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HomeMy WebLinkAboutGas Utility-1998 Feasability & Creation REPORT TO THE TOWN OF SOUTHOLD ON THE FF~SIBILITY ~ CREATION OF A TOWN OF SOUTHOLD MUNICIPAL GAS UTILITY Suffolk County New York March 31, 1998 POWER ALTERNATIVES, INC. 175 ROUTE 25A, EAST SETAUKET NY 11733 Tel. 800. 548. 9938 Fax: 516. 751.7123 Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility TABLE OF CONTENTS I. Introduction Page 1 II. Background to Municipallzatlon Dereuulation of the Gas Industry Page 6 III. Cost of Gas SuDDlv. Transportation and Maintenance Page 11 IV. Savinqs to be Achieved by Municipalization Page 15 V. operation of the Municipal Gas Utility Costs and Overhead for the Town of VI. VII. Southold Formation and Implementation of the Town of Southold Munlclpal Gas Utility S~mmar¥ Exhibit A: Exhibit B; Exhibit Ct Exhibit D; Notice of Public Hearing Proposed Local Law Notice of Adoption Notice of Referendum Page 18 Page 21 Page 24 Page 25 Page 26 Page 32 Page 33 Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility I. Introduction 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 of the Town of Southold creating a Town of Southold Municipal Gas Utility as a means of providing savings in the cost of natural gas supply to its residents, businesses, and the Town itself. The report will also address whether the Town of Southold would benefit from forming and operating its own municipal gas utility. The study is intended to provide the Supervisor and Town Board of the Town of Southold with sufficient information to render a decision as to the municipalization of natural gas supply within the Town, and to provide the Town with the series of steps that are necessary to bring the Town to the stage of the formation of a municipal gas utility, including the required local law and the mandatory referendum. The Town of Southold presently has gas supply to only a portion of the Town. The benefits that are indicated in this report would apply to those residents and businesses that are presently gas customers. Power Alternatives has had a major gas utility conduct an initial investigation as to the extension of gas service to the remainder of the mainland portion of the Town, Page 1 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility and it is possible that a utility would be interested in completing that project. This can be further explored by Power Alternatives once the Town has created a municipal gas utility. There are presently many successfully operating municipal gas utilities both on Long Island, in New York State, and across the Country. Except for the several municipal gas utilities that were formed by Power Alternatives, in general the other existing municipal gas utilities were formed before the deregulation of the gas and for that reason own and maintain their infrastructure and distribution systems. The manner of the deregulation of the gas industry has enabled municipalities such as the Town of Southold to access the benefits of deregulation without the burden of the ownership and maintenance of the gas pipelines and distribution system. Section 360 of the General Municipal Law of the State of New York requires that the total maximum projected cost of the formation and all of the possible costs of the implementation of the municipal gas utility be stated in the local law which creates the municipal gas utility. Power Alternatives has reviewed the possible expected costs and requirements of the creation of the municipal gas utility and determined that the cost that should be stated in the local law as the maximum cost of the formation of the municipal gas utility is twenty-five thousand dollars ($25,000). The basis of the Page 2 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility determination of this amount and the related costs will be discussed in detail later in this report. The savings that can be expected by the municipal gas utility, and the costs that are stated in the local law have been determined based on the design of a municipal gas utility without any benefit or savings from joint efforts with future adjoining or other municipal utilities. In the event that a municipal gas utility at a municipality that is adjacent or proximate to Southold is implemented, or if there is cooperation received from the Long Island Lighting . Company ("Lilco"), the cost of gas could be more substantially reduced, and therefore the savings provided to the residents and businesses of the Town could be substantially increased. The results of this study also show that a reasonable projection can be made that by forming a municipal gas utility the Town can potentially reduce the retail cost of gas to gas customers in the Town by as much as fifteen percent (15%) or more (the amount of savings will differ by class of customer) below the amount that those customers would pay as the cost of gas if the Town continued to obtain its supply of gas from Lilco. The study projects that the rate per decotherm that will be charged by the municipal gas utility for gas supply will be approximately eight to twelve percent lower than the rate that is presently charged. Page 3 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility There are a number of other benefits to be anticipated in addition to the economic benefits