HomeMy WebLinkAboutElectric Utility-1998 Feasability & Creation REPORT TO THE TO~N OF 80I~THOLD
ON THE FE~,~IBILITY ~D CRF~TION OF A
TO~N OF 8OUTHOLD ~UN~CIP~L ELECTRIC
Suffolk County
New York
March 31, 1998
PO~/ERALTERNATIVES, INC. 175 ROUTE 25~ EASTSETAUKET Ny 11733 Tel. 800. 548. 9938 Fax: 516. 751.7123
I. Bxecutive S~nmarv
IV.
V.
VI.
Vrr.
~ O~ COld.ITS
~n~t~&l De£in~t~on
~cauis~t~on of Electric pro~erties
A. Existing Electric Properties
B. Cost of Acquisition of Existing Electric
Properties
C. Separation and Isolation Costs
(Severance and Reconnection Costs)
D. Utility Start-Up Costs
E. Working Capital
F. Legal & Engineering
G. Debt Service
H. Bond Discount
W~olesele Power Sunnlv
A. Power Supply Costs & Alternatives
B. Electric Requirements of the Town
C. Solicitation of "Wholesale Power" Exhibit "I"
ODeratina and Naintainina the Utility
A. Alternatives
B. Typical Utility Organization
1. Authority and Jurisdiction ~,
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2. Function to be Performed
C.Organization
D.Personnel
1. Positions and Personnel
2. Organizational Structure
E. Reliability
F. Annual Operating Costs
1. Revenues
2. Salaries and Wages
3. Contract Services
4. Consulting Services
5. Legal Services
6. Financial Services
7. Employee Benefits
8. Purchased Power
9. Materials and Supplies
10. Real Estate Taxes
11. Debt Service
12. Postage, Phone and Customer Refunds
13. Insurance
14. Depreciation
15. Miscellaneous Expense/Facility Expenses
16. Contingency Factor
VIII. Recommended &otions
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Exhibit A
Exhibit B
Exhibit C
Exhibit D
Exhibit E
Exhibit F
Exhibit G
Exhibit H
Exhibit I
~ohedule of Bxhibits
Form of Local Law
Form of Public Notice
Form of Referendum Proposition
Organizational Structure
costs of Acquisitions & Start-Up
Estimated Annual Operating Budget
Table of Original & Trended Costs
Map of Town
Solicitation of "wholesale" power
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Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
I. ~*outive S"naz~
This study was prepared by Power Alternatives, Inc. in
accordance with an agreement between Power Alternatives and the
Town of Southold, Suffolk County, New York.
The purpose of the study is to determine the feasibility,
including the most desirable method, of the Town of Southold
creating a Town of Southold Municipal Electric Utility to provide
electric service to its residents, and to determine whether the
Town of Southold would benefit from forming and operati~g its own
municipal electric utility.
The study is intended to provide the Town Supervisor and Town
Board with sufficient information to render a decision as to the
municipalization of electric service within the Town, and to
provide the Town with a series of steps that are necessary to
bring the Town to the stage of the formation of a municipal
electric utility.
The estimated total cost of the creation of the Town of
southold Municipal Electric Utility, including the acquisition of
the necessary existing distribution equipment, the required
engineering and design work and construction of necessary new
equipment, an allowance for stranded investment costs, and the
costs of the start-up of the operation of the municipal electric
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Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipa! Electric Utility
utility and related coata, is projected to be forty aeven million
one hundred thousand dollara ($47,100,000).
This amount haa been stated in the form of a local law which
is provided as ExhibitAto this report. The inclusion of this
amount in the local law is required by Section 360 of the General
Municipal Law, which requires that the local law creating the
municipal electric utility states the maximum projected cost of
the creation and implementation of the municipal electric utility.
The coats stated in this report have been determined baaed on
the design of a atand-alone municipal electric utility, with no
savinga being achieved from joint savings from adjoining or nearby
municipal utilitiea, and with no cooperation being receiived by the
municipal electric utility from Lilco.
In the event that a municipal electric utility at any
municipality adjacent or.proximate to Southold is implemented or
if there is cooperation received from Lilco or the municipal
electric utility in existence and operating in the Village of
Greenport, this amount could potentially be substantially reduced,
as savinga could be achieved in the costs of engineering and
construction, and also the operation and maintenance of the
municipal electric utility.
The study includea a financial and operational analysis which
indicates that assuming the Town of Southold issues forty-seven
million one hundred thousand dollars ($47,100,000) in thirty (30)
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Copyright 1998, Power Alternativea, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
year municipal bOnds, the debt service of which will be paid in
the first instance from the revenues of the municipal electric
utility, that the Town will be able to achieve a very substantial
reduction in its electric costs, and will achieve considerable
benefits by creating a municipal electric utility.
The projections contained in this report in each case are at
what is expected to be at the high end of their ranges, and the
cost of the implementation and operation of the municipal electric
utility may actually be substantially less than the amount stated.
The amount of forty-seven million one hundred thousand
dollars ($47,100,000) includes a very substantial reserve for a
potential stranded investment claim by the existing investor owned
utility, and in fact the amount that may be awarded for this, if
any, may be substantially less than that amount. In the event
that there is no award of stranded investments to the investor
owned utility, then the cost or the implementation of the
municipal electric utility will be reduced to forty-million one
hundred thousand dollars ($40,100,000), and the cost of
electricity of the municipal electric utility to its customers
would be reduced to approximately nine cents ($.09) a kilowatt.
The results of this study also show that a reasonable
projection can be made that by forming a municipal electric
utility the Town can potentially reduce the cost of electricity to
its 'residents by forty to fifty percent (40-§0%) below the cost of
Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
electricity if the Town continues to have service from the
existing electric utility.
The study projects that the rate per kilowatt hour ("KWHR,,)
that will be charged by the municipal electric utility will be
approximately ten and eight tenths cents ($.108), (substantially
lower if there is no award of stranded investments), and that the
Town of Southold itself will save approximately eighty thousand
dollars ($80,000) each year on the Town's present annual municipal
electric costs of one hundred and eighty thousand dollars
($180,000).
There are a number of other benefits to be anticipated in
addition to the economic benefits provided by the creation of a
municipal electric utility. The ownership and control of the
municipal electric utility by the Town will actually improve the
service to its rate-payers and residents.
This is because the utility, at the local level, will
determine and address service, maintenance and repair priorities,
with the municipal electric utility and its officials being
directly accountable to the residents and electric customers of
the Town of Southold.
Southold may aisc elect to staff the operations of the
municipal electric utility itself, providing employment
opportunities for qualified residents, taxpayers and rate-payers
in the Town of Southold.
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Copyright 1998, Powe=,Alter~tives,~I~c.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal ElectricUtility
As described further in this study, the creation of the
municipal electric utility is done by the adoption of a local law
by the Town Board. A proposed local law which could be used for
this purpose is annexed as ~to this report. The Local
Law, which is subject to the approval of the residents of the Town
that are registered to vote, at a subsequent mandatory public
referendum, which is generally conducted at least ninety days
after the date of the adoption of the Local Law, but which can be
held sooner than that, depending on the scheduling of general and
special elections.
The creation of the municipal electric utility by the
adoption of the local law and the approval of the referendum does
not commit the Town of Southold to the expenditure of any funds or
the incurring of any debt.
The actions of the adoption of the Local Law and the approval
of the law at a referendum do allow the Town of Southold and its
newly formed municipal electric utility to, with the assistance of
Power Alternatives, confirm the cost and availability of electric
supply, the cost of the acquisition and or construction of the
infrastructure, and the cost of the electrical work and
engineering, without incurring additional expense or debt.
The Town of Southold, after that confirmation process, can
then make the decision to implement the municipal electric
utility.
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Copyright 1998, PowerAlternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
II. ~
The Town of Southold is exploring alternatives that could be
beneficial to the future economic well-being of the Town and its
economy, residents, and businesses. The fact that Long Island has
the highest electric rates in the continental United States has
caused the Town of Southold to address the high cost of
electricity as an area in which anticiated energy cost reduction
will result in benefits to the Town in a n~m~er of ways such as;
--attracting more commercial investment and development
within the Town as desired, increasing property values, and
stimulating the commercial and residential real estate sectors;
--reducing the cost of electricity to Town residents
resulting in increased disposable or discretionary income, which
can be anticipated to flow to the local community and economy,
improving the local economy and creating a sense of well-being;
--a reduction in the cost to the Town of operating Town owned
facilities and of providing services to its residents by lowering
the cost of electricity to the Town, resulting in tax reductions
or savings.
As a result of these considerations, and the interest of the
government of the Town of Southold in providing benefits and rate
reductions to the Town and its residents, businesses, and
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Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
institutions, and in stimulating the economy and sense of good-
will and well-being in the Town, the Town retained Power
Alternatives to provide this study, and to prepare programs and
procedures as a result of this feasibility study of the various
alternatives available to the Town in the creation of a municipal
electric utility.
The Southold Municipal Electric Utility will become another
department of the Town Government. The Town Supervisor and or
Board could also become the directors or commissioners of the new
municipal electric utility, or they may appoint other qualified
individuals to serve in that capacity.
The Southold Municipal Electric Utility will acquire the
electric distribution properties within the boundaries of the Town
that are necessary for the operation of the municipal electric
utility. The utility also will construct new facilities as
required or as is desirable to achieve efficiencies. The Town
will then "wheel" in wholesale electric power and, if the Town
desires to, operate the municipal electric utility.
