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HomeMy WebLinkAboutTB-10/15/1985-S75 SOUTHOLD TOWN BOARD SPECIAL MEETING OCTOBER 15, 1985 1:00 P.M. A Special Meeting of the Southold Town Board was held at 1:00 P.M., Tuesday, October 15, 1985, at the Southold Town Hall, Main Road, Southold, New York, for the purpose of meeting with Wallace L. Duncan of Duncan, Weinbur~h, and Miller, PC., Washington, D.C. to discuss the possible estab- lishment of a Municipal Electric Utility District in the Town of Southold. P resent: Also Present: Absent: Supervisor Francis J. Murphy Councilman Joseph L. Townsend, Jr. Justice Raymond W. Edwards Councilman James A. Schondebare Councilwoman Jean W. Cochran Town Clerk Judith T. Terry Town Attorney Robert W. Tasker New York State Assemblyman Joseph Sawicki, Jr. Councilman Paul Stoutenburgh SUPERVISOR MURPHY: Good afternoon. This is a special meeting. We've asked Waily Duncan, on my left, to attend. Wally is an attorney from a' Washington based law firm that'~is involved with municipal electrical districts. I'm sure everyone knows our Assemblyman Joe Sawicki. I appreciate Joe being here today. I would like to-- we asked Mr. Duncan to come up to address the Town Board and tell us what our next steps are, what the possibilities are, what he thinks we should be doing. There will be questions allowed from the public after._ I think at first we'll limit it to the Town Board and then we'll open it up to the public for any questions they would like to ask of Mr. Duncan. So, Wally, go ahead. WALLACE L. DUNCAN, Esq.: Thank. you, Frank. I believe the last time i was here the Town was in the process of evaluating whether or not to go forward with an engineering feasibility study. One of the recommendations that we made and I know that the engineers made, was that you have a feasibility study done by a competent engineering firm which address the question of power supply and the delivery of that power to a local distribution system that might be formed by the Town of Southold. That feasibility study has now been completed by R. W. Beck and Associates of Wellesley, Massachusetts. I received a copy within the last month. I notice that it was delivered to your Town Board some time in July or early August. Based on the assumptions that are made in the Beck Study it would appear that the formation of municipal utility, or a utility district, a public utility if you will, to replace the services now provided by Long Island Lighting Company, is a viable and feasible alternative to the Town if you choose to go forward and take the r~ecessary steps for form a utility and to obtain power supply and what we call wheeling or transmission services to get the power in to Southold. We have been asked to address the group again. The Town Board has asked certain questions along the way. We have attempted to be helpful to the Town Board and want to point out that we are not an engineering firm and we ar~ not bond counsel and we are not financial advisors. Our law firm specializes in public utility 'law nationwide and we service exclusively the types of utilities that are owned by the public: towns, cities, villages, states, counties, rural electric cooperatives. Those entities-~that operate municipal electric systems, or rural electric systems known as public utilities, as opposed to private utilities. As you may know, there are 47 municipal utilities in the State of New York. All of them operating at Sdbstantially OCTOBER 15, 1985 lower costs and resulting in much lower rates than are available from the neighboring five investor-owned utilities that operate systems in most of the State. So this is a serious alternative and there are some problems that we have to address. I've been asked to point some of them out. I do want to point out that I am not going to second guess the Beck Study. I have worked extensively with Greg Magarie and Bob Taylor, who were primarily responsible for the preparation and conduct of the Beck Study. I have worked with them on a number of occasions, including the formation of the municipal system at Massena, New York, which went into business on May 8th of 1981, and we also worked together in the formation of another utility, the Village of Sherrill, New .Yorkr which went into operation January 1 of 1977. In both of those cases we were successful in bringing in or buying the utility distribution system that was then operated by a private utility. In the case of Massena the distribution system was operated by Niagara-Mohawk Power Corporation. In the case of Sherrill we boughtJ a system owned by what was known as the SherrilI-Kenwood Power and Light Compi a wholly owned subsidiary of Oneida Limited Silver Company in Sherrill. In both ~?es the systems now owned by the p,ublic, in Massena and Sherrillr reduced rates in the case of Massena by 22% and in the case of Sherrill in the amount of 42%. In the case of Sherrill there were some excess revenues at the end of the year that the Village Board declared a Christmas present, which was free electric rates for every consumer in the Village of Sherrill for the month of December 1977. They presently operate at about one half the cost, and the rates are about one half of what the rates are that are offered by Niagara-Mohawk in the immediately surrounding area. In Massena, believe, the differential between Niagara-Mohawk's rates and the Town of Massena's rates is about 44% and it's increasing. We understand that Niagara-Mohawk is going in for still another increase which will increase that disparity in the rates paid in some cases by people that live directly across the street from one another. So it's a little frustrating ,for those to continue to be served by the investor-owned utility. Will this happen in Long Island? Will it happen in the Town of Southoid? It's a very difficult process. I won't say that the formation of the utility in Massena was easy. We ran litigation for eight years. We tried six lawsuits and handled four appeals, including.~a Federal Anti-trust case to bring Niagara-Mohawk to the bargaining table to get our transmission rights to bring the power into the town. Ultimately the operation cost the Town of Massena, in funds up front, about ten million dollars. That included all of the legal and engineering fees. it also included about eight million dollars that was paid to Nia~gara-Mohawk Power Corporation for the distribution system located in the Town and Villag~ of Massena and in three surrounding communities that Massena now serves that are adjacent to the Town and Village of Massena. it expensive, it was fr. ustrating. The original referendum in .Massena was passed May l 30th of 197~. I earlier-, gave you the date of May 8th, 1981. So there was about seven years of litigation from the beginning to the end. You're at about where Massena was in early 1971. What did they do? The Town Board, in combination with the Village Board,took these steps, one of which you have already taken. One was .to h~re a competent engineering firm. in that case they hired R. W. Beck. They hired a law firm specializing in the field, in that case again they hired our firm.. They hired a bond counsel. They also hired a financial advisor to give them some ideas about how to raise the funds necessary to frontend the expenses of the formation of the utility and how to develop the funding once the condemnation award was- made. Things were much easier in Sherrill. In Sherrill it was a negoti._ated sale. Oneida wanted to get rid of the responsibility for providing electric service and devote them- selves fully to the manufacture of silverplate and silver and so we negotiated a sale wherein the Village of Sherrill took over that system for a million dollars in a negotiated sale between the Village and the management of Oneida Silver Company. Again Sherrill hired an engineering firm, R. W. Beck. They hired us. They also hired a financial advisor and bond counsel to make sure that they did everything right in the issuance of their bonds. They then went forward after determining that the formation of a utility was feasible and the operation of that utility would result in some savings to the electric ratepayers in the Village. Both Massena and Sherrill held referenda under Section 360 of the General Municipal Law. I believe some of this will be repetitive for those of you that attended thee last meeting that we had here. But Section 360, or Article 14A of the General Municipal Law of the State of New York gives every city-, town and village, county, public bodies in the State, the right to-form a municipal electric utility and to engage in the utility business to acquire, by condemnation or purchase, even by lease I might add, the electric distribution system which is presently operated ur~der a franchise, in the case of Southold by LILCO. So there's no question. You don't have to hire a lawyer to tell you that you have the absolute legal right to take over the LILCO system, or to engage in the utility business and to serve all of the electric ratepayers within the environs of Southold. You're not even limited to service within the coFpo, rate limits or the geographical limits of the Town of Southold. You can serve those outside the Town under certain circumstances. You also, in my legal opinion, 'have ~he right, 'as a duly foCmed municipal utility, to-.purchase power from the Power Authority of the State of New York, or from any other electric supplier from whom you can phsically receive l~l~t service. I mentioned that there.are some special problems that you're facing that perhaps weren't faced by Massena and Sherrill. Let's first address the question of power supply; T-he reason that'-'it is so economical to operate a municipal elects-lc system or a rural electric cooperative in the State of New York is that you have a great resource OCTOBER 15, 1985 · here in the St. Lawrence and ,,~th.e~i~ ,;~i:~jec,ts; These are both federally licensed projects on the St. Lawrence and Niagara i~i~er, which produce tremendous amounts of electric power energy and they are a renewable resource. There are no fuel costs associated with the operation of those facilities and while the initial investment was tremendous, that initial investment in, the case of Niagara and St. Lawrence is totally paid off. So all there really is now is the operating costs and the costs of maintaining those facilities and distributing that power to the utilities in New York. In its infinite wisdom--I should point out that there is for municipal utilities nationwi~de what is called a preference in the purchase of power and energy generated at any dam or facility that is either funded with federal funds--that is built by the federal government, as is the case with many of the Corps of Engineers flood control dams that happen to have associated power facilities. The preference also applies to any facilities that are '-~ licensed under a federally granted license under the Federal Power Act. That means that when you're in competition with an investor-owned utility and if you have duly ~ formed a municipal utility, you are entitled to first right to the power from that federally licensed project. Unfortunately in the case of New York, the Niagara Project and the St. Lawrence Project, some exceptions,apply. In the case of the St. Lawrence Project, because that project was built under an international treaty with Canada, there was no preference granted by Congress in the legislation which approved the treaty and so you have no absolute right to receive power from the St. Lawrence Project. However, in the case of the Niigara Project, Congress directed that that license be issued to the Power Authority of t~he State of New York. Congress, in its infinite wisdom came up with a Soiomonic solution to a terrible dispute between the private power companies and the publicly owned 'systems and in the on'l~y case in history Congress gave a preference to only 50% of the output of the Niagara Project. They gave the other, half to whoever the Power Authority saw fit to sell it to and they seen fit to sell it to the investor-owned utilities in New York. I should point out that the Niagara Project rated capacity is 18,80 megawatts. Of that you can use some simple arithmetic--940 megawatts is one half and that is what municipal and electric systems in rural electric cooperai, ives are entitled to a first- right to. Congress also said that a reasonable amount of that power, shall be distributed out-of-state to municipal and rural electric cooperatives located in neighboring states. The number they chose was 10%, approximately 180 megawatts. If you do all of the arithmetic, and those numbers aren't precise, there are some 752 megawatts of firm power. That is power that is always produced by the Niagara Project, and 50% of ~vhatever other class of power comes out of the Niagara Project. If that, project - .... produces. 2000 megawatts, then the preference extends to 1000 megawatts rati~er than the numbers I gave you. So you can see that there is a tremendous resource which municipal duly formed under Section 360 of the General Municipal Law have. Now ~ there are 47 existing municipal systems and 4 rural electric cooperatives in the State of New York. They are presently receiving 547 mega~atts. That isn't enough to cover the load of the--the combined load of the municipal and cooperative systems in the Stat~ of New York. They're combined load is now around 630 megawatts. As I said, municipal systems in this state are entitled to 752 megawatts of firm power energy out of Niagara. They are also entitled under the St. Lawrence Project Lease to a reasonable, but undefined amount of that power. So we are now in litigation. We have 14 lawsuits that have been filed and in various stages of completion against the Power Authority of the State of New York and against the investor-owned utilities which are, in our opinion, presently using approximately 200 megawatts-of our cheap Niagara. Project power. We filed a suit against _the Pov~er Authority on May 12th of 1978. it took us four years to litigate the case at the Federal Regulatory Commission and we received a total victory. The Federal Energy Regulatory Commission said what we thought was obvious; that is that Congress meant ~hat it said, we're entitled to .50%, that is 752 megawatts,~ give it to us now. That decision, if you quantify it, was a decision worth roughly six hundred million dollars to the 47 existing municipals-or municipals that might form in the future between now and the year 2006 when the Niagara Project License expires. At that point they'll have to make a decision ~s to who operates that project and who gets the power all over, but until then if you just take the difference between the cost of Niagara Project power and the cost of alternative sources, in this case we used Fitzpatrick Power, which is a nuclear plant, it quantified to something just under six hundred million dollars to these 47 small communities. ~ That decision was appealed and went to the Second Circuit United States Court of Appeals for the Second Circuit New York. That court affirmed the Commission, however, it did say that because when the project started out in 1961--the project actually went on line and began operating in February 1961, the total combined load of the municipal systems in the State of New York was very small. It was only. about 200 megawatts. So they had to sell the power somewhere and they entered into long- term ~ont-~act~with investor-owned utilities to ensure that the project would pay out. That is that they could retire the bonds. The Power Authority contracted for 30 years with the investor-owned utilities. Those contracts extend to 1990. The court said this would work a hardship to take all this power away from the investor-owned utilities that have done all of their planning on the assumption that. they would have that power through 1990 and to give it over to the municipal systems, and