QUARTERLY OPEN TOWN MEETING

The Quarterly Open Town Meeting was held on August 1, 1994 at 7:00 p.m. in the Council Chambers of City Hall with Mayor Hutchison presiding. Members of Council present were Mr. Lambert, Mr. Tudor, Mr. Leary, Mr. Pitts, Mrs. Malone, Mr. Weyandt, Mr. Salters, Mr. Hare and Council President Christiansen.

A moment of silence was observed in honor of Mr. James Connor of Bear, Delaware, who recently past away and was buried today, for his outstanding contribution as Delaware's only Congressional Medal of Honor Winner.

SUBJECT MATTER PRESENTED FROM THE FLOOR BY CITIZENS

There was no one present wishing to address members of Council.

PRESENTATION - ELECTRIC OPTIONS

As a result of an offer from Delmarva Power & Light for the purchase of the City of Dover's electric system, staff has been reviewing the possibility of the sale of the power plant. Since receipt of the offer to purchase, the City has received several other offers that have a very broad spectrum ranging from wholesale purchases, bulk power purchases, and the possibility of contracting for the operation of the power plant.

Mr. O'Connor introduced Ms. Elizabeth Benson, Vice-President of The Canyon Group, and Mr. Kirk Betts, representing Dickinson, Wright, Moon, VanDusen & Freeman. The Canyon Group assists utilities and private companies in developing strategies and options from wholesale power markets to energy and environmental issues relative to electric utilities. Noting that the utility field is continuously changing, the Canyon Group was requested to review the proposals and concepts to formulate a professional opinion. They were asked to consider if it would be a viable option for the City to continue in the utility business. Members of Council were presented with an outline of the Power Supply Opportunities Presentation (as on file in the Office of the City Clerk).

Mr. Lambert reminded members that this meeting is not a public hearing and requested that all questions of Council be held until after the presentation. He stated that during the Utility Committee Meeting of August 9, 1994, members will further discuss the options.

Ms. Benson advised members that the Canyon Group has reviewed the preliminary proposals that were submitted to the City and devised a presentation of the City's Power Supply Opportunities. The presentation provided members with an understanding of the City's current situation regarding electric service, the opportunities available and the specific steps necessary to determine which alternative should be chosen, as follows:

►          A Simple Electric System (illustration)

►          City of Dover Service Area

►          Pennsylvania-New Jersey-Maryland (PJM) Interconnection

►          City of Dover's Power Trends 1984 - 1994 (Electricity - Generated and Purchased)

►          City of Dover's Sales Trends 1984 - 1994 (Electricity Sales)

►          Reasons Dover is Considering Change

►          Why Dover Should Consider Change at this Time

►          What Benefits Does a Municipal System Provide?

►          What Objectives Should Guide Dover?

►          Meeting Customer Needs will be Critical

►          Potential Changes in Retail Markets

►          Options

►          Locations that Expressed Interest in Dover's Electric System

►          Proposals/Expressions of Interest (System Purchase, Generation, Power Supply and Generation & Power Supply)

►          Preliminary Financial Assessment

►          Comparable Options (Apples and Apples)

►          Advantages of a Request for Proposal (RFP)

►          Where Does Dover Go From Here?

►          Reasons for Optimism

Responding to Mr. Tudor, Ms. Benson stated that there is a significant amount of excess capacity in certain areas of the country; however, this excess does not exist in all areas of the country. It is estimated that this capacity will remain during the next five (5) to ten (10) years. Should the marginal cost of energy continue to decrease and the cost of gas remain the same, excess capacity would continue to be experienced for a longer period of time.

With regard to Mr. Tudor's concerns, Mr. Betts assured members that arrangements could be made to comply with all the laws to allow for a joint venture with a private vendor.

Although the City has received an active interest from several creditable businesses, Ms. Benson explained that the proposals submitted to the City are very preliminary. Some proposals include consideration of altering the power plant to be fired with a different fuel, which could be accomplished by repowering the burners and slightly changing the configuration. She explained that although McKee Run is a dual fuel power plant, it is difficult to fire on gas since the City is an interruptible gas customer and, therefore, cannot rely on the supply of gas. Ms. Benson stated that depending upon the arrangement and proposal offered, it would be potentially possible for McKee Run to become a more efficient and effective power plant. She explained that the City needs to carefully consider the proposals; however, a final decision should be made no later than mid 1995.

Mr. O'Connor advised members that there are several alternatives and opportunities for the City to consider at this time. It is Council's decision as to what limitations and directions staff should pursue further. Once the options have been limited, this matter will be reviewed by the Utility Committee for development of a timetable, scheduling of public hearings, and formulation of recommendations.

Mary Skelton - 858 Woodcrest Turn

Mr. O'Connor explained that the Canyon Group was requested to review the strategies and provide the City with a professional opinion as to whether there is an opportunity for the City to remain in the electric utility business. Mr. O'Connor stated that during the Utility Committee Meeting scheduled for August 9, 1994, members will consider the presentation provided this evening and formulate a recommendation to be presented to City Council, City Council will provide the parameters for which they wish staff to proceed with from this direction.

Ms. Benson stated that the Canyon Group is not in the position to decide how the City should proceed since that should be the decision of staff and the City's elected officials. The Canyon Group's role was to determine if there were legitimate proposals and concepts the City should consider.

Mr. O'Connor stated that since there are so many different types of proposals, it is very difficult to compare the options. Once some of the options are eliminated by choice of City Council, staff will further discuss those proposals that are acceptable to City Council will formulate comparable options.