The Town of $outhold is served by two different electric
utilities, Lilco and the Fishers Island Electric Company. The
transmission of electricity to Fishers Island is covered in this
report, and it is anticipated that the municipal electric utility
for the Town will be phased in with arrangements and the
implementation of the utility with respect to Fishers island being
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Copyright 1998, Power Alternatives, Ino.
Power Alternatives,'Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
made separate from those of the rest of the Town. It would be
advantageous for the Town to be able to make a mutually beneficial
agreement with the Fishers Island Electric Company for the benefit
of the residents of the Town on Fishers'Island as to the
installation and maintenance of the municipal utility on the
island, however, the Town will have the ability under the
municipal electric utility to take the same action and provide the
same benefits to the residents of Fishers Island if an agreement
cannot be reached.
The expectation that the Town ownership and operat!ion of the
municipal electric utility, together with the availability of
inexpensive wholesale power to Southold, will result ix economic
benefits and higher service reliability, is based upon the recent
experiences of the Town of Messina and the operating efficiencies
of the Villages of Greenport, Freeport and Rockville Centre.
In addition, many other municipalities on Long Island and
throughout the State are also pursuing municipalizationof their
electric services at this time. Presently more than two.thousand
municipal electric utilities throughout the nation provide
reliable electric power to their communities at rates that are
substantially lower on the average than investor owned utilities,
and at a fraction of the present cost of electricity to theTown
of Southold and its residents~and bueinesses.
The Town of Meseina also acquired the electric properties
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Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
within its boundaries and received low cost wholesale power
transmitted to its distribution system. The program in Messina
has been in place over 15 years, and during that time the Town of
Messina has reduced the cost of electricity to its customers by
more than fifty percent (50%) of the coat being paid by other
customers of Niagara Mohawk, with what is believed to be its
fourth rate reduction being recently approved.
-The very substantial reduction in electric rates which
municipalization in Messina has provided is even after allowing
for and making payments for other benefits to the Messina
Community through the revenues, including making substantial
payments in lieu of taxes.
The residents of Messina also assert that service reliability
has improved over this time period. A check of customer
satisfaction within the Villages of Greenport, Freeport and
Rockville Centre indicates that they are very satisfied with the
reliability of their utilities and express no desire to return to
the service of the area~s investor owned electric utility.
Thestudy presents the Town with a program for the creation
and implementation of a municipal electric utility based upon
advantageous economic alternatives, and reports findings that
determine whether or not it is economically advantageous to own
and operate a municipal electric utility within the Town.
Southold may elect to purchase powerand share services with
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copyright 1998, Power Al~ernatives~ Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
adjacent or nearby municipal electric utilities should they be
created, or possibly at the Villages of Greenport, Rockville
Center or Freeport, or the municipal electric utilities that are
being implemented at the Villages of Ly~brook, Hempstead, and
Farmingdale, or others being considered at other locations.
~trrangements with either of these or other municipal electric
utilities for sharing services or overhead may have the potential
of substantially reducing the costs of the creation and operation
of the municipal electric utility that are addressed in this
study.
The study presents the estimated approximate level of savings
to be expected and presents potential concerns that will have to
be addressed in the creation and operation of the municipal
electric utility.
The study is based on several technical and economic
assumptions, which in general are based on interpretations of data
from various sources and the experience of Power Alternatives in
similar or like circumstances in the industry. There is no
assumption made in this report which alters the findings, but
rather only the degree or range to which potential events will
occur, or affect, the conclusion or recommendation of the study.
The analysis presented in this study is based upon
information supplied by the Town of Southold, the Long Island
Lighting Company (Liloo), the Long Island Power Authority (LIPA)
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Copyright 1998, Power Alternatives, ~no.
Power Alternatives, Ino. RePort to the Town of Southold
Formation of a Municipal Electric Utility
and the Federal Energy Regulatory Comm~ssion (FERC) along with
operating data from the Villages of Freeport, Greenport, and
Rockville Centre and Messina, New York.
The study wae prepared to bring the Town of Southold to the
stage of the consideration and adoption of the required Local Law,
and the referendum that is required after the adoption of the
local law creating the municipal electric utility.
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Copyright 1998, Power Alter~atives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
III. ~oDe of the Study
Power Alternatives has been retained by the Town of Southold
to prepare a study of the feasibility and to prepare
recommendations for the formation of a municipal electric utility
for the Town of Southold. Southold has commenced the process of
considering and establishing a municipal electric utility in order
to reduce the cost of electricity both to the Town itself
including its street, building, and park lighting, heating, and
other uses of electricity, and of the residents, businesses, and
institutions of the Town.
Power Alternatives is in the business of studying,
formulating, and implementing municipal electric utilities,
arranging for a supply of electricity to the municipal electric
utility by wholesale wheeling and, if desired by the Town,
managing and operating the new municipal electric utility.
The Town has requested and Power Alternatives has agreed, to
provide a study of the feasibility of creating as well as a plan
for the implementation of each of these areas.
The scope of this study therefore, is to provide the
information that is necessary for the Town Supervisor and the Town
Board of the Town of Southold to make a proper decision as to the
process that was commenced with the formation of a municipal
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Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a MUnicipal Electric Utility
electric utility.
This report addresses the three different components of the
costs of a municipal electric utility, which are the acquisition
of the existing electric system or the construction of a new
electric system in the Town, the manner and cost of obtaining a
supply of electricity, and the costs of operating and maintaining
a municipal electric utility.
The report addresses each of these components together with
their cost estimates. The analysis of the components and their
cost estimates will enable the Town to present the plan to the
public for their approval, as required, in the form of the
required voter referendum.
Power Alternatives' pursuant to its agreement with the Town,
will undertake all of the activities which will bring the Town to
the referendum stage. These activities can be structured in
several phases, and the phases include the following:
Phase I.
1. Analysis of existing franchise agreement with the Long
Island Lighting Company (Lilco) and the Town to determine (a)
if any such agreements exist and (b) if the existence of
agreements present any impediment to the creation of a
municipal electric utility for Southold.
2. To establish a value of the existing electric
distribution infrastructure within the boundaries of the Town
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Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
in order to estimate the cost of acquisition by any one of
the three options described below and as required for
information to present to the rate-payers in the mandatory
referendum.
3. Analysis and recommendation of the option for the
acquisition of the electric distribution infrastructure;
including friendly purchase, condemnation, replication or
duplication of the system.
4. Plan for the modification to existing distribution
system and the engineering and other work required to isolate
the Town municipal electric utility from the Lilco system.
5. Design and plan for the reconnection to the independent
power supply for wholesale power including associated
(reconnection) costs.
6. Design of a system to enable the Town to monitor the
amount of electrical energy entering the Town distribution
system and methodology of payment for the purchase of this
energy.
7. Design e system for monitoring, billing, and collecting
fees for the use of electric energy by the customers of the
municipal electric utility, that is, the residents,
businesses and institutions of Southold, and the municipality
itself.
8. Development of an organizational structure for operating
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Copyright 1996, Power Alternatives, I~c.~
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
the proposed municipal electric utility of the Town in all
its required functions, including system operation and
maintenance, warehousing, accounts payable and receivable and
general administration.
9. Analysis of options for energy purchase by the utility
and a form of bid proposal for use in price solicitation from
independent power suppliers.
10. Preparation of draft documents (local laws, proposition
for referendum, public notices, etc.) for the creation of the
municipal electric utility for use by the Town attorney.
11. Preparation of a written plan outlining the sequence of
activities required of the Town to bring .the proposition to
referendum.
Phase II
Assist the Town in all activities during the referendum
stage, including attendanceand presentation at informational
hearings, and other activities.
Phase III
Subsequent to approval by voter referendum and a decision by
the Supervisor and Town Board of the Town of Southold to proceed
with the implementation of a municipal electric utility.
1. Prepare bids or requests for proposals for wholesale
power supply.
2., Advise on the plans for distribution infrastructure
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Power Alternatives, Inc. Report to the Town of Southold
Formation of a MuniCipal Electric Utility
acquisition from the existing utility.
3. Establish an organizational structure of the municipal
electric utility from the options available to the Town.
4. Implementation of the plans for separation and isolation
of municipal electric utility.
~n 0utline Form bv Ma4or Task Area
I. ~CC~lisition.of Electric Properties
A. Preliminary evaluation of existing system.
B. Analysis of severance & reconnection costs.
C. Development of plan and costs for start-up.
D. Three alternatives for acquisition.
II. Obtainina Wholesale Power
A. Preparation of bid or proposal documents for purchasing
wholesale electric energy.
III. Development of Plan for ODerationsand Maintenance
By Town Municipal Electric Utility Department.
By outside contracted services.
By Power Alternatives.
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Copyright 1998, Power A12ernatives, Inc.
Power Alternatives, Inc. Report to the Town Of Southold
Formation of a Municipal Electric Utility
IV. Initial Definit~on
The study assumes that there will be three major areas of
engineering and work for the creation and implementation of the
Southold Municipal Electric Utility. These areas are the
acquisition of the Lilco and possibly the Fishers Island Electric
Company distribution system in the Town, the acquisition or
construction of all or part of a substation, and the separation
and isolation of the Southold system.
The description contained in the report is based on a
defining of the creation and implementation of the Southold
Municipal Electric Utility as a stand alone municipal electric
utility, and assumes throughout the report that there will be no
economies from either the municipalization of a neighboring
municipality's electric service or from cooperation received from
Lilco or the adjoining municipal utility in Greenport.
If the County of Suffolk forms a municipal electric utility
in the future the town would retain its own identity as an
independent utility or could elect, at its option, to become part
of a larger, geographic adjacent municipal electric utility. In
the event that a neighboring or nearby municipality also creates a
municipal electric utility, an agreement may he entered to provide
savings for the two municipal electric utilities.
