LEGISLATIVE, FINANCE AND ADMINISTRATION COMMITTEE

The Legislative, Finance, and Administration Committee meeting was held on November 13, 2006, at 6:00 p.m. with Chairman Salters presiding. Members present were Mrs. Jones (arrived at 6:03 p.m.),

Mr. Hogan, Mr. Slavin, and Mr. Shevock. Members of Council present were Mr. Carey, Mr. McGlumphy, Mr. McGiffin, Mr. Ruane, and Council President Williams. Council staff members present were Mrs. Mitchell and Mr. DePrima.

AGENDA ADDITIONS/DELETIONS

Mr. Hogan moved for approval of the agenda, seconded by Mr. Shevock and unanimously carried.

Financial Reporting and Information Flow

Mrs. Donna Mitchell, Finance Director, provided members with a PowerPoint presentation regarding Financial Reporting and Information Flow (Attachment #1). Mrs. Mitchell stated that the information contained in the presentation was based upon the June 6, and October 23, 2006 presentations given by Burns and McDonnell.

Mr. Slavin informed members that the subject of information flow and any subsequent employee action was originally scheduled to be discussed during a Council Executive session. Due to concerns expressed by several members of Council, it was decided that these issues would be presented in a public forum and that an executive session may be necessary to discuss personnel issues.

Responding to Mr. Slavin, Mrs. Mitchell stated that during the budget preparation process it was realized that Duke Energy purchased a blanket insurance policy which included the City of Dover. Under the new agreement with North American Energy Services (NAES), the City must purchase it’s own policy at a cost of $300,000. Mrs. Mitchell indicated that this information was communicated to Council on September 18, 2006.

Mr. DePrima, City Manager, informed members that the City must purchase the difference between the current capacity requirements and the capacity generated by both the McKee Run and Van Sant stations from the PJM market. The current capacity requirement is 177 megawatts and both substations generate approximately 174 megawatts, necessitating the purchase of additional capacity at a cost of $63,000.

Mrs. Mitchell stated that due to the departure of the Public Utilities Director in May, this project has been a huge undertaking for staff. Responding to Mr. Slavin, Mrs. Mitchell stated that informational notes were sent to Council, via email, on September 18, 2006 and October 5, 2006.

During the October 23, 2006 presentation to Council, Mr. Jim Utt of PACE Global stated that an analysis of the electric plant would be conducted and the results would be presented to Council during the second quarter of fiscal year 2007. Mrs. Mitchell stated that the analysis will enable the City to make decisions and take the appropriate actions. Responding to Mr. Salters, Mrs. Mitchell stated that several factors will be included in the analysis, including staffing levels and maintenance costs.

Mrs. Mitchell advised members that if the projected sales of kilowatts hours to residents decreases it will affect the budget. She stated that 70% of the budget consists of fixed costs, the majority of which is employee benefits, and will be effected if the revenue decreases the funds available.

Mrs. Mitchell advised members that if the City’s bond rating is lowered, the interest rates on the City’s bonds will increase. Responding to Mr. Salters, Mrs. Mitchell stated that the rating agencies are reviewing the City’s bond covenants, prior to the $20M bond issue scheduled for fiscal 2008. Mrs. Mitchell also stated that she has contacted all the rating agencies and the situation is being closely monitoring. Mr. Slavin asked if the rating agencies would provide anything in writing, prior to December, to ensure their understanding of the use of the electric rate stabilization fund.

Mrs. Mitchell stated that the conversations with the agencies were all verbal; however, she will attempt to get the same assurances via email. Mrs. Mitchell also informed members that the bond covenant calculations were added to the Finance Department monthly report in May of 2005, for monitoring purposes.

Mrs. Mitchell, at the request of Mr. DePrima, advised members that there is approximately $12.5M in the depreciation reserve fund and approximately $8.7M in the future capacity reserve fund. Responding to Mr. Salters, Mrs. Mitchell stated that power supply expenses have increased $2.5M over last year.

Mrs. Mitchell noted that the $750,000 Duke Energy rebate will have to be recorded in fiscal year 2006 instead of fiscal 2007. The amount of the 2007 rebate is unknown at this time and can not be projected. Responding to Mr. Hogan, Mrs. Mitchell stated that the rating agencies do not look at revenue earned in previous years or previous ratings.

Mr. Slavin requested Mrs. Mitchell to identify when the information presented on slide #14 “Summary of Presentation Changes - FY07 June 6 versus October 23" was first discovered and identify when the information was communicated to Council.

Mr. McGlumphy requested staff to provide more long-term solutions for fiscal years 2008 and 2009.

Mr. Slavin moved to recess the meeting, seconded by Mr. Hogan and unanimously carried.

Meeting Recessed at 7:04 P.M.

                                                                                           Respectfully submitted,

                                                                                           Reuben Salters

                                                                                           Chairman

RS/hf

S:ClerksOfficeAgendas&MinutesCommittee-Minutes200611-13-2006 LF&A.wpd

Attachments to Original Minutes and File Copy:

Attachment #1 - Financial Reporting & Information Flow Presentation