provided by the creation of a municipal gas utility. The ownership and control of the municipal gas utility by the Town can actually improve service to its rate- payers and residents. This is because the utility, at the local level, will work with the existing gas utility to determine and address service, maintenance and repair priorities. Southold may also elect to staff some of the non-maintenance operations (Lilco will continue to do all maintenance and repairs) of the municipal gas utility itself, such as billing or management, providing employment opportunities for qualified residents of the Town of Southold. The creation of the municipal gas utility is done by the adoption of a local law. The local law must be approved at a subsequent mandatory public referendum. The referendum will be held either not less than ninety days after the adoption of the local law at a general election, or possibly sooner at a special election. A proposed Local Law which can be used for the creation of a municipal gas utility is annexed as Exhibit B to this study. The notices for the public hearings (Exhibit A) as well as the required Notice of Adoption of Local Law (Exhibit C) and Notice of Referendum (Exhibit D) are also annexed to this study. Page 4 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility The adoption of the Local Law and the passing of the referendum does not commit the Town to the expenditure of any additional monies or incurring any debt. The actions do allow the Town of Southold, and its newly formed municipal gas utility, to go out, with the assistance of Power Alternatives, and confirm the cost and availability of gas supply, and the cost of the implementation and operation of the municipal gas utility. The Town of Southold, after that process of confirming the numbers that result in the savings, without any further expenditure of monies, can then make the decision as whether to implement the municipal gas utility. The reason why many municipalities are presently studying or proceeding with plans for the implementation of their gas utility service is that it is a relatively risk free way to bring economic relief to the community. The municipalization of gas utility service is a means by which the Town of Southold can bring the benefits that were intended by deregulation not just to the larger gas consumers, but to all of the residents and gas customers of the Town. Page 5 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility II. Baokground to Munioipalization; Deregulation of the Gas Industry The ability of the Town of Southold to consider and undertake this project is due to the deregulation of the gas industry at both the Federal and State levels. Since the options of deregulation became legally possible, the benefits of the deregulation of the gas industry have been available from a practical basis almost exclusively to the large consumers of gas. The purpose of forming a municipal gas utility in the Town of Southold will be for the Town to provide economic relief and the benefits of deregulation of the gas industry to all of the residents and businesses of the Town of Southold. The ability of the Town of Southold to form a municipal gas utility which will then purchase and sell gas supply to the gas customers in the Town is a result of the enactment of Federal legislation by Congress in the early 1990~s and the corresponding regulations that were promulgated under that leglslation by the Federal Energy Regulatory Commission. The Federal legislation and regulations were followed by deregulation at the State level, which in New York State included legislation and regulations issued by the State of New York and the Public Service Commission. The enabling statute for forming a municipal utility in the Page 6 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility State of New York is pursuant to General Municipal Law Section 360. That statute permits a Town or other municipality to municipalize its gas service by a process which is outlined in that statute. The deregulation of gas has enabled gas customers to have options available to them with respect to their gas supply and service. Among these options is the ability to select their gas supplier. The option of selecting a gas supplier enables a customer to maintain their current service, including emergency service and routine maintenance, with their existing utility, and to choose the provider of their gas supply from the least expensive alternative. Although these options were meant to legally have been available to all gas customers, gas suppliers and utility companies have only made the options available on an individual basis to larger gas customers. This is largely due to the fact that the marketing and overhead expenditures that are necessary for gas suppliers to market and maintain supply to smaller customers has made those customers unattractive. By forming a municipal gas utility the Town of Southold can enable its residents and businesses to access the benefits of deregulation directly on an individual basis. The Town municipal gas utility will become the purchaser of gas supply and by aggregating and changing the structure of the load can provide the Page 7 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility benefit of lower costs to the homeowners and smaller