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Copyright'1998,;PowerAlternatives,'Ino.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Mun¢ipal Electric Utility
V. ~c~uisition and ConstrUction of Electric Prooerties
A. Existina Electric Properties
A basic component of the retail charge to customers for the
electricity is the cost of the debt amortization associated with
the ownership of the distribution properties which are used to
serve these customers.
The report has assumed that the total cost of acquiring the
necessary electric distribution properties (see Exhibit E) and the
construction of any new required properties within the Town and
establishing an operating electric system, would be funded by the
issuance of thirty year bonds.
The investor owned utility that presently services the Town
has refused to provide the Town with a detailed inventory of its
property in the Town. The list of Lilco inventory is maintained
by Lilco and the New York State office of Real Property Services
in Albany.
Lilco directed the New York State Office of Real Property
Services not to release this public information, and that public
agency has complied with the request Lilco. The New York State
Office of Real Property Services has refused to disclose to the
Town of Southold the number of poles and amount of wires in the
Town, stating that this information is a "trade secret" of Lilco
which would harm Lilco~s competitive advantage. A written request
was made by the Townto ORPS to release the information and ORPS
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Copyright 1998, pOWer Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
refused, as stated, at the direction of Lilco.
Although this information is still being requested, and may
be.forthcoming, for purposes of this report and study, we were
able to arrive at the amount stated for the acquisition of Lilco
equipment baaed on other sources of this information that are
available to our company.
The Fishers Island Electric Company also owns distribution
equipment which services Fishers Island. An amount has been
included in the report for the acquisition of that equipment.
However it is hoped that an agreement may be reached between the
Southold Municipal Electric Utility and that company either to
acquire or use the equipment on an agreeable basis.
After the municipal electric utility is in operation, the
funds that are necessary to pay the annual debt service (principal
and interest) would be obtained from a portion of the revenues
received from the sale of electricity to the electric customers
(see~).
The cost of acquiring the electric system properties inside
the Town from Lilco and the Fishers Island Electric Company, if
necessary, and of establishing the Town*s municipal electric
utility could include the following:
1. Purchasing of the existing electric distribution system
properties within the Town.
2. Construction of metering facilities and instrumentation
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Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
at an existing or new substation.
3. The cost of reconnecting any separated portions of the
Lilco electric system outside the Town (severance).
4. The cost of reconnecting the newly established electric
distribution system inside the Town.
5. The projected costs of establishing a Town owned
municipal electric utility including the working capital, start-
up, stores, inventory, trucks'and capital equipment expenses, and
the first two months of operating expenses.
6. The cost of establishing a reserve fund, it ~inanced by
general obligation bonds, which is assumed here.
7. The cost of related legal, engineering and financing
expenses.
The Ac~uisition of the Infrastructure Can Be Achieved By:
A. Condemnation - based on reproduction cost less
depreciation ("RCNLD").
B. Replication - based on reproduction cost new ("RCN") and
restoration.
C. Friendly acquisition through negotiation.
Power Alternatives has investigated each of these
alternatives for Southold. It is not likely, at least at the
planning stage, that the existing utility would amicably sell its
property to Southold for a fair price. The process~a~d cost of
replication have b~en estimated, and would appear to be
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copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
impractical,
It will therefore be assumed at this point that the Town will
be most successful in the creation and operation of the municipal
electric utility if the alternative selected for the acquisition
of the necessary plant, facilities and equipment, is that of
condemnation.
B. Cost of Acauisition of Existina Electric Properties
The amount that the Town will have to pay to acquire the
existing electric properties will be based upon either an amount
negotiated between the utilities and the Town, or if negotiations
are unsuccessful, the amount would be determined in a condemnation
proceeding.
Based upon precedent and recent Federal Energy Regulatory
commission rulings the Town can anticipate that when the
determination of the value of the properties is made, significant
weight will be placed upon the cost of rebuilding or replicating
the system (defined as "Reproduction Cost New" or "RCN" sometimes
called Trended Cost Value) less an adjustment for depreciation.
Reproduction Cost New Less Depreciation ("RCNLD" sometimes
called Depreciated Trended Cost Value) is the approach used to
establish the value for assessing properties in the State of New
York and upon which is paid for property taxes, and can be
expected to be the highest cost that Southold would pay for the
equipment that is acquired.
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Inoo
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
Power Alternatives has made a determination, for purposes of
this report, of what it believes to be the original cost
information of this equipment for the Town of Southold. The RCN
and RCNLD have been computed and presented for the distribution
system (see Exhibit~), and will be calculated based on detailed
information from the investor'owned utility if it released at a
later date. An order of magnitude analysis of the costs provided
data in a form used to develop the Town's list of assessed
valuation.
Properties consist of two categories: the "private"
properties.and the #public~.properties. The public properties are
those electric facilities located along the streets and public
right-of-ways. The private properties are those facilities on
land owned by the utilities.
Based upon our review of the information obtained by Power
Alternatives and the Town, we conclude that the maximum amount
that Lilco could reasonably support as a value for its operating
electric distribution properties in the Town is twenty-seven
million eight hundred thousand dollars ($27,800,000) exclusive of
any stranded costs assessment. ~
A separate amount has been included for purposes of this
report for the possibility of acquisition or construction of
equipment on Fishers Island of five hundred thousand dollars
($500,000), should this become necessary. These amounts include
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copFright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Munoipal Electric Utility
the distribution equipment in the Town that will be acquired by
the municipal electric utility.
There is projected to be a minimal amount of additional work
for the Town for the construction of new equipment, and an amount
in has been included in the study under separation and isolation
for that. An estimate is also included for stranded costs in the
amount of seven million dollars ($?,000,000), which is an amount
that isbelieved should be included for a reserve against possible
stranded investment liability for the Town.
Power Alternatives has projected these figures based on an
assumption that none of the adjacent towns forms a municipal
electric utility which can work with the Town for Jointly achieved
savings, and that there is no cooperation received from Lilco or
the Fishers Island Electric Company in the engineering and
implementation of the new Southold Municipal Electric Utility.
The amounts stated in the report may be substantially reduced
in the event that an adjacent municipality forms a municipal
electric utility which works to achieve joint savings with the
Southold Municipal Electric Utility, or if the Fishers Island
Electric Company cooperates with the new municipal electric
utility es to acquisition or engineering and implementation.
It is anticipated that Southold will explore trying to obtain
the cooperation of the Fishers Island Electric Company to continue
the operation of'its utility or to operate it Jointly with the
Page 23
Copyri~ht I998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
Town municipal electric utility. However, if the Town eventually
must assttme responsibility for that system, the costs of that are
provided for in this~study.
~tranded Investment Costs
Lilco may try to defeat Southold~s effort to establish a
municipal electric utility by arguing in condemnation for the
recovery of its .stranded investment." The argument would be that
Southold~s condemnation of Lilco~s distribution system would
deprive Lilco of the value of a proportionate share of its
generating assets that, absent the condemnation, Lilco would have
devoted to the service of the customerts proposed to be served by
the municipal electric utility. See, for example, ~
Power & Liaht Co. v. City of PuvalluD, 51 F.2d 691-694 (9th Cir.
1931)~ City of Thibodaux v. Louisiana Power & Liaht Co. 225
F.Supp. 657, 661-663 (E.D.La. 1963) ~odified on other ~rounds,
373 F.2d 870 (Sth Cir. 1967), cert. denied, 389 U.S. 975.
The response to that argument is three-fold. First, the
concept of stranded investment has no meaning in a competitive
market, since a surplus of productive capacity can always be
readily eliminated simply by lowering the price. See, Ca4un
Electric Power Cooperative. Inc. v. FERC, 28 F.3d 173, 176-180
(D.C. Cir. 1994} (rejecting approval of "stranded investment"
provision in transmission tariff). Second, the General Municipal
Law provision allowing for the creation of municipal utilities was
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Copyright 1998, Power Altern&tives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
enacted in 1934. From that date forward, Lilco had no "reasonable
expectation" that any investments it made in generating capacity
would achieve any particular level of return. At any point in
time, some or all of the municipalities on Long Island could
choose to create their own municipal electric utilities and thus
deprive Lilco any return on its investment. Third, much of
Lilcots generating capacity sits idle. Where is the stranded
investment?
For these reasons, our view is that Southold should not
anticipate paying in condemnation anything for "stranded
investment." Condemnation. costs would be limited to the value of
the distribution infrastructure in Southold as described above.
similarly, with regard to a recovery of "stranded investment"
in a Federal Energy Regulatory commission proceeding pursuant to
FERC Rule 888A (if one becomes necessary), our view is that Lilco
should not recover anything for the reasons set forth above.
However, prudence would dictate creation of acontingency for
"stranded investment", asa stranded cost allowance for purposes
ofthis report and study, which has been included in the amount
that is stated above in the amount of seven million dollars
($7,000,000), which is believed to be a conservative amount for
that purpose.
Finally, and of enormous significance, the Town of Southold
executed a franchise agreement with the Long Island Lighting
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Copyright 1998,.Power Alternatives, Inc,
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
Company in 1975. The agreement, however, was subject to condition
precedent in becoming effective, namely that the Long Island
Lighting Company take affirmative action, including signing and
filing of the agreement by a certain date, which the Company did
not do. The failure by the Company to fulfill the condition
precedent suggests that the franchise agreement never became
effective, and thus depriving Lilco of any agreement that it is
entitled to.