while I disagree with the decision of the Court of Appeals, it is now the law. They have given us the difference between 547 megawatits and 752 megawatt's and said that you will get that additional power in incremen'ts of 20% over the next five years. So we are entitled to that additional power, some of which is needed ~sy _- existing municipals, but when we get it all it will accomodate additional municipal electric power systems. . OCTOBER 15, 1985 There is an association in the State of New York,. of which I am general counsel, known as the Municipal Electric Utilities Association of the State of New York. That association consists of the 47 municipal electric systems and has as associate members the four rural electric cooperatives. That organization has funded immense amount of litigation which has ensued over this allocation, and has~ funded approxiamtely two million dollars of the cost of that litigation~ That litigation, as I said, is still proceeding. So if you did go into the electric power business as a distribution agency, or as a distribution system, and buy the LILCO system, you have the Municipal Utility Association, I think, to thank for persevering in protecting the integrity of the preference clause and at great hardship coming up with the tremendous amount of money that has been necessary to fund the litigation. I might add that didn't all go for legal fees. We had a lot of consulting fees and a lot of out-of-pocket expenses, and it's not over yet. We anticipate that it probably will take another tw~ or three years to settleor to litigate the remaining eight or nine~cases that are presently still on the dockets of the Federal Energy Regulatory Commission, the- IJnited States Courts or the New York State Courts. So it's a long uphill battle and one of the questions that has to be addressed by the Town of Southold is: given the complexity of the litigation, and the questions that have arisen with respect to the availablity of additional amounts of Niagara Power and any allocations from St. Lawrence Power, you're going to have to make the decision as to whether or not to proceed with the LILCO acquisition on something of a leap of faith, I think, because if I could do it, I'd do it like that and end the litigation and tell you exactly what you're entitled to. Unfortunately at this point in time that cannot be predicted. I can only say know what's right. I know what the legal rights of municipal systems in the State of New York are and if~ the iudges see it my way, we'll win. But that's not always the happy ending that occurs in the course of litigation. Settlement is out of the question. There's just too much money involved. We could probably settle our differences with the Power Authority of the State of New York, but the investor-owned utilities have said they'll fight it to the Supreme Court if necessary and they've already spent many times more than the two million dollars that we have spent in attempting to overturn the precedents that we've already established, which say that we're entitled to that power. Where's that leave you? I understand that you're Town Board, who are rep~ resentatives of the Town of Southold, have already requested an allocation of Niagara Proiect Power, or hydroelectric power, from the Power Authority, and correct me if I'm wrong, Frank, my understanding is also that you've been told that none was presently available and in all events it would be available only through the County--~r_~ the Suffolk County Municipal Distribution Agency. Now, I should digress for the' moment to tell you what that is. The Governor and his Chairman of the Board of Trustees of the Power Authority got a great idea one day in 1979. They said., ~!~et'~l, take all this cheap power away from the 47 municipal--legitimate municipal sysl~e~ in the State of New York and distribute it under a clever motto called "One Man, One Volt~'. And let's take that and spread it all around, particularly in Westchester County and Long Island and New York City in particular. What that means, and we've got a great chart--I didn't bring it with me, it's too big, but we're going to use it in the oral argument next week in Judge SpHzzo's Court in the Federal District Court down in New York City, but it will tell you that if the Governor's brilliant plan is.adopted and implemented it will mean two-cents on a one hundred dollar bill to every consumer not presently receiving that power. It will reduce your bill from $1.00~00 to $99.98. It will increase the cost of electricity to most of the municipal systems in the State of New York, assuming they survive, by about 1100%. Now we predict that at least half of the. municipal systems in the State of New York will go out of business if that occurs and you can now see why they were willing to pony up the tremendous cost of this litigation to see that that doesn't happen. We have filed 14 lawsuits against the Municipal Distribution Agencies in the State of New York. There are 53 of them that have been formed out of the 62 counties in New York. We say that they have absolutely no legitimacy Under the laws of the State of. New York. Most of them have not gone through the process of even forming a paper utility by complying with the technical requirements' of Section 360. Section 360 does have some minimum r~equirements. For example, you have to have engineer estimate what the maximum and estimated costs of the establishment of the system are. In about 25 or 30 of the referenda that were adopted there is no reference to the maximum or estimated costs of the projects, so they are facially, they are blatantly in violation of Sectoin 360. Those that have some question of legitimacy, some indication of legitimacy, like Westchester County, perhaps Suffolk · County, have gone throught the process and followed the literal requirements of'the law. However, we have researched every word of the legislative history of not only the Niagara Pro~ect Redevelopment Act, but of all of the federal laws pertaining to and granting a preference, and what those laws say, and the many decisions that interpret those laws say, is that you have to have a legitimate utility in order' to exercise the preference. You can't simply go in and try to exercise that preference on behalf of an investor-owned utility. The Congress has said~that the investor- owned Utilities do not quality f~ the preference in that it is a simple sham to form these county-wide agencies and simply go in--the only purpose those agencies have is to enter into a contract with the Power Authority, which is then approved by the Governor and nothing changes. The only difference that is made is that at the bottom of your bill you will get~-in case your bill is $100, you will get a two ~cent credit attribut~.ble to power purchase by that Municipal Distribution Agency tU~-~ed over to Con Ed; LILCO, Central Hudson, or whoever and that will be the net of savings' OCTOBER 15, 1985 to the consumers of those ~nvestQr~0~ed~ utilities. In other words, the investor-owned utilities will be able to accompl~sh~ zh'~l~r~t[~/~at they cannot accomplish under Federal Law directly. We have sued every one of the municipal distribution agencies. We have sued the Power Authority. We have filed complaints before your Public Service Commission and before the Federal Energy Regulatory Commission and the issue there in all of those suits is basically, who's entitled to exercise the preference. We know that if you form a-municipal utility, acquire the distribution system of LILCO in your town, you do. If you form that system and simply go in and get a contract for 20 megawatts, or whatever you need to service the Town of Southold and turn it over to LILCO, all you're doing is benefiting LILCO and LILCO's other customers, and I would be the first to say that that simply is not a legal way to proceed under the preference clause. So we are challenging, in every form that we've been able to find, the legitimacy of these municipal distribution agencies. But even as we speak, 39 megawatts, which is quite a slug of our power, is being distributed by the Power Authority and sold to municipal distribution agencies in about four of the 53 counties that have formed what we call "sham paper agencies". We hope to put an end to that in the very near future. As I said, we're arguing the case next Friday. Judge Sprizzo, the Federal District Judge that is hearing that case and the companion case that was brought against us by the Power Authority of the State of New York, has promised us that he would issue a decision within 60 days. So hopefully by the end of the year we Will have some direction. I can say, without question, that either way that decision 9oes, however, it Will be appeared to the Second Circuit. Possibly thereafter the Supreme Court. So we're talking four to five years. Again, where's that leave you? It leaves you definitely in an area of uncertainty. If you really want to proceed with the formation of the utility what you could do~ and I guess if I had to advise you, or if I were on your Town Board, it would be my recommendation that you go ahead and hold a referendum and before you do that-- that would have to be now under special election. The notices would have had to have gone out 90 days, ! think, by August 6th to have put that referendum on your general election ballot. You could, however, hold a special election in the Town under a referendum which would establish a municipal utility and authorize the funding of sufficient funds to acquire the distribution system presently owned and operated by LILCO, either by purchase, negotiated purchase or by condemnation, if necessary, in the area presently served by LILCO within the Town. That would give your voters the chance to speak to the issue. My recommendation would be that before you do that--before you hold that referendum~ or after you notice the special election, that you hold a series of public meetings at which your technical, legal and financial advisors appear before the constituency of the Town of Southold and_answer questions~ many of which will, of course, be based on assumptions and opinions. But it will give them a feel for what they're facing and what obstacles are in your path between now and the date of commercial operation of your electric distribution system. That did occur in both Massena and Sherrill, I might add, and there was another one that 1 was invo~¥ed in Westchester County in 1979. Wesichester County held a county-wide referendum for the acquisition of all of the distribution system of Con Ed located in the County of Westchester. Con Ed spent about three million dollars defeating the referendum. We had about 50 public meetings throughout Westchester County and that referendum was defeated in November of 1979. Since then Westchester County has formed one of these sham paper agencies. I hasten to add that I resigned as their attorney when they got that idea. But it seems to me that having done the feasibility study, and the feasibility study, even with the assumption that you're not going to get all power from the Power Authority of the State of New York, since that feasibility study shows there is feasibility in the opinions of the engineers that you've hired, it seems to me that at this point it only makes good sense to present the question and the information made available through Beck and through us and through anybody else that you undertake to consult with, to the voters- of Southold and let them make a decision. If the referendum is passed, then you have the authority to commence a number of--or to ~ake on a number of steps. First you have, at that point, the right to enter into negotiations and/or a suit under the Emminent Domain Procedures Act against LILCO to take the distribution system. You have the right, at that point, assuming the referendum is properly drafted, together with a bond resolul~ion, you will have the authority to issue bond anticipation notes or revenue anticipation notes to fund the frontend expenses of the acquisition leading up to either the purchase by negotiation or the condemnation award against LILCO. You will also have the right to make a legitimate application as a municipal utility to the Power Authority for an allocation of power. The Power Authority is never going to tell you that you can have an allocation of Niagara Project Power or St. Lawrence Power until you have taken this step to form a municipal opinion. That is their ~policy. They wouldn't give us ~hat commitment in the case of Massena. They wouldn't give it to us in the case of Sherrill. They wouldn't give it to us in the case of Westchester County. It is simply their policy not ~o conduct negotiations or to give positive or meaningful answers to groups like yourself, towns, villages or cities that are contemplating the . formation of a municipa! utility system. Now, don't ask me why., because it doesn't make any sense at all. If you're going to go .out and spend a couple of hundred · thousand dollars hiring consultants and holding a referendum, you ought to be able 8'0 OCTOBER 15, 1985 to know whether a responsible public agency like the Power Authority is going to give you an allocation of electric power to which you would then be entitled. The short answer to that· and I mean this seriously, is that in my opinion the Power Authority is not a responsible public agency. The Power Authority, for its own reasons has decided to operate its utility facilities for the benefit of the investor- owned utilities and while they will make all kinds of commitments to either industries that need Iow cost power for ~obs, or to investor-owned utilities that serve large areas of population, they will~-not give an answer to the municipal systems and the rural electric cooperatives in this state until' you are legitimately formed and have an organization in place. So, Frank and your Town Board could write the Power Authority a hundred letters and you'd never know any more than' you know now. The only way i know to break the impass is to go ahead and put it to a vote, form your utility, get bonding authority, enter into negotiations with LILCO and negotiates with the Power Authority of the State of New York for power supply.. Now, there are some assumptions made in the Beck Report, one of wh.ch is you get all of your power requirements service by the Power Authority of the State of New York. I personally think that assumption is unrealistic. I think that you will get a part of your power requirements even if we win the lawsuit. The reason I say that is that half of the municipal electric systems that have operated systems since the turn of the century are only getting a portion of their load served by power from the Niagara and St. Lawrence Projects. Massena, for example, has a load of approximately the same Ioad,~.l think, as Southold. It's load is now around 22 megawatts. At the time we did the' feasibility study and made an application to the Power Authority our load was 15 megawatts, and i,t was 15 megawatts that the Power Authority gave us. So needless to say we have to have seven megawatts in addition to that to serve our load. During the pendency of the litigation, which I've described, the Power Authority has agreed to sell us nuclear power for everything beyond the original allocation to Massena. It's called "contract demand". In all of the agreements between the Power Authority and its wholesale customers it has a contract demand, 10 megawatts, 15 megawatts. In the case of the city the size of Fairport, 52 megawatts. If they need power over and above that 52 megawatts during any time of the year~., they buy nuclear power, at a surcharge which amounts to about se~en times the cost of buying Niagara Project Power. We hope to eliminate that sur- charge when we get our additional allocations of power from the Niagara Project as result of this litigation. But what l'm telling you is at this point, given the shortages in hydroelectric power, and the fact that about half of the municipal systems are only getting a part of their load served by Niagara Project Power, it seems to me it's ~-~ unrealistic for you to proceed on the assumption that you're going to get one hundril percent of your power requirements out of Niagara, so you ought to look at s~'ofi the other assumptions that Beck has made. ~ Beck has looked at other sources of power. You can buy power from the Fitzpatrick--nuclear power from the Power Authority's Fitzpatrick Plant. At the present ~ime that probably is the next cheapest source of power available to any utility in the State of New York, even though it's a whole lot more expensive than hydroelectric power, 'by comparison to some of the nuclear plants that are coming On line now, including I'm sure near and dear to your heart, the Shoreham Plant. The Fitzpatrick Plant is a most economic nuclear plant and it's very inexpensive by comparison. ~There are other sources, however. There's-Canadian power available on a seasonal basis. There are power surpluses in the Northeast Power Pool. There are, at times, cheap sources available through the New York Power Pool and the PJM Pool. All of those pools are interconnected on an interstate grid and those are sources which may be able to supply you with sources of power that are cheaper than either installing your own generatio_n or purchasing at wholesale from LILCO. Beck has looked at those alternatives and I think what Beck has done, if I understand the study, and I think I do, is that they have found that if you were to get half your power from the Power Authority--that's a~oout 10 megawatts, and half your power from a blend of other sources, and looked at alternatives for shaving peaks--that 'is cutting down on the peaks that drive your costs up on only a few days of the year. In New York most peaks occur--at least for most municipal systems, occur in the winter, because there's a lot of space heating on the system. I'm not sure that's true in Southold. You may have a summer peak with air conditioning. I just don't know. But whenever that peak occurs w there are sources available for shavin~ that peak to avoid the necessity for buying much higher cost power from either LIL~i or the Power Authority. Looking at all these sources of power it's my understandini~.