business gas customers that would otherwise not have these benefits available to them. The deregulation of the gas industry has meant the "unbundling" of the costs and services that are the components of the cost of gas to retail gas customers. The manner of the deregulation of gas is of particular benefit to the creation and implementation of the Town municipal gas utility, because it enables the Town to combine the benefits of municipalization and deregulation for its residents. The Town will be able to address the components of the cost of gas that it has the ability to lower the cost of gas supply and taxes, and reduce or eliminate those costs through competitive bidding and the tax exempt status that are characteristic of the municipal utility. Because of deregulation, the existing utility, Lilco, will continue to be responsible for the transportation of the gas as well as the ownership, maintenance, and repairs of the gas pipelines and distribution system. The deregulation of gas has also made the formation of a municipal gas utility a relatively risk free project for the Town of Southold and its residents. This is because after the municipal gas utility is formed, it will be optional for each residential and commercial gas customer in the Town to participate Page 8 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility in the municipal gas utility, and to purchase their gas from the Town. Any residential or commercial customer in the Town that wishes to stay with Lilco for the purchase of their gas supply after the formation of the municipal gas utility, can continue with Lilco without any interruption or change. Any residential or commercial gas customer that decides to change to the municipal gas utility for the purchase of their gas, and then decides at a later date to return to Lilco for their gas supply will be able to do so after only an easy notification process. All gas customers in the Town of Southold, whether purchasing their gas supply from the new municipal gas utility or remaining with Lilco, will continue to have their service, including emergency and regular repairs and service, provided by Lilco. The only change for the residential and commercial gas customers of the Town after the formation of the municipal gas utility will be the optional choices available to them of changing to the Town municipal gas utility, and then whether to stay with the Town municipal utility, or of staying with or returning to Lilco. The formation of a municipal gas utility by the Town of Southold is therefor a relatively risk free means, both for the Town and its residents and businesses, of providing the benefits Page 9 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility of deregulation on an optional basis to the residents and businesses of Southold. Page 10 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility III. Cost of Gas SuDDlv, Transportation and Maintena~-~ The cost of gas to retail customers has several components. The components that are relevant to this report and which are charged in the service territory of the Town of Southold are the cost of the gas supply, the transportation cost, the cost of the ownership and maintenance of the gas pipelines, taxes, and fees and surcharges which utility companies are allowed to add on to the cost of gas. The costs of the gas supply, distribution, and transportation, as well as the cost of the ownership and maintenance of the gas pipelines and equipment are presently combined in a per decotherm charge to retail gas customers by their utility. The surcharges that are added are typically added either seasonally or for finite periods of time. The surcharges are for items such as severe environmental or weather events, large commodity price changes, and similar events. These charges are approved by applications to the Public Service Commission by the investor owned utility. The municipal gas utility will likely not have any such surcharges imposed on its customers. Surcharges, price changes, or other similar changes would have to be approved at a public hearing within the Town rather than at unnoticed proceedings Page 11 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility hundreds of miles from the Town at which the gas customers affected by the hearings have practically no representation or voice. The deregulation of gas has enabled what is referred to as the "unbundling', of the cost of gas to retail customers. What this means is that the costs of various components have been separated on a retail basis, for the retail customer. A municipal gas utility, in taking advantage of the "unbundling" and the intended benefits of deregulation, is able to provide the opportunity to gas customers to reduce the total cost of their gas by reducing the cost of the supply and tax components individually, while continuing to have the other components, the maintenance, ownership and repairs of the gas pipelines, equipment and distribution equipment and system continue to be provided by Lilco. The cost of the transportation of gas, and of the maintenance and repairs of the pipelines and distribution system, is generally about sixty percent (60%) of the cost of gas to retail gas customers, although this percentage varies by customer, season, and utility. The remaining forty percent (40%) of the retail