C. ~eoaration and Isolation Costs
The purchase of the electric distribution properties within
the Town and the establishment of a separate Town owned electric
system is expected to cause the need to first separate and then
individually reconnect the respective electric systems of Southold
and Lilco.
The existing electric properties of Lilco which lie within
the Town (hereinafter referred to as the "properties") include
13.2 kv and be1°w distribution lines and equipment. All right of
way properties of the Long Island railroad have not been included
in the scope of this analysis and, therefore, any transmission
lines located have not been considered, nor has the 69 kv line or
23 kv line been included for acquisition.
Substations 8U, 8B and 8WRwill not be required for
distribution.
Southold generating station 8J will not be required by the
Pag~6
Copyright 1998, Power Alternatives,
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Munoipal Electric Utility
Town. The above referenced transmission facilities will remain
the property of Lilco.
· Power for Plum Island will be purchased on the iow side of
8WR.
Fishers Island is Presently serviced by a connection to the
Island from an investor owned utility other than Lilco. Fishers
Island after the formation and the commencement of the operation
of the municipal utility will be served through the same
connection via Connecticut. It is anticipated that Southold will
attempt to enter an agreement with the Fishers Island Electric
Company, however, if that does not occur, the municipal electric
utility may obtain a supply of electricity through that connection
to Fishers Island.
In order for the Town to establish a separate Town owned
electric system, the Town must first acquire the 13.2 kv lines and
step down to 4000 ky within the Town boundaries and then sever the
connections to the adjacent areas served by Lilco and Loop systems
where necessary to maintain Lilco continuity.
Power Alternatives has identified two different locations
where single phase or three phase distribution lines cross the
town line into the adjacent town of Riverhead. This will
necessitate and result in the severance and reconnection of fused
cutouts to ~solate the system from adjacent town. The locetions
at whioh these distribution lines cross the tow~ border are listed
Pa~e 27
Copyright I990, Po~er Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
below.
-Aldrich Lane and Sound Avenue at Riverhead Border
-Laurel Lane and Route 2§A(Main Road), at Riverhead Border
The projected cost of the separation and isolation of the
system, including the cost of establishing any required metering
and an allowance for Fisher Island is two million eight hundred
thousand dollars ($2,800,000).
This amount may be substantially reduced if Lilco cooperates
in the engineering and design considerations, or the amount may
also be substantially reduced if one or more adjacent
municipalities also forms a municipal electric utility and acts
with Southold to achieve Joint savings.
The capacity of the municipal electric utility at the Village
of Greenport was reviewed for the possibility of purchasing
electricitY transmitted through that Village~s municipal electric
utility. It does not appear that the transmission capacity is
sufficient to provide a substantial amount of electricity to the
Town municipal electric utility through that other municipal
electric utility.
D. Utilitv Start-UP Costs
Power Alternatives has projected the costs of the start-up of
the system that theTown will incur. Start-up expenses are those
expenses that the Town can expect in order to establish, equip and
organize an electric department similar"to those found in
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Copyright 1998, Power-Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation.of a Muncipal Electric Utility
Rockville Centre, Freeport and Greenport, and other established
operating municipal electric utilities.
This would require the purchase and development by the Town
of a site to house the utility and provide storage, whether it
staffed by Town personnel or contracted services. The purchase of
capital equipment (three line trucks and boom trucks), as well as
the purchase of materials and supplies.
The anticipated cost of the goods and service necessary for
start-up is expected to be two million dollars ($2,000,000). This
amount is a total of the expected cost of the equipment, and the
necessary mat~rials and supplies for the operation of the Town
municipal electric utility, and is the amount that is necessary to
finance the operation of the municipal electric utility for the
first two months of its operation.
Power Alternatives has surveyed various contractors and
determined that in the event that the Town decided to contract out
to a private company the services that are listed in this report,
such as Power Alternatives, the costs can be substantially
reduced, and further savings in electric rates can be achieved.
An allowance was set aside for the operation of the utility
prior to the receipt of revenues, which probably would be for the
first one and a half months of operations. A figure, which is for
consumable expenses and labor charge (either for Tow~ forces or
Page 29
copyright 1998, Powers. Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
contracted services) has been calculated by Power Alternatives,
which is based on an additional period of time in order to be
conservative and to provide for contingencies, and we have
projected two million dollars ($2,000,000) for this cost.
F. Leaal and Enaineerina Costs
The engineering of the isolation, separation and reoonnection
as well as the initial contracted services will be quite
extensive. Legal fees for Phase I are set, but the variable in
setti.ng the legal fees would be the extent of the condemnation
litigation. The amount of two hundred thousand dollars ($200,000)
has been set aside for initial engineering which will be
considerably less in subsequent years. The amount of five hundred
thousand dollars ($500,000) has been set aside for initial legal
services not including the legal fees for any, if required,
extended condemnation proceedings.
G. Debt Service
The analysis presented in this report has assumed that all
monies necessary for the acquisition of property and start-up of
the municipal electric utility shall be obtained by the Town
issuing municipal bends, with the indebtedness to be paid in the
first instance from the revenues of the municipal electric utility
operation.
The bonds that are contemplated being issued, will be general
obligations of the Town of Southold, but will be serviced by a
Pa~e. 3.0
Copyright 1998, Power:Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
specific revenue source, which is the revenues of the municipal
electric utility. A reserve fund is generally established for
these bonds in an amount equal to one year of principal and
interest debt service payment.
The amount that has been calculated for this purpose that is
the establishing of the reserve fund, is projected to be three
million eight hundred thousand dollars ($3,800,000).
H. Bond Discount ¢Cost of Financina)
The bond discount or the cost of financing is the cost of the
investment banking and other services that are necessary and
usually incurred in issuing the municipal bonds that are required
to implement the municipal electric utility. The cost of
financing has been calculated to be five hundred thousand dollars
($500,000) for the bond discount and costs, including the cost of
bond counsel, bond service firms and other costs.
Total Amount of Acauisition and Operational Start-Up
See Exhibit E
Page~3l
Copyright1998, Power Alterhatives, Ino.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
VI. ]THOLEa~%LE POWER HUPPLY
A. ~gwer SuPPlY Costs and Alternatives
Once the Town has formed a municipal electric utility and has
acquired the necessary distribution system and equipment it must
proceed to secure the lowest cost long-term power. The options
which we see presenting themselves to the Town of Southold are as
follows:
1.
2.
Purchase of wholesale power from regional utilities.
Purchase of wholesale power from an independent power
generator.
3. Installation of utility owned generator.
4. Installation of generator operated by others.
5. Purchase of power from New York Power Authority.
The Southold Municipal Electric Utility will fall under the
provisions of municipal law requiring competitive bidding or
requests for proposals for any of the first four alternatives,
form of solicitation for this purpose has been prepared as
ExhibitI. It is believed that the p~rchase from NYPA would be
exempt from bidding.
Power Alternatives has reviewed possible generation sites
within the Town, and the logistics of the installation of
generation within the Town.either by the municipal ele=tric
A
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Copyright 1998, Power Alternatives, Inc.
Power ~lternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
utility itself, of by an outside party. Alternatives three and
four, which propose power generation within the Town by the
utility have been rejected by Power Alternatives for further
consideration at this time in as much as our investigation has
resulted in findings of generation costs to be expected to produce
electricity at approximately seven cents ($.07) per kilowatt,
which is far in excess of the cost of electricity to be obtained
by the Town of Southold municipal electric utility through a
competitively bid contract for electric supply through wholesale
wheeling.
In the event that at a later time the economies of obtaining
supply through generation versus wheeling have substantially
changed, the Town could review and consider this option again at
that time.
The cost of generation in Rockville Centre, for example is
about 7.1 cents per KWHR. The reason why the Village of Rockville
Centre can sell electricity at a retail cost of 5.8 cents/KWHR is
because it receives approximately fifty percent (50%) of its
reqUirements from NYPA hydro-power at under 3 cents/KWHR. While
NYPA power may be unavailable for a few more years, there is
expected to be similar low cost power available to the Town.
The Suffolk County Electric Agency has also received bids for
wheeling power to meet a 3OOMW reqUirement. The prices were
beli~ved-to be less than 5 cents a KWHR.
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copyright 1998, PoWer Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
Alternative 5 warrants no further discussion in as much as
there is no further hydro-power available from NYPA with the
present capacity committed to the year 2014.
Power Alternatives is of the opinion that a fixed price
contract obtained by a competitive bidding for a term of ten to
fifteen years, from a regional utility, would offer the most
reliable, least expensive source of power to meet the Town's
requirements. However shorter terms may be considered in order to
take advantage of commodity prices on the market.
There is presently an abundance of available power in the
nation-wide power grid. Unfortunately it is not uniformly
allocated by source supply and some areas are experiencing the
need to reach out beyond their boundaries for additional power.
This has resulted in competitive bidding resulting in lower costs.
The interstate transmission of power made possible by FERC
regulations in 1995 has made available electric power from those
regions with excess power to those utilities with limited high
cost electric power.
Based on research and analysis done by Power Alternatives, it
is indicated that the Town will be able to purchase power for a
price of less than four cents ($.04) per kilowatt hour. This
includes the demand charge, the energy charge for generating the
electricity, and the transmission charge or "wheeling" charge. We
have used this figure in developing the first year operating
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Copyright .1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
budget of the Town of Southold Municipal Electric Utility.
B. ~lectric Reuuirements of the Town
Based upon information obtained from the accounts of the New
York State Division of Equalization and Assessment, the Town's 12
month requirements are:
No. of Customers
Residence 8,125
Commercial 220
Town
Street Lighting,
Schools, Traffic
Signals
Total
C.
