COMMENTARY
MARK SCHUMANN
Florida Power & Light CEO Eric Silagy visited the Press Journal’s Stuart headquarters last week to offer “advice” on lowering electric rates. Silagy, as it turns out, had little more to offer than poison pills, chief among them the suggestion that Vero Beach leaders consider bankrupting the City in order to get out of contractual obligations to the Florida Municipal Power Agency.
“I would even consider declaring bankruptcy, if I had to, so I would no longer have to pay on the contract,” Silagy said.
I had assumed Silagy, seemingly obsessed with acquiring Vero Electric, would be the first person to float such a radical idea. As it turns out, south barrier island resident, Dom Armentano, suggested in an Aug. 14 letter to the editor that bankruptcy might be just the ticket for Vero Beach.
According to Armentano, “The city could decide to default on some of its $151 million total debt (general debt plus unfunded pension liabilities) on those egregious energy contracts and then file for Chapter 9 bankruptcy protection under federal law.”
In the past, I have theorized there are those with development interest and political ambitions who would like to disincorporate Vero Beach and turn governance over to the Indian River County Commission.
Now we have the CEO of the state’s largest investor-owned utility advising the people of Vero Beach to consider bankrupting their city.
In his letter to the Press Journal, Armentano also asserted that even with rates approximately 23 percent more than FPL’s, Vero Electric could “decide tomorrow to reduce electric rates comparable to those charged by FPL.”
Armentano’s math does not work. On revenues of approximately $90 million, Vero Bech transfers $5.4 to the General Fund. Armentano is suggesting that in addition to forging the $5.4 million transfer, Vero Beach taxpayers subsidize the electric utility to the tune of $16.2 million. Together, the two moves would lead to a tax increase of $21.6 million. If economist Armentano’s advice were followed, Vero Beach taxes would have to go up 400 (four-hundred) percent.
Armentano described Vero Electric’s rates as “outrageous,” a subjective term at best. Vero Electric’s rates are, in fact, lower than those of several PSC-regulated investor-owned utilities.
When Vero Bech voters go the the polls Nov. 3, they need to understand that their city is under attack, and they need to consider carefully which two of the five candidates have demonstrated a determination to protect the interests of the people of Vero Beach.
Full Quote:
Silagy said, “So, as CEO of Vero Beach, I would take a look at every single option I had available to me. And while I may not be litigious in nature, I tell you I would take a hard look at any way possible to get out of the contracts that are holding all of us hostage. So, opportunities to go and approach the state legislature would be one, to see if there was a way that they could help. I would also, frankly, approach my general counsel and attorneys to see if there was a way I could get out of the contract. I might litigate that. I would even consider declaring bankruptcy, if I had to, so I would no longer have to pay on the contract. Then, maybe I could actually have a meaningful conversation with those like the FMPA, who are currently holding me hostage. I would look at every option possible, because otherwise not just customers today but future generations of Vero Beach are going to be paying even more for their electricity.”
Indian River Guardian 
Who does he think we are, a county commissioner, that can just declare bankruptcy and keep on going.
The real problem is Bob, Amy and Eric have run out of ideas on how to grab Vero Electric at bargain prices. So who is bankrupt ?
In the proposed acquisition/sale of Vero Electric, and in the County’s effort to take over Vero Beach’s water and sewer utility we see a nexus of interests and objectives between Florida Power & Light’s publicly stated desire to expand its customer base by acquiring municipal utilities, and the those of builders and developers, who see bankruptcy for Vero Beach as a way of forcing the City to disincorporate.
A third group seeking disincorporation of the City are the so-called limited government folks, who see county and municipal government as redundant. Finally, there are those who believe the barrier island should be a separate municipality from the Vero Beach mainland.
Vero Beach is a special community for many reasons, not the least of which is its building height restrictions. If the City of Vero Beach can be forced to disincorporate, it would then be for builders and developers to consolidate their control of the Indian River County Commission. Once they “own” at least three seats on the Commission, those who invasion Vero Beach as a mini-Fort. Lauderdale, with taller buildings, higher densities, and virtually unrestricted vacation rentals, can begin submitting their building plans.
With regard to FPL’s attempted acquisition of Vero Electric, make no mistake about it, Vero Beach is being used as a pawn in a statewide chess game. Some local utility activists do not see, and could not care less about FPL’s larger objectives. Others, such at Glenn Heran, have publicly stated that they will travel the state helping FPL acquire other municipal utilities.
Locally, Heran has run political action committees and electioneering communications organizations heavily funded by FPL. Clearly, Heran is an FPL operative. When he appeared before the City Council last week to throw a few verbal hand grenades, Heran really should have prefaced his remarks with the disclaimer that for several years running now he has worked closely with FPL. Either he is being compensated in some way, or he deserves to be recognized as FPL’s “volunteer of the year.”
Your conspiracy theories are interesting but I am not a part of any of them. I stand by my remarks that energy costs here are outrageous and that the $100 million overcharge since early 2011 is a massive misallocation of resourses and a total rip-off of city and barrier customers. And I also stand by my remarks that the City should “consider” legal bankruptcy as a way out of harmful and costly contracts with pensioners and suppliers. Remember it is not the city that declares bankruptcy but the City (government) and that is a crucial distinction. Finally, comparing Eric Silagy to a drug pusher is beneath contemp and should disgust all thoughtful readers of your column.