~ that what Beck has done is said that on those assumptions you can't own and operate a system that will save your ratepayers money. Essentially you will operate at a cost. Municipal utilities=-we don't like to call it a profit. We like to say that we can make a margin. We like to make enough of a margin--what would otherwise be known as a profit or a rate of return, to make sure that we have adequate.operating revenues in the case of an emergency and sufficient revenues, to conduct rehabilitation and better- ment of plant and to extend the plant to areas where new services'are needed or where old' services need to be replaced. So they do basically--municipal systems are supposed to sell at the lowest possible cost, or at cost. Generally they make e~nough out of the sale of electricity to generate a reserve fund, but my understanding is that even on those assumptions they have concluded that it would be economically feasible and advisable for Southold to. form a municipal electric utility and to take over the_LILCO distribution system, Now there's another basic assumption that Beck has made and that is the cost. of~ acquiring the LILCO facilities· which is about 23~ going on 24 million dollars. can't second guess those to Beck at their request as to what formula would be ng the value of the system if it severed from the LILCO system and acquired by Southold on condemnation. There are two theories of value of those facilities and there are various ways of getting at it. In New York State LILCO, like all investor-owned utilities, is regulated on an original cost rate base. That is that their earnings are pegged to what the depreciated value of their electric system is. They are allowed~ in the State of New York, and on their wholesale sales that are regulated under the Federal Power Act, to make a rate of return and a return on equity--that is a return on the investment of their shareholders, they are guaranteed, those shareholders are pretty much guaranteed that LILCO will make those earnings because that is what the Public Service Commission has fixed those rates at. if the system is depreciated the cost should go down~-the rate should go down because they are pegged to the cost of the system~ So that when the system is fully decpre~iated they no longer have anything in their rate- base. That obviously never happens because they're putting in new services and they're putting in new poles and they're putting in new generators and now they've put in Shoreham. But nevertheless what we think the true or fair measure of just compensatio~ is in a State regulated utility on an original cost rate base is original cost, because LILCO has already, over the years that it has operated the distribution system in the Town of Southold, has earned the guaranteed rate of return on every mile of line and on every pole and on every insulator, on every substation. They have gotten out of that investment what they undertook to get out of it when they made the investment. That was all they bargained for, and all that's left is the residue of rate base, the original cost portion of the value of that system which is not presently depreciated. I don't know what that number is and I can't assure you that the court is going to buy that theory. All I can tell you is that the one litigated case that we have--we have two precedents for you. One in the case of Sherrill we bought the entire SherrilI-Kentwood Power and Light Company system for net book value. It had a book value on the books of Oneida Limited of just under one million dollars. We paid them an even one million dollars for that system and that value was scrutinized by the Public Service Commission. It was not a condemnation case so it did not go to the courts, but the sale and transfer of those facilities had to be examined, approved by the Public Service Commission as being in the public interest and the Public Service Commission of the State of New York said that the value of the facilities, which was pegged at net book value, was the proper cost for valuing those facilities for the purpose of that sale. That's one precedent. I don't know how strong it is because the Public Service COmmission has a rather minor role in these matters if the case goes to condemnation. In the case of Massena we said the facilities in Massen were to be valued at the original cost. That original cost was just under two million dollars. We offered them 2.8 million dollars in the negotiation and they turned it down. They said you value those facilities on the basis of reproduction costs newt less depreciation. That is you I¢ok at what it would cost to construct the entire system ~od~ty at todays costs and todays interest rates, never mind the fact that half the system was falling down, and most of the system was at 4.2' KB, which is an obsolete distribution voltage. Most electric systems now operate at least 12 KB. Almost the entire distribution system in Massena was ~.2. You can't even get replacement materials because they're no longer made. So they came in--the company came in and tried to convince the Commissioners of Appraisal that their system was worth fourteen million dollars. We said it was worth two, and you can read the decision a hundred .times and if you ever figure out what the basis for the decision .is tell me, because I tried the case and it took 33 weeks out of my life and I still don't understand the decision and I have read the record in the proceedings and it doesn't make any sense to me. it seems to me they just decided this~was the number they wanted to give the company and the number was ~.5~; million. That was a little more than two and a half-~-about two and a half times the net book of the system--the net bool~ was under two million. 4.5~-1 think it was ~1.57 was the award. So if you took that and applied it as Beck has--Beck has looked at this using a number of different formulas. It has done it on reproduction cost study. It has done another study called capitalization of earnings. Capitalization of earnings test will inevitably bring you back to net book just as surely as night follows day. It's the way the numbers work out. And Beck has looked at various ways of calculating the depreciation. How do you--what's there as far as a depreciation factor~ Depreciatic Under both the federal and state regulatory scheme allows you to depreciate over eithe~ 30 to 35 years. How good is a pole that's been in the ground out here for 35 years? LILCO will probably go out and hire Stone and Webster, or some other high fallutin engineer and what they'll do is they'll go out and take a look at all the poles on the system and if they're still standing they'll say they're 98% perfect and therefore they're 2% depreciated. Even though on the books of LILCO those poles were paid for and fully depreciated in 1948. -- We have a different approach. Even assuming that the court or the Commissioners of Appraisa| will not buy strict original cost, we feel that we can hold dow~ the costs of an acquisition by putting on experts who can give a rational basis for depreciating-' Utility property. In- the case of Massena for example, there's no apparent recognition of the fact that the entire system was at 4.2-KB and was an obsolete system. Stone and Webster came in and said, "Well those lines are sti~l runninc~ from the pole to the house. They~ do not appear frayed, and the electricit~ still flo~s. So we'll say that they're 30 years old, but we'll say that.~ they're 88%. So we'll assign a 1-2% depreciation factor." Well, it was ridiculous, and the court--as a matter of fact ~he Commissioners 82 OCTOBER 15, 1985 of Appraisal described the whole Niagara Mohawk case as being shamerical and I agree with them, and we came a lot closer to our number, all I can tell you, than Niagara Mohawk's attorneys and appraisers came to theirs. The difference again was the difference between two million and 14 million and that's about all the precedence we have to go on. I can tell you, I think, without any equivocation, that while you will have to make LII,CO an offer for its distribution system, you shouldn't hold your breath to wait for them to accept it; beCause sure they see this as a precedent setting acquisition by the Town if you go ahead with itl just as Niagara Mohawk did in its case. I can tell you that in the case of Niagara Mohawk we discovered in our anti-trust case that Niagara Mohawk spent five million dollars on their attorneys, engineers and consultants to protect against the acquisition by Massena of a system that had a net book value of about 1.9 million. As a matter of fact the entire award that went to Niagara ~-~ MOhawk as a result of the condemnation did not cover their legal fees. So that's how hard they will fight at the expense of their other ratepayers to make sure that you don't get a chance to go into business and I say that up front because I don't think you should haVe any illusions. LILCO is a tough company. LILCO has been softened up a good deal by their misfortunes in connection with primarily the Shoreham Plant and other criticisms that have been leveled. They do have some problems on their system and they may be a little bit weaker at heart, weaker financially, or whatever, than Niagara Mohawk was, but make no mistake about it, this is not going to be any fun and it's not going to be easy. I should mention transmission. One of the advantages to getting an allocation, even if it's only for part of your load from the Power Authority of the State of New Yorkr is that the Power Authority has a contract with LILCO which we negotiated-- we negotiated as a third-party on behalf 'of Greenport, Freeport and Rockville Centre. Those are the three communities on Long Island that own and operate municipal electric distribution systems. We negotiated a wheeling agreement or a transmission services agreement between those three municipals, the Power Authority and LII_CO. We had to negotiate a second agreement with Con Ed since part of the transmission service to get power into Long Island comes over the Con Ed system. We had to have two contracts. But if you buy power from the Power Authority of New York you are then what we call a ."third party beneficiary" to that contract. LILCO must deliver that power over their system under the same terms and conditions as they deliver power to Freeport, Greenport and Rockville Centre. You automatically become subject to the terms and conditions of that agreement and we made it that way in the negotiations. We speCifically provided that that contract extended to any wholesale ~-~ customer of the Power Authority of the State of New York, whether they were in existence or came into existence in the future. So if you form a system and get an allocation.of any power from the Power Authority, you automatically are entitled .... to the benefits of that contract. Now the contract isn't perfect. LILCO has a rather hostl.y transmission system and if you look at the cost of transmission over the LILCO system aZ compared with most other New York utilities, it's quite a bit higher than any other company other than Con Ed. Con Ed, of course, has the highest cost because they're operating in such a dense urban area, but LILCO's right up there with Con Ed in terms of what it costs them to build and to maintain their transmission system, and i'm sure you see or saw during Hurricane Gloria one of the reasons. Their system 'is very vulnerable. They done obviously very little tree cutting and maintenance along the way and they got hit very badly in the storm. Frank tells me some people were out ten to twelve days and iust coming up here from MacArthur, from lslip, I can see tremendous amounts of damage to that system, but nevertheless it is a high cost system and it has some deficiencies. The LILCO system, according to LILCO, does not really have the capacity that we say that it does. They want you to believe that there are--that the LILCO system was built to serve LILCO's own customers and was not built to serve Rockville Centre, Freeport or Greenport, and if you come in, in the case of Southold, and which is purely nonsense beCause it was built to serve anybody on l,ong Island. That was a requirement of the~ Certificates of Convenience and Necessity that were granted to LILCO. And not only that, they proved--they disproved their own contention by the fact that 'they are presently delivering power to you over their system and they are presently delivering PASNY power to Rockville Centre, Freeport and to Greenport. And if they can do it to Greenport, Which is further out on their system than you are, they can do it fo? $outhold without impairing their ability at the present time to deliver and deliver power to and service their own customers safely and adequately. The only require~. merit in getting transmission--we built in--that they, required in this contract, was that they have priorities to serve reliably and safely their own customers. In other words there is a pecking order in this contract. If they absolutely have to have the transmission capacity during peak periods to ~ontinue providing service from those people to whom they provide service at retail and cannot, serve those people safely and reliably, and those customers of the Power Authority at the same time, then the customers of the Power Authority have to get off during ~those peak periods. It's never happened, of if it happened it happened under circumstances which were a fluke. They had an outage that couldn't have been anticipated. Those outages were not very detrimental,, because in the case of both Freeport and Rockville Centre they have their own back-up generation. Greenport did until recently and.they just put their little generator, on cold standby. It can't be operated at the flick of a switch,~so they're-going to be--if there is definitely an outage on-the L[LCO system, why yo~i'll fe~l it up here, but. those people that are served by LILCO, depending. on where the outage occurs, is going t~ hit Southold as well as Greenport. Electricity doesn't distinguish where it goes.