Annual Peak Demand
45 MW
Solicitation of Wholesale Power
Annual Energy Sales KWH
69,597,557
40,000,000
1,100,000
110,697,557
See Exhibit I
Page 35
Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
VII. OPER~TING~ ~TNTaTNING THE UTILITY
A.
The Town of Southold will have the option of either providing
the municipal electric utility with an organizational structure as
a part of the Town, or to contract with a suitable engineering and
maintenance company to perform required activities and discharge
the delegated duties and responsibilities.
It is strongly recommended that a Superintendent of Utilities
be appointed to oversee the electric operations either as a Town
Utility Department (see Exhibit D) or a contracted service. The
cost of initial organization or privatization is expected to be
about the same, but there are advantages to privatization, which
include expected effectiveness and lower costs.
B. TYPical Utility Oraanization
1. Authority and Jurisdiction
The Town in the formation of the Southold Municipal Electric
Utility can create a board of commissioners or directors which
will have the authority to create an organization to operate and
maintain the utility. Under the local law creating the utility,
this authority can be delegated to a general manager or
superintendent who will, in consultation with Power Alternatives,
proceed to develop the organizational structure.
Page 36
Copyright 1998, .PoWer Alternat'i~es, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation cfa Muncipal Electric Utility
2. Function to be Performed
Power Alternatives has developed, through its research of
similar utilities and investigation of Lilco and other utility
organizations, the following activities or functions that must be
performed to varying degrees to enable the agency to operate
effectively and efficiently.
~' a. Management - The creation of a chain of command and
channel of communication to properly discharge the mission of the
agency.
b.
d.
e.
f.
g.
h.
Line and staff supervision
Meter reading
Billing and accounts receivable
Purchasing and accounts payable
Stores inventory control
Vehicle maintenance
Technical support
i) meter repair
ii) drafting
iii) CAD
iv) engineering
Clerical/typist
Public relations
Line maintenance
1. New installations
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Copyright.~998, Power A~te~mat~ves, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
m. Legal support
n. Personnel administration
o. Labor relations
p. Employee benefits/payroll
q. Financial administrator, budget, cost code accounting,
rate setting
It is important to note that a position is not required for each
of the above activities but rather agrouping or consolidation of
activities will be assigned to a position with the nt~mber of
positions determined by workload. Conversely some activities will
require more than one position such as "lineman".
C. ~
Power Alternatives has developed an organization (Exhibit D)
which will, if properly staffed, be able to effectively carry out
the functions described above for the Southold Municipal Electric
Utility. This organization, as previously described, can be
created either as a Town Department or can be a contracted
service. The alternatives available to the municipal electric
utility in this regard are as follows:
1. Form an in house staff (Town Utility Department)
2. Contract the service out under the direction of the
Superintendent of Utilities.
3. Contract with Power Alternatives under agreement
reporting to the Town or Board.
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Copyright 1998, Power. Alternatives,. Inc.
Power Alternatives, Inc. Report to the Town of Southold
FormatiOn of a Muncigal Electric Utility
1. positions and Personnel
Once the organizational structure has been developed
individual job descriptions must be written which establish the
duties and responsibilities of each position on the chart along
with a description of the job activities and required
qualifications for the position as well as the number of each of
the positions which must be established.
One of the advantages of forming a Southold Municipal
Electric Utility and staffing the utility organization rather than
contract the service is that local qualified personnel can be
hired by the Town as compared to obtaining the service on a
contract basis from a regional labor pool.
A slight disadvantage of staffing the organization in this
manner is that the new municipal electric utility will be
responsible for the training of personnel, while a contractor
would be responsible for providing qualified trained 9ersonnel to
theTown.
The hiring of personnel for the municigal electric utility
can be accomplished by Southold with the assistance of Power
Alternatives. Job descriptions, and salaries and wages and
benefits would be developed for each position. The candidates for
each position would be selectedfrom a human resources data bank.
2. Oraanizational Structure (~eeE~hib~ D~
Page 39
Copyright 1998~ Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
Power Alternatives has developed a structure which attempts
to group like or similar functions and activities in order to
minimize the number of full-time positions required. In
conjunction With this certain support systems, such as
transportation, communications, and computer requirements will be
developed. Also very clear policy and procedure statements along
with operating rules and regulations will have to be developed.
The operation and maintenance structure of the municipal
electric utility can be either an in house department or by an
outside contracted service which will insure service reliability
in an efficient and cost effective manner.
During periods of adversely impacting environmental
conditions, emergency restoration training should enable the
utility staff to deal with any emergency situation on a '24 hour
basis. In the event that damage to the infrastructure should
exceed the capability of municipal electric utility to restore
service in a reasonable amount of time, outside utilities are
required, often under mutual assistance agreements, to assist the
Southold Municipal Electric Utility in its restoration efforts.
Priority customers will be identified by the munic£pal
electric utility for continuous service. The utility will also
establi~h uninterruptable power supplies (UPS) for emergency
services, such as police dispatoh and fire and medical services.
Page 40
Copyright !9.98, Power Alternatives' Inc.
Power Alternatives, Inc. Report to the Town of S°uthold
Formation of a Muncipal Electric Utility
Having control of the operations and maintenance of the
municipal electric utility will allow the Town to establish its
own goals and priorities, and not permit the concerns and voice of
the businesses and residents of Southold to get lost in the larger
utility. All decisions of the new municipal electric utility will
be made in open public hearings and subject to the open government
and "sunshine" laws, the same as Town government.
F. Annual ODeratina Cost
¢See ODeratina Budaet Exhibit F~
Power Alternatives has developed a projected annual operating
budget for the municipal electric utility which is a fiscal plan
identifying the source and use of revenues. Once the municipal
electric utility is formed, the annual expenses must be estimated
(see Exhibit F) and off-setting revenues must be realized in the
form of payment from the billings to the utility's customers.
The amount billed to the customers of the municipal electric
utility will be at a rate which based upon the amount of expected,
and'then actual, electric consumption in kilo-watt hours will be
sufficient to achieve a balanced budget for the municipal electric
utility.
The rate for'the first year of operation of the Southold
Municipal Electric Utility that will be sufficient to establish a
balanced budget is projected to be tenand eight tenths~cents
($.108) per KWHR. This rat~ includes a substantialreserVe for
P&g~ 41
Copyright 1998, Power ~ltern'at~veS; Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility'
the possibility of a stranded investment claim. This is a very
conservative approach to the calculation of the expenses of the'
utility, and the anticipated rate, and the actual cost of
electricity that is provided by the Southold Municipal Electric
Utility may well be as low a eight and one-half cents ($.085) per
kilowatt.
The three major components in the budget and therefore the
most important factors with respect to .projecting the rate to be
set for the municipal electric utility are the following:
a. The debt amortization for purchase of infrastructure and
other costs.
b. The cost of wholesale power.
c. The cost of annual operations and maintenance.
The line items that are found in the budget for the municipal
electric utility'that has been projected by Power Alternatives are
the following:
1. Revenues
The amount of revenues of the municipal electric utility is
determined by the projected annual consumption of electricity, or
the total annual sales of electricityby the municipal electric
utility, multiplied by the estimated cost of theelectr£city that
is sold.
Power Alternatives has projected the annual sales of
electriCity.by the municipal electric utility to be one hundF, ed
Page 42
Copyright 1998, Power,Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Munoipal Electric Utility
ten million, six hundred ninety seven thousand, five hundred and
fifty seven (110,697,557) kilowatts. This amount was determined
based on infor~ation provided by Lilco to government agencies, and
also based on the number of residents, businesses and institutions
located in the Town.
Based on the amount of expenses for each of the operating and
other expense items that are described below, for the municipal
electric utility to operate at a level where the expenses will
equal revenues, the rate that the municipal electric utility is
projected to charge for electricity will be ten and eight tenths
cents ($.108) per kilowatt hour.
The amount of estimated consumption of electricity, and the
rate projected to be charged result in a projection for total
annual revenues of the municipal electric utility to be twelve
million, nineteen'thousand, three hundred and ninety five dollars
($12,019,395).
In the event that there is a difference between the projected
consumption of electricity in the Town and the actual amount, this
will not affect the projected rate in a substantially negative
manner due to the fact that the operating costs of the municipal
electric utility will be Scaled back proportionately to provide
the same rate to the customers of the utility.
The slight differences between this amount and the exact
product of the rate and consumption is due to rounding of the
Page 43
Copyright 1998, PoWer Alternatives, Inc..
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
figures that were used in this analysis and the calculations that
were made using those amounts.
2. Salaries and Waaes
This amount is the projected total of employee salaries and
wages based on the average for industry salaries at an average of
$4§,000/year (comparable contracted cost) for each employee.
Power Alternatives has provided a suggested structure for the
municipal electric utility in the event that the Town decides to
operate the municipal electric utility itself..
The various salaries of the organization of the municipal
electric utility are expected to total salaries and wages of one
million eight hundred thousand dollars ($1,800,000).per year, and
that is the amount that is included by Power Alternatives in the
budget for that item.
3. ¢o~tract Services
The amount that is included in the budget for contract
services, sixty thousand dollars ($60,000), is for the expenses
that are expected to be incurred for various services that will be
on an as needed basis and are activities for which full-time
staffing would be an excessive overhead burden. Examples of these
services include such items as UPS service, CAD system update,
line fault surveys, and similar services.
4. Consultina Services
The Town of Southold has entered a contract with Power
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Copyright 19~8, Power Alternatives, Inc.
