Desperate move will likely lead to higher rates and more legal bills

 COMMENTARY

MARK SCHUMANN

The Indian River Shores Town Council last week heard the first reading of a proposed ordinance that will, Town leaders contend, authorize them to establish electric rates.

As with the Town’s previously asserted right to determine who will provide electric service to Shores residents, the latest proposal to unilaterally confer upon the Town Council rate setting authority is a novel idea, and one not likely to prevail in court.

The desperate move by Shores leaders suggests they are growing increasingly less confident the courts will overturn the Florida Public Service Commission’s sole and superior authority to establish service territories for the state’s municipal and investor-owned electric utilities.

With more than $500,000 already spent litigating their territory dispute with Vero Beach, Shores leaders must surely be feeling pressure from their constituents to find an alternate means of ensuring the Town’s residents can benefit from the lowest electric rates in the state, namely rates currently charged by Florida Power & Light.

The Shores’ fixation with electric rates is easy enough to understand. After all, if you were among the wealthiest people in the country, wouldn’t you consider it your birthright to be charged the lowest electric rates in the state, even if accomplishing that goal meant higher rates for struggling middle class families?

Quite clearly, the hot air is leaking out of the Shore’s $500,000-plus legal trial balloon. To make matters worse, two weeks ago Shores leaders were also confronted with news that Vero Beach and FPL officials are some $50 million apart in calculating what the city should receive for the Shores customer base, if a majority of the members of the City Council are even willing to sell off Vero Electric’s north barrier island customers.

FPL officials say they can pay no more than $13 million to the city, partly because they would also be spending some $12 million to tunnel under the Lagoon to connect FPL’s transmission system to the Shores. Apparently $25 million is all the PSC is likely to allow FPL to pay for 3,400 customers, even ones who consume nearly twice as much power as the average residential user.

Arguably, $13 million is a fair price for 3,400 meters unencumbered with system debt and contingent liabilities. But Vero Electric is not without debt, contractual obligations and contingent liabilities. From the perspective of city leaders, any valuation of the Shores customer base must be calculated with the objective of insuring a partial sale will not increase rates for Vero Electric’s remaining customers. That number, they say, is $64.5 million.

Hypothetically, even if the calculations are off by as much as 50 percent, that would still leave a difference of $19.25 million between what FPL says it can pay and what city leaders contend would be needed to avoid negatively impacting Vero Electric’s remaining customers.

With Councilwoman Plair Turner a notable exception, the members of the City Council say their larger responsibility is not to Shores residents, but to the city’s taxpayers and to all 34,000 customers of the city’s electric system.

So the Shores Town Council plans to assert the right to determine what rate Vero Electric can reasonably charge Shores residents. Those five men may be intelligent, and they may be accomplished, but as a elected governing body they are hardly experts in establishing utility rates. To use the refrain of local Tea Partiers, this proposal creates a redundant level of government. Further, because the Shores’ move will increase Vero Electric’s regulatory costs, this latest bright idea will also lead to higher rates, at least for customers within the Shores.

Mayor Brian Barefoot and his colleagues on the Shores Town Council are certainly free to designate themselves as the Grand Poopahs of power rates, but consider how this latest move is likely to play out.

Through public records requests, Shores officials can certainly gain access to all they information they would need to determine Vero Electric’s costs. Shores leaders may disagree with Vero Beach officials about what constitutes reasonable costs, and they may have their own ideas about what past decisions were or were not prudent and reasonable at the time.

But considering that the PSC is allowing Duke Energy to pass on to its customers the cost of shutting down the Crystal River nuclear power plant because of a creative cost cutting measure gone bad, it is all but impossible to believe the PSC would not also allow Vero Electric to pass on to its customers the cost of fulfilling the utility’s contractual obligations to the Florida Municipal Power Agency.

Once Shores leaders arrive at what they believe are reasonable costs, they, like the PSC, will have to decide what margin of profit, if any, Vero Beach has a right to make on its electric utility. (Typically, the PSC allows investor-owned utilities a return on investment of 9 percent or more, while the city transfers 6 percent of its electric revenue to the general fund.) The Shores Town Council will then establish the rate they will “allow” Vero Electric to charge Shores customers.

Will Vero Beach officials be obliged to comply with the Shores’ directive? Absolutely not. In fairness to all 34,000 customers of Vero Electric, city officials will almost surely continue to charge Shores customers the same rates they assess all other customers.

What will follow? More expensive litigation.

If what is troubling Shores leaders is the fact that Vero Electric’s rates are not approved by the PSC, perhaps one solution would be for Vero Beach to assess its Shores customers the highest rate the PSC has already approved for an investor-owned utility. That PSC-approved rate is $136.50, 10 percent higher than Vero Electric’s rate for 1000 kWh. As long as they are charged a rate approved by the PSC, why wouldn’t Shores leaders be fine with that? The additional revenue to Vero Electric could be used to help cover the cost of defending Vero Beach against the Shore’s legal challenges.

Per capita, Shores residents consume twice as much electric power as the average customer. They also use a lot of water. Given recent decisions by the Shores Town Council, one can’t help but wonder if much that water isn’t being used to mix drinks. Probably not, but something seems to be affecting the cognitive skills of the Shores tribal council.