~,i~ll~.~.~no~s~ is when, there's an open line it will flow and if the outage is 'below here~ you're going to go out with Greenport and that will occur whether you have a municipal system or not. So in my opinion you have the right to transmission and there is, by and large, adequate capacity available over both the Con Ed system and the LILCO system to get power from either the Power Authority facilities at Niagara, St. Lawrence, the Fitzpatrick plant of-from any other viable source that is connected in the Power Pool into Southold. So having said all that ! guess you're asking what the bottom line is. I can only tell you what my experience is. We've done about ten of these studies. In each c. ase we found that it was feasible both from a legal standpoint and our corresponding engineering consultants have found that it would be feasible from ' an engineering and financial standpoint to form a municipal electric system. It's only been done twice in my experience. The only municipal formed prior to Massena was back in ,1941 that wasn't comparable because there you didn!t have a situation in which they were getting Iow cost Niagara-and St. Lawrence Project power. That power only became available in the early 60's. In both the cases where the voters and politicans have elected to go ahead, bit the bullet and come up with the money to do the project, it's been a tremendous success. Other communities have--like Westchester County. There have been a number of smaller communities around the State that have taken a look at it and said, ah, we don't want to pick a fight with Niagara Mohawk or with ~lew York State Electric and Gas or with LILCO. The Town of Southamption is presently engaging in a feasibility study to do the same thing. There's a study that was done here for the entire Suffolk County by another engineering firm some time ago in ,1983, so that everybody~'s looked at this but only two have decided to go forward and in my opinion they've been outstanding successes. I think I made my recommendation earlier. I think you ought to take the steps that I suggested. Get competent help and put it to the voters after a series of public meetings that describe the project, that allow your voters~ to come in. I would invite representatives of LILCO to appear at those meetings and give the other side. That was done in the case of Massena. i don't really it was done in the case of Sherrill becaUse the power company there wanted to sell. They didn't really dispute it. But in the case of Massena, at almost every public meeting the~e was a representative of Niagara Mohawk Power Corporation, representatives or consultants to the Town of Massena. We invited representatives from all over the country that operated municipal electric systems, from thee C~ty of L.A. and Seattle, to other systems in New York to report on their experience. We invited the Power Authority to come up. I think they did make a token appearance on one occasion. They weren't very helpful. But When it was all over the vote was four to one. That might not occur in your community But my feeling is that with the sentiments that have built up and the feelings and the amount of money that you've already put into the project, the fact that I don't see any place for LILCO's costs and resulting rates to go but up. They maybe get some relief. T~l~ere are a number of bills as you know to bail them out of Shoreham and other projects. ! can't predict what the results of those will be, but even if they get relief from Shoreham and some of the other problems that they are facing, I think their costs will always be higher than the' cost of electricity of a publicly owned system and there are several obvious reasons for that. One, you operate your system at a cost. While you make a small margin, you don't make anything like the rate of return and return on equity that investor-owned utilities have to make in order to attract investment capital in the market. That's their bottom line. They have to charge rates which produce a profit, Which goes to their shareholders in order to go out and generate interest in their new issues of corporate bonds so that they can get bigger and better. So their bottom line is to make as much profit as is possible and that profit is reflected in their rates. You have no such motive 'since the people own the system. Secondly, you ha~e the preference.. And I can't predict whether you get a-- you won't get a hundred percent, but I would say it's unlikely that if you formed a legitimate municipal electric system in the Town of Southold that you wouldn'~ get a large share of your lOad covered with preference power from the Power Authority. That's an advantage that LILCO simPly doesn't have. You also have one other advantage--well, 'several othe~ advantages. By and large the costs of personnel, salaries, particularly at the executive level, tend' to be much lower in systems that are operated by municipally owned and rural municipally owned systems and rural electric cooperatives. YOu- don't see many superintendents Of municipal power systems -~ making $350,000 a year. You don't see many vice-presidents or vice-superintendents, assistant superintendents of municipal systems making $100,000 a year. Those are salaries that you could'document. Most large investor-owned utilities in this country. With almost no exceptions the investor-owned utilities in New York 'are some of the bigges and some of the mos~ profitable. You also have the advantage of being able to borrow money generally at lower interest rates. Recently the municipal bond market hasn't been as good as we would like to see it, but the disparity between corporated borrowing and borrowing by municipal agencies has generally been quite a spread. You can borrow money cheaper than LILCO can borrow it.- Cheaper than Con Ed can borrow it. I hope that-- Congress is doing everything they can to take away those advantages. I hope you call your Congressman about that, but nevertheless at 'present there still is .a pretty good disparity between the interest rates available to you under your general obligation bonds as compared to those that are available in the issuance of. LILCO's~ corporate bonds, especially considering LILCO's present ratings. 84 OCTOBER 15, 1985 i should address financing just briefly. I alluded to it earlier. In New York, unfortunately, you cannot--no municipal utility in the State of New York can issue revenue bonds. In most other states we finance utility facilities by issuing revenue bonds which are different than general obligation bonds. They first are not counted against your debt limit. Secondly, the bond holders can only look to the revenues and to the facilities purchased with the proceeds of those bonds in order to back up or secure that debt. For some reason the New York Legislature, in its wisdom or lack of it, has seen fit to deprive municipal utilities in New York of that right. You have to use general obligation bonds. You do run into one problem there, and that is the constitutional debt limitation. I have no idea what the current debt of the Town of Southold is, but you can only issue a certain amount of debt and there is a formula which limits the amount of bonded indebtedness the Town can incur. Now, so what do you do if you have so much outstanding indebtedness that you can't come up wi~ the 23 million or 24 million dollars to pay LILCO when the judgment comes in? Therl is a remedy for that, a procedure for that. You can obtain--and this is a step I recommend that you take immediately after a positi've vote on the referendum. When your system is formed you can go to the Comptrolle~ of the State of New York and make an application underr-I believe it's Section 123 of the General Finance Law or Local Finance Law, for an exempl~ion of that 24 million dollars from your debt limitation, and he has to make some findings in order to grant' that exemption. He has to find that the facilities that you're using bond proceeds tO buy are self-liquidating. Well obviously if you buy the electric distribution system of LILCO and it isn't self- liquidating, the whoever's running it is not doing tl~e right thing, because you can---both the Power Authority and the Public SerVice Commission of the State of New York will require you to maintain rates which provide a certain coverage ratio on your bond--I think in New 'YOrk it's one 'and a half to one. In other words, you've got to be able to cover the debt service, the cost of acquiring the facilities, and operating expenses by a factor of one and a half to one. If that's done--if your rates are properly formulated and charged and collebted, I miqht add, then you're never going to be without funds to s~r~;ice that deb,t and so t-he Comptroller'will always make the finding that those fadilities, once a~quired by the Town of Southold are self-liquidating and that the Town is therefore ~ntitled to exclude that amount of bond revenue from it's constitution debt limitation, i hasten to add that I'm not a finance advisor, l'm not a New York banker, and 'i'm not bond counsel. Bond counsel has to give you an opinion as to how you could use these re,venues and how you issue your bonds. And he's one of the first people that I would get on my team once you decide to go ahead with this acquisition. As a matter of fact I recommended, I believe, to Frank in his office earlier that you continue your relationship with the engineer, assuming that you're happy with the Beck Study and the work that they've done I see no reason wh~ you should bet anybody else, but to enter into an arrangement to continue that relationship so that you have an input as questions come up at public meetings or within your own group or as informa- tion is disseminated by LILCO to be able to analyze it and see if it's'accurate and if not to be able to provide you with the correct information. Secondly, you need some legal help by somebody who's familiar with local laws and with the Section 360 and the formation of electric utilities. All I can say to that is that we're available. There are other firms that do this. I would hire a good financial advisor. Perhaps the Town already has one. And a bond ..counsel. That is a card-carrying member of the Red Book which has special meaning to those of the community. You need somebody whose opinion Will go on your bonds and permit the underwriters to sell your bonds. He can also advise you what you can and cannot do with bond anticipation notes and revenue anticipation notes which can be issued before you actually acquire the system and before you actually issue your bonds for the purposes of getting this" project off the ground; assuming you don't want to take money out of the general funds of the Town or out of tax revenues. So those are some steps, Frank, that I think should be taken in the event that you you'.re determined to go ahead with this. I don't know what other knowledge I can impart to yoe at this -time. i'd be glad to respond to questions from the Town Board or from any of the audience. SUPERVISOR MURPHY: Thank you, Wally. An hour and a half of information out of your brain, .you did pretty well. Okay, anyone on the Town Board, or Joe, any ~ questions? Yes, Ray? ~ JUSTICE EDWARDS: This past Friday the Board of Directors of the Fishers Island ..... Electric Company agreed to send you a letter, Frank, which---or to the Town Board here, saying that they are not opposed to the sale of the Fishers Island Electric Company facilities and I would h~e that maybe Wally could just expand on that just for a couple moments to let the Board know of the difference between, or the' similarity between Sherrill and Fishers Island and Massena and Southold. MR. DUNCAN:~'-?'WelI, I've had a conversation with Ray when we'were up in 'Lake Placid a~ the MuniCipal Utilities-Association annual conference and as I understand the situation the electric system located on Fishers Island, which is part of the T6wn, is operated by a small private company which would be amenable to selling that system either to an electric district or to a rural electric cooperative or to the Town of Southold for tha~ matter, if you decide to form an electric utiiH~.y. If' in that case the .situatioh would be' very much like we had in Sherrill where' the private OCTOBER 15, 1985 company sold to the village, the got an allocation of power from the Power Authority and went price would probably, I would think, if they're anxious to sell, I would like to have an opportunity to tell them why you think you ought not to pay any more than net book value for the system, because I think there's some compelling reasons for that and maybe that's all they want out of it anyway, There is one difference that exists, as I understand it0 ~n the Town and area of Fishers Island that is not true of the Town of Southold generally, and that is that your system there is not interconnected with LII_CO, so you don't have to deal with LILCO. Wh~it you'd have to do is deal with Northeast Utility Company which has a line in to Groton, Connecticut and we would have to get a wheeling arrang~ ment between you, the,Power Authority and Northeast Utility Company, or between your new system and Northeast Utilities to have PASNY Power delivered over that system. But I think there's probably~an adequate precedent for that. PASNY power is flowing into Connecticut at the present time for the public agencies known as COnnecticut Municipal Electric Cooperative Association and Connecticut is already getting power and I think there's a~transmission path already set up. So ithat might be a~ nice way to start in the Town of Southold. JtJSTICE EDWARDS: Okay. Thank you. SUPERVISOR MURPHY: Jean, any questions? COUNCILWOMAN COCHRAN: Nothing right now, Frank. SUPERVISOR MURPHY: Joe? ASSEMBLYMAN SAWICKI: Frank, thank you. Mr. Duncan, I've got to tell you, I think you did a great job, because I was looking for notes and you didn't have any in front of you. MR. DUNCAN: Thank you. ASSEMBLYMAN SAWICKI: For an hour and a half that's pretty good. You really should go to Albany or Washington, I think. But as you made mention to before, Wally, the cost of Shoreham, which is now probably nearing six billion dollars--how that will be passed on to the ratepayer is yet to be determined by the State Legislature and the Public Service Commission. Coupling that with the fact that LILCO wants the ratepayer to pay just about every penny of it. The Public-Service Commission has ruled through an audit that one in almost a quarter billion dollars should be disallowed for mismanagement. Coupling that with hopefully in three, four years the Canadian hydropower will be available through us through Marcy-South and the Long Island Sound, is it possible to build in those cost f~gures from a Iow to a high? What the worst possible scenario will cost us say in 1.995, and as opposed to if we do, un- fortunately, are saddled with Shoreham's high cost and we don't get the Canadian power, as opposed to if we do get the Canadian hydropower and if Shoreham is allowed to be absorbed by the investors and the stockholder, which I feel it should bet is it possible to hit a range, Iow to a high? MR. DUNCe?N: Well, my understanding is that Beck has done that. I don't know what the range is. I don't know what the worst case they have assumed or the best case. The best case is obviously that you pay original cost of the system and get a full allocation from the Power Authority of the State of New York. ! can almost assure you that those two events are not going to What