Power Alternatives, Inc. Report to theTown of Southold
Formation of a Muncipal Electric Utility
Alternatives, whereby Power Alternatives will be paid a fee that
is based on a percentage of the municipal savings only, and the
amount of which is therefore based on the performance of Power
Alternatives in their work with the Town of Southold for the
reduction of the cost of electricity.
By contractual agreement with Power Alternatives, on a per
ann~m basis for ten years, Power Alternatives is entitled to fifty
percent (50%) of the savings realized by the Town of Southold in
the cost of electricity to the Town for its facilities and other
uses, such as the Town Hall and other buildings, street lighting,
and other uses.
The agreement requires that Power Alternatives willbe
available on an as needed basis for consultation in all matters
dealing with power supply and distribution, and continue to
provide various types of support and assistance to the Southold
Municipal Electric Utility.
· - The amount of savings that is estimated to be realized by the
Town, based on the budget and the projected cost per kilowatt hour
for the electricity produced by the municipal electric utility,
results in the fee that will be paid to Power Alternatives being
approximately seventy five thousand dollars ($75,000) per year,
and that amount is included in the budget in the report.
The amount thathas been projected for legal services is
Copyright 1998, Power Alterna~ives, InC.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Munoipal Electric Utility
expected to be for all of the necessary legal services other than
those thatare required for the condemnation proceeding, and other
items required for the start-up'of the utility.
The legal services that are anticipated to be required by the
municipal electric utility are those for drafting and review of
contracts, agreements, and other matters necessary in the annual
operation of the utility. Power Alternatives projects that one
hundred thousand dollars ($100,000) is the annual amount that
should be included in the budget for these legal expenses.
The amounts for legal fees that will be incurred in the
condemnation end some of the start-up expenses are included in the
amount that is projected for the total financing requirement, and
therefore the payment for those services is included in the annual
debt service amount in the operating budget, not in the amount
stated to be for legal services.
The amount that is designated for financial services is the
cost of the services of professional companies that structure and
arrange for municipal financing. The amount of the expenses is a
percentage of the debt, and the amount that is included in the
budget, forty thousand dollars ($40,000), is the projected amount
based on the amount of the financing that is projected to be
required in establishing the Southold Municipal Electric Utility.
7. EmploYee Benefits
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Copyright 1998, Powe=,-Alterllatives~ Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
The amount that is included in the budget for employee
benefits, is six hundred thousand dollars ($600,000). Power
Alternatives has projected this amount for all of the benefits
that must be paid to the staff and management of the Southold
Municipal Electric Utility, and the amount based on experience is
generally to be twenty-eight percent (28%) of the amount of wages
and salaries.
The amount that is included in the budget for power is the
projected cost to the municipal electric utility for the electric
power supply contracts which it will enter to obtain the electric
power that it will be selling to the public.
The amount that has been included in the budget for the cost
of purchasing power by the municipal electric utility is three
million eight hundred seventy four thousand three hundred ninety
five dollars ($3,874,395). This amount was calculated by taking
the amount of the projected electricity requirements, one hundred
ten-million six hundred ninety seven thousand five hundred fifty
seven (110,697,557) kilowatts, and multiplying that amount by the
expected cost of that electricity, which.is thirty five dollars
($35) per megawatt hour.
The anticipated cost that has been used for projecting the
cost'of the power to be purchased is based on similar contracts
that have been offered to municipalities,' and other information
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Copyri911t 1998, Power Alternatives,
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric utility
regarding these prices that is available. The Town. will have the
opportunity, with the assistance of~Power Alternatives, to place
this contract out for competitive~bidding, and will also
have the opportunity to decide the desired term of the contract or
contracts that are sought by the Town for the supply of
electricity.
9. Materials and SuPPlies
The Southold Municipal Electric Utility will have to make an
initial stock purchase of materials and supplies in order to stock
its inventory. After the commencement of the operation of the
municipal electric utility, purchases of materials and supplies
will be made on a frequent basis in order to maintain a perpetual
inventory system.
Power Alternatives has reviewed the requirements of stocking
and maintaining an inventory for the new and then operating
municipal electric utility, and has projected the amount that will
be required and which should be included in the budget for this
purpose to be two hundred thousand dollars ($200,000). That
amount has been included in the budget as the annual expense for
materials and supplies.
10. Real Estate Taxes
The existing private investor owned utilities that service
the Town currently makes payments to the Town, County and the
School District or Districts on its electric distribution
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Oop~right 1998, Power~Alternatives, Inc.
Power Alternatives, Inc; Report to the Town of Southold
Formation of a Muncipal Electric Utility
properties .in the Town. The condemnation by Southold of some of
this distribution equipment and facilities will result in the
amounts that the private utility is paying to be reduced by less
than approximately thirty percent (30%).
The municipal electric utility will therefore be making
payments to the School District or Districts, Town and Town County
aspayments in lieu of taxes. This payment will be made to
replace the amount of the payments that will not be made by the
private utility for that portion of the distribution equipment
that is condemned.
Power Alternatives has reviewed the amounts ofthe School,
Town and County taxes in order to determine this amount, and has
projected that the amount to be used in the budget for the taxes
to be continued to be paid by the municipal electric utility will
be a maximum of five hundred thousand dollars ($500,000), and in
fact may be much lower than this amount. This amount is intended
to be sufficient to replace any amount of revenues that will be
el'i~inated by the condemnation of utility equipment in the Town.
In the event that the amount of the taxes.that are necessary
to be replaced or that the Town decides that it desires to have
the municipal electric utility pay to the Town, school district,
Town or other taxing districts, this amount could be increased
with a very minimal effect ~n the rate to be charged for
electricity. ·
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Copl~right 1998, Power~Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
It is believed that the investor owned utility now paying the
majority of these taxes has appealed the assessment of the
equipment that it owns in the Town. This action by the utility
may result in a very substantial decrease in the taxes presently
paid by this investor owned utility, over which the Town has very
little control.
The Town will be able through the municipal utility to
replace the taxes lost by the challenges of the investor owned
utility, and the amount of the payment in lieu of taxes will be
determined by the Town, and the amount included in the budget is
based on the present tax payments that are made, not a lower
amount that the utility may be seeking to pay.
11. ~
This is the amount that Power Alternatives has projected will
be necessary for the annual cost of servicing the required
interest and principal payments on the municipal bonds that are
issued to finance the utility.
The amount projected for debt service hasbeen calculated by
using the highest amount of the financing that is expected to be
required, forty-seven million One hundred thousand dollars
($47,100,000), and also by using the prevailing municipal debt
rates.
The amount that has been included in the budget for annual
debt service is three million eight hundred thousand dollars
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Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
($3,800,000) per annum, which is the amount that is included in
the budget for debt~service. The calculation has been made by
including an amount for an increase in the financing rates, and
the amount that is stated is the required amount of annual debt
service under the local finance law, which has resulted in the
average required annual payment in order to service that debt.
12. ~ostaue. Phone. and Consumer Refunds
Power Alternatives has included amounts in the budget for
each of these items, which are necessary for the continuing
operations of the Southold Municipal Electric Utility.
The amount projected for postage, fifteen thousand dollars
($15,000) and for telephone in theamount of fifteen thousand
dollars ($15,000) are the operation expenses that are required in
order to operate the utility, including meiling bills and
responding to customer service calls.
The amount projected by Power Alternatives for customer
refunds, in the amount of twenty thousand dollars ($20,000), is an
estimated allowance that is to be set aside for discrepancies in
estimated meter readings and other problems that may result in
refunds to customers during one fiscal year period.
13. Insurance
Power Alternatives has included an amount in the budget for
insurance expenses for the municipal electric utility of three
hundred thousand dollars ($300,000). This amount has been
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Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to ~he Town of Southold
Formation of a Muncipal Electric Utility
projected for the annUal insurance premiums that will be paid by
the municipal electric utility for liability and other types of
operation insurance that are necessary in its operation.
The Southold Municipal Electric Utility will be setting aside
an amount on an annual basis for the replacement of any capital
item of the utility having a cost greater than ten thousand
dollars ($10,000), and or which has a useful life of five or more
years.
Power Alternatives has projected an annual amount for the
budget of three hundred thousand dollars ($300,000) for an
anticipated contribution to depreciation, and this amount has been
included in the budget for that purpose.
15. '~iscellaneous ExPense/FacilitY Expenses
Power Alternatives has recommended that a substantial
provision be set aside in the budget for miscellaneous expenses,
including such items as facility expenses, that are not included
in the etart-up expenses that are included in the financing and
debt amortization.
The amount that has been projected for this expense, one
hundred thousand dollars ($100,000), has been included in the
budget for this item for the first year of operation and the
amount may be adjusted, possibly even significantly reduced during
the second and subsequent years of operation of the municipal
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Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
electric utility.
16. Continaencv Factor
Power Alternatives has suggested that an amount be used in
the budget every year for contingencies that may occur so that
they may be funded without a rate increase or creating a funding
problem in the municipal electric utility.
The amount of two hundred and twenty thousand dollars
($220,000) has been included in the budget for contingencies. The
contingency factor is established for items such as storm
emergency restoration, and other extraordinary events or expenses.
- Page' 53
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Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
VIII. ~egommended actions
Based on the results of this study, Power Alternatives
recommends the formation of a Town of Southold Municipal Electric
Utility by the Town of Southold, and that the Town undertake the
following actions:
1. The adoption at a public hearing of a local law by the
Town Board of the Town of Southold (see Exhibit A),
forming a municipal electric utility.
2. The scheduling by the Town of one or more informational
hearings (see Exhibit B).
3. The Conducting by the Town of Southold of a mandatory
public referendum (see Exhibit ~).
