COMMENTARY 

MARK SCHUMANN 

One of the false claims frequently repeated by utility activists and others is the notion that Vero Electric’s out-of-city customers are taxed without representation.  Vero Electric’s detractors may understand taxation and representation, but their assertion that many customers of Vero Electric are victims of taxation without representation suggests an ignorance of the concept of return on investment.

They are not alone.  For example, an Indian River Shores Town Councilman said recently that, given the slow pace of negotiations to sell Vero Electric to Florida Power & Light, the city should consider matching FPL’s rates.  FPL currently has the lowest rates in the state, which means that every other electric utility in Florida is charging more than FPL.  None of these utilities are in a position to match the rates of the state’s largest investor-owned utility, so why would anyone think Vero Beach could afford to match FPL, or to cut its rates some 28 percent?

All utilities, including Vero Electric, establish their rates by estimating costs and then allowing for a return on investment.  Currently, the city’s return on investment on Vero Electric is approximately six percent. Vero Beach leaders use the profits from Vero Electric, approximately $6 million, to help pay for local government services, many of which benefit the larger community.  FPL’s return on investment is closer to 12 percent, as approved by the Florida Public Service Commission.

FPL’s rates, though, are some 28 percent lower than Vero Electric’s, not because of some onerous tax levied without representation, but because, unlike Vero Electric, FPL is well managed, enjoys economies of scale, and has made wise long-term decisions regarding power supply.  Vero Electric does not and never will enjoy FPL’s economies of scale. Further, in the past city leaders have entered into some multi-decade power contracts that, in retrospect, have proved unwise.

Vero Electric’s customers are not the only ones paying higher rates because mistakes have been made.  Progress Energy, now Duke Energy, which serves much of north Florida, made a monumental blunder that led to the permanent shutdown of one of its Crystal River nuclear units.  Who has borne the brunt of the cost?  Not Duke Energy and its shareholders.  Much of the uninsured loss has been passed on to Duke Energy’s customers in the form of higher rates, all with the blessing of the Public Service Commission.

So, does state Representative Debbie Mayfield seriously think the PSC, if it were to regulate Vero Electric, would force the city to forgo a return on investment, or worse, to operate its utility at a loss?  If Mayfield is successful in convincing her fellow lawmakers that Vero Electric, alone among the state’s 33 municipal utilities, should be regulated by the PSC, she will only manage to increase rates.  Why?  Because the city will have the added burden and expense of hiring lawyers and consultants to represent it before the PSC.  You have to wonder what Mayfield is thinking.

In the case of Vero Electric, its rates are approximately 28 percent higher than FPL, so even if the city did not include in its rates a six percent return on investment, local power bills would still be some 22 percent higher than FPL.  Vice Mayor Jay Kramer, for one, thinks the city’s rates can be reduced now, and even further with a sale of the out-of-city customers to FPL.  

Vero Beach leaders may well have made some unwise decisions in entering into long-term power contracts, but all customers of the system are paying the same rates.

When the Indian River Shores Town Councilman who suggested Vero Electric could simply match FPL rates attends an event at the Riverside Theatre or the Vero Beach Museum of Art, he is enjoying a community asset made possible, in part, because the City of Vero Beach has been willing and able to lease the underlying land for just $1 a year.

Perhaps it is time for Vero Electric’s out-of-city customers to shed their victim complex.  There may be ways to achieve rate relief, either through a sale of the full system or, failing that, a partial sale, but continuing to confuse the current scenario with the plight of King George’s subjects does nothing to clarify or resolve the real issues.