DELAWARE MUNICIPAL ELECTRIC CORPORATION REGULAR MEETING DEMEC ADMINISTRATIVE BUILDING SMYRNA, DELAWARE December 6, 2016

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1 DELAWARE MUNICIPAL ELECTRIC CORPORATION REGULAR MEETING DEMEC ADMINISTRATIVE BUILDING SMYRNA, DELAWARE December 6, 2016 A meeting of the Board of Directors of the Delaware Municipal Electric Corporation was held Tuesday the 6th day of December, 2016 at DEMEC s Administrative Building, Smyrna, Delaware. The meeting was called to order at 9:00 am with Dolores Slatcher, Chairwoman, presiding. The following roll call was presented: Present: Patrick E. McCullar, President Representing DEMEC Dolores Slatcher, Chairwoman Representing Seaford Gary Stulir, Alternate Director Representing Smyrna Charles Anderson, Alternate Director Representing Seaford Scott Koenig, Director Representing Dover Harry Maloney, Alternate Director Representing Dover Carol Houck, Director Representing Newark David Del Grande, Alternate Director Representing Newark Darrin Gordon, Director Representing Lewes BPW Eric Norenberg, Director Representing Milford Rick Carmean, Alternate Director Representing Milford Pamela Patone, Director Representing New Castle MSC Roy Sippel, Alternate Director Representing New Castle MSC Morris Deputy, Director Representing Middletown Tyler Reynolds, Alternate Director Representing Middletown Mary Ellen DeBenedictis, Director Representing Clayton Page 1 of 6

2 DEMEC Staff Attending: Kimberly Schlichting, Senior VP Operations and Power Supply; Louis Vitola, VP Finance; Scott Lynch, Energy Services Manager; Stephanie Dove, Accounting Manager; and Stephan Siok, Director of Beasley Plant Operations & Compliance. Guests Attending: None. MINUTES The minutes of the following meetings were presented for approval: a. Minutes of the Meeting of November 14, 2016 b. Minutes of the Executive Session of November 14, 2016 Upon motion made by Milford to approve the minutes of the regular meeting and executive session of November 14, 2016, seconded by Newark, the motion passed unanimously. TREASURER S REPORT The monthly financial reports for October 2016 were presented for approval. The President noted that DEMEC s strong financial performance continued into October, as evidenced by the strong monthly and year-to-date financial statements reported. Upon motion made by New Castle MSC to approve the reports, seconded by Middletown, the motion passed unanimously. APPOINTMENTS / ELECTIONS None. PRESENTATIONS None. RESOLUTIONS The President presented a resolution authorizing participation in an energy efficiency program. The program was developed in an effort to jointly coordinate and fund efficiency measures targeted at the retail level to residential, commercial and industrial customers in member service territories. Board members posed questions related to costs, benefits, potential load impacts, potential rate impacts, economic development, customer retention, staffing requirements, member-by-member participation and targets, the timing of the fee collection and other related items. Several members advised that they are currently in the middle of their fiscal year and may not have the budgetary authority to engage in a program that would result in a direct charge to ratepayers. Several members expressed interest in hosting DEMEC staff at a future council meeting to facilitate discussions about the proposal with each members council or commission. The President encouraged the Board to postpone the decision to implement an energy efficiency program to July 1, 2017 to permit DEMEC directors to engage in discussions with their leadership. Page 2 of 6

3 Upon motion made by Milford to defer action on the resolution until the June board meeting, seconded by Dover, the motion passed unanimously. COMMITTEE REPORTS Executive Committee No Report. Audit Committee No Report. PRESIDENT S REPORTS TO BOARD Generation Projects Status Report The President reported that the Beasley plant is fully operational but it has not been dispatched frequently due to seasonal curtailment of natural gas. As a result, DEMEC bids the unit based on oil, which is not economic at this time. The President noted that both units successfully passed all the re-testing conducted at the Beasley plant. The President also advised that the Fremont Energy Center remains on an extended outage that began at the end of September as a result of a failure related to its steam turbine seals. The return-to-service date is yet to be determined. The impact of the outage on energy costs has been nominal to date, but if the cost of natural gas continues to increase with the onset of winter, it may be necessary to acquire replacement power. Smyrna Solar Project The President advised that DEMEC is deferring the execution of the contract as negotiations with the developer, NextEra, continued into December. Milford Combined Heat and Power (CHP) Project The President reported that DEMEC and Milford have held preliminary discussions with Chesapeake Utilities to explore the potential for a 10MW CHP project. Concepts and high-level economics were discussed. DEMEC and Milford will continue exploring the potential for a behind-the-meter generator capable of meeting the needs of some of Milford s industrial customers. Construction Projects Status Report Middletown Transmission Line The President reported that the right of way acquisition process is nearly complete, but that a bottleneck in the process at Delmarva Power has caused recent delays. After final plans are prepared, Middletown s leadership and our legal counsel will begin approaching property owners in an effort to acquire permanent rights of way. The final design at the Middletown substation site and the interconnection point with Delmarva remain open items as well. An in-service date before the end of 2017 is still anticipated. Seaford Infrastructure Improvement Project The President reported that the project is underway and the first bid invitations for the long-lead items were recently issued, with others to follow later in December. The planned in-service date is June 30, Page 3 of 6