his worst case is-- I'm sure that Beck has taken into consideration the full impact of Shoreham, which ought to be the worst case. Probably~ have taken into consideration Shoreham with the results of the audit with the 1.4 billion out. We are anticipating that probably some ratepayers or consumer groups in New York will eventually get around to-filing Prudence Complaint at both the Public Service Commission level and the Federal Energy Regulatory Commission to determine how much of the costs incurred by LILCO in the construction of Iheir plant were prudently incurred~ and we would hope that the 1.4 billion that was disallowed in their ratebase would be more like half or more of the total cost of that plant. I mean there are just some awful horror stories about what went on in that plant and how construction of it was managed and surely you all saw the ~;0 Minutes segment on it, but we are engaged in a. number of those Prudence investigations on plants of other utilities in other areas of the country and it would appear to us that many of these nuclear plants were planned in the 70's and late 60's, as Shoreham was, :and. should have been cancelled, notwithstanding tremendous investment sum cost. They still would have saved the ratepayers a tremendous amount of money if they had just walked away from the plant, and it seems to us that those bad decisions and the resultant economic impact of those bad decisions made by the management in their greed to build those plants and earn rates that incorporated that investment in their ratebase ought to be borne by the- shareholders of the company and not the electric ratepayers, so we would hope 'that more of those costs come out. But in answer to your specific question, my under- standing of the Beck Report:is iS that is the assumption of what will occur to LILCO's rates as compared t'o your alternative~sources, have been incorporated in the study already. Now what the outer perimeter..of their assumption is, that is--Ir don't know whether they've tried to determine whether or not--what that feasibility is if all of 86 OCTOBER 15, 1985 the Shoreham costs go ~i~to their ratebase. Obviously then it Wbuld not make any sense at all for you not to go ahead, but they have a series of assumptions and' my understanding from reading the report and talking to Bob Taylor is that they have taken those assumptions into consideration in making the study. ASSEMBLYMAN SAWICKI: When you worked on the case for Massena, did they realize savings like in the first couple of years or are they just now beginning to realize them? MR. DUNCAN: In the first year that Massena went into business we lowered rates immediately 22% and in the second year we didn't lower our rates any more, but Niagara Mohawk went in for rate increases almost every year after that and the disparity grew from 22% to 44%. Our rates are 44% lower in Massena than Niagara Mohawk's rates. That's largely because of' additional economies in the operation of our system and the repayment of some of the notes that we had outstanding, but it also reflects simply the rising costs of Niagara Mohawk service as compared with the level costs of our service. Our service is fixed with the debt service that we incurred. We're not going out and building any big nuclear plants or goldplating our system. Niagara Mohawk is. SUPERVISOR MURPHY: Thank you, Joe. Anyone else? Joe, you got any questions? COUNCILMAN TOWNSEND: Yes, I have a few. I don't know if you remember me, but--- MR. DUNCAN: I do. COUNCILMAN TOWNSEND: --we were working together a little bit on the Greenport situation and I am a believer in municipal power and I'm in support of the MEUA and I agree with much of what you said today. Most of it. I'm also agree in the profits. I'm convinced that we should have a referendum. But I'm also very pleased to see that you're promoting a series of informational meetings, because that's something that I think is very important so we have an informed public, voting on this. Your presentation was lengthy and very provocative and I'd like to--and so some of' these questions go back to the beginning of that and I hope--I wish we=d been able to stop it second by second to .cio throuclh because it would make it--people, I know are just hanging on now. You mentioned that because the lawsuit is an additional 205 ~ megawatts of public power that should be-available for preference customers. MR. DUNCAN: Of Niagara. COUNCILMAN TOWNSEND: Yes, of Niagara Mohawk hydropowers. Now in the Beck Study I think in the worst case scenario--I should have reviewed it--but they us-ed a ten megawatt of hydropower. MR. DUNCAN: That's right. COUNCILMAN TOWNSEND: And then with a mixture of the nuclear power. Let me just--that 205 megawatts, whawt is the additional request of the other members of MEUA, for increased allotments to come out of that 205? MR. DUNCAN: Right now we really could use about 60 additional megawatts. COUNCILMAN TOWNSEND: You gave me a figure, it was around 120 or something like that--- MR. DUNCAN: We're getting 547.2 now. Last year we peaked--last year our peak -was down. In December of 83 we peaked right at about 630. Last year was more like 610. So it's the difference between 547 and say 610 of what we need- for existing municipal systems. COUNCILMAN TOWNSEND: Right. So that gives us another--so we're talking abou~t~- maybe 140 megawatts that new utilities might be expected to get, assuming that the l, ~1 preference clause is interpreted the same way?t il~_,, MR. DUNCAN: As to firm power we are entitled to the difference betw.een 547.2 and 752 megawatts. COUNCILMAN TOWNSEND: Right, which is 205, and you're saying the other municipalities are looking for an increased allotment. MR. DUNCAN: Of about 90. COUNCILMAN -TOWNSEND: Right. So we're down to maybe 110 that new preference customers might need. We might get more if they don't give the existing municipalities their allotment that they are looking form. MR. DU,~ICAN,: I just want to cl.arify that. That only pertains to 'Niaga'~a Power, but those numbers only relate to the firm power. There are other classes of power that are available from the project, i:~"-~:~'-~'P0ject has a good water-year and operates on a 2,000 plus range. COUNCILMAN TOWNSEND: But when you're forming a utility you have to go on firm power--- MR. DUNCAN: You have to ge on a worst case basis. COUNCILMAN TOWNSEND: We went through that. We had a pretty good deal for interruptable power. MR. DUNCAN: Yes, you did. COUNCILMAN TOWNSEND: So what we're talking about under the best possible scenario-is getting about 20% of that for the Town of Southold if we were fortunate enough, and that would make the thing profitable almost immediately according to the Beck Study. MR. DUNCAN: According to Beck, yes. COUNCILMAN TOWNSEND: in fact you feel that's--and I. feel it's also very improbable that even everything remaining the same, we'll get that kind of allotment. ! would say that we would probably get ten or less if we were fortunate enought to have everything remaining the same. What about the MVA's? You say when are we going to have that decision whether they set the MVA's? MR. DUNCAN: Well, in the Federal District Court case, as i said, we are arguing it Friday. Judge Sprizzo has indicated that he would 'try to get us a decision by the end of the year. That will go to the Second Circuit. We've also filed a series of Article 78 Proceedings in the State Supreme Court. I can't tell yom how fast they'll act on those complaints. They're still being answered by the MVA's and by the Power Authority. We've also filed an appeal of a related decision to the Second Circuit and no date has been set for hearing on that case. That also could resolve the question. I would say probably a year. COUNCILMAN TOWNSEND: In a year you'll have the matter totally resolved. MR. DUNCAN: Well, I would hope so. That's a pure guess. COUNCILMAN TOWNSEND: in one year we might be able to know whether we were going to be--first of all, do you [hink the MVA's are comparable with the--if the MVA's are allowed, is it going to be feasible to form a local municipal utility based on the assumption you're going to get some PASNY power. Is that conceivable? MR. DUNCAN: i think you'd have to assume much less. For example, in the Beck Study if there is a Suffolk County MVA then they might get ten and you'd get a proportionate share of that. It wouldn't be much. If the MVA's stand up it really hurts the chances for formation of new utilities. COUNCILMAN TOWNSEND: Now we got a letter from Greg Blass who encourages us in forming a municipal utility, but he is also very committed to the MVA's. He said, with excitement, that Suffolk County got an allotment of some number of megawatts. What was it? MR. DUNCAN: About four megawatts. COUNCII~1AN TOWNSEND: Is that it? He said 34 or something like that. Maybe it was 3.4. MR. DUNCAN: Well, he might be talking about 3400 kilowatts, which would be 3.4 megawatts. COUNCILMAN TOWNSEND: Megawatts, right. So it's impossible to be a supporter of the MVA's and also be a supporter of the existing preference customers getting-- MR. DUNCAN: Unless the MVA's take the additional step of acquiring.a distribution system and actually going into the utility business. COUNCILMAN TOWNSEND: But Suffolk County has already recommeded--in;:their committee they recommended against that. - MR. DUNCAN: ' It's not compatable. It is the antithesis of what you're trying to. COUNCILMAN TOWNSEND: Yes, he should be aware of the fact'that he can't play both sides'of that fence, i would think. He would have to come out and support us if we wanted to do this.' I mean, he should do that. MR. DUNCAN2 Well~ MVA's are incompatable with legitimate municipal sy'§tems. 8 OCTOBER 15, 1985 COUNCILMAN TOWNSEND: Right. What are the costs involved--and this is something I'm totally ignorant on and 1 don't think they're much, but what are the costs involved in going to a referendum? Are there any other costs that we'd have to incur~ MR. DUNCAN: You've got your feasility study. There are the costs of putting together the referendum to conform with Section 390 and other legal o~r engineering opinions that you need. The costs I'd say--or to have consultants both engineering, legal and financial consultants at your disposal during the referendum process to answer question and to do further studies if necessary and then most of these are done on strictly a per diem basis. £ COUNCILMAN TOWNSEND: A hundred dollars an hour, two hundred dollars an hour, whatever. Yes. MR. DUNCAN: Whatever. ! can't speak for Beck. COUNCILMAN TOWNSEND: You're at least .that, I know that. Now you mentioned something about a four year--something that could take four years or something before we would know whether--maybe it was your theme about waiting until 1990 to find out what the new allotments would be, or allocations? Because i know that PASNY feel that they have allotted to the MVA's their remaining hydropower. MR. DUNCAN: I think the reference there was, the Court of Appeal?-the Second Circuit has said, yes, we get the difference between 547 and 752, but we don't get it all as of July 1, 1985. We get it in increments of 20% a year over five years. COUNCILMAN TOWNSEND: No, it was litigation I was thinking of. MR. DUNCAN: Well,' ! might have said that it could take, in my opinion based on what happened.~in Massena, that it could take an additional four years to get to final decisions, either by the. Court of Appeals or by the Supreme Court. COUNCILMAN TOWNSEND: What if we have underestimated the cost of this thing in terms of what it's totally going to cost and if we are holding a referendum. Do we have to go back and do another referendum for the additional costs? MR. DUNCAN: Yes, you do. If you have exceeded the limitations of your bond resolution, you've got to go back to the voters and have them approve that, and as a matter of fact that happened in Massena. We went back. SUPERVISOR MURPHY: You must have gone several times. MR. DIJ~CAN: No, we just went once. COUNCILMAN TOWNSEND: Well, you took what eight years there because of that problem another seven years? MR. DUNCAN: Seven years. COUNCILMAN TOWNSEND: Massena you said they take advantage of the nuclear power. Why don't they just buy power from Canada up there? They're right on the border--- MR. DUNCAN: The power from Canada--in the first place there's no seasonal diversity between Canada and Massena. They're the identical climate and the same iuices are made in Canada as'the power that's made in Massena. Primarily for space he~ting, so there-are not surplusses available in Canada when Massena needs it-to buy dump power to shave their peaks and under those circumstances, since we would be having to buy firm power from Quebec Hydro, the costs of that are not competitive with the cost. of Fitzpatrick Power from the Power Authority. The one thing about-- that's,debatable. ! will say that, because of one feature of the Power Authority rates. They have, an insidious thing in their rates which is what we call a rachet. ~ If you're required to buy-one megawatt of power from the Fitzpatrick Plant for one hour of one day of one year, you pay for the availability of that every month for all 12 months. In other words you're paying for a resource that you never use. i've been trying to get that rachet out of the Power Authority Rate Schedule for five years, since 1979, unsuccessfully I might add. But even with that rachet in there Massena could buy power from the Fitzpatrick Plant cheaper than they can buy it from Canada, because it's got to be firm power. COUNCILMAN TOWNSEND: Oh, yesr you mentioned--one of the things that has concerned me and concerned me abouI Greenport was that clause that you mentioned in the wheeling agreement with LILCO saying .that they had the ~ight to cut when their own demand exceed their capacity or whatever it is. They could cut you off. Now Greenport', of course, had the advantage of having their own reserve generating capacity. We do not have that luxury. So for--- ~:"~R. JAMES BITSES (from the audience): __megawatts. SUPER~ZISOR MURPHY: You have ~h~'~r~ting plant in Greenport. COUNCILMAN TOWNSEND: You're talking about the gas turbine? Do you think that's economical to run? i don't think it would be. We could buy from I_ILCO less expensively than what we could generate with that thing you're talking about. MR. BITSES: You're talking of if it's an emergency. COUNCILMAN TOWNSEND: It's an emergency one, but it's not--you know, if you're going to be out of service for two months at a time, which is what LILCO told Greenport---by the way, they did work out an agreement where Greenport agreed to offered them their capacity in exchange for that they didn't get cut off for a couple'months. It's a pretty good deal for Greenport. W~ wouldn't be able to do that because we don't have the generating capacity, i mean I don't think we would use that emergency thing as a chip in there. How do you forsee handing that? MR. DUNCAN: Well~ for the forseeable future when you form your own municipal system you're not increasing the load on the LILCO system by a single kilowatt hour. The same people live heref the same electric use by and large is going to be made here as is made today. So you're not putting any additional strain on the LI/CO system. If the system goes down at somewhere below here, between here and there interconnection with Con Ed on the LILCO system, Southold residents or ratepayers are going to be out of service whether they own a municipal utility or not. Now, the chances--it's true that if you go into a municipal utility then you do become subject to this kind of preferred usage on the LII_CO system provision, which is in the LILCO-PASNY Contract. However, our engineering consultants f and this is not as much a legal opinion as it is an engineering opinion~-the reason that I felt comfortable negotiating that provisions with /ILCO and binding not only Greenport bUt