September 24, 2008
VINELAND -- The state's only municipally run electric generating utility is asking voters for some help.
In 42 days, the Vineland Municipal Electric Utility will ask voters to approve a bond ordinance for a new $60 million generator that would run on natural gas and fuel oil. The money wouldn't come from taxpayers' wallets, but rather investors, and wouldn't create a rate increase for utility customers, VMEU Director Joseph Isabella said.
Isabella and the VMEU will host the first of two public hearings tonight in City Hall council chambers. Isabella will give a presentation on the energy plan, then open the floor for questions.
On Nov. 4, voters can help the city gain the electrical independence it needs within four years, VMEU officials have said.
If voters approve the measure in a referendum, the generating unit could save the utility and its customers $8 million annually, stabilize customer bills and ensure a future in the city's electric utility, Isabella said. If voters reject the referendum, the utility and its customers could face reliability problems and higher rates, he said. "We have a window of opportunity here. It will never be more in our grasp than it is now," Isabella said.
The City of Vineland Energy Independence Plan, including the purchase of the new $60 million generating unit, would provide the VMEU long-range economic advantages, strengthen its environmental compliance and, eventually, help the utility reach the longer-term goals of its expansion plan.
The new generator will allow the VMEU to use natural gas as an alternative fuel, allowing the electric utility to transition away from older, inefficient systems, Isabella said.
The city didn't hand the project to a third party "because no one can do it any cheaper or any more economically than we can," Isabella said.
The plan also includes the VMEU surpassing the state's environmental standards.
The state's energy master plan requires customers get about 20 percent of their power from renewable sources by 2020, but the VMEU's objective is to get 33 percent of their power that way within five or six years, Isabella said. That includes the installation of solar panels for city buildings, he said.
"We could have one of the largest solar installations in the East in Vineland, so we're pretty excited about that," he said.
Down the road, the VMEU plans include several overhauls and upgrades throughout the city. During the next two decades, the utility could construct up to three new substations, upgrade an existing substation transformer and a 69-kilovolt line, and pair with Atlantic City Electric in building two new 138-kilovolt transmission lines.
$60 million question
But the electric utility's primary focus is the Nov. 4 referendum and the $60 million generator. The $60 million would buy a modern efficient simple-cycle gas turbine to provide cheaper power during peak load times, Isabella said. If the measure is approved, it could be operational by May 2012. At that point, the VMEU could consider replacing existing aging units, he said.
Todd Weaver, the VMEU's supervisor of interconnection, said the city's electric utility currently operates as a member of PJM, a wholesale electricity distributor for Pennsylvania, New Jersey and Maryland.
The electricity demand on a typical day in Vineland more than doubles as the day progresses from early morning to early evening, Weaver said.
During low-demand periods, the VMEU buys energy from PJM because it's cheaper to buy it than produce it. At high-demand times, the utility buys energy from PJM and also produces some of its own.
With each hour, both the demand for electricity and the cost to purchase power from PJM increase, Weaver said.
"We just want to provide our customers with the lowest cost at the peak of the day," he said.
Isabella compared the process to heavy traffic on the highways.
"Transmission lines are like toll roads," he said. "The more traffic on them, the more congestion, and the higher the tolls. That's the situation we're in."
As transmission congestion increases, PJM will pay the utility a premium to start generation, Isabella said.
"We want to be owners of that generation that PJM calls upon to relieve that congestion," he said.
Return on investment
The generator the VMEU wants to buy is more cost-efficient, so turning the unit on during high-demand times of the day will bypass much of the expensive costs of purchasing energy from PJM.
Weaver said the new unit would alleviate congestion and reduce the VMEU's expenses for buying energy on demand.
"A new unit installation is the best means for the utility to control their bottom-line costs," he said.
Trimming purchase costs during the most expensive part of the day would lower the average cost for customers, Isabella said.
Then the VMEU could take some of the money it pays PJM annually and invest it in infrastructure improvements, he said.
"Sixty-million dollars is a lot of money, but we pay PJM $6 million every year. In essence, we won't be spending any more money than we already spend, and we'll ensure Vineland's future," he said.
Isabella said rates are partially dependent on gas and fuel markets, but the generator would provide ratepayers about $8 million in returns.
"People will ask, 'Will we have better rates?' I can't guarantee that," he added. "What I can guarantee is if we follow this, we will pay $8 million less than what we would otherwise."
One concern for VMEU officials is a 2004 referendum that authorized the VMEU to obtain a 100-megawatt combined cycle power plant. The initial cost estimates fixed the cost of the plant at $58 million, but the actual bid price was double what was anticipated, Isabella said. The plan was ultimately scrapped.
The price increase was the result of three factors -- the consultant studying the issue in 2002 underestimated the cost, the increasing value of the Euro against the dollar and the high demand for steel from China, Isabella said.
Isabella said VMEU officials have done their research, and their calculations show the $60 million investment is in the best interest of customers.
"If the referendum fails, much more emphasis will be placed on the purchase power market and all the volatility of that," he said. "I don't think we can give up. We have a huge risk for our customers. We need to get control of these costs, and we are not in control of them at the current time."