UTILITY COMMITTEE
The Utility Committee Meeting was held on September 22, 2008 at 6:02 p.m. with Chairman Ruane presiding. Members present were Mr. McGiffin, Mrs. Williams, and Mr. Snaman. Mr. Salters (departed at 6:45 p.m.), Mr. Hogan and Mayor Carey (arrived at 6:44 p.m.) were also present.
AGENDA ADDITIONS/DELETIONS
Mrs. Williams moved for approval of the agenda, seconded by Mr. McGiffin and unanimously carried.
Mr. Ruane recognized the receipt of a resignation letter from Mr. Cregar and relayed gratitude for the service Mr. Cregar has provided the committee for the past several years. Mr. Ruane stated that Major Richard Kosior has been recommended for appointment to replace the unexpired term of Mr. Cregar to serve as the civilian representative on the Utility Committee.
PACE/NAES
During their meeting of August 11, 2008, members were provided a presentation of the City of Dover Fiscal Year Energy Cost in Review for 2007-2008. Due to time constraints, members deferred discussion regarding the Dover 2030: Current Status of Proposal Process and Enhanced Reporting for FY2008 to the next committee meeting. It was noted that there are items discussed that will require further consideration by members at a future meeting.
Mr. Francis Hodsoll, Pace Global, provided a presentation, Review of Key Issues for Dover’s Wholesale Power Supply (Attachment #1).
Fuel Oil Conversion: Significant Improvement in Expected Emission Profile and Significant Improvement in Capital Costs
Mr. Hodsoll reminded members that in response to new DNREC regulations (Regulation 1146), the City of Dover initially decided to install new emission controls. After learning more about the specific effectiveness of the emission controls within the McKee Run environment, the full cost of installing the controls, and the given changes in the market conditions, the initial plan was determined to be ineffective. It was previously reported to members that the economic and regulatory analysis conducted for the 1146 compliance plan demonstrated that the plan should be replaced with the fuel conversion project (saving the SNCR cost and providing for emission caps that are achievable).
In collaboration with DNREC, Mr. Hodsoll advised members that the City developed a plan to convert to a cleaner fuel and to make numerous plant modifications resulting in a significantly improved emission profile relative to the original plan. In addition, the new plan reduced the expected capital costs by approximately $1M. He stated that it is expected that the project would be completed by the end of the year and that the McKee Run will be in the position to maintain its capacity value and reliability for the City and flexibility with an improved emission profile. It was noted that the project will result in reduced energy revenues due to the high cost of distillate fuel.
Responding to Mr. Ruane, Mr. Hodsoll explained that the City has obtained a permit which was approved by DNREC and the EPA and that the collaboration mentioned was negotiating the terms of the permit.
For further clarification, Mr. DePrima explained that the 1146 Regulation documents that were negotiated and reviewed by the committee were no longer applicable since the City decided to convert from fuel oil #6 to fuel oil #2. He stated that since the 1146 Regulations no longer applied to the City, it was not necessary to amend the document, rather it became a moot document. The City was then instructed to apply for permits for the fuel conversion, which was accomplished.
In response to Mrs. Williams, Mr. Hodsoll indicated that the fuel conversion would provide approximately $1M savings compared to the SNCR costs that would have been required. Noting that this savings is relative to capital costs, Mr. Snaman questioned the effect of the costs for the fuel. Responding, Mr. Hodsoll stated that although the #2 fuel oil is more costly, more than $500,000 will be applied to inventory value, which is included in the capital cost of the $1M reduction. Therefore, although there is a higher fuel inventory cost, the overall cost for this project is $1M less. Going forth, there will be a higher cost associated with the #2 fuel oil; however, he stated that it is not anticipated that the plant will be run economically on #2 fuel oil, only for reliability, called up by PJM only when absolutely necessary. As a result, Mr. Hodsoll explained that there is not a reduction in value to the City in prospective of the #2 fuel oil being more costly.
SO2 Market: DC Circuit Court Vacated CAIR
Mr. Hodsoll reviewed the changes to the sulfur dioxide allowance market, explaining that Title IV of the 1990 Clean Air Act Amendments enabled the first market-based mechanism for controlling emissions and created the SO2 allowance. He reminded members that the DC Circuit Court vacated CAIR and as a result, there is an abundance of SO2 allowances in the market place. Mr. Hodsoll felt that Congress would like to address these allowances which would return the value of the SO2 allowances.