Rockville Centre and Freeport to that provisions, was that the engineers tell me that the LILCO system for the forseeable future is strong enought that there's such an infinitesimal chance that curtailments or abandonments of service will ever occur under that, that it really isn't worth worrying about. COUNCILMAN TOWNSEND: Why did they tell Greenport, then that they were going to be out Of service for two months and they got away with it until Greenport managed to negotiate--- MR. DUNCAN: It was a negotiating tool I think. COUNCILMAN TOWNSEND: Just two quick more question. MR. DUNCAN: lncidentially, they made the same to Rockville Centre_and Freeport. which w~re much closer to the bottom of their system and Greenport and Freeport agreed to the same provisions that Greenport did, so I think it was a negotiating posture. COUNCILMAN TOWNSEND: But they have at least that backup to be able to work. is there any advantage to having Greenport within our Town? I mean that was one of the original premise, that there was some advantage to having Greenport located within our Town, because that would be what would enable us to form a utility where towns like Westchester and Buffalo and Syracuse and all these towns were turned down similar request for similar things. Theoretically there was going to be some advantage to this and reading the report i haven't seen any advantage at all. MR. DUNCAN: Well, ! don't know that there is any advantage in politically melding by changing the geographic boundaries of the Town to include Greenport. Wh~t i think makes a lot of sense, if you form a municipal utility, is to enter into a contract with Greenport to operate the system for you. They've been in operation for many, many years and that's very competently managed system. Their costs are under control. They do a good job over there. Jim Monsell, a good friend of mine and former President of the Municipal Electric Association, is an awfully good Superintendent and I think it makes a lot of sense, rather than to have two side by side municipal systems with separate managers, separate superintendents, separate linemen, separate trucks. To enter into an agreement that can be done in a number of different ways. That can be done under what's known as the Interlocal Cooperation Act, or whatever the New York equivalent is to that act, where two municipalities or political entites do together what they have the authority to do individually, and simply to have Greenport expand its system and equipment necessary to maintain the total distribution system in Greenport and Southold, rather than to form two b~reaucracies, two boards and so forth. ~.1 don't know whether politically that feasible to put them under the same board. One of the things~-that I should have mentioned that we ..would recommend, if you're going to form a municipal utility in the Town of Southold, for heaven sakes get it as far away from politics as you can get it. Do not have--and this is an opinion which I will offer gratutiously--the worst systems that we work for are those systems which are run by the mayor and the town government, because~inevitably it becomes a political~football.-~lnevitably it becomes a power struggle, pardon t~e'~clichez-- in any '~vent~the pun. But in any event what we recommend and have recommended OCTOBER 15, 1985 to some our systems that have had utility systems for a long time that have gotten bogged down in politics, is to form a separate municipal light or electric board. In the case of Massena we formed a Massena Electric Utility Board and they are independent of the town board, independent of the village board, independent of the mayor. They're in business to run an electric system. They're not in business to use it as a stepping stone to some other political office or other recognition. They're simply there as business--most of them are businessmen.or accountants or lawyers that are interested in doing this for the benefit of the community as a whole. SUPERVISOR MURPHY: How are they appointed to the board? MR. DUNCAN: They're appointed--that's a good question. They're appointed by the mayor by staggered terms and politics is not supposed to play--~/ou know, how do you get away from politics totally. SUPERVISOR MURPHY: They're not elected? MR. DUNCAN: No, they're not elected. COUNCILMAN TOWNSEND: The only problem I see with small municipal utilities is precisely what we ran into in Greenport where we did have problems when we were generating our own power, trying to keep up with all the requirements. The PSC, you know, all.those rates. We just didn't have the manpower. We have two linemen. We had one part-time, and the reason we were so fortunate that we were able to get this contract is because that utility--I have no question it was going out of business if we didn't have that. And I think you made the statement that you think that over 50% of these utilities would go out of business if they did not have the preference clause or this hydropower. MR. DUNCAN: That's the only thing--well, I mentioned certain other advantages to be in the municipal power business. That is clearly what makes municipal utilities competitive in this state. COUNCILMAN TOWNSEND: Is the hydr0power. MR. DUNCAN: Yes. COUNCII~MAN TOWNSEND: So you don't feel that it's possible to generate or to'.bu~ power from say another ut~hty---Oh, you mentioned the contract extends to everybO~ that'S runnin9 PASNY power, the whee~in9 contract re,ares to everybody. What you're not wheeling PASNY power? What if you're wheeling--- MR.' DUN£AN: You will have to have a supp~emen'ta~ contracl. COUNCILMAN TOWNSEND: So.that would have to be negotiated--- MR. DUNCAN: With LILCO. COUNCILMAN TOWNSEND: ---with LILCO. So if we didn't get this power and we didn't want to create generating capacity, which I think everybody agrees is not feasible--- MR. DUNCAN: You would have to have a supplemental contract with LILCO. If you're going to buy, for example, from the New York Power Pool, or buy from Con Ed or Niagara Mohawk, you would have to have a separate transmission agreement with LILCO. COUNCILMAN TOWNSEND: So that would have to be negotiated? MR. DUNCAN: Yes. Presumably, i will say,'.that LILCO would have a very difficult time charging more for transmission to the Town of Southold in a separate.contract, then they are charging the Power Authority to wheel Power Authority power here, because it's exactly the same service and it's supposed to be cost-based and if they !'-~ were to say double the wheeling rate in a separate contract that they were proposin~ with Southold, we would be at the Federal Energy Regulatory Commission in a minut~'~. claiming that the rate that they were offering is per se discriminatory and Preferential and they would have a very difficult time disputing that. COUNCILMAN TOWNSEND: They would try,,thbugh. MR. DUNCAN: Probably. As a practical matter it's very difficult to justify that if it's truly cost-based, if it isn't a fictional rate. What else can they build into it~.that is not in the PASNY rate? PASNY rate is not a great rate I can tell you that.' I mean, I've negotiated the contract but you don~t hear me bragging about the rate. it's just a high cost system. The rate, as far Las I'm concerned, as far as ihe consultant: were concerned, was a cost-based just and reasonable~rate, but compared to the other wheeling rates that we have negotiated all over this country, it is not a great rat~, and I don't see they're being able to get much more out-a new municipal system, whether it's Southold or Southampton or anybody else. The rate's going to be basically the same. -~ OCTOBER 15, 1985 91 COUNCILMAN TOWNSEND: I've got se~al pages of other things but I'm not going to bore everybody. Maybe we can -g~t to~tl~e~ afterwards. It's very interesting proposal. SUPERVISOR MURPHY: Jay;. do you have anything? COUNCILMAN SCHONDEBARE: Just on Fishers Island. If we decided to buy the utility now that it's up for sale, do we need a referendum again and does everyone vote on it throughout the Town or just Fishers Island? How does that work? MR. DUNCAN: We really haven't done a legal study of that, but I had assumed that what you would do is ~ither have the Town buy it, which would require a referendum. COUNCILMAN SCHONDEBARE: Does everybody in the Town vote on it.? MR. DUNCAN: Yes. COUNCILMAN SCHONDEBARE: Okay. MR. DUNCAN: But it has been established that you can use general obligation bonds of the Town of Southold to finance a utility system that only services part of your taxpayers. That much has been decided. Now the rest of it is the political question. COUNCILMAN SCHONDEBARE: The other question you brought up. You said you haven't done a legal feasibility study. I know someone over in Tiana Beach, I read somewhere they did two studies. They did an engineering study for $15,000 and I think they did a legal study for $15,000. Now we did engineering. Are we missing one and should we have had a legal study also? MR. DUNCAN: Well, I was telling Frank that the legal study---yes, I think you should to satisfy your voters. I mean you're going to have to have a legal opinion that you can do this. What I'm telling you though is that we've done this study so many times and we just recently done it in July of 84. Presented it again in July of 85 to Southampton and so there's not a whole lot other than updatinq the study and looking at the things that are peculiar the Town of Southold--for example, one of the things that we would have to examine in addition, or that would be different, is what your constitutional debt limitation--what your debt limit is now. The Fishers Island acquisition is something that is a little bit different, or quite a bit difference than anything that was contemplated in the Southampton study, and if you're going to do the Fishers Island thing, either in combination with a Town. acquisition, or as a separate project, i think you really definitely need a .legal opinion and probably an engineering one to look at what cost you're going to pay that private company and what the'wheeling rate you're going to pay Northeast Utilities to get the power. COUNCILMAN SCHONDEBARE: Should we muddy the waters and have two at the same time, or should they be two separate studies? We keep them separate and apart. MR. DUNCAN: The legal and engineering or the--- COUNCILMAN SCHONDEBARE: The legal. We've already done the er~gineering. MR. DUNCAN: No, I think-_-well, I don't think it matters, except if we did it it would simply have a two-part study; One which assumed a Town-wide acquisition of both and the other simply an acquisition through the vehicle of the Town of the Fishers Island system. COUNCILMAN TO~'~NSEND: I have one last question. Why isn't everybody---I mean we're talking about Southold Town maybe applying for a total of twenty percent of the the total available hydropower and you say there's a probability we're going to get a significant percentage or viable percentage of that. Why isn't every--if Greenport is noTspecific advantage to us, why isn't everybody doing this on Long Island? Are they just not as forward-thinking as us? Why is Rockville Centre recommending against it? i heard them on the news--or somebody told me they were on the news recommending against municipalities doing this. Rockville Centre is a member of the MEUA. The superintendent of utilities is a good friend of Jim Monsell's and yet--why are l~hey recommending against it? MR. DUNCAN: I hadn't heard that they were, frankly. I know Pat Hester,very well and I think maybe he's been misunderstood. COUNCILMAN TOWNSEND: It v~as because of the litigation that'we were talking about. MR. DUNCAN: It may have been because of the litigation. MoPe probably he was confused--I mean he was m.isunderstood. He was probably talking about the municipal distribution agencies~ as ppposed to a legitimate municipal system and I can tell you this: t~e municipal .system--the Municipal Electric Utilities Association of..the State of New YoP-k .as adopted a policy and that policy goes back to the time that'Massena and OCTOBER 15, 1985 Sherrill were in the process. What they have said is that there is obviously a finite pool of this power and if every city, town and village in this State form legitimate municipal systems, We're going to lose a lot of what we have now. That's a given. But they said, if you form a legitimate system, like Massena did, and like Sherrill did, we will support you even though it means a diminution of our share of that power, and I can tell you that delegations of MEUA representatives went to Albany and went to Washington and went to the Power Authority of the State of New York in support of Massena and Sherrill. To my knowledge, that policy has never changed. We are as much opposed--we are as much in support of the formation of new municipal systems in the_State of New York, even though there are those economic consequences, as we are opposed to the formation of sham agencies like the municipal distribution agencies. We feel that we cannot be in a position of opposing an allocation of power to somebody that's gone to the same task and the same expense as forming a munici~r--~ utility under the laws of the State of New York and unless that policy has changed,~. ~i and it hadn't as of September 18th, the Municipal Utility Association would provide ~J information in support to anybody that's doing this legitimately, in my opinion. SUPERVISOR MURPHY: Wally; is there any advantage to having iust one district in Southold Town? Or is 'it an advantage to have the two districts in Southold Town with an agreement to work together and service? Would we stand a better chance of getting power if Greenport district was just enlarged to cover all of Southold Town? MR. DUNCAN: In my opinion it would. I should have mentioned that. as one of the reasons, ~ think, that you ought to work a joint agreement out with Greenport is that.Greenport already has a sizable-foot in the door and I think that really helps. I think--you know, if you could form the system, enter into a contract with Greenport to provide the management and the maintenance of the system, and to do your contract- ing for the Power Authority, then you have a preference customer and all they're trying to do is increase their preference to serve additional loads that have resulted by the formation of your system and I think that is the cleanest way to do it. SUPERVISOR MURPHY: Okay. Any other Town Board members have any other questions? Joe? ASSEMBLYMAN SAWICKI-~ Wally, so the bottom line is it's your opinion that if the Town decides to put this on the ballot that pending the outcome of the lawsuits and court decisions over the next four to five years that will really determine the cost of electricity us five and ten years from now? MR. DUNCAN: in part it will insure, I think, the feasibility of your system, if we're able to get a sizable percentage of your load covered by hydroelectric power from the Power Authority of the State of New York as a result of going through this process and wii~ning the litigation that we're in simultaneously~ I think that that will insure the viability of your project. I'm not sure your project is infeasible without that, all I'm saying is that if we hold the line in those lawsuits and get a favorable decision making additional hydroelectric power available, part of which would go to Southold, it would certainly enhance the rates. ASSEMBLYMAN SAWICKi: Enhance our opportunity. MR. DUNCAN: Yes. ASSEMBLYMAN SAWICKI: It certainly would be nici~ if we could realize 22% savings .the way Massena did.