cost is comprised of the cost of the gas supply, and also of taxes and other items that are charged for. The taxes include the gross receipts tax (4.25%), and possibly also sales tax (up to 4%). However, an exact value of Page 12 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility these numbers can only be determined after the referendum is passed and the response to competitive bids is received by the Town, in conjunction with an analysis of the then effective tariff and rates. The municipal gas utility will also be able to achieve savings for the customers of the municipal gas utility by a reduction of the cost of the gas supply component to those customers. This will be accomplished in part because by aggregating the many gas customers in the Town into a large demand for gas, a better or lower price will be available from a gas supplier. The other reason for the reduction of the cost of the gas supply is because of the fact that the contracts for gas supply will be obtained by competitive bidding. This is a substantial benefit of having a municipal gas utility operating pursuant to the requirements of the General Municipal Law. A published notice of request for proposals will be issued by the Town of Southold which will likely be responded to by several gas supply companies. The public bidding will result in a competitive reduction in the cost of the supply of gas. The municipal gas utility will be expected to also reduce the tax components of the retail cost of gas. It is believed that the municipal gas utility may be established so as to eliminate a portion of the gross receipts tax, and possibly also the sales tax Page 13 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility applicable to the purchases of gas for the municipal gas utility and its customers. This will result in a savings of an additional several percent for the customers of the municipal gas utility. The gas customers of the Town municipal gas utility will continue to pay Lilco for the cost of the ownership, repairs and maintenance of the gas pipelines, and of the transportation of the gas to the Town gas customers. These costs will be paid either through the municipal gas utility or directly to Lilco, which will be decided by the Town in the future. Lilco will continue to be responsible for the maintenance and repairs of the gas pipelines and distribution system, including all emergency calls and repairs, and any required maintenance. The charge for transportation is the cost of actually transporting the gas to the Town gas customers, which will also be done by Lilco, and for which that company will continue to be paid. The cost to be charged by Lilco for these services is a published cost contained in a public tariff. The costs, as stated above, are generally about sixty percent (60%) of the total retail price of gas, and the percentage fluctuates depending on the type of customer and season of the year. Page 14 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility IV. Savings to be Achieved by Municimalization Municipalization will enable the Town to reduce the costs of several components of the cost of the gas supply, including the taxes that are charged. In addition it is believed that when a substantial number of customers are combined, as will be the case upon the formation of the municipal gas utility for the Town of Southold, that it may be possible also to reduce the cost of the transportation of the gas. The gas supply of the municipal gas utility will be obtained by competitive bidding by the Town. This can be expected to reduce the cost of the gas supply itself from between five to possibly as much as twenty percent (5-20%), depending on the type of customer and the market factors, as well as the type of contract that is sought by the Town. The Town will try to structure the gas supply contract so that rather than having the Town be obligated to purchase a specific amount of gas from a gas supply company, the gas supply company will be required to provide gas supply to the customers in the Town that desire to purchase that supply. The result of the structuring of both the retail and wholesale sectors of the gas industry is that the Town may be offered different costs of gas for different types of gas customers in the Town. This will give the Town the opportunity to Page 15 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility have different prices of gas for different types of gas customers such as different types of commercial and industrial, and residential customers, if desired. Power Alternatives will assist the Town in the considerations for this pricing, and the determination of the pricing to the new municipal gas utility customers. After the implementation of the municipal utility, it is expected that the Town will be able to eliminate some of the taxes that are now included in the retail price of gas for additional savings for the residential and commercial gas customers. This includes a portion the gross receipts tax, which can be eliminated or reduced on some or all of the gas payments, as municipal utilities are believed to enjoy an exemption from the gross receipts tax. In addition to the elimination of a portion of the gross receipts tax, it is also believed that depending on the manner of the implementation of the municipal gas