NEWS ANALYSIS

MARK SCHUMANN

When attorneys and consultants for Vero Beach and Indian River Shores meet with representatives from Florida Power & Light next Tuesday there biggest challenge will not be whether to characterize their talks as “negotiations,” or “discussion.” Rather, the daunting task facing all sides will be to arrive at a sale price that will work for everyone.

Like FPL’s experts, six consultants and rate experts hired by Vero Beach were charged with arriving at a sale price that will not lead to higher rates for existing customers. From FPL’s perspective, company spokespersons have said the price for Vero Electric’s approximately 3400 Indian River Shores customers needs to be close to $13 million. Any number more than that would, they say, lead to higher rates for FPL’s more than 4 million customers.

For Vero Beach officials, the priority is essentially the same, namely rate stability, but the calculations are quite different, and indeed more complex.  If it were possible for FPL to acquire Vero Electric’s full system and take on service to all 34,000 customers, this so-called “full sale” would relieve Vero Beach of any and all contractual obligations to the Orlando Utilities commission, to the Florida Municipal Power Agency and its bond holders, and to retirees and former employees of Vero Electric.

With a “full sale” having run aground on currently insurmountable contractual obligations, Shores leaders and FPL executives are asking the City to consider selling off Vero Electric’s Shores customers base.  Unlike a full sale, a partial sale presents entirely different considerations, as Vero Beach leaders seek to ensure that carving off ten percent of a 34,000 customers electric system would not hurt the remaining customers.

Consultants and rate experts hired by the City looked at five areas where a sell-off of the Shores customers base would impact City taxpayers and electric customers. There calculations were based, admittedly, on assumptions about fuel costs, interest rates, and inflation.  While all those assumptions are open to question and debate, it is undeniable that any partial sale, if not carefully structures, could leave the City’s taxpayers and electric customers paying higher bills.

With a smaller system, Vero Beach will have a reduced transfer, or profit, from its electric utility to the City’s general fund.  Over the next 30 years, that loss, assuming a partial sale, is projected to be $10,516,680.

Vero Electric’s debt is serviced by revenue from all 34,000 customers. With a smaller system, the remaining customers will have to bear a larger share of the cost of paying off debt.  Unless the price paid for the Shores customer base accounts for debt service expense, the City’s rate experts say the remaining customers will be hurt to the tune of $2,568,852.

Revenue from Vero Electric also helps pay a portion of the City’s administrative costs, such as salaries and benefits for City Council members. Because those costs will not go down as a result of a partial sale, the remaining customers, or the City’s taxpayers, will have to pay more.  Non-departmental expenses that would otherwise be paid for by ten percent of Vero Electric’s customers base will amount to $3,336,757 over the next 30 years.  (All numbers have been discounted to their present value.) City officials contend that any sale price not accounting for this loss will impact Vero Electric’s remaining customers and/or City taxpayers.

The electric utility itself has fixed operating expenses that will not go down simply by selling off ten percent of the customers base. Over the next 30 years, those expenses, discounted to their present value, have been calculated at $12,733,746.

To serve all of its customers, including those in the Shores, Vero Beach entered into long-term bulk power supply contracts with the Florida Municipal Power Agency and the Orlando Utilities Commission.  Those contractual obligations will not go away, partial sale or no partial sale.  Over the next 30 years, the portion of those contractual obligations that would be paid by the 3400 customers in the Shores is estimated at $13,292.612.  This number, too, is rolled into the price City officials say must be paid for a partial sale.

Taking into consideration the general fund transfer, Vero Electric’s debt service, the City’s non-departmental expenses now partially paid by Vero Electric’s Shores customers, as well as Vero Electric’s fixed operating expenses, and bulk power supply costs, it is estimates a sale of the Shores customers base would negatively impact taxpayers and electric customers some $42 million.

Finally, Vero Beach officials say the price FPL and/or Shores residents pay for a partial sale must also protect the City and its electric customers from contingent liabilities. If, for example, FPL were to experience a major problem at its Saint Lucie nuclear power plant, Vero Beach, as a fractional owner in that project, will have to pay a share of the costs of repairs, cleanup, or any other uninsured losses.  The unthinkable is possible. Within the past few years, Duke Energy suffered some $2 billion in uninsured losses at its Crystal River nuclear plant. With Florida Public Service Commission approval, those losses were passed on to Duke Energy’c customers.

Needing to protect customers from a negative rate impact, FPL officials say they can pay no more than $13 million for Vero Electric’s Shores customers. Based on the work of six consultants and rate experts, Vero Beach officials contend a partial sale at anything less than $42.5 million, plus something to cover contingent liabilities, will lead to higher rates and higher taxes for everyone else.

How to protect all ratepayers and taxpayers, will bridging a gap of some $30 million is a daunting task indeed.