In response to Ms. Skelton, Mr. Betts stated that Vineland, New Jersey recently had a similar situation as currently being experienced by the City of Dover. He advised members that the City of Vineland also operated a municipal utility and that in 1988, they performed a power supply projection and determined that there would be a shortage of capacity in the near future. The City of Vineland had an aging power plant and was experiencing similar problems as the City of Dover with the exception that their power plant operated on coal. Mr. Betts stated that the City of Vineland conducted an internal investigation and determined that their electric utility should be retained. They proceeded with a series of strategies that included: 1) RFP process to solicit capacity; 2) bid for an additional 47 megawatts; and 3) obtained a three year contract for the purchase of short-term capacity from Philadelphia Electric. Mr. Betts explained that the City of Vineland performed several strategies to bring their power costs in-line and have realized lower power costs than they had three (3) years ago. He also advised members that the City of Vineland is satisfied with their decision and is now looking forward to more opportunities being presented from the new power supply market. Mr. Betts indicated that the City of Dover also has opportunities that should be considered.

Mr. Robert Hollingsworth - 228 North Caroline Place

Noting that the previous Mayor, Crawford Carroll, was in the audience, members of Council requested that he respond to questions of Mr. Hollingsworth. Mayor Carroll advised members that the City of Dover has owned an electric utility since 1902 and that the City never worked at a profit. He explained that all monies that are derived from the sale of electricity is returned to the community.

Mr. O'Connor stated that although the City of Dover's residential electric rates are lower than Delmarva Power & Light's residential electric rates, the City's commercial and industrial electric rates have traditionally been higher. Based on the information recently obtained, Mr. O'Connor stated that it will be necessary for the City to establish lower electric rates than our competitors for all customers, and at the same time, receive a return on our investment. He explained that the City must prove that this can be accomplished in order to continue in the electric utility business.

In response to Mr. Hollingsworth's concerns, should a disaster strike a major electric plant that participates in the PJM, Mr. Betts stated that the average cost of power in the PJM Grid would increase. All utilities that participate within the PJM Grid would suffer from the disaster since participants take a "split the savings" approach to the energy. Mr. Betts explained that any utility company that purchases from the Grid would experience an increase in their electric rates.

Mr. Hollingsworth submitted a petition, with 60 signatures, in favor of keeping and maintaining the City of Dover power plant at whatever costs are necessary.

Mr. Eugene Ruane - 122 Shadow Court

Mr. Ruane commended staff and the consultants on the presentation and explanations that were provided. He felt that this matter is very complicated and provides the City a challenging opportunity. Reminding members that the City's electric utility is a business, he stated that members must take a business approach by reviewing the alternatives, developing a plan, following the strategies and making a decision. Mr. Ruane urged Council to move forward and not return in six months to rehash this same issue.

General Fred Vetter - 729 N. Bradford Street

General Vetter complimented Ms. Benson for providing a very clear and helpful presentation and thanked Mayor Hutchison, Members of City Council and staff for making the presentation available to the citizens.

Ms. Benson stated that there is a lot of capacity in the eastern part of North America and Canada; however, there is no estimation as to how long this surplus will last.

Noting that formulating an RFP is a difficult process, requiring the development of specifications, timing, engineering data, cost breakdown, etc., which will require well qualified individuals, General Vetter questioned when this process would occur. Responding, Mr. O'Connor stated that if Council chooses to sell the electric utility, an RFP would not be developed; an appraisal would be obtained and bids would be solicited. Should Council decide to pursue the other options, an RFP would be developed. Prior to spending funds to develop an RFP, it is staff's desire to obtain from Council the parameters for which they wish to proceed. With the assistance of the Canyon Group, staff will develop questions that will help Council formulate the parameters. Once the parameters have been identified, an RFP will be developed and distributed. Mr. O'Connor stated that although the responses of the RFP's will be a little more specific than the current proposals that have been submitted, they will not be comparable. However, the RFP's will be reviewed to decide what strategies should be pursued, such as long-term benefits, short-term benefits, etc. Mr. O'Connor stated that at that point, it may be necessary to define a more specific RFP to be distributed in order to obtain proposals that are comparable. Once these RFP's have been received, the final decision will be pursued. Although it will be a lengthy process, Mr. O'Connor indicated that it is his desire to be in a long-term contractual relationship by mid 1995.

Mr. Phil Fenimore - 360 North State Street

Responding to Mr. Fenimore, Mr. O'Connor stated that an evaluation on the return of investment for the sale of the power plant and the other options and alternatives will be presented during the Utility Committee Meeting of August 9, 1994. He anticipates that the sale of the power plant will be delayed and that staff will be directed to work in the parameters of exploring other options and alternatives. Should Council choose to proceed with the other options, Mr. O'Connor stated that the on-going purchase price of the entire system will be utilized as the City's index in considering the other options. He also stated that this index will provide those interested in the City's power plant a basis for their interest. Mr. O'Connor reminded members that although Council may proceed to pursue options other than sale of the power plant, at the end of the process, the sale of the entire electric system may ultimately be the best decision.

Mr. Hare moved for adjournment, seconded by Council President Christiansen and unanimously carried.

Meeting Adjourned at 8:53 P.M.

                                                                                    JANICE C. GREEN

                                                                                    ASSISTANT CITY CLERK

                                                                                    JAMES L. HUTCHISON

                                                                                    MAYOR

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