UTILITY COMMITTEE
The Utility Committee Meeting was held on February 26, 2007 at 5:01 p.m. with Chairman Carey presiding. Members present were Mr. Ruane and Mr. Cregar. Mr. Slavin and Mr. Snaman were absent. Members of Council present were Mr. McGiffin, Mr. Hogan, and Mr. Salters (arrived at 6:20 p.m.). Mayor Speed was also present.
AGENDA ADDITIONS/DELETIONS
Mr. Ruane moved for approval of the agenda, seconded by Mr. Cregar and unanimously carried.
Annexation Request - Property Located on the West Side of Bay Road at the Intersection with Lafferty Lane
Members were provided the Petition to Annex and Zone Property and a Cost/Revenue Analysis Summary for property located on the west side of Bay Road at the intersection with Lafferty Lane, owned by David K. Harer, Ryan W. Lloyd, and Island Farm, Inc. The equitable owner is Stillman Glade Associates.
Mrs. Ann Marie Townshend, City Planner, advised members that the annexation request consists of three (3) properties, containing of 3.3+/- acres. She stated that the properties currently receive electricity from the City and that City water service is available from the east side of US 113. The developer will be required to jack and bore state roadway for access to the water. Sanitary sewer service, if available, is serviced by Kent County. The Cost-Revenue analysis showed a positive cash flow to the City of approximately $56,805 over ten years.
Staff recommended adoption of the Annexation Resolution setting the date of the Annexation Referendum to be held on April 12, 2007.
Responding to Mr. Ruane, Mrs. Townshend explained that the property is located in a service territory for Kent County; therefore, the applicant will be responsible for working with the County to extend the sanitary sewer service.
Mr. Ruane moved to recommend adoption of the Resolution setting the date of the Annexation Referendum to be held on April 12, 2007 for the property located on the west side of Bay Road at the intersection with Lafferty Lane (Attachment #1). The motion was seconded by Mr. Cregar and unanimously carried.
Overview of Energy and Capacity Markets and Impacts to Customers and Generating Station Value
Mr. Jim Utt, Pace Global Asset Management, provided a Power Point Presentation (Attachment #2) on the energy and capacity markets in the PJM and the impacts to customers and citizens of Dover, and a review of the value of the generating assets. He advised members that because Dover serves load (has customers), PJM requires Dover to provide for both energy and capacity. Energy needs are met through purchases from investment grade sellers (utilities and energy brokers) and self supply from the generating assets during high price periods. Mr. Utt explained that the real cost driver of the large increase of power is the price of fuel, which is becoming more and more a worldwide commodity. He assured members that Dover meets its capacity obligation through self supply (ownership of generating assets) and small purchases from the market (5,000 - 10,000 kW).
Mr. Utt also advised members that beginning in June 2007, Dover will be required to meet their capacity obligations through self supply, contracting with third parties, or by purchasing from PJM. He explained that the capacity market will have the effect of increasing the value of generating assets but requiring load serving entities to pay for the increased value of capacity. Dover’s generation capacity of 170,000 kW will not meet the expected first year obligation of approximately 180,000-185,000 kW, depending on final peak determination and reserve requirements. At a $10/kW-year auction clearing price, the expected annual revenue to the generating assets (for Dover) is $1.7M (170,000 kW x $10/kW-Yr). Mr. Utt indicated that the costs to Dover’s load at $10/kW-year is estimated at $1.8M to $1.85M (180,000-185,000kW peak x $10/kW-year) or 0.23 cents per kWh. The net costs to Dover (generation capacity revenue less cost to load) in the first year is estimated to be between $100,000 and $150,000.
Responding to Mr. Ruane, Mr. Utt explained that the analysis, as provided in the presentation, included a very “bare bones” capital cost addition for maintaining the City’s plants. It is their belief that, near term, the real value of these assets are for capacity related assets with a very small amount of value on the energy markets. Therefore, it is not felt that it is necessary to spend a lot of money to continue to overhaul these plants, assuming they are going to run 1,500 to 2,000 hours each year. It is anticipated that McKee #1 and #2 will be run 100 hours per year and McKee #3 will be run 400 hours per year. If these units are expected to run more, then there would be additional costs necessary for maintaining these units. Mr. Utt stated that the analysis provided has assumed units that are operating at capacity.
