SPECIAL COUNCIL MEETING
A Special Council Meeting was held on December 12, 1995 at 6:30 p.m., with Council President Christiansen presiding. Council members present were Mr. Lambert, Mr. Tudor, Mr. Leary, Mr. Pitts, Mrs. Malone, Mr. Fenimore, Mr. Salters and Mr. Hare.
Council staff members present were Mr. O'Connor, Mrs. Green and Mr. Rodriguez.
AGENDA ADDITIONS/DELETIONS
Mr. Leary moved for approval of the agenda, seconded by Mr. Hare and unanimously carried.
PRESENTATION ON ELECTRIC OPTIONS
The City's current electric utility consists of two electric generation facilities: the three-unit 136-megawatt oil-fired McKee Run plant and the 39-megawatt combustion turbine VanSant plant. Maintenance requirement and environmental upgrades, combined with decreased return to the City and the need for more capacity are issues that are currently facing the City. Due to the complexity of the City's situation, members of City Council authorized staff to proceed with Request for Proposals for capacity and energy that would resolve the City's generation, environmental and power supply problems (Regular Council Meeting of August 22, 1995).
Mr. Lambert, Chairman of the Utility Committee, re-introduced the City's technical advisors for the City's Electric System: Ms. Elizabeth Benson, Vice-President of The Canyon Group; Mr. Kirk Betts, representing Dickinson, Wright, Moon, VanDusen & Freeman; and Mr. Curtis Wilson, Resource Management International, Inc. (RMI). In response to the City's Request for Proposals, 22 electric power supply proposals were received. The City's technical advisors selected three (3) proposals and began extensive negotiations with Delmarva Power & Light (DP&L), Duke/Louis Dreyfus (D/LD) and Public Service Electric & Gas Company (PSE&G).
Ms. Benson advised members that negotiations were flexible and that the bidders competed aggressively. The terms and financial conditions have remained confidential throughout, which has been an absolutely critical factor in a successful negotiation. Each bidder has strongly endorsed the process that has been taken regarding this issue. Ms. Benson indicated that the three contracts selected were negotiated simultaneously. As a result of the negotiations, both terms and price have changed, to the benefit of the City of Dover. A presentation outlining details of the three (3) contracts was presented, as follows:
Delmarva Power & Light
The proposal from DP&L included operating the City's generation facilities for a 10.5-year period.
► Capacity and Energy
- Capacity reservation charged based on Dover's summer peak demand
- Credit for Dover-owned capacity
- Fixed annual price adjustment
- 50 MW base load block of energy at $25/MWh - price adjustment based on fuel index
- Remaining energy at Delmarva dispatch rate
- Reserve requirement capped - can improve
► Remaining Competitive
- Price reopener
- Large customer protection
- Work cooperatively to attract new load
► DP&L Will Operate McKee Run and VanSant
- First 18 months like Dover does now
- Remainder of term - for peaking and system reliability
- Jobs for up to sixteen (16) current employees
- Employment service for others
- Capital improvements
- Joint Delmarva - Dover Management Committee
- Annual inspection by independent engineer
- Generation returned in good condition
► Other Key Features
- Services fund/materials management
- College Road upgrade
Duke/Louis Dreyfus
The D/LD proposal involves the responsibility for managing the operations and maintenance of the City's existing electric generation for a 10.5-year period.
► Capacity and Energy
- D/LD sells power at fixed price
- Profit sharing for Dover if D/LD revenues exceed cost
- D/LD responsible for additional capacity and transmission to meet Dover load growth
- Reserve requirement capped - incentive to improve
► Remaining Competitive
- Profit sharing provides price adjustment
- Large customer protection
- Price reopeners
- Dover may terminate at end of five (5) years
► D/LD will operate McKee Run and VanSant
- On-site management
- Capital improvements
- Existing personnel (up to 30) assumed by operator
- Employment service for others
- Benefits from reliability improvements shared 50/50
- Joint D/LD - Dover Management Committee
- Annual inspection by independent engineer
- Generation returned in good condition
► Other Key Features
- Services fund
- College Road upgrade
Public Service Electric & Gas Company
The PSE&G proposal is for a full-requirements contract for a 10.5- year period.
