH.  Through August of the current fiscal year, the city has paid the OUC $69.33 per MWH, an 8.5 percent decrease.

The big expense to the city was $4,627,908 in monthly fixed costs, including debt service, it paid while two of three FMPA power projects were out of service.  The Stanton I coal-fired plant in Orlando was down for five months, during which time the city paid $2,077,720 without receiving any power.  Similarly, the Saint Lucie 2 nuclear reactor was down four months, at a cost to Vero Electric customers of $2,550,188.  Arguably, if these power plants had not been out of service, the city might have been able to increase reserve funds and/or reduce rates.

Believing steps could taken now to lower rates, Councilman Jay Kramer said, “O’Connor has told me the policy of the city is to sell to FPL and not to explore options to lower rates.”

Kramer said he is tired of high rates, and would not support a rate increase.  “We were at $109 per thousand KWH three years ago.  Then we signed a letter of intent and the rates have done nothing but gone up,” Kramer said.

In response to a written question about wholesale power costs O’Connor wrote, “When we do budgeting for the coming year we take into consideration recovery of the erosion of the cash balance from the previous year, the cost of power from suppliers and cost of operation of the utility. This is done by using our rate structure which has several components such as the base charge, cost scale (based upon volume consumption) and demand charges. Not anyone of these factors can be used alone in our projections. When we consider unit sales it must be passed through the established rate structure not just a single price per unit. Our projections are based upon our history of our customer base use.”