Frist, Dom, discontentment is an addictive drug, and FPL has certainly been pushing that in Vero Beach. Second, I notice that you did not address my challenge to your assertion that Vero Beach could somehow afford to offer FPL rates. If you are to make that argument again, could you at the same time explain to us how the state’s several investor-owned utilities that are charging rates well above FPL (rates approved by the PSC) could afford to match FPL’s rates?
The election fight each year is whether or not we want to change our community into a metropolis. If the city ceased to exist you can bet there will be high rise buildings on the ocean and on the mainland as well. I happen to believe that anyone who has a financial interest in FPL or any other business must state this before being allowed to speak at COVB meetings. I take note that many people like Charlie Wilson and Glenn Heran speak and rant at OUR council meetings ,but do not live in the city. I am offended that Charlie Wilson will only give a PO Box number. I for one want to keep Vero,Vero.
Mark, I did NOT say in my opinion piece that the City could “somehow afford to offer FPL rates.” I said that they could decide tomorrow to reduce rates to those charged by FPL. Nothing legally prevents them from charging lower rates which, apparently, is a common misconception. I ALSO said that such a decision would necesitate a property tax increase (everything else equal) since lowering electric rates would reduce the subsidy to the General Fund. Can they “afford” to do this? Depends upon whether you accept that all current City spending is legitimate and whether you believe that taxpayers should, indeed, morally fund all legitimate expenditures and not shift the burden to captured consumers of electricity both in the City and beyond.
Ok, Dom, let’s use your EXACT words. Vero Beach cannot “decide tomorrow to reduce rates to those charge by FPL,” because common sense stands in the way. Your suggestion is disconnected from economic and political realities.
Common sense will tell you a business operating on a 6 percent margin cannot cut its revenue 20 percent or more, at least not without some source of subsidy. On revenues of approximately $90 million, Vero Electric transfers a 6 percent “profit” to the City’s General Fund. If the City were to do without the transfer, property taxes would have to be increases, or there would have to be further cuts in spending.
Even if the City were to forgo the six percent transfer, Vero Electric would need to be subsidized another $16 million or so in order to, as you say, “reduce rates to those charged by FPL.” Would you propose the City cut General Fund spending 70 percent to free up $16 to subsidize electric rates? That would leave $7 million to run the City. Common sense will tell you the people of Vero Beach are not going to accept further significant cuts in services; and common sense will tell you the people of Vero Beach are not going pay higher taxes simply to subsidize electric rates.
Common sense will tell you that if Vero Beach could “decide tomorrow to reduce rates to those charge by FPL,” then so could several PSC-regulated, investor-owned utilities now charging rates higher than FPL. And Common sense will tell that if those companies could match FPL’s rates and still return a reasonable profit to their investors, the PSC would require them to do so. Why isn’t the PSC forcing every investor-owned utility in Florida to match FPLs rates? Because the utility world doesn’t operate the way you appear to think it does.
Don’t you realize that your nasty rant above has just made my case for considering a bankruptcy filing?! Yes, the City (like any drug user) has lived far beyond its tax revenue since it gets its “fix” by overcharging city and barrier users for electricity. And you are correct, it will be almost impossible to cut City expenditures enough to balance its budget without that transfer of the monopoly overcharge. Your solution, apparently, is to continue the monopoly overcharge. Mine is to either sell the utility and eliminate the overcharge or to consider a bankruptcy proceeding that would substantially reduce City contract costs.
Dom, What is “nastier” that to use your credentials as an economics to make misleading assertions that are, quite frankly, disconnected from reality? Glenn Heran, who is always touting his certification as a CPA, has been doing much the same thing for years. Speaking of rants, your accusations against the City sound a lot like the tirades served up regularly in Steven Faherty’s “Utility Update” newsletter. What you have made clear in your latest comment is that you guest column published in the Press Journal is based, not on dispassionate, scholarly analysis, but on your own heavily biased views.
Your claim that Vero Beach’s electric rates are excessive is an assertion, not an objective assessment based on knowledge and facts.
The Florida Public Service Commission authorizes investor utility rates based on revenues less expenses, with a target return on investment of 11 percent, thus the rate disparity among the state’s investor owned utilities.
More telling, though, is the flood of misinformation about the City of Vero Beach’s fineness.
DEBT:
The City’s total debt is $67.8 million, with $58.7 million in the Enterprise funds. General Fund debt is $9.1 million and is being reduced slightly more than $1 million a year. Enterprise fund debt is begin reduced at a rate of a little more than $9 million a year. Vero Beach credit rating with Fitch is in the AA range. (2013/14 CAFRA, page 144)
PENSION FUNDS:
Combined, Vero Beach has $146.9 million in obligations in its three pension funds. Total obligations in the General Employe pension are $99 million, with a $27 million shortfall, $10 million of that attributable to General Fund employees. That pension fund, then, is 72 percent funded. Eighty percent is considered satisfactory and 90 percent excellent. The police and fire pensions are currently over 90 percent funded, and the frozen General Employee fund is being replenished annually. At current trends, the General Employee fund will be 90 percent funded in seven to eight years. (CAFRA page 54)
RESERVES
Total General Fund reserves are $14.9 million, with unrestricted cash $9.3 million. That pool of reserve money continues to grow.(CAFRA page 18)
Dom, I wonder if you are familiar with the City’s CAFRA. If so, on what basis do you conclude the City would ever get away with declaring bankruptcy simply as a means of shirking its contractual obligations?
No one in the city should go ahead with city bankruptcy before checking with Tim Zorc and Bob Solari.