Total legal bills to date – $544,441

Vero Beach – $227,986

Indian River Shores – $218,412

Indian River County – $98,043

Understanding the Heran-Faherty factor

COMMENTARY

MARK SCHUMANN

The six-year effort to sell Vero Electric to Florida Power & Light unraveled early last summer when the Orlando Utilities Commission concluded it could not assume Vero Beach’s position in three Florida Municipal Power Association projects without violating its own existing bond covenants. The sale was already in trouble, though, for Vero Beach’s transactional attorneys, who charged ratepayers nearly $2 million for their legal work, structured a deal that would have required FMPA leaders to breach their fiduciary responsibilities to their membership, and more importantly, to their bondholders.

In a frustrated response to the wheels coming off the power sale, the Indian River County Commission and the Indian River Shores Town Council quickly lawyered up. Through November of last year, the cost to County taxpayers, Shores residents and the customers of Vero Electric stood at $544,441. If and when the Shores moves forward with its lawsuit, legal costs will skyrocket, as the neighboring municipalities square off in a court battle that could cost millions and take years to resolve.

Unwilling to accept that Indian River County is not the center of the universe, Press Journal columnist, Larry Reisman, last week argued the major roadblock to the sale is not the sanctity of contract law, but the “refusal of Vero Beach power providers (FMPA) to allow the city to buy its way out of power-buying contracts.”

Reisman clearly does not understand the nature of Vero Beach’s FMPA commitments. In addition to power supply agreements, the city has with the FMPA project support contracts that simply cannot be voided without putting at risk bonds held by investors who trust and expect FMPA leaders to uphold their contracts. These contracts, it should be noted, have been validated by the Florida Supreme Court. One has to wonder if Reisman is aware that two major rating agencies, Fitch and Moody’s, have made their score of FMPA bonds partially contingent on the FMPA’s resolve to enforce its contracts.

Reisman claimed 64 percent of Vero Beach residents voted in 2013 to approve what is now clearly seen by all parties as a sales contract that would cost no less than $52 million more to execute than was anticipated at the time it was put to voters. The flawed agreement was not approved by 64 percent of Vero Beach residents, as Reisman claimed. It was approved by 64 percent of the 25 percent of registered voters in Vero Beach who bothered to turn out for a referendum in which Florida Power & Light spent more than $100,000 to influence the outcome.

Sounding like he has been hypnotized by utility activists Glen Heran and Steven Faherty, Reisman argued the city’s 6 percent return on electric operations is “excessive.” Never mind that the Florida Public Service Commission allows investor-owned utilities returns on capital of 11 percent and more, and never mind that Vero Electric’s customers in the unincorporated areas of Indian River County pay an additional 6 percent to the County Commission. Where is Reisman’s and Faherty’s indignation over the County Commission’s practice of jacking up electric bills by 6 percent as a way of avoiding cutting expenses or raising sufficient tax revenue to provide essential municipal services?

In 2008, Faherty, Reisman points out, “successfully rallied non-city residents” to push for the sale. But the Press Journal’s columnist makes no mention of the fact that Faherty, working with fellow utility activist Glen Heran, touted a financial model that projected the city would net some $150,000,000 on the sale.  The windfall, they promised, could be invested, with the proceeds used to help fund city services. Many of those city services are enjoyed by county residents, like Faherty, Heran and Reisman, who pay no taxes to the City of Vero Beach.

In truth, even if a buyer can be found to assume Vero Beach’s power project support contracts and power entitlement shares, there will be no proceeds from the sale.  In fact, the transaction, if it can ever be concluded, will require Vero Electric’s customers, collectively, to pay a surcharge of no less than $26 million.

Reisman was mildly critical of Jay Kramer, Amelia Graves, Randy Old and Dick Winger, the four members of the Vero Beach City Council who are working to lower rates. (The rate differential between Vero Electric and FPL now stands at 15 percent.) Like the members of the Indian River Shores Town Council, Reisman seems to think the only reasonable rate is a rate comparable to FPL. He does not acknowledge that Vero Electric’s rate is within the statewide average, or that it is lower than rates charged by a number of the state’s investor-owned utilities, all of which are regulated by the Florida Public Service Commission.

The Press Journal’s columnist called on state Rep. Debbie Mayfield to devote her final two years in office to “ensuring all ratepayers have the right to select their power provider.” Is Reisman advocating on behalf of all Florida ratepayers, or just the rate payers of Vero Electric? Mayfield isn’t about to push for “power to choose.” In fact, based on the disingenuous letter to the editor Mayfield recently sent to newspapers across the state, is seems far more likely she is positioning herself for a lucrative lobbying job with at least one of the state’s utility giants when her term in the Florida House expires in 2016.

