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VMEU Response to Comments regarding article:  VMEU: Let city fix power plant itself—10-21-08

sillymayor wrote:
1. PLEASE explain how we will "save" 8 million dollars a year?

2. How is it these 7 (professional, well-established, proven) consulting companies ALL wind up saying our prices will go up for electricity, yet the brains in-house somehow figured it all out?

3. What is "capacity" and why are we paying for it? ("Isabella said a new generator will allow the utility to save the $6 million it pays to PJM for capacity every year, which would offset the carrying cost of the $60 million in bonds needed to build the unit.")

4. What investment firms, in this awful economy will want to buy a 60 Million dollar bond?

5. Given we can get buyer(s) of a bond...WHO pays the interest back to the investors? I have a feeling it is the VMEU which is really THE CITIZENS of Vineland via their rates/bills.

Joseph A. Isabella, Director

Responded:

1. VMEU, because of competitive advantages it possesses, i.e lower costs, existing sites and an existing work force, will save approximately $1 Million/year over the PJM Capacity Market to cover its capacity short position.  In addition, VMEU will be able to import power more economically because the new unit will alleviate transmission congestion in and around Vineland.  This translates to about $7 million/year in energy savings.

2. The 7 proposals were not made by professional “consulting” companies but by profit driven non-regulated energy supply companies.  The proposals are designed to provide a return to their investors at the expense of the customers of VMEU.

3. The capacity market is an essential facet of the market by which PJM ensures reliability of the system.  In essence, each utility participating in the PJM market is required to provide sufficient generating capability (capacity) to cover its load on the highest peak day of the year.  This can be done by either owning generation or participating in a market based auction to cover any shortage.  Since VMEU is short capacity, it must procure the amount of capacity it is short through the market based auction.  This costs approximately $6 million per year.  The VMEU plan eliminates paying the $6 million each year to PJM by providing more owned generation.

4. Of course there is a credit crunch in today’s economy.  However, the situation actually makes tax fee municipal bond financing much more attractive because of the low risk.  Within the last month, a municipal utility in New Jersey offered bonds to the market which were snapped up at 4.78%.  Other players in the market are paying 8% to 9% if they can get financing at all.

5. The carrying cost of the bonds will be paid through the utility rates.  However, since the carrying cost of the debt results in a new unit (owned generation), VMEU’s capacity short position will be reduced and the amount paid to PJM to purchase capacity will be reduced.  Since the yearly carrying cost will be less than the PJM capacity charge, the net will be to reduce rates.