Mr. Utt reminded members that it is still very early in the auction process and that not all of the dynamics are known yet. Once the official markets clear, then there will be a better understanding to determine if it would be best to buy from the markets to serve or satisfy capacity needs, or to build and serve them ourselves.
If it is determined that the City should build, Mayor Speed questioned if it would be beneficial to have excess capacity that could be sold. Confirming, Mr. Utt stated that excess capacity could be sold to third parties, joint venture with another entity, and several other alternatives could be considered. He would recommend that before the City takes any action to over-supply or create excess capacity, the City needs a good understanding of what that capacity will be worth long-term and at that point in time, it would make sense to take a look at both the capacity needs for the City of Dover as well as its energy needs. If the energy markets continue to move forward, there may be a need for looking at a different type of fuel, whether it be a small coal burner, stoker boiler, etc., that would not only serve capacity needs but also add stability to the energy requirements. Mr. Utt stressed that the key component to making that energy trade-off is to understand the capacity worth, which will be better determined after observation of what the markets clear.
Responding to Mr. Ruane, Mr. Utt suggested that his firm work with City staff and make it a part of the PACE Monthly Report by including a separate section on cost improvement goals and targets.
Mr. Cregar moved to recommend acceptance of the report, with the understanding that periodic updates on specifics issues such as efforts made to lower costs, review of the diversity of a portfolio, etc. will be provided to the committee. The motion was seconded by Mr. Ruane and unanimously carried.
PACE/NAES Monthly Reports (January)
Mr. DePrima provided the PACE/NAES Monthly Reports for January 2007. He reminded members that these reports are being provided each month to give members the opportunity to monitor what is being sold in electric and the revenues received, which will afford members a better understanding of any fluctuations and to make improvements, if deemed necessary. It is not his intent to make a presentation of the reports; however, he welcomed any questions.
As was discussed during the previous item, Mr. Ruane noted that the PACE Report indicates that the McKee and VanSant stations continue to show a net gross margin loss on energy sales.
Update - Options to Address Regulation 1146 Emission Control Requirements at McKee Run 3 Electric Generation Station
During their meeting of January 22, 2007, Mr. DePrima, City Manager, reviewed the requirements of Regulation 1146, Emissions Control Requirements. Having several concerns, members authorized the City Manager to instruct staff to have before this committee within one (1) month, the refining of the costs, results of the scenarios, and additional information on other options that were discussed by members.
Mr. DePrima advised members that a few weeks ago, staff met with representatives from the Department of Natural Resources and Environmental Control (DNREC) to further discuss and understand some of the requirements of Regulation 1146, and how the City may proceed to meet these requirements. In the meeting, one (1) of the options discussed was fuel switching and use of different types of fuel. Another option suggested was the low Nox burners, which is refitting our plant with burners that have low Nox emissions. Because of this suggestion, along with the requests of members, Mr. DePrima stated that staff would be making a presentation to members during their second meeting in March (March 26, 2007), which will include alternatives to comply with Regulation 1146.
Referring to the recent complaint filed by the City Solicitor on behalf of the City of Dover against DNREC, Mr. Ruane stated that the update should include this matter and questioned what strategies are being considered. Mr. DePrima stated that there is no update to provide and relayed reluctance to discussing strategies regarding a legal matter in a public forum.
Mr. Ruane explained that the complaint is relative to the issue of addressing Regulation 1146 and, therefore, he felt it would be appropriate for this committee to be advised that the strategy that some have taken is to sue the State in an attempt to get the regulations overturned. It was his opinion that the committee and Council must take its responsibility to face this decision in an open forum and to allow for public sentiments to be known. It was also his opinion that there are other strategies that the public and Council can support to address the regulations.