---over 40%. One more, Frank. The timeframe for Massena you said that Massena was in 1971 at l~he same point that Southold Town Board is now, correct? MR. DIJNCAN: Well, the initial feasibility study that Massena contracted for was in December of 1972. It took a year and it was accepted and adopted by the Town Board in 1973. That's about where you are now. We held a special election on May 30th of 1974. We had a series for the months January, February, March, April and May--we had these informational meetings throughout the Town and Village of Massena on a ~ regular basis, and the vote was May 30th of 74. ASSEMBLYMAN SAWICKI: So if Southold so determined that it was in their best interests tO pursue that route, dO you think it will take Southold as long? MR. DUNCAN: No, I don't, for a couple of reasons. One~ the precedent has now been established through the Massena litigation. A lot of the battle--we did some things wrong, frankly. They successfully challenged the first referendum as not being adequately or properly noticed. We got that reversed on appeal, but it held us up for about two years. We made, I think, some critical erros in some of the ~arly stages of our negotiations with the Power Authority.. ~ We probably should have sued the Power Authority, and I think thai might have brought it to a conclusion earlier. Then~we ran into some just incredible delays in the courts, which we won't take responsibility for~ but there were six large lawsuits, including a major anti- trust case that took us 44 weeks to try ~against Niagara Mohawk. Those things I just don t think will happen with LILCO because of the precedent that's been established '~in Massena and elsewhere in the country. We know more. W_e know how to do this better. We know how to fine tune't~i~ret~endum for you. We know--which is critical--really critical to haYe the magic words in that referendum and to follow the fine line. The one thing tha~ does bother me, frankly; is that there has been a change in the Condemnation Law since Massena went to--since we acquired the Massena system. The Massena condemnation was filed in January of 1975 under the old Condemnation Law and t---~'s what we tried the case under. The was a special procedure before the Public Service Commission, it took about a year~ and then we went into the Commissioners~ ~f Appraisal and tried the case, but now you would be trying the case under the new Eminent Domain Procedures Act, which was enacted .n July of 77 or 78 and it has a whole 'different set of procedures that have never been tried in the context of an~electric~.utilJ.ty acquisition~ and l look at it both as a challenge, but I look at it a little apprehensively. We know exactly what to do under the old Condemnation Law, but it's not there any more. We've got to follow these new procedures under the Eminent Domain Procedures Act and some of them are kind of scarey. They're designed to protect--the build in more protection for the condemnee and that's LILCO. SUPERVISOR MURPHY: Okay, any members of the Town Board have any other questions? (No response.) If not~ the public? Yes. ALICE. HUSSEY: Thank you, Mr. Duncan. MR. DUNCAN: You're welcome. MRS. HUSSEY: I have a couple of questions. One of them, what or who determines the megawatt output at Niagara? MR. DUNCAN: Initially the engineers that designed the project would rate the project. That had a rated capacity initially of 1800.megawatts when it was built and began operating in ,1961. The project was rerated--and in answer to your specific question, the agency in charge of that is the Federal Energy Regulatory Commission, formally the Federal Power Commission, and they rerated the project at 1880 in 1976 in the context of a case.brought by the Vermont Public Service Board. We've been tempted~at_times to go in. That project has always operated at about 2200 to 2~00. The project is designed--all hydro projects are designed with the idea~ in .mind that there will be a hundred year drought sometime in these hundred years, so the reliable capacity is down rated from what the actual operating performance of the dam and facility is. In £he case.~of Niagara the wate~ flows have been so consistent over time and although the FERC did rerate it up 80 megaw~atts, we've been tempted to go in there and file a suit and we may do it one of these days to have that project rerated at something more reasonable because it's always operated in excess of 2000 ~egawatts. MRS. HUSSEY: Yes, I thought I heard you allude to the fact that it wasn't at peak capacity. And also along with that, does PASNY receive more money from the private utilities for their power than they do from municipals? MR. DUNCAN: Not for the same classes of power. The rates are identical for power sold to the investor owned utilities. In other words if they are buying firm power out of Niagara and Niagara Mohawk'~ paying exactly the same as we're paying for it. MRS. HUSSEY: Oh. So there's no advantage then for them to be selling to investor owned utilities? MR. DUNCAN: No, except that they want to give--that as a matter of policy they want to give the investor owned utilities an advantage that they are not legally entitled to. But, no, the investor owned utilities pay exactly the same price for every class of power that we pay. MRS. HUSSEY: Okay. And one question for Mr. Murphy, if you can tell me. What is the Town's debt limitation? SUPERVISOR MURPHY: We would have to--Bob could probably give ~ou a better answer. TOWN ATTORNEY TASKER: The last--of course it changes every time we sell another debt obligation. The last I 'think we did was something slightly in excess of two per- cent. That means that we have exhausted only two percent of the total amount of debt that we have a right to incur at the present time. MRS. HUSSEY: Do you have an idea of what that debt that you have a right to incur is? TOWN ATTORNEY TASKER: No, but we've only used two percent of it. I'd have to-- it's all--I'd have ~o redo it. As a matter of fact I think weql be redoing it in the next' day o~ so because .we're~doing another debt s~atement. You want to know wh~t our total ....... : OCTOBER 15, 1985 MRS. HUSSEY: I just wanted a number like fifty-two million dollars. SUPERVISOR MURPHY: I think you're very safe, because to bring it to that two point million you had the 1.75 farmland acquisition and we have almost a million dollars on the Fishers Island 'ferryboat and various other projects. So you're talking of maybe three, four million dollars in total outstanding debts. MRS. HUSSEY: All right. So we're talking about sixty thousand dollars. SUPERVISOR MURPHY: You've got plenty of room. MRS. HUSSEY: Thank you. SUPERVISOR MURPHY: Sixty million. MRS. HUSSEY: Sixty million. Yes. MARY MOONEY-GETOFF: I'd like to know if it's legally possible to by-pass the whole condemnation procedure or the negotiation procedure and any legal problems that that would cause by building our own distribution system to replace what LILCO has. The reason I raise that question is that after the recent hurricane there's been a lot of speculation as to just the quality of what LILCO does own. Now, it seemed to me that there would be an enormous economic cost there which could be balanced by legal fees then that we would save. MR. DUNCAN: It's a good theory, but i don't think it works and there are a couple of other problems with it and number one, even though the LILCO system might be in some disrepair anyway and worse disrepair because of the storm, it's still an operating system and you still got the rights of way and you've still got poles in place. One of the things that you're going to run into with both the Public Service Commission and any regulatory agency that has jurisdiction is a natural policy of opposition as a matter of policy to the duplication of facilities, particularly when those facilities are ove-rhead. You know, who needs another transmission line going down the other side of the road when they're unsightly. Underground might be a different problem, but then the expense goes up exponentially. Secondly, the cost of replacating the LILCO system at todays costs I think would be prohibitive and the legal fees involved in the condemna- tion would not--there's no offset, there's simply no comparability to what would be ~ involved in the additional cost that you'd pay over and above the condemnation 'pric~ if.' you were to start all over and have to go out and acquire all the right of w.~'~a~, ~ replacate the system, and under those circumstances there would be an added,'~ompo~Snt to the damages to LltCO in my opinion, and that would be consequential damages,. because what you've got--you've got them on your.right of ways that~ you've granted them the~use of with poles that are no longer used and useful and they'll probably have a utility responsibility just from a safety standpoint to take those poles down, dismantle the entire system; That is a legitimate cost or a legitimate element of damage, in my opinion, that would have to be paid by the city over and above the cost of reconstructing the system of your own and I just think while in theory i~ might make sense if you had a very.open rural area where there were very few lines and very f~w poles, but you've got--although it's a rural area, you've-got large concentrations of utility services here that I just don't think that that.:makes any sense. As a matter of fact if you ask my opinion it would not make sense--enough sense to even have the engineers look at it. .MRS~ MOONEY-GETOFF: Okay, thank you. SUPERVISOR MURPHY: Over here on the left, Jean? JEAN TIEDKE: I live here in the village of Southold--the hamlet of Southoid. I enjoyed your presentation very much. MR. DUNCAN: Thank you. MRS. TIEDKE: You mentioned now both prudency and used and useful, which are very interesting concepts. I was told by one of our County Deputy Attorneys that the Commissioners of the Public Service Commission ruled that used and useful was no longer legal and that the courts upheld them. Now i've not had confirmation of that. Do you know about that? MR. DUNCAN: No, I'm not aware. Is that in the context of'the Shoreham plant? MRS. TIEDKE: No, it was New Haven. The NeW Haven project. MR. DUNCAN: Well, the only thing that I can think of that they're talking about is that the used and useful concept used to be related to what's known as CWIP, that is construction wbrk in progress and a ~tilLt~could not begin to ~:harge rates, electric rates on the basis of facilities that were be?,~ built, Until they put those p~ojects on-- those facilities on I~ine and they became-.used ~ . ~seful. Recently some ~of the Public Service Commissions and the Federal Energy R~,~.atory Commissions have reversed those decisions, or those polities, and?th~y~re allowing either all or some of CWIP, that is the cost associated with construction work in progress. MRS. TIEDKE: That's already in our rates, isn't it? Now? Or going to be? MR. DUNCAN: Well, I don't know what one hundred percent is. In the case of the Federal Energy Regu~latory Commission they are allowing fifty percent of the total imbeded or sum costs of projects that are not yet used and useful in the rate base. What that percentage is in New York, whether it's zero or one hundred percent, I don't know. MRS. TIEDKE: Well, the cases that 1 know of, for instance the Shoreham decision, was that thirty percent was not used and useful in effect, I mean that was what they--it was not prudent and couldn't go on the rate base. How is that affected by the CWIP? MR. DUNCAN: Well, I think the two concepts are completely different. In my experience I have not related the used and useful concept to prudence. What prudence means is that the costs were imprudently incurred as a matter of management or other simply'bad decisions that were made. The decision to construct the plant or to construct it in a certain way or to go back and tear out miles of pipe and put it back in with different materials, those awe management or construction decisions which or may or may not have been prudent and the regulator must decide whether or not the facility could have become used and useful without having done--made those imprudent decisions. MRS. TIEDKE: But that would relate to the New Haven case, for instance, wouldn't it? MR. DUNCAN: Yes. MRS. TIEDKE: Okay, thank you., SUPERVISOR MURPHY: Okay, thank you. Anyone else on the left? (No response.) Anyone in the middle? Sir~? JERRY BOLGER, Southold: I raise the question, would it be possible, rather than these round numbers which are somewhat threatening in terms of cost, if you could get a breakdown that would show a step by step approach. The various steps such as the initiall steps to present the referendum and what it would cost, including the adequate engineering, adequate legal content. In addition, what would be the next step and what would be that cost? So on to the completion concept. Within that framewor~k we would hope that you would know the point of no return. At what point would we be where if' we committed further we would be investing large sums without benefit 'of recovery~' Cer~tainly the risk is worth some reasonable sums and we haven't had that defined yet. So it would be very useful if the Board thrtough Mr. Duncan's excellent suggestions could provide the community with that kind of an outline so we know the total amount estimated, which we understand is 23 million. We know you mentioned twenty percent is what it cost Massena just ~to get start up in a sense. And these numbers to be put in such a manner that the community would be weighing the risk as well as the cost. SUPERVISOR MURPHY: Thank you. I think it's a very good point and I think before the referendum I think that would definitely be a major concern. Sir? BOB FOX: In your discussion with Mr. Townsend there was reference made to the possible formation of a Suffolk County Utility Corporation which you said Would be detrimental to a utility company formed by Southold Town. Could you please re-explain why that'is? MR. DUNCAN: What I was referring to is the Municipal Distribution Agency that has already been formed in Suffolk County, which in my opinion--- MR. FOX: A paper agency. MR. DUNCAN: Yes, which is a paper agency. I did not mean to imply if the County decided to do what Westchester County did early on in 1979 and formed a county-wide utility and acquire the distribution' system in the entire CountY of Suffolk and then tried to enter into a contract for Power Authority power l~'ould have no problem with that concept and then r of course, the distribution system in Southold would be subsumed in that. So you have to distin~luish between the-- what we call the MDA's, the sham paper agencies, and a legitimate agency which can be formed at any level of local government. MR. FOX: Thank you. COUNCIl_MAN TOWN~END: I wanted to address that question also. SUPERVISOR MURPHY: Go ahead. 96 OCTOBER 15, 1985 COUNCILMAN TOWNSEND: The County did consider forming a public utility. Actually the whole County and the Suffolk County L. egislature's Budget Review Office considered it and at that point, based on what they thought the economies of it would be, they rejected the idea. It never went before the full Legislature and maybe it should of, I don't know, but it was considered by the Office of Budget Control and they rejected the idea. MR. FOX: Thank you. ROBERI%~EBB:~,. · :' ' ~ Pres,den~t. SEACOM: I want tO':~l~-~nk ~, M~.