utility, and the structuring of the gas supply contract, that the some or all of the sales tax that is presently charged may also be eliminated from the cost of gas to the gas customers of the Town. There are also revenues that can be generated for the Town by the municipal gas utility which can be used to either provide revenues to the Town general budget or to reduce the cost of gas for the customers of the municipal gas utility. Page 16 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility The municipal gas utility can sell gas to the residential and commercial gas customers that are contiguous property owners to the Town of Southold. One of the roles of Power Alternatives will be to work with the Town to identify these customers an establish the necessary arrangements with them. The sale to these customers is believed to be permitted to produce a small profit for the Town which can be used to reduce the cost of gas to the customers of the municipal gas utility, or to provide revenues to the general budget of the Town. Page 17 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility V. Operation of the Municipal Gas Utility Costs and Overhead for the Town of Southold The operation of the municipal gas utility can be done for virtually no additional costs or overhead for the Town of Southold. This is because the repairs and maintenance of the system will continue to be done by Lilco. In addition, the proposals that will be solicited by the Town for gas supply contracts will require the company to which the contract is awarded to do the billing for the municipal gas utility, including the meter reading, billing, and collection. The means and process of billing, including budgeting, collection, deposits, and other routines of that process will be processed by the gas supply company. The requirement by the Town in the proposals that the gas supply company perform these services for the Town of Southold will enable the Town to form and operate the municipal gas utility at virtually no cost to the Town. The Town will then not be required to employ any additional staff or to purchase any additional equipment or capital in order to form and operate the municipal gas utility if it does not choose to do so. In the future, if the Town decides to assume some of the metering or billing functions, the Town can have the revenues of the municipal gas utility support some employment positions in the Town as a further benefit or the municipal gas utility. Page 18 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility Ail decisions by the municipal gas utility for items such as price changes and expenditures must be made at public hearings conducted in the Town, where the residents of the Town can attend and participate. At this time, it is likely that the municipal gas utility can be formed and operated without the purchase of any equipment or metering, both retail and for the purchase of the gas supply itself, and therefore this will be done at little or no cost to the Town. New York State law requires that the enabling statue of the municipal gas utility, Section 360 of the General Municipal Law, state the means of the acquisition of any equipment to be purchased by the municipal gas utility, including the expected maximum costs thereof. It is not expected that the Town will have to acquire any equipment to form or operate the municipal gas utility. However, in the event that at a future time the municipal gas utility should have to acquire any meter, metering, pipeline, or equipment, to continue operation, it would not be able to spend any money for that purpose unless the language providing for that acquisition is stated in the original enabling statute, including the maximum cost of the purchase. For that reason, the local law that was adopted by the Town contains language enabling the municipal gas utility to purchase Page 19 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility or acquire equipment if it is ever necessary. The maximum amount that could ever be spent on that purchase or acquisition is stated in the local law as twenty-five thousand dollars ($25,000). This amount has been determined to be the amount that could be required to purchase basic metering, or some equipment by the municipal gas utility, should the purchase become necessary at a later date due to an event such as legislative or regulation changes. It is very unlikely that the Town will have any substantial expenditure in the creation of the municipal gas utility, The formation and operation of the municipal gas utility, including the amount that is stated in the local law, will not have any effect on the general budget or taxes of the Town the Town. This is because any such expenses will be paid by the municipal gas utility, from the revenues of the gas utility. Any capital purchases such as metering and equipment, if ever required, can be financed by the municipal gas utility in long term financing at low municipal interest rates, so that there will be only a negligible effect on the cost of gas to the customers of the municipal gas utility by any such required expenditure. Page 20 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility VI. Formation and Implementation of the Town of Southold Munlcipal Gas Utility The initial step of the formation of a municipal gas utility