Mr. Ruane suggested that when the City is presented with opportunities such as this, they should be discussed with the legislators. He requested that staff develop a list of issues and proposed changes that are of interest to the City of Dover, and supported by the legislators, to be presented to the committee for consideration and development of recommendations to submit to the legislators for their consideration. Responding, Mr. DePrima assured members that staff would develop the list as requested and present it to members during an upcoming meeting. Noting that many of the legislators are busy due to the upcoming election, Mrs. Williams suggested that any contact be delayed until after the election.
Energy Markets and Hedge Positions: Year Over Year Cost of Service Protected
Mr. Hodsoll reviewed the composition of the wholesale power supply costs. He explained that the City has instituted a program to reduce the volatility of the wholesale market, which provides protection against price spikes, provides stability and increased certainty in volatile markets, improves planning, and provides rate stability for customers.
Responding to Mr. Salters, Mr. Lunt explained that the City’s plant capacity is 175 million watts, its obligation is 199 million watts, the load is 170 million watts, and there are certain CT obligations to provide power to PJM. If there were a total shut-off from PJM, the City and the entire peninsula would be without electricity. The City would have the ability to bring up, if not all, the majority of the City’s system through the generation, which would be an eight (8) hour process.
Regional Greenhouse Gas Initiative (RGGI): Dover Preparing for New RGGI Compliance Market
Mr. Hodsoll advised members that the Regional Greenhouse Gas Initiative (RGGI) is the first market-based compliance mechanism in the United States to reduce Greenhouse Gas Emissions. He stated that on June 30, 2008, Governor Minner signed into law the RGGI legislation and, as a result, DNREC plans to complete its RGGI rule by December 2008. He explained that there should be limited impact on electricity prices for the foreseeable future (next five years) as a result of RGGI.
Mr. Ruane questioned which years are used for the City’s benchmark for SO2 emissions and its average tonnage. Responding, Mr. Hodsoll indicated that the emissions cap was set based on emissions during the years 2000-2002 and assured members that additional information regarding the City’s allowances would be provided. City Clerk’s Office Note: Following the meeting, Mr. Hodsell submitted an email response dated September 23, 2008 (Attachment #2).
In response to Mrs. Williams, Mr. Hodsoll confirmed that generating plants in nearby states and their emissions have an impact on the City.
PACE/NAES Monthly Report (July)
There being no objections, Mr. Ruane deferred the PACE/NAES Monthly Report for July and requested that it be considered when the August report is presented to members for consideration.
Joint Use Pole Attachment Agreement - Verizon
Mr. Lunt, Public Utilities Director, provided members with a proposed Master Pole Joint-Use Agreement, between Verizon Delaware, Inc. (Verizon) and the City of Dover, for the poles located within the electric service territory. He explained that the proposed agreement will supersede the ordinance (which was anticipated in the ordinance); however, it incorporates the tenets of the Pole Attachment Ordinance and is essential as it addresses the pole ownership issues between the parties. The pole attachment rate mirrors the City’s pole attachment rate included in the ordinance, which is $8.17 per pole. It also includes the pole attachment rate that the City will pay to Verizon, which is $5.53 per pole.
Mr. Lunt explained that the fees compensate the City and Verizon for the carrying costs associated with constructing, operating and maintaining their respective poles. The fee can be considered the cost of “renting” a portion of the pole and is meant to recover pole related costs incurred by the City and Verizon. He noted that the implementation of this Agreement will net the City $31,024.78 annually, as outlined in Appendix A of the Agreement.
Mr. Lunt stated that staff has negotiated the proposed Agreement with Verizon and assured members that they concur with the proposed Agreement and accept the pole ownership count contained within the agreement.
Staff recommended approval of the Master Pole Joint-Use Agreement and that the City Manager be given authority to execute the agreement.
Mrs. Williams moved to recommend approval of staff’s recommendation (Attachment #3), seconded by Mr. Snaman and unanimously carried.
Mr. McGiffin moved for adjournment, seconded by Mr. Snaman and unanimously carried.
Meeting Adjourned at 6:56 P.M.
Respectfully submitted,
Eugene B. Ruane
Chairman
EBR/TM/jg
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Attachments
Attachment #1 - Presentation - Review of Key Issues for Dover’s Wholesale Power Supply
Attachment #2 - E-Mail from Mr. Hodsell Dated September 23, 2008
Attachment #3 - Master Pole Joint-Use Agreement between Verizon Delaware, Inc. and the City of Dover