After the adoption of the referendum by the residents of the
Town of Southold approving the creation of the municipal electric
utility, the Town will then have a new department within the Town,
which will be the newly created Southold Municipal Electric
Utility.
The creation of the Southold Municipal Electric Utility by
the Town of Southold will not itself commit the Town.to the
expenditure of any other funds or the issuance of any debt.
The creation of the Southold Municipal Electric Utility
permits the Town to then gather further data So either confirm the
Copyright 1998, P0wer'Alternat!ves, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipel Electric Utility
results of this study, and the existing markets or conditions, and
thereby enable the Town to make the required decision as to the
actual implementation of the municipal electric utility. These
factors will include the following items.
1. The cost and availability of the supply of electricity
to the municipal electric utility.
2. The cost of the engineering, separation and isolation of
th~ municipal electric utility.
3. The cost of the acquisition of the infrastructure for
and by the municipal electric utility.
The amounts for these items have been stated in this report
are based on the work of Power Alternatives in conjunction with
reliable and experienced industry experts and professionals.
The Town will have the opportunity after the creation of the
municipal electric utility, and prior to the implementation of the
municipal electric utility, and either the expenditure of any
funds or the Town incurring any debt, to obtain further
confirmation ~f these figures.
The Town will then be able to proceed with the implementation
of the municipal electric utility, including the following actions
which are recommended in this report=
1. The acquisition of the required infrastructure, the
separation of thed~stribution system, and construction
of required new facilit~es, including metering.
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Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
The solicitation of the source of wholesale power.
The development of an organizational structure to
operate and maintain the system (see section for
alternatives available), or the contracting with private
sources for management, service and billing of the
municipal electric utility.
Establishing bond financing for the acquisition and
purchase of the equipment, infrastructure, and start-up
operations of the municipal electric utility.
Page ~6'
Copyright 1998, Power~ltern&tivee, Inc~
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Muncipal Electric Utility
IX. Conclusion
The research performed and findings reached by Power
Alternatives in this report conclude that the residents and
businesses of the Town of Southold as well as the Town itself will
benefit significantly by the Town of Southold forming its own
municipal electric utility.
The rate to be charged by the municipal electric utility to
its customers is projected to be ten and eight tenths cents,
($.108) per KWHR, which will be a substantial reduction from the
cost of the existing utility.
The sequence of activities for the Town to undertake at this
point if it is the desire of the Town to proceed would be as
follows:
1. The Town Board adopts a local law forming the municipal
electric utility.
2. The Town Board conducts Town Board public informational
hearings.
3. The Town Board schedule a public referendum and post
notice of proposition to be placed before the voters.
4. Obtaining a bid setting for wholesale power supply.
5. File 211 application to FERC.
6. Acquisition of electric infrastructure and engineering
design of Town distribution and metering.
Pa~e 57
Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
O O D
LOCAL LAW NO. OF THE YEAR 1998
A LOCAL LAW CREATING THE MUNICIPAL ELECTRIC UTILITY OF THE
TOWN OF SOUTHOLD.
BE IT ENACTED BY THE TOWN BOARD OF THE TOWN OF SOUTHOLD AS
FOLLOWS:
~eotion 1~ Title. Puz~ose and Definitions.
1.1(AJ. Enactment.
Pursuant to Section 10 of the Home Rule Law, and Section 360
of the General Municipal Law, the Town of Southold, County of
Suffolk and State of New York, hereby enacts this local law to
create the Town of Southold Municipal Electric Utility.
1.1(B). Effective Date.
The local law shall take effect on the filing of the approved
Local Law with the Secretary of State of New York, which shall be
within five (5) days after its approval by a simple majority of
the voters by mandatory referendum at an election to be held to
approve this local law, pursuant to Section 360 of the General
Municipal Law.
1.~. Intent.
WHEREAS the Town of Southold is a Town duly formed under the
laws of the State of New York, and;
WHEREAS the Town Board of the Town of Southold is duly
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Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
empowered pursuant to Section 360 of the General Municipal Law of
the State of New York to form a Municipal Electric Utility for the
Town, and;
WHEREAS it is essential for the well-being, livelihood and
safety of the residents and businesses of the Town, and of the
other consumers of electric power in the Town, including the Town
itself, and of their families and quests, for the economic climate
of the Town, and for the protection ofprivete and public property
within the Town and the value of that property, that the supply
and distribution of electricity to the residents, businesses and
other consumers of electric power in the Town, and the Town
itself, be provided in a reliable manner, and at a fair and
reasonable cost, and;
WHEREAS the Town Board has determined that the most reliable,
fair, and economical way for the supply of electricity and
electrical service to be provided to the Town of Southold, its
residents and businesses and institutions, is by the creation of
the Town of Southold Municipal Electric Utility, the Town Board of
the Town of Southold hereby enact this local law for the intent
and purpose of establishing a Municipal Electric Utility pursuant
to Section 360 of the General Municipal Law, and all of the powers
and duties thereunder.
Section 2.; Plant end Faoilitiesv Maintenance
and 8ervioe. and SUPPLY
The Town of Southold Municipal Electric Utility shall acquire
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Copyrig~t 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
the necessary plant and facilities, and either establish necessary
functions for or procure contracts for the maintenance, service
and billing of the electrical energy system and utility, and a
supply of electricity such as are necessary for the creation of
the Southold Municipal Electric Utility.
The proposed method of constructing, leasing, purchasing, or
acquiring, the plant and facilities for the municipal electric
utility, together with both the maximum and the estimated costs
thereof, the method of furnishing such service, and the method of
obtaining electrical supply shall be as follows:
~.1. Plant and Facilities.
A. The Town of Southold Municipal Electric Utility will
obtain by purchase or condemnation the electrical distribution
system within the boundaries of the Town currently owned by the
Long Island Lighting Corporation ("Lilco"), and purchase,
condemnation or agreement for the use of the equipment of the
Fishers Island Electric Company, and will construct such
additional infrastructure as maybe needed to separate itself from
the Lilco system.
The Town of Southold Municipal Electric Utility also may
construct its own generating facilities to supply electrical
energy to its customers and, in its discretion, may construct new
infrastructure instead Of acquiring property.
B. The maximum and estimated cost of the items set forth in
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Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
subparagraph A. hereof, should be forty-seven million one hundred
thousand dollars ($47,100,000).
C. The cost of the acquisition of the plant, facilities,
distribution system and any other costs that are necessary for the
implementation of the Town of Southold Municipal Electric Utility
shall be paid by the issuance of a bond by the Town for the useful
iife of the equipment and facilities, and the longest maturity
possible, which is expected to be thirty (30) years.
D. The entire costs of the acquisition, construction,
development, implementation and operation of the Town of Southold
Municipal Electric Utility including the debt service of any
financing that is created in order to pay the costs thereof,
including the long term bond that is described herein, as well as
any other costs of the Southold Municipal Electric Utility, will
be paid in the first instance from the revenues generated by the
Town of Southold Municipal Electric Utility, and will not have any
effect on the general budget or real estate taxes of the Town.
~' 2.2. Service and Maintenance of Plenty
F&oilities. and Distribution Bvstem.
A. The Town of Southold Municipal Electric Utility will
obtain service and maintenance for the infrastructure of the
Municipal Electric Utility, and billing and management services by
obtaining contracts with suitable and acceptable maintenance,
service and billing companies. The contracts will be supported
wherever possible by a performance bond of an amount acceptable to
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Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
the Town.
B. The Town will also consider and retain the ability
and power to create its own maintenance and service and billing
department, including the equipment~ materials, and supplies
required for that department, in order to provide service and
maintenance to the Town of Southold Municipal Electric Utility if
the Town deems it to be in its best interests to do so.
2,~- Electrical SuPPlY.
A. The Town of Southold Municipal Electric Utility will
obtain its supply of electricity either by contracting with a
utility Or supplier, or by generating its own electricity, or a
combination thereof.
3.0. Mandatory Referendum.
This Local Law shall be subject to approval by a mandatory
referendum of the residents of the Town of Southold, to be
conducted at an Election or Special Election pursuant to and as
set forth in Section 360 of the General Municipal Law of the State
of New York, the Election Law and Town Law of the State of New
York.
The Town of Southold Municipal Electric Utility shall be
effective and granted the full powers entitled to it by law on the
date of the approval by a simple majority of the referendum, and
the filing of the Local Law with the Secretary of State of New
York.
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Copyright 1998, Power'Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
Dated:
,1998
Town of Southold
Suffolk County, New York
Page 63
Copyright 1998, Power Alternatives, Ino.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
TO~N OF SOUTHOLD
NOT~CE OF ~UBLIC HE~RIN~ ~ TO LOCAL L~W
Please take notice that the Town Board of the Town of
Southold will conduct a public hearing on the day of
1998, at p.m. for the purpose receiving comment and
considering for voting Local Law No. of 1998, which is entitled
as follows: Local Law No. of 1998, of the Town of Southold, a
Local Law Establishing the-~own of Southold Municipal Electric
Utility, Pursuant to Section 360 of the General Municipal Law of
the State of New York.
The purpose and a summary of Local Law No.__ of 1998, is to
establish a Municipal ElectricUtility pursuant to Section 360 of
the General Municipal Law for the Town of Southold.
PLEASE TAKE FURTHER NOTICE that the public hearing will be
conducted at the Town Hall of the Town of Southold, located at
Southold, New York, and will commence at p.m., on 1998, at
which time any public comment regarding the proposed Local Law
No. of 1998 will be heard, and at the close of such public
comments and discussion by the Town Board, the Town Board shall
conduct a vote on this local law.