is the adoption of a local pursuant to Town Law and the Local Home Rule Law with which meets the technical requirements of Section 360 of the General Municipal Law. The local law is adopted at a public hearing, which is noticed and conducted pursuant to the Local Home Rule Law, and the Town Law of the State of New York. The local law must follow the requirements of Section 360 of the General Municipal Law, which among other items, mandates that the local law state the manner of the acquisition of the supply and the obtaining of or the use of the infrastructure. The proposed Local Law for the Town of Southold, including the maximum stated cost of the municipal utility, twenty-five thousand dollars ($25,000) is annexed as ~xhibit A hereto. The Town is then mandated to conduct a referendum on the local law which should be held not less than ninety days after the local law is adopted, at a special or general election. The ninety day period may be shortened under certain circumstances. After the passing of the referendum, the Town Clerk must file the local law at the office of the Secretary of State with twenty days after the date of the referendum. The municipal gas utility becomes a legal municipal entity or department of the Town on the filing of the local law with the Secretary of State. The process of the adoption of the local law and the Page 21 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility conducting of the referendum also has many procedural requirements of the Town Law and Election Law which must be followed. Power Alternatives is available to advise the staff of the Town of Southold as to these requirements, and will advise and work with the Town and its staff as those requirements as the process continues. Upon the municipal gas utility becoming formally created, the implementation process may commence. An initial step in that process is for the Town to send inquiry letters to their residents asking about their interest in the utility. An additional step will be to identify the gas customers that are outside of the Town, but who are on property that is immediately adjacent to the Town, as they can become customers of the municipal gas utility. The Town will issue a Notice of Request for Proposals, which will actually request that interested parties, usually large gas supply companies, respond with a proposal for the supply of gas to the retail gas customers in the Town. Power Alternatives will provide these notices and contracts to the Town as necessary, pursuant to its agreements with the Town of Southold. In addition, gas suppliers will be qualified and the supply contract awarded by the Town with the assistance of Power Alternatives. The necessary forms and compliance for the transfer of Page 22 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility customers and other necessary requirements for the implementation of the gas customers will be provided to Southold by either the gas supply company or Power Alternatives. The transportation of the gas and the maintenance and repairs of the gas pipelines and equipment will continue with Lilco. The logistics of the billing and payment for these items as well as the continuing of the services and the beginning of the supply of gas to the customers deciding to purchase from the municipal gas utility will be arranged by the Town with the assistance of both Power Alternatives and the gas supply company. Page 23 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Re,ortho the Town of Southold Formation of a Municipal Gas Utility VII. S~mmary The municipalization of gas is a means for municipalities such as the Town of Southold to enable its residents and businesses to access the benefits of deregulation that they were intended to receive. Power Alternatives is still the only company to have successfully formed a municipal gas utility in the State of New York since the deregulation iof the gas industry. We are believed to be the only company working with municipalities in this process, and to a large extent Power Alternatives originated this concept and process. Southold can also be assured by the fact that there are presently several other municipalitlies in Suffolk County, such as the Villages of Lynbrook, Hempstead, and Farmingdale, and other municipalities throughout New York State, which are at various stages of the consideration, formation and implementation of the municipalization of gas for their communities. Page 24 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility EXHIBIT TOWN OF SOUTHOLD NOTICE OF PUBLIC HEARING ON PROPOSED LOCAL LAW NOTICE IS HEREBY GIVEN that the Town Board of the Town of Southold will conduct a public hearing on March , 1998, at 8:00 p.m., concerning a proposed new Local Law of 1998, of the Town of Southold, entitled "A Local Law of the Town of Southold of the year 1998, a Local Law Creating a Municipal Gas Utility of the Town of Southold" for the purpose of receiving public comment, and at the conclusion of the public comment period, considering for voting and adoption the described local law. The purpose and a summary of the proposed Local Law of 1997, is to establish a Town of Southold Municipal Gas Utility 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 , located at , Southold, New York, and will commence at 8:00 p.m., on March , 1998, at which time any public comment regarding the proposed Local Law of 1998 will be heard, and at such time and place all persons interested in the subject matter thereof will be heard concerning same, and at the close of such public comments and discussion by the Board, the Board shall conduct a vote on this local law. Dated: Town of Southold Suffolk County, New York , 1998 By Order of the Town Board of the Town of Southold Page 25 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility EXHIBIT B TOWN OF SOUTHOLD LOCAL LAW NO. OF THE YEAR 1998 A LOCAL LAW CREATING THE MUNICIPAL GAS UTILITY OF THE TOWN OF SOUTHOLD. BE IT ENACTED by the Town Board of the Town of Southold as follows: Section 1; Title, Purpose and Definitions. 