In his latest email newsletter, which he calls the “Utility Update,” Faherty, like Reisman, was critical of the Vero Beach City Council’s efforts to lower rate. Faherty, whose email newsletter has devolved to little more than hate mail, continues to insist the sale can be concluded with help from the courts or the legislature. He is wrong, just as wrong as when he projected the city would gain $150,000,000 from the sale.

“The battle continues,” Faherty wrote. But at whose expense? Not his.

Email received by Inside Indian River in response to public records requests reveal the extent to which Heran and Faherty have been influential with the County Commission and the Shores Town Council. Bill Grealis, who served at the Shores’ representative on Vero Beach’s Utilities Commission from January 2013 through April 2014, was in regular contact with Heran and Faherty. While serving on Vero Beach’s Utility Commission, Grealis was working behind the scenes to help orchestrate the Shore’s legal challenge to Vero Beach.

In a Feb. 11, 2013 email to Shores Town Clerk Laura Aldrich, Grealis wrote, “Glen Heran and Steve Faherty have asked me to write a letter to the editor of the PJ. I will send it to you for circulation to council members before a decision is made.”

On July 23, 2013, Grealis wrote “I will vote against any increase since the current rate structure provides the City of VB about $6 million over expenses. Those amounts to into the VB general fund — and are in my opinion nothing more than a tax on IR Shores residents.”

Like Reisman, Heran and Faherty, Grealis seems to believe municipal utilities should operate at break-even. None of these gentlemen contend, though, that investor-owned utilities should be prohibited from making a profit. In fact, in the utility world, just the opposite is true. Investor-owned utilities are guaranteed a profit.

In an Aug. 11, 2013 email, Grealis reported, “I spent an hour on the phone yesterday with Glen Heran.  As you know, Glen and Steve Faherty have been the strongest public advocates for the sale of the VB utility business to Florida Power & Light. However, keep in mind the fact that Glen has a broader agenda – he would like to see all the Florida municipals divest themselves of their utility businesses.  I believe IR Shores has a more narrow focus – get out from underneath our contract with the City of VB through approval of the sale to FPL.”

Later in that same report, Grealis wrote, “Glen would like IR Shores and IR county to hire a lobbyist to help move the deal forward. I do believe the deal is at risk because the FMPA holds all the cards as of now, and I agree that pressure needs to be put on the FMPA to approve the deal.”

In November 2013, Grealis reported, “There has already been a petition to change to VB utility service territory designation filed by Glen and Steven Faherty. It has been held in abeyance pending the outcome of the sales initiative. Glen will be prepared to discuss that filing this Friday. IRS needs to intervene in support of that request. I also think IRS should have counsel look at whether a condemnation proceeding is viable.”

Later that same month, in an email to Shores Councilman Dick Haverland Grealis wrote, “…the reality is it will be almost impossible to get the state legislative bodies to move at all. Sadly, that means the process that the City of VB has taken may be the only path to lower rates.”

In early March 2014, a month before resigning from the Utility Commission, Grealis wrote, “…if the deal were to die we could see whether FPL would support us in a request to remove IR Shores from the VB service territory.  I doubt the FPSC would rule in our favor without FPL support. I believe it is time to hire an outside counsel to review what options, if any, are available to IR Shores.”

On March 18, Grealis wrote, “Spoke with Amy Brunjes of FPL yesterday. She did not sound optimistic about the sale….If the deal falls apart, our options are limited. I think the proponents of the sale will focus on the fall elections and try to defeat Jay Kramer and elect a person who will tilt the vote in favor of the sale.”

Looking for a way to keep quiet Indian River Shores plans to sue Vero Beach, Grealis on March 31, 2014 wrote, “Dick Haverland has asked John McCord and myself to brief the IRShores council on options if the sale of the VB electric falls through. We have a meeting with Dick set up for this coming Friday at 9:00 am. Most, if not all, of the discussion will involve litigation strategies.  Do we need to meet with each individual member separately because of the Sunshine laws, or is there any exception that would allow other council members to attend without notice to the public>”

The following month Grealis resigned from the Utilities Commission.

Long before FPL was willing to serve Indian River Shores and the south barrier island, and long before the County was in a position to provide water and sewer service to the barrier island, Vero Beach leaders agreed to extend utility services to those areas.  At the time, everyone knew that Vero Beach, like every other municipal utility and investor-owned utility, returns a percentage of its revenue to its owners/shareholders. Typically, municipal utilities use their earnings to help fund municipal services. Investor-owned utilities, like the ones for which Grealis worked, return their profits to shareholders.

Instead of supporting the Vero Beach City Council in its efforts to lower rates, Shores leaders, along with the members of the Indian River County Commission, are through their legal attacks driving up costs for everyone.