Jerry Smith

The News Journal

A debate about whether the City of Dover should be in the electricity business that has been brewing for nearly a decade has hit a new level.

A proposal by the Central Delaware Chamber of Commerce is asking the city to form a task force to look into the possibility of selling the electric utility.

What started out as a request by the chamber as part of its Vision 2020 plan for Dover turned into a discussion about electric rates, services and whether or not continuing to run the aging McKee Run Generating Station will cost the city in the long run.

Proponents of keeping things as is say that in order to get out of the electricity business, they need to find a way to generate the nearly $10 million each year that comes from the utility.

“It would be to no value to anyone to pay a lower electric bill and a higher tax bill,” said council president Timothy Slavin. “Right now, we are on goal for a $10 million transfer each year from the electric utility that offsets our property taxes. Somewhere in the calculus that comes out the other end, we would have to figure that out.”

Fourth District councilman David Anderson said it would have to be a sweet deal in order for him to sign off on any plan to sell the utility.

“I’m on board with the other nine ideas in the Vision 2020, but I am not in favor of selling the utility unless someone dangles enough money to make it feasible,” he said.

STORY: Trial opens in deadly Howard High assault

STORY: Bills could pave way for Dover Mall road

Judy Diogo, president of the chamber, said the reason it made this a priority in its Vision 2020 initiative is because some members believe the city’s commercial rates are too high.

She said members first expressed some concern in 2009, which led to discussions with city leaders and workshops where Delaware Electric Cooperative presented an option for buying the utility from the city.

Diogo said that initiative lost momentum until new concerns were voiced in recent years.

“What we are trying to do is make Dover as economically viable so that the companies that are here and the businesses we are trying to attract here can be competitive in today’s market,” she said. “Our purpose is to try to move our recommendation forward to establish some type of a task force to assist the city in at least looking at the opportunity of what we can do with the utility.”

Dover Downs Hotel & Casino and Dover International Speedway, two of the city’s biggest users of electricity, went to the chamber with concerns about the rates and asked if there was a way they could be lowered.

Janie Libby, vice president for human resources at the casino and speedway, said the energy consumption for Dover Downs and Dover International Speedway is enormous. Last year, she said the electric bill exceeded $2.1 million.

“It’s no secret that the Dover electric rates are significantly higher than those of any of our neighbors, including the other two casinos with which we compete right here in Delaware,” Libby said. “We are extremely interested in anything we can do to reduce our expenses.”

Currently, the City of Dover is a member of the Delaware Municipal Electric Corporation, Inc. (DEMEC), a public corporation and a wholesale electric utility. DEMEC represents nine municipal electric distribution utilities in Delaware; its other members are Clayton, Middletown, Milford, Newark, New Castle, Seaford and Smyrna.

Acting City Manager Donna Mitchell confirmed that in the last rate study by the city, Dover consistently had lower residential rates than private companies. In some of its commercial rate plans, however, the city was not as competitive.

That is why she proposed the city pay for a study by an independent consultant to include best practices and possible areas for improvement, and an updated full cost-of-service study to include rate design and street lighting with recommendations on changes to the current components of the city’s electric rates.

“Some of our issue is our reliance on the utility to help support the General Fund,” Mitchell said. “However, it would provide more transparency to our customers to have all of the cost drivers benchmarked.”

The Committee of the Whole thought the studies would benefit the city and voted to pass the recommendation on to the City Council for action. The lone dissenting vote came from Anderson.

Separate issues?

Councilman William Hare believes there is a lot more to the discussion than just rates. He said the generation side is a concern, especially when the plant doesn’t generate the majority of the electricity the city uses.

The city pays more than $6 million annually to operate the generating plant, which includes all personnel and operating expenses. Mitchell said much of the city’s power is a mix of purchased power, solar power and generated power. She said the city doesn’t run its generators unless called on to run.

As these generators – three natural gas-powered units at McKee and a black start jet engine at the VanSant facility at Schutte Park – get older, the cost to maintain them will increase.

“We pay a very high price for someone to run that plant and I have never been a big advocate of that,” Hare said. “If we are going to be in the electric business, we need to be in the electric business and not pay somebody $7 million to run an operation for us when we have people who can do it.”

STORY: Dover crime, clearance rates climb in 2016

Jonathan B. Justice, a professor in the School of Public Policy & Administration at the University of Delaware, said he believes generation and distribution can be looked at separately when determining if selling to a third party is the right way to go. He said in principle, it is a pretty simple financial analysis.

“If the plan is to sell off distribution as well as generation, I'd be surprised if that didn't eventually result in more expensive service to the city's customers, based on the likelihood that the greater cost of capital -- no tax-exempt bonding, plus the need to generate a profit for shareholders -- would outweigh any efficiency gains a private owner might enjoy,” he said, stressing that he has not specifically examined Dover's situation. “These are separate issues, and I would approach them that way.”

Harry Maloney III, the director of electric engineering and construction for the city, said the city has time to decide.

“We have a good utility. If this utility had terrible liability, the rates were through the roof, the infrastructure needed millions of dollars of improvements and the plant was falling apart, then is the time to look at other options,” Maloney said. “We don’t have that. The revenues are healthy. In March, you transferred $6 million into reserve accounts. You are healthy and doing well. We have a healthy utility and we have an opportunity here to start working on our rates and becoming more competitive.”

Reach Jerry Smith at jsmith17@delawareonline.com. Follow him on Twitter at @JerrySmithTNJ.