1.1(A). 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 Gas 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 twenty (20) days after its approval by a simple majority of the voters by mandatory referendum at an election or ~pecial election to be held to approve this local law, pursuant to Section 360 of the General Municipal Law. 1.2. Intent. WHEREAS the Town of Southold is a Town duly incorporated under the laws of the State of New York, and; WHEREAS the Town Board of the Town of Southold is duly empowered pursuant to Section 360 of the General Municipal Law of Page 26 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility the State of New York to form a Municipal Gas 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 gas power in the Town, including the Town itself, and of their families and guests, for the economic climate of the Town, and for the protection of private and public property within the Town and the value of that property, that the supply and distribution of gas to the residents, businesses and other consumers of gas 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 gas and gas supply to be provided to the Town of Southold, its residents, businesses and institutions, is by the creation of the Town of Southold Municipal Gas Utility, the Town Board of the Town of Southold hereby enacts this local law for the intent and purpose of establishing a Municipal Gas Utility pursuant to Section 360 of the General Municipal Law, and all of the powers and duties thereunder. Section 2.; Plant and Facilities, Maintenance and Service. and Supply The Town of Southold Municipal Gas Utility shall acquire the necessary facilities, and either establish necessary functions for or procure contracts for the maintenance, service and billing of Page 27 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility the gas energy system, and a supply of gas such as are necessary for the creation of the Southold Municipal Gas Utility. The proposed method of constructing, leasing, purchasing, or acquiring, the facilities necessary for the operation of the Southold Municipal Gas Utility, if any, together with both the maximum and the estimated costs thereof, the method of furnishing such service, and the method of obtaining gas supply shall be as follows: 2.~. A. Plant and Facilities. The Town of Southold Municipal Gas Utility will obtain access to or acquire the portion of the gas distribution system within the Town, if any, that it is necessary for the Town to operate the Municipal Gas Utility, by purchase, lease, or condemnation from that which is currently owned by the Long Island Lighting Corporation ("Lilco"), or by obtaining other facilities as necessary. The municipal gas utility will only acquire, construct or obtain that equipment and facilities, if any, which are necessary to provide gas supply, and segregate and operate the municipal gas utility and as may be needed to separate itself from the Lilco system or to meter the gas supplied to or used by the Town of Southold Municipal Gas Utility. B. The maximum and estimated cost of the items set forth in subparagraph (A) hereof, is expected to be not more than twenty- five thousand dollars ($25,000). Page 28 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility C. The cost of the necessary facilities, if any, and distribution and any other costs that are necessary for the implementation of the Town of Southold Municipal Gas Utility and the entire costs of the implementation and operation of the Town of Southold Municipal Gas Utility will be paid in the first instance from the revenues generated by the Town of Southold Municipal Gas Utility only. D. None of the costs of the implementation or operation of the Town of Southold Municipal Gas Utility shall be included in or have any affect on the Town general budget or the assessment of Town property taxes. 2.2. Service and Maintenance of Plant, Facilities, and Distribution System. A. The Town of Southold Municipal Gas Utility will obtain service and maintenance for the equipment and infrastructure of the Southold Municipal Gas Utility, and the other remaining gas distribution and other equipment that is within the Town from Lilco, or the existing gas utility for the time that the utility is mandated to provide those services, or it remains in the best interests of the Town to receive the maintenance from that source, and will otherwise contract out the service and maintenance to other suitable contractors as necessary or when in the best interests of the Town and the Municipal Gas Utility. The Town of Southold Municipal Gas Utility will obtain billing and management services by obtaining contracts with Page 29 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility suitable and acceptable maintenance, service and billing companies. The contracts will be supported wherever possible by a performance bond of an amount acceptable to 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 billing, service and maintenance to the Town of Southold Municipal Gas Utility if the Town deems it to be in the best interests of the Town to do so. 2.3. A. Gas Supply. The Town of Southold Municipal Gas Utility will obtain its supply of gas by contracting with another utility or supplier to provide the supply of gas to the Municipal Gas Utility. 