► Phase I
- Dover operates generation for first 18 months
- PSE&G supplies 40 MW base load capacity block
- Dover "harvests" value of McKee Run
- lowest cost for first 18 months
► Phase II
- McKee Run retired or "cold stored"
- VanSant remains in service
- PSE&G supplies Dover capacity as needed
- Capacity cost fixed for ten (10) years
- Dover purchases energy annually at "market" (PSE&G "backs up")
- Employment/Transition services for Dover employees
► Remaining Competitive
- Price reopener
- Energy secured annually at market prices
► Other Key Features
- Services fund/materials management
- Transmission support
Members were provided with a comparison graph of the total annual power costs for Dover over the next 10.5 years if there were no change to the current system and for each proposal. An additional graph was provided which indicated the projected cost in megawatt hours should the City remain with the current system as compared to each proposal. The graph indicated that whichever contract is chosen, the City will realize a cost savings and benefit substantially compared to the City's current system. Ms. Benson presented a comparison of the estimated costs and savings of each proposal in both nominal dollars and net present value over the next 10.5 years, as follows (she reminded members that the comparison is for the City's power supply and that it does not include costs for distribution):
NOMINAL NET PRESENT VALUE
OPTION DOLLARS (8% Discount Rate)
Dover's Current System $402,985,000 $264,689,000
DP&L $340,765,000 $222,262,000
- Projected Savings $62,220,000 $42,427,000
D/LD $325,842,000 $213,336,000
- Projected Savings $77,143,000 $51,354,000
PSE&G $328,749,000 $215,566,000
- Projected Savings $74,236,000 $49,124,000
The technical advisors recommended that the City select the contract of D/LD. It was felt that the contract by D/LD provides the best combination of value in an economic sense as well as maintaining the present power facility. Ms. Benson explained that D/LD is the only contract which involved guaranteed prices for power supply, price adjustment mechanisms in the event of changing market conditions (having the potential of paying less), and assistance with large energy users that will help the City remain a competitive supplier. The contract of D/LD also indicates that D/LD will be responsible for managing the operations and maintenance of the City's existing electric generation, which totals approximately 175 megawatts of capacity. In addition, D/LD may purchase low-cost energy supplies from regional utilities to meet the City's electricity needs, operate the generation as an integrated part of the PJM Interconnection (similar to current operations) and participate in energy exchanges.
PUBLIC HEARING - PROPOSED ELECTRIC OPTIONS
Council President Christiansen declared the public hearing open.
Mr. William H. Daisey, 215 Pine Street, Dover
Mr. Daisey relayed his opposition to the sale of the power plant. He noted that the City initially established its own power plant in order to provide a low tax base for the citizens of Dover as well as providing low cost electricity to our customers. Although the recommended option does not include selling the power plant, he cautioned members as to what such a contract would eventually bring before Council for consideration. Mr. Daisey also relayed concern with the fate of City employees.
Mr. Francis R. Weyandt, 54 Sackarackin Avenue, Dover
Mr. Weyandt urged the citizens of Dover to look to the future. He noted that as America grows and the need for power increases, there will eventually be a shortage of power. As long as the federal government continues to place restrictions on the building of power plants, it was his feeling that the City will one day appreciate the fact that they have their own power plant.
Ms. Ruth Tee, 822 White Oak Road, Dover
Ms. Tee questioned if the Public Service Commission would have any involvement regarding the proposed contract. She also questioned the fuel adjustment and if the proposed contract addresses the affect it would have on the City if there was an oil embargo.
Responding, Ms. Benson stated that the Public Service Commission will not have any involvement with the proposed contract. Noting that all of the contracts include clauses that would protect the City from huge increases in oil prices, Ms. Benson stated that there is no need to be concerned with the fuel adjustment, an oil embargo or any other type of oil increases.
Mr. Jeff Luff, 219 Cecil Street, Dover
Mr. Luff, an employee of the City's Electric Department, advised members that he currently has 15 years with the City of Dover. He began his employment as a mechanic with the City's Maintenance Shop, where he remained for ten (10) years until the City chose to have the Maintenance Shop sub-contracted with a private company. At that time, Mr. Luff indicated that he was fortunate enough to obtain a position with the Power Plant and decided to set his future in this direction. Feeling that the power plant is extremely vital to the City, he explained that he felt that he had job security since there would be no chance of the City discarding the power plant.