Dated: Town of Southold
Suffolk County, New York
Page 64
Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Ino. Report to the Town of Southold
Formation of a Municipal Electric Utility
PROPOSITION
SHALL the Local Law No. , of 1998, of the Town of
Southold, New York, adopted , 1998, by the Town Board
of the Town of Southold, which provides for the formation of
the Town of Southold Municipal Electric Utility for the Town
of Southold, and stating that the maximum cost of the
acquisition, construction and creation of the infrastructure
thereof is
· appropriating said amount therefor, and
authorizing the issuance of municipal utility bonds of said
Town to finance the balance of said
appropriation, which appropriation the Town of Southold
agrees shall only be after further public hearings by the
Town of Southold with respect thereto "BE APPROVED?"
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Copyright 1998, Power Alternatives, Inc.
SOUTHOLD MUNICIPAL
ELECTRICAL UTILITY
Southold Utility Board
I:~alrman & 4 Membe~
Superintendent
of Utilities
Treasurer
1997, ,NI ,~9,'~, reserved, Power Altematlves, Inc. '
Clerk Typist
Line Foreman (4)I
Exhibit
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
Exhibit E
(March 31, 1998)
~outhold ~uniciDal Electric Utility
~ost of Acquisition and Start-Up
Acquisition of Necessary Existing
Electric Facilities
Stranded Allowance
Meters & Metering
System Separation and Isolation and
Maintenance of Continuity
Start-Up Expenses
Working Capital
Legal & Engineering
Reserve of One Year~s Debt Service
Bond Discount
Total Estimated Costs
$ 28,300,000
7,000,000
500,000
2v300,000
2,000,000
2,000,000
700,000
3,800,000
500,000
$ 47,100,000
We have calculated that the Town of Southold would be able to
obtain financing by issuing forty-seven million one hundred
thousand dollars ($47,100,000) in bonds at seven percent (7%) over
thirty (30) years. This debt service of the bonds is to be paid
from the revenues of the municipal electric utility, and a portion
of the per kilowatt rate for electricity charged to the customers
of the utility, and will not affect either the general budget or
the real property taxes of the Town of Southold.
Page 67
Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
~QUTHOLD MUNICIPAL ELECTRIC UTILITY
1998 ODeratina Budaet
Revenue
110,697,557 KWHR @ $.108/KWHR
ExPenses
Salaries and Wages (see organization chart)
Contract Services
Consulting Services - Power Alternatives (50% of
Villages Facility Savings)
Legal Services (not including condemnation which
is in debt amortization)
Financial Services
Employee Benefits
Purchased Power 110,697,557 KWHM @ $ .035/KWHR
Material & Supplies
Real Estate Taxes
Start-Up (in debt amortization)
Debt Service (see purchase & operational start-up)
Postage
Phone
Consumer Refunds
Insurance
Contribution to Depreciation (sinking fund)
Miscellaneous Expense
Contingency
Totals
$ 12,019,395
$ 1,800,000
60,000
75,000
100,000
40,000
600,000
3,874,395
200,000
500,000
3,800,000
15,000
15,000
20,000
300,000
300,000
100,000
220,000
$ 12,019,395
Page 68
Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
Acct.
No.
Description
Exhibit G
TOWN OF SOUTHOLD
SUMMARY OF COSTS FOR DISTRIBUTION
December 31, 1995
Original Trended
Cost Cost
Depreciated
Trended Cost
(Lilco and the New York State office of Real Property Services in
Albany, on the request of Lilco, have refused to release this
information as of the date of this report)
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Copyright 1998, Power Alternatives, Inc.
SOUND
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
Draft
Date=
To=
SOUTHO~ ~4UNICIPAL ELECTRIC UTILITY
All Interested Parties
The southold Municipal Electric Utility is interested in receiving
your response to its enclosed request for proposals to supply up
to 45 MW of electric power and energy. We would appreciate
receiving your response to our request by
To answer your questions, we have scheduled a pre-hid conference
for
Very truly yours,
Chairman
Southold Municipal Electric Utility
Page 71
Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
Exhibit I
SOUTHOLD MUNICIPAL~LECTRIC UTILITY
Competitive Procurement Requests
for Proposals to Supply Power
Back,round
The Southold Municipal Electric Utility ("SMEU") is a
municipal power agency created by the Town of Southold in 1998,
Local Law No. (codified at Southold Town Code, Sect.) and
authorized to purchase electrical energy from the State, or from
any state agency; or other municipal corporation or from any
private or public corporation. New York General Municipal Law
Sect 360(2). By virtue of its sales described below SMEU
constitutes an "electric utility" within the meaning of 16 U.S.C.
Sect. 796(22) and is entitled to apply to the Federal Energy
Regulatory Commission for a transmission order (Sect. 211 Order)
under 16 U.S.C. Sect 824(j).
There is no agreement, either written or implied, with the
Long Island Lighting Company (LILCO) that LILCO should be the sole
source supply of power to SMEU nor is LILCO to limit its
deliverance of power to any one supplier.
SMEU plans to provide electric energy to its residential,
commercial/industrial customers as well as its own electric
requirements up to a total of 72MW. The purpose of this RFP is to
solicit competitive offers for power to sell to its customers.
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Copyright 1998, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
Offers to supply this, and no other, amount will only be
considered.
Pre-bid Conference
A pre-bid conference will be held on
Desired Power Specifications
Quantity:
Up to 45 MW of capacity and associated energy
at 80% load factor, and 60% during winter
months.
Firmness:
This service must be available every hour of
every day during the term of the contract and
must be as firm as the power sold to the
generating utility suppliers native load.
Delivery Point:
Point of interconnection with LILCO
substation. Meter on the low voltage side
into Town distribution line(s).
Term:
Service will commence on subject to
SMEU's conclusion of satisfactory
transmission arrangements as described below.
SMEU will consider proposals with a term of
at least ten (10) years but fifteen (15)
years or more is preferred.
Pricing:
Fixed demand charge is desired. Fixed energy
charge is preferred, but SMEU will consider
variable energy pricing with price caps.
Offers must clearly explain the pricing of
capacity and energy.
Source:
The sources of generation must be identified.
Ail sources of generation regardless of
whether offerer owned or purchased power will
be considered.
Ancillary Services: None
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Copyright 1998, Power Alternatives~ Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
FUTURE SMEU REQUIREMENTS
Although SMEU here requests proposals to supply the capacity and
associated energy described above, circumstances may arise whereby
a larger role for SMEU supplier(s) may become necessary or
appropriate, up to and including resources to 30 MW serve the full
requirementsof all end-users located in the Town of Southold.
Offers should include information regarding the offerer's ability
to supply SMEU with sufficient power to serve all of the Town's
load, which is now approximately 72 MW.
TRANSMISSION ARRANGEMENTS
As indicated above, capacity and energy must be delivered on a
firm basis to one or more points of interconnection with LILCO's
transmission system. The supplier shall be responsible for
arranging all transmission and other related services (e.g.,
reserves) to that point. SMEU will be responsible for downstream
delivery arrangements and, if necessary, intends to apply for a
211 Order to obtain the necessary services from LILCO.
OTHER INFORMATION
Supplemental Infold%ion. SMEU reserves the right to request
additional information from individual offerers or to request
all offerers to submit supplemental materials.
2. Costs. This RFP does not commit SMEU to pay any costs
incurred in connection with any proposal.
®
Performance Assurances. Offerers must provide information
sufficient to demonstrate the ability to financially and
operationally perform the services requested in this RFP.
Re4ections of Offers. SMEU reserves the right to accept any
offer(s), or to reject any and all offers. SMEU also reserves
the right to accept offers other than the lowest cost offer.
Notice of Receipt of RFP - Intent to Respond. SMEU requests
but does not require that recipients of this RFP who intend to
submit offers complete the form attached as Attachment A and
return copies by to at the address
supplied below.
6. ~. Pursuant to Town Local Law
, criminal
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Copyright 199'8, Power Alternatives, Inc.
Power Alternatives, Inc. Report to the Town of Southold
Formation of a Municipal Electric Utility
convictions rendered against any offerer in the three years
preceding the submission of a proposal must be submitted with
such proposal. Further, any individual possessing a record of
felony criminal conviction(s) within three years prior to
submitting a proposal involving the offense(s) of extortion,
coercion, bribery, theft, violence specifically relating to
business, labor or commerce, sabotage, collusive bidding/bid-
rigging, combination in restraint of trade, conspiracy and/or
attempts of any of these offenses or any corporation convicted
of any of the above offenses within the three year period
shall be deemed a non-responsible offerer and shall be
disqualified from submitting an offer in response to this RFP.
Any contract awarded to an offerer who has failed to disclose
such prior record of criminal conviction(s) may be cancelled
by SMEU.
BASIS OF AWARD
Proposals will be judged on the offerer's ability to meet SMEU's
need for economical and reliable power. The principle criteria in
evaluating proposals will include: total delivered cost of power
and energy over the contract term, length of contract term,
reliability of proposed power supply, and financial and
operational viability of power supplier. SMEU reserves the right
to consider other factors that may be relevant to its power supply
needs.
SUBMISSION OF OFFERS
Offers must be submitted by mail, hand-delivery, or courier,
addressed as follows:
Offers must be enclosed in an envelope marked: "Confidential,
Response to SMEU RFP. Deliver to Addressee Unopened." The
deadline for submission of offers is 5:00 p.m.,
Submittals by facsimile or other electronic means are NOT
acceptable.
COPIES
Two copies of each offer should also be concurrently sent to:
Power Alternatives, Inc.
175 Route 25A
East Setauket, NY 11733
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Copyright 1998, Power Alternatives, Inc.