3.0. Mandatory Referendum. This Local Law shall be subject to approval by a mandatory referendum of the residents of the Town of Southold, 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, at an Election or Special Election as may be required, which shall be conducted on , 1998. The Town of Southold Municipal Gas 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 Page 30 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility filing of the Local Law with the Secretary of State of New York. Dated: , 1998 Town of Southold Suffolk County, New York Page 31 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility EXHIBIT C LEGAL NOTICE TOWN OF SOUTHOLD NOTICE OF ADOPTION OF LOCAL LAW SUBJECT TO REFERENDUM AND OF HEARINGS ON REFERENDUM PLEASE TAKE NOTICE THAT the Town Board of the Town of Southold, on , 1998, pursuant to Section 360 of the General Municipal Law and the Home Rule Law of the State of New York, adopted a Local Law of 1998, a Local Law Creating a Municipal Gas Utility for the Town of Southold. PLEASE TAKE FURTHER NOTICE that a public referendum will be conducted by the Town of Southold on , 1998, on the Local Law of 1998 creating the Town of Southold Municipal Gas Utility, at such times and places within the Town as will be announced by further public notice. PUBLIC HEARINGS will be conducted on the Local Law of 1998 creating a Town of Southold Municipal Gas Utility, and the public referendum, at the Town Hall of the Town of Southold, located at , Southold, NY , on , 1998, at 7:00 p.m., and on , 1998, at 7:00 p.m. FURTHER PUBLIC NOTICE including the publication of the referendum and the Local Law will be made by the Town of Southold as required. Dated: , 1998 Town Clerk Town of Southold Suffolk County, New York Page 32 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility EXHIBIT D TOWN OF SOUTHOLD NOTICE OF MANDATORY PUBLIC REFERENDUM;SPECIAL ELECTION PLEASE TAKE NOTICE that on , 1998, the Town of Southold will conduct a mandatory public referendum pursuant to Section 360 of the General Municipal and the Town Law of the State of New York, for the approval of a Local Law adopted on , 1998 by the Town Board of the Town of Southold, Creating a Town of Southold Municipal Gas Utility. PLEASE TAKE FURTHER NOTICE that the voting on the mandatory referendum will be conducted on , 1998 between the hours of twelve noon (12:00 p.m.) and nine o'clock (9:00 p.m.), and that all residents of the Town registered to vote at local elections will be entitled to vote at the referendum, and that voting will take place as follows: Election Districts: voting place will be in the Town Hall. Election Districts: voting place will be in The referendum proposition shall be submitted for mandatory public referendum ballot by the Town of Southold at a special election/referendum to be conducted for that purpose on , 1998, and will be presented on a ballot on that date. The following is the Referendum Proposition that will be submitted for mandatory public referendum on , 1998. Referendum Proposition SHALL a Local Law of 1998, of the Town of Southold, New York, adopted by the Town Board of the Town of Southold on , 1998, creating a Town of Southold Municipal Gas Utility BE APPROVED? WHICH LOCAL LAW provides for the creation of the Town of Southold Municipal Gas Utility pursuant to Section 360 of the General Municipal Law of the State of New York, for providing gas supply to the Town and its residents and businesses, and further provides that the equipment and facilities necessary for the metering and operation of the municipal gas utility, if any, may be acquired by purchase, construction, reconstruction and or condemnation from the existing utility service company, if necessary, and that the costs associated there with, if any, will be not more than twenty-five thousand dollars ($25,000) that being Page 33 Copyright 1998, Power Alternatives, Inc. Power Alternatives, Inc. Report to the Town of Southold Formation of a Municipal Gas Utility the estimated and maximum cost thereof, and that the entire cost thereof will be paid from the revenues of the Municipal Gas Utility only, and shall not have any effect on the Town General Budget, the purpose and intent of this Local Law being in order to provide inexpensive and reliable gas supply to the residents, businesses and institutions of the Town of Southold. Town of Southold , 1998 The following is the text of the Local Law which is submitted for mandatory public referendum, and which is published herein in accordance with Section 360 of the General Municipal Law. Page 34 Copyright 1998, Power Alternatives, Inc.