-Duncan. for coming up from Washington to address us today. MR. DUNCAN: You're welcome. MR. WEBB: Most of my questions have been answered but there's one that I just want to verify, which I have an understanding on but I'm not quite sure it was the right one. So far the Town has spent $15,000 on a feasibility study, and down the road they will be spending more money on more studies and other incidental costs. Is this money that the Town is putting out now retrievable when the system goes on line? MR. DUNCAN: Yes. In the case of Massena and Sherrill, what they did was used bond anticipation notes--well first they had the funds to do the initial studies were done out of general revenues of the Town and Village of Massena. Both Village and the Town made contributions for the initial feasibility studies for the expenses related to the referendum. Then after the referendum passed they went out with bond anticipation notes--a combination of bond anticipation notes and revenue anticipation notes. I believe that the front-end expenses incurred before the referendum were paid back out of the revenues of those notes, or later out of the revenues of the bonds and all that debt was subsumed in the imbeded costs of what the establishment of the system was. MR. WEBB: So eventually the taxpayers then would not have to foot the bill on it? MR. DUNCAN: That's correct. COUNCILMAN TOWNSEND: They have to pay in the long run. RUTH OLIVA: I was wondering--you said there should be about 205 megawatts available for preference and that is available now. Who is using that? MR. DUNCAN: Thirty-nine megawatts of it has been given over to the sham municipal distribution agencies, including Suffolk County. I think there's is about 3.4 megawatts. Thirty-nine is currently being marketed to about five MDA's in the State and the rest--the balance of the 205 megawatts is being marketed to the investor owned utilities. MRS. OLIVA: So in other words then if the proceedings the courts go according to the way that you would like them, then these investor companies will not be able to Obtain these megawatts and then what are they. going to do for power? MR. DUNCAN: .MRS. OLIVA: They'll have to use their own best resources. MR. DUNCAN: That should-be interesting. Generate it, I guess. MRS. OLIVA: And one other questions. You're saying that the shareholders, which I agree with you, should absorb the cost of say Shoreham with LILCO, even as far as the storm is concerned, how much can the shareholders absorb without LILCO going ? MR. DUNCAN: ! don't know the answer to that question. I know they are in shak, shape. MRS. OLIVA: Looking at the ramifications just beyond our own concern here in Southold Town, because in the end result it will affect Southold Town. MR. DUNCAN: Well, I don't know the numbers where LILCO"s concerned, particularly in connection with the Shoreham plant. We are heavily involved-~we represent the State of Arkansas in a similar controversy over 'the Grand Gulf Plant, which is owned by Middlesouth Utilities, and we proposed a settlement in that case--we're talking about 4.5 billion dollars. It's amazing what they. say the shareholders can absorb when you get right down ~o a serious settlement and my inclination or notion in the case of LILCO'is that their shareholders can probably absorb a lot of these costs and should--a lot more than L'ILCO says that they can afford to absorb. MRS. OLIVA: I agree with you. Thank you. OCTOBER 15~ 1985 SUPERVISOR MURPHY: the right? Jim? In the midd'l~; ~anyone else? (No response..] 97 Over here on JAMES BITSES: Mary's question was very good. I asked it of Beck back in July and they said look in Chapter 5, Mary, you'll find it. Replacement costs 30 million-- 29 to 30 million. Replacement costs, less depreciation 17 million, which is what we will pay, probably, possibily, plus the 6 million start up, making 23 million. But that's beside the point. Also as to the question of how many utilities we should have in this area. I think Beck in Chapter 6 seems to indicate that it goes from two separate utilities, but i'm not sure of that point. In any event, it's immaterial to our discussion. Our discussion is whether it's a good idea to in the first place or not. Now I had three or four conversations with __Palimino, the special counsel to the Governor and I put several propositions to him. I asked him if it was possible for the Town to be given an allocation of t~he type that Grumman got and he said, "Well, I can't deal with you as an individual, but I would deal," ahd he said, "1 will not qive you an answer one way or ,the other, but I will deal with an Official agency in the Town." Which is why I came before the Town Board on two occasions to ask that a Southold Electric Authority be established so that it can, as an adjunct of the Town government r can deal on an official label--official level. I would, of course, ask that our distinguished guest address himself to the qUestion of whether he thinks it would be wise to set up a Southold Electric Authority with say one chairman and two directors, on no salary, prior to the referendum in order, number one, to conduct these hearings, these educational healings throughout the Town? Number two, to deal with ~PASNY as a adjunct of the Town government to ask for that 21 megawatt allocation? Number three, to deal with the Governor's Office to ask for a preference, the type of which Grumman was g~ven very quickly2 And number four, to ask the Governor and PASNY whether they would be interested in possibly funding a PASNY link between Millstone and Rocky Point Road? This would be a two-way highway. It would-.run the surplus from Shoreham up into the New England net and also give us another market from which we would buy electricity besides LILCO in case the PASNY power was not available for any reason. Now would you address yourself to the question I raised about whether it is wise to establish the Southold Electric Authority prior to the referendum? MR. DUNCAN: I think whatever formal organization is given is helpful. I don't think it really matters what you call it. I think an organization which coordinates the activities of your Town Board, your citizens, any other committees that are interested in contributing to the process and to coordinate with your consultants- and lawyers, engineers, ~s healthy, and we did that more or less on a committee basis in Massena. It wasn't given a title or any formal status under the Town Law. I think that is an excellent suggestion and to have a central location where information can be obtained, where a person could come in and find someone to talk to about this or get some literature on it. ! think that's a very good idea. As far as your second suggestion, dealing with the Power Authority, I think I said this at the front end: the Power Authority, as a matter of policy and I can't tell you--there is no basis for the policy, simply is not going to give you--in my opinion--any cooperation and tell you to go through the hoops and comply with the procedures of Section 360. If you did adopt a resolution and the Town Board appointing thig committee or whatever you want to call it, perhaps the Power Authority may give you more cooperation than they're giving the Town Supervisor or the Town Board, whoever wrote the letter requesting the 21 megawatts. In my opinion, however, until you go through the process under Section 360, they are not going to make any allocation or commitment and you'd be lucky if you get an informal;tonal meeting which will simply produce nothing. They'll assign you probably with Frank Bodner who will pat you on the back and tell you you're doing a great job and that will be it. As far as the idea of dealing with the Northeast Utilities and establishing a link to Millstone, ! hadn't thought~ about it. I think that's an excellent idea. However, it seems to me that that is such a la~ge undertaking that something like that is probably done after you establish your municipal utility. I don't mean to defer any activity on--any information you can develop or activity that you can generate is healthy and it ought to be done with some supervision and centralization. ! just am a real skeptic. Simply because ! delt with the Power Authority now for ten years and in the last eight we've never gotten any cooperation from them at all without filing a lawsuit. MR. BITSES: Parenthetically they've already had us to lunch and they've patted us on the head and sent us on our way. MR. DUNCAN: Frank Bodner no doubt. SUPERVISOR MURPHY: Any other questions? JOHN S'CHERBEL, Cutchogue: ._Could I know the timeframe we'~e talking about? A present to when we could have everything in our 'favor. When the utility could be in operation? SUPERVISOR MURPHY: .Wally better answer that... That's a good guess. MR. DUNCAN? Well, 'if you undertake to do it at your general election-i~ou're talking about the general election in 1986--if yo~u're talking about--and you caught 98 OCTOBER 15, 1985 me short heref I think.~ It's a 90 day notice prior to a §~neral ~lection. My recollection, however, is that there are some special notice requirements and then notice requirements in advance of a special election held for the purpose of having a referendum under Section 360 is 120 days. It's probably in the study that ! wrote and I can't just remember it, but that's the timeframe that is relevant if you're talking about doing it between now and your next general election. You're too late for this general election, needless to say. MR. SCHERBEL: Even with the anticipated condemnation proceedings and are we talking about five years from now? Six years? MR. DUNCAN: You're talking about the whole process, beyond the referendum. would say five years is a good time line to observer assuming you started right tod~ Noticed your special election, got a positive result and got on with the process of making LILCO an offer and going to condemnation. ! would say that if you Could conclude it and get your power supply wrapped up, your transmission contracts ~ wrapped up, and have the thing operating this time five years from now it wou~d have been an awfully good job. MR. SCHERBEL: And then you mentioned something before about the year 2006, believe. MR. DUNCAN: Yes. That's the year in which the Niagara Project license expires and at tha~ point the Federal Energy Regulatory Commissj~on, assuming that C~ress does not undertake to change the law, will have to rene~ the license to the P0~er Authority or if some reason they find that there is r~eason not to relicense it to the Power Authority, they'll relicense it to somebody else. MR. SCHERBEL: ! see. Thank you very much. MR. BITSES: i've had some conversations with Jim Monsell. He said that if we had a decent, motor---we have a turbine over in the He said if we had a decent engine there that chances are we could produce 14 megawatts of electricity for the Town, using oil, about nine to ten cents a kilowatt hour, which is cheaper right now over what we're paying LILCO, which is 14, and LILCO itself admits it's going to go to 21 and pencil and paper seems to indicate it's going to go to 25 to 28. In any event, if this comes to pass, would that be substantial inducement in our formin~c~ a Southold Electric Authority or municipal electric authority? The fact that we can produce power on our ownr with oil, the most expensive oil, cheaper than LILCO? MR. DUNCAN: In my opinion that makes a lot of sense and enhances the viability of the project for a couple of reasons. Number one, because of your geographical location here and the fact that Long Island is isolated from the rest of the State, from PASNY's backbone transmission system and everybody but LILCO's, with the exception of Fishers Island. Because of the extremes in weather that you sometimes get here, and because of the fact that for the forseeable future, even if you get PASNY power you're probably going to be saddled with this rachett. Now if you can run that turbine--I'm not sure what kind of a machine it is or what the costs are--is it a-gas ;turbine? If you can run any generation with sufficient predictability and reliability to shave that peak you can save a tremendous amount of money. If we had, for example, a six or seven megawatt steam--I mean gas turbine in Massena, New York we could have avoided the imposition of most of the portions of the rachett that applied to the nuclear power that they're required to buy throughout the year. We couldn't have shaved it .all, but we could have shaved a lot of it and, as a matter of fact, Massena is now looking at the feasibility of the installation of a peaking device of some kind to shave those peaks, as are a number of other municipal utilities in the State of New York. So I ithink it makes a lot more sense, just because you're-here, for the reasons i've said that anywhere that you're going to have to pay under a rackett for power purchased during a peak, it makes sense to have your own machines available to turn on and to level that peak. MR. BITSES: As an adjunct to that, if we had .co-generation .in the Town Dump, w~h the Board has been considering--in Other words if 'we took the garbage and burned I~ ~nd took steam and ran ~turbin~'or whatever, that would'also square with the us~ this 14 megawatt plant, and also would have the same advantages as that you have jh~t stated for the peaking, is that not so? MR. DUNCAN: it has even more advantages than that, because if it's a co-gen project you can sell power to LILCO at their avoided costs under the PIJRPA, Federal 1978 Act, so there's a market for it even if it gets too expensive for you to use it in your own system. You always have an assured marked with LILCO. I'm sure it won't make LILCO very happy, but they have to buy it. COUNCILMAN TOWNSEND: At lower costs than ~hey'd use it. MR. DUNCAN: At "their avoided costs, yes. SUPERVISOR MURPHY: Any other questions? (No response.) Town Board?. (No response.) If not, Wally, thank you very much. OCTOBER 15, 1985 ,~ ~, . _~: ,~ 99 COUNCILMAN SCHONDEBARE: Wait a minute, if we're going to do it we need a le§al study. Do you want to talk about this~at the~next Town Board meeting or do you want to ask him about the price tag now? We've still got a meeting. SUPERVISOR MURPHY: Why don't we go in the Board Room. COUNCILMAN SCHONDEBARE: We we going to do it outside of a public meeting? SUPERVISOR MURPHY: Wouldn't you have to? COUNCIl_MAN SCHONDEBARE: I would say open. If we're going to talk about a legal feasibility study, while we have Mr. Duncan here, why don't we talk about price tag? TOWN CLERK TERRY: Do you want to call a recess and talk about it, and if you want to adopt a resolution you can reconvene. SUPERVISOR MURPHY: Why don't we take a break--Pm sure Wally could use a drink of water. COUNCILMAN SCHONDEBARE: Yes, let's take a break and discuss it. Moved by Councilman Schondebare, seconded I~y Councilman Townsend, it was RESOLVED that this Town Board meeting be and hereby is recessed at 3:40 P.M. Vote of the Town Board: Ayes: Councilwoman Cochran, Councilman Schondebare, Justice Edwards, Councilman Townsend, Supervisor Murphy. This resolution was declared duly ADOPTED. ~'.~00. P.M. - -Thi's Special Meeting of the Southold Town Board reconvened. 4:01 P.M. - The Board met with Wallace Duncan to discuss the procedure necessary to call for a referendum to form a municipal electric district. Should this referendum be for Southold alone? Include Fishers ,Island? Include the Village of Greenport?--It was decided that the Board should meet with the Greenport Village Board to determine their opinion'relative to inclusion. Mr. Wallace first recommended a legal study and then engaging the services of a bond counsel and financial advisor~ and have them review the Beck Study and legal study.--Mr. Duncan stated his firm could easily do the legal study.. However, if it is to include Fishers Island it would be a little more complex and would also address the relationship with Greenport Village ~from ia legal standpoint.--He stressed the need. to engage bond counsel and financial advisors as soon as possible and suggested several firms for the Board's consideration.--At the Town Board's request Mr. Duncan agreed to submit a proposal for the legal study to be submitted to the Board in less than 30 days. The legal study would be on a per diem basis for approximately 100 hours for a cost of $0,000 to $13,500, not including out-of-pocket expenses and any services beyond completion of the study. Moved by SuPervisor Murphy, seconded by Councilman Schondebare, it was RESOLVED that there being no further business to come before the Town Board the meeting was adjourned at 4:50 P.M. Vote of the Town Board: Ayes: Councilwoman Cochran, Councilman Schondebare~ Justice Edwards, Councilman Townsend, Supervisor Murphy. This resolution was declared duly ADOPTED. Judith T. Terry Southoid Town C[e_~l~