Mr. Luff stated that there is now talk that the decision to sub-contract the maintenance shop with a private company may not have been as cost effective as anticipated and that staff is re-considering this matter. He relayed concern that similar action regarding the power plant is now being considered and that in a few years, the City may determine that another "bad" mistake was made, and that, unfortunately, it will be too late for several employees.
Mr. Richard D. Senato, 152 Evergreen Drive, Dover
Mr. Senato felt that if the City is considering selling the power plant, there are several issues that should be considered such as protection for our citizens and most importantly City employees. He explained that these employees are accustomed to a certain standard of living and have monthly debts based on their salary with the City. To have this taken away from the employees would be devastating. It was his feeling that the City has an obligation to require a guarantee that would protect all employees. Mr. Senato requested that members also consider the affects that the proposed contract will have on the City once the contract expires.
Mr. Aaron O. Knopf, 144 Kings Highway, Dover
Mr. Knopf, former Mayor of the City of Dover, relayed his concern with the affect of bringing in a company based outside of Delaware would have on DP&L, the State of Delaware as well as the City of Dover. It was his fear that there will be a loss of jobs at DP&L and that a substantial amount of revenue will be leaving the State of Delaware.
Although the City would be saving more money in accordance with the contract of D/LD than that of DP&L, Mr. Knopf questioned if the difference is significant enough to risk the possibility of severely hurting a Delaware based company.
Responding, Mr. Betts explained that in accordance with the contract of D/LD, the City's current operations would essentially remain the same. He stated that the power system would continue to operate under an inter-connection agreement, will have arrangements with DP&L whereby savings will be split. Mr. Betts noted that one of the differences will be additional by-lateral agreements, which would involve wheeling revenues. Under the current system, the City of Dover does not pay DP&L anything other than the "split the savings" share. Another item the City currently pays for over a period of time, is if the City has a reserve margin that fails or makes a mistake on the inter-connection, the City pays penalties to DP&L. Mr. Betts stated that one of the reasons another company other than DP&L was considered was because it was felt that another company could operate the facility better so that there would be no more penalties. If they are successful, then DP&L would realize a loss of revenue as a result of the City's elimination of penalties.
Mr. Betts explained that there would not be a change in the nature of the arrangement at the power plant. Since D/LD have proposed to operate the power plant in the same manner as the City's current operations, there should be no change regarding jobs at DP&L. It was his feeling that in the future, as a result of the proposed type of contract with D/LD, DP&L may actually realize additional revenues due to transmission charges that are currently proposed under their open access tariff. Mr. Betts advised members that DP&L will actually receive more revenues under the proposed contract than what they have received from the City in the past as an interchange customer.
With regards to the concern of revenues leaving the State of Delaware, Mr. Betts stated that the bulk of the money will be used for operating the power plant, which includes salaries for their employees. Therefore, there will be no change with regards to this type of revenue. He also stated that D/LD will obviously form a company in Delaware in order to operate the power plant for the City which will provide additional revenues in Delaware. Mr. Betts assured members that all revenues of DP&L do not remain in Delaware nor would they for any other similar company.
Mr. Ted Enss, Marydel
Mr. Enss, employee of the City of Dover Electric Department, noted the many private companies that are interested in the City's electric department, feeling that the reason must be because the power plant is a profitable business. He urged members to consider this in making their decision.
Mr. Javan Davis, 635 Nimitz Road, Dover
Mr. Davis stated that he has observed dedicated City employees doing their job in restoring power to citizens in the rain, sleet, and snow. During the ice storm, these employees did an excellent job. He urged members to give these employees their utmost consideration.
Mr. Charles Johnson, 419 S. State Street, Dover
Mr. Johnson suggested that members consider the power plant as a profitable business and that by involving another company will only add a "middle man" to the situation. He also requested that members consider the source of pride and independence Dover has always had by owning their own power plant.
Council President Christiansen declared the public hearing closed.
Mr. Lambert moved to direct the City Manager to proceed to finalize the contract with Duke/Louis Dreyfus, seconded by Mrs. Malone. On the call for the question by Mr. Leary, the motion was carried by a unanimous roll call vote.
Mr. Hare moved for adjournment, seconded by Mr. Leary and unanimously carried.
Meeting Adjourned at 7:49 P.M.
JANICE C. GREEN
ASSISTANT CITY CLERK
All orders, ordinances and resolutions adopted by City Council during their meeting of December 12, 1995, are hereby approved.
JAMES L. HUTCHISON
MAYOR
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