UTILITY COMMITTEE
The Utility Committee meeting was held on April 14, 2008 at 5:00 p.m. with Chairman Ruane presiding. Members present were Mr. McGiffin, Mr. Leary, Mr. Cregar, and Mr. Snaman. Members of Council present were Mr. Slavin (arrived at 5:25 p.m.), Mr. Hogan (arrived at 5:25 p.m.), and Council President Williams (arrived at 5:31 p.m.).
AGENDA ADDITIONS/DELETIONS
Mr. Snaman moved for approval of the agenda, seconded by Mr. Cregar and unanimously carried.
Public Utilities Water/Wastewater Capital Improvement Projects (CIP’s) FY 2008-09
Members were provided the Water/Wastewater Capital Improvement Projects (CIP) by the Public Utilities for fiscal year 2008-09. Mr. DePrima, City Manager, explained that the CIP Projects proposed for the next fiscal year are being presented to the committee in order to provide them a better understanding of issues that are presented for their review and recommendation during the year.
Mr. Lunt, Public Utilities Director, reviewed the CIP’s, as follows:
2nd Meter Reading Tech Upgrade SCADA Equipment Technology Upgrade
US Route 13 East Sanitary Sewer Interceptor Meter Reading Technology Upgrade
Weaver Street Package Pump Station Replacement Wellhead VFD Upgrades
Acorn Lane Package Pump Station Replacement Piney Point Well
Fox Hall/Retreat Force Main Rerouting Misc. Distribution System Improvements
Del. State University Pumping Station Replacement 1.0 MG Elevated Water Storage Tower
Inflow/Infiltration Removal Wellhead Redevelopment Program
Miscellaneous Sewer System Improvements Water Quality Improvements
With regards to the Inflow/Infiltration Removal Project, Mr. Lunt indicated concerns of inadequate funding since staff anticipates that more problems than originally expected will be discovered. In response to Mr. Ruane, Mr. Lunt stated that until there is better internal data, he is hesitant to bring forward any specifics related to this project.
Mrs. Mitchell, Controller/Treasurer, advised members that the wastewater fees were increased to cover the Inflow/Infiltration financial issue. Due to the dry conditions, the City’s deficit is being reduced, explaining that the City is getting more dollars than what is being paid to the County. By the end of next year, it is projected that rather than paying more to the County than what is received, the City will be receiving more from the County than what will be paid by the City. She stated that the increased rates will need to be maintained in order to pay for the projects and debt service that the City will incur, explaining that the City will need to borrow money to complete the projects since there is not enough cash being received to complete the magnitude of projects necessary to be accomplished.
Mr. DePrima reminded members of an analysis prepared by the City Engineer that explained how the groundwater impacted infiltration and suggested that staff review this report again in the near future. He stated that the root of the problem goes back to the President’s Day Storm of 2003, when the saturated groundwater escalated and that it has taken several years for the groundwater to return to normal levels.
Concurring, Mr. Ruane suggested that this matter be presented to members at a future meeting to provide better understanding in order to determine appropriate action to remedy the Inflow/Infiltration concerns.
With regards to the Water Quality Improvements Project, Mr. Ruane noted that this is an issue throughout the country and that there is discussion at the federal level regarding the possibility of providing financial assistance. He suggested that the City forward this information to Senator Biden and that if staff, through their national association, is aware of any legislation that the City should support, that they bring it forward for Council consideration. Responding, Mr. Lunt indicated that there is no legislation nor is there any anticipated in the foreseeable future. Mr. Ruane suggested that the National League of Cities may be helpful in providing assistance and that the congressional delegation be provided information regarding the issue.
Mr. DePrima advised members that Senator Carper’s Office was provided details regarding many of the City’s projects last year and assured members that staff will continue with this practice.
In order to provide the budget team guidance, and there being no objections, Mr. Ruane suggested that the Water Quality Improvements and the Inflow/Infiltration Projects should be given priority.
Mr. Leary moved to recommend acceptance of the reports provided on the Water/Wastewater Capital Improvement Projects for FY2008-09, seconded by Mr. Snaman and unanimously carried.
NAES (North American Energy Services) Contract Amendment #3 - Incentive Calculations
Mr. Lunt, Public Utilities Director, advised members that during the power plant budget review, discussion centered on the applicability of the current bonus metrics and their applicability to the current PJM market, specifically the RPM (Capacity) market. Through discussions with North American Energy Services Company (NAES) and the City of Dover, it was mutually decided to revise the bonus schedule to reflect the current market. The proposed changes are for the elimination of the Budget Performance bonus (Appendix B, Section B, 3 (B)) and move the potential bonus payment to the Capacity bonus (Appendix B, Section B, 3 (C)), resulting in a $30,000 per year potential bonus for this metric. Mr. Lunt explained that these changes are more reflective of the PJM market as the Capacity payments to the City of Dover are exceeding $9M per year. Additionally, he stated that in Article VII, Section 7.9 - Escalation, referring to Appendix C, the listed reference “Table 3” in “Escalation Factor” is no longer published. By mutual agreement, staff recommended that “Table 5” be the reference table for future escalations.
Members were provided the Third Amendment to the Operation and Maintenance Agreement between NAES and the City of Dover. Mr. Lunt assured members that the Amendment has been approved by the City’s attorney, Mr. Kirk Betts.
Staff recommended that the City Manager be authorized to execute Amendment 3 as presented.
Mr. Lunt advised members that the current contract has incentive clauses, which were set up in a manner to reward the contractor if they met the incentives that the City established. One of the challenges discovered is that the rewards may not match the importance in the redefined market, one of which is the current PJM market, specifically the RPM (capacity) market. He explained that the capacity market is the monies received from PJM for owning and having generation available to produce power, which does not involve the generation of energy. During the current fiscal year, he stated that the City received approximately $11M in revenue for having the generation available. Mr. Lunt indicated that this is the first year for this market. In reviewing the incentives currently included in the contract, it was discovered that although the capacity market is probably the lowest rewarded incentive to them, it has the most monetary impact of any others within the incentive package.
Mr. Lunt advised members that another concern was for the rewards of budget performance. He explained that within the budget process, the City has very stringent controls. The City has a contract with NAES for the operation of the City’s generation facilities. He advised members that staff meets with NAES on a monthly basis to review the operations, and that the City has a contract with PACE to serve as energy asset manager, who also reviews the NAES operations to assure they are being prudent in their operations. In addition, Mr. Lunt stated that the City’s Controller/Treasurer, who is very astute and diligent in budget controls, regularly reviews budgetary items. Therefore, he felt that there is a substantial amount of control in the operations of the power plant and that the $20,000 reward incentive provided to them for meeting a budget should be eliminated since the City has such strict controls to provide this assurance.
Mr. McGiffin moved to recommend approval of staff’s recommendation (Attachment #1), seconded by Mr. Leary and unanimously carried.
Mr. Leary moved for adjournment, seconded by Mr. Cregar and unanimously carried.
Meeting Adjourned at 5:50 P.M.
Respectfully submitted,
Eugene B. Ruane
Chairman
EBR/TM/jg
S:ClerksOfficeAgendas&MinutesCommittee-Minutes20084-14-2008 UTILITY.wpd
Attachment
Attachment #1 - NAES Contract Amendment #3