Mr. Ruane moved to recommend that the City withdraw from the lawsuit. The motion failed due to the lack of a second.
In response to other members’ feelings that this meeting is not the appropriate forum to discuss the legal issues, Mr. Ruane requested a legal opinion from the City Solicitor as to when and where this matter should be discussed, and whether or not the strategies to address the regulations should include joining other parties affected by the regulations in a lawsuit against the State of Delaware.
Proposed Energy Conservation Plan for Dover (Ron Zink, Sierra Club)
During their meeting of January 22, 2007, Mr. Ron Zink, Sierra Club, presented members with information regarding an environmental program sponsored by the City of Seattle and endorsed by City Governments throughout the United States. Members requested to be provided the complete details of the plan prior to further review.
Members were provided a detailed report entitled the Energy Plan for the City of Dover, offering suggestions in an effort to reduce emissions, lower energy bills, save taxpayer dollars, protect our environment, and protect our health. Mr. Zink advised members that a Resolution endorsing the U.S. Mayors Climate Protection Agreement has been provided for their consideration.
Mr. Zink explained that it is just as important to obtain support from the grassroots level as the upper level. The Sierra Club and League of Women Voters have developed programs that attack the problem of teaching the people at the grassroots level. Examples of these programs include: a Filmfest to be held on March 23rd and 24th at DelTech, environmental home kits that will be distributed to the high schools, exhibition of events, talks to civic clubs and churches, etc.
Mr. Hogan stated that he was pleased to see that the City is making efforts in this regard, noting that of the 11 targets, the City has already met five (5), and is currently working on a few others. In response to Mr. Ruane’s concerns, Mr. Hogan stated that the resolution is not a mandate, but rather a commitment to strive to meet or exceed specific targets.
Referring to item #C-1 of the proposed resolution, Mr. DePrima stated that it is his understanding that the Coolcities Program offers programs and provides assistance to cities in calculating benchmarks and setting reduction targets. He indicated his support of targets two (2) through 11 as specified in the proposed resolution, and as long as there is a program to provide assistance in calculating benchmarks and establishing reduction targets, he would not oppose the first target specified in the proposed resolution.
Mr. McGiffin explained that item #C of the proposed resolution has been drafted in precatory language, as opposed to mandatory language; therefore, it was his opinion that the proposed resolution could be adopted and, as long as the City made a good faith effort to address the issues, the City would be in compliance with the spirit of the proposed resolution.
Mayor Speed suggested that rather than recommending the adoption of the proposed resolution, focus should be on item #C only and that the recommendation should be to adopt a policy as outlined in item #C of the proposed resolution.
In response to Mr. Cregar, Mr. DePrima stated that whichever reduction targets are adopted by Council, departments would set goals every year and they would be asked to determine how they may be able to meet them. Noting that the City is already meeting some of the proposed targets, Mr. Cregar requested that staff provide details and suggestions for how they may be enhanced.
Mr. McGiffin indicated that when he became a member of Council and was provided an orientation, he was made aware of the actions the City has already taken and what was intended to address this problem. Being impressed, he suggested that staff provide a presentation to allow the public knowledge of this information.
Mr. Ruane moved to recommend that this item be placed on the next agenda and that the packet material include a brief update on the items the City is already doing and if there is any reluctance on the part of management regarding any of the language in the proposed resolution, members should be alerted in order to develop a modification. The motion was seconded by Mr. Cregar and unanimously carried.
Mr. Cregar moved for adjournment, seconded by Mr. Ruane and unanimously carried.
Meeting Adjourned at 6:27 P.M.
Respectfully submitted,
Carleton E. Carey, Sr.
Chairman
CEC/TM/jg
S:ClerksOfficeAgendas&MinutesCommittee-Minutes20072-26-2007 UTILITY.wpd
Attachment
Attachment #1 - Annexation Referendum for property located on the west side of Bay Road at the intersection with Lafferty Lane
Attachment to Original Minutes and File Copy
Attachment #2 - Power Point Presentation on Energy and Capacity Markets and Impacts to Customers and Generating Station Value