4 Economic Development Projects Middletown Technology Center The President advised that a new developer is working on the project and that discussions with DEMEC and the Town of Middletown continue. Milford Bayhealth Hospital The President reported that discussions with Milford s senior management related to an economic development rate have been positive. ESA Reconciliation Update Director Carol Houck provided an update on the ESA under-billing issue and solicited comment on the Board s willingness to accept a repayment term of three years for the full recovery of the under-billed amount. Several directors indicated that they have no objection to a three-year repayment term. Ms. Houck also solicited feedback from the Board on the concept of the end-use customer making payments directly to DEMEC. The Board agreed with the notion of direct payments provided that the entry be recorded as a receivable from Newark, regardless of the source of the payment, and that the arrangement for direct payment and the three-year term be reflected in a written agreement. The Board discussion evolved into related topic areas, such as customer retention, economic development, net metering and energy efficiency. DEMEC staff reminded the Board that there is currently no formal state legislative mandate for electric utilities in Delaware to undertake an energy efficiency program, although it remains in all members best interests to promote energy efficiency. Energy Services Manager Scott Lynch advised that he continues to attend the Energy Efficiency Advisory Council (EEAC) meetings to represent the interests of all members, but that the practice of issuing reports is duplicative as the minutes of all meetings are published by the State. The President advised that links of minutes will be shared with all members Budget Proposal The President presented his 2017 Budget Proposal package. He highlighted the multi-year rate forecast and reported that the 2017 wholesale billing rate to members is proposed to decrease by approximately 5.5%. The primary drivers of the rate reduction are reduced energy, congestion and capacity costs. The energy-only component fell significantly, driven by lower demand and lower natural gas fuel costs, while capacity and congestion costs will only temporarily dip before rebounding in Transmission costs are increasing in 2017 in part due to greater revenue requirements of transmission owners in the PJM RTO and in part due to the expiration of the onetime credit that suppressed the rate in Mr. McCullar reiterated his preference for a small staff, but in order to tackle compliance initiatives and maintain or expand service delivery to members, additional staff is required. Despite the increase in the administrative rate to support staff additions in 2017, the impact to the overall wholesale cost of power is a nominal 0.6% of the total corporate budget. Other than the ongoing search for solar project sites and the potential for a CHP unit in Milford, no new generation projects are being proposed. Mr. McCullar advised that the consolidated revenue estimate of $178,021,921 and the total expense budget of $166,940,221 were developed conservatively to reach Rate Stabilization Reserve targets set by the Board and recognizing the inherent uncertainty of the Page 4 of 6

5 electric power markets and the changing regulatory environment. The 2017 budget attempts to embody our mantra of conservatism and levelized costs. Discussion related to the energy efficiency resolution and the Rate Stabilization Reserve (RSR) funding followed the budget discussion. At the request of Director Norenberg, Vice President Lou Vitola clarified a recommendation to increase the RSR funding by $0.90/MWh in an effort to accelerate the pace of DEMEC s existing target of $22 million. The Board reserves the right to reallocate the $0.90/MWh reserve component and/or a portion of the funds accumulated in the reserve if and when an affirmative position is taken in support of launching an energy efficiency program. Upon motion made by Milford to amend the 2017 Budget Proposal to include $1.90/MWh RSR Funding, seconded by Middletown, the motion passed unanimously. Dover abstained. Upon motion made by Middletown to adopt the 2017 Budget, as amended, and seconded by Lewes BPW, the motion passed unanimously. Dover abstained. Legislative Status Report Mr. McCullar advised that there is nothing to report on legislative activity other than the proposed net metering amendments, which are likely not going to be introduced before the June, 2017 legislative session. Training / Education Christmas Display Tables and Winter WonderFest of Lights Senior Vice President Kimberly Schlichting reported that the Christmas display tables are up at all member locations. Energy Services Manager Lynch reported that the Winter WonderFest of Lights being held at Cape Henlopen State Park in Lewes, Delaware from November 18, 2016 through January 1, 2017 is already 2,000 patrons ahead of expectations. DEMEC sponsored the event to highlight the importance of energy efficiency to the thousands of people anticipated to attend the event. Finally, Mr. Lynch reported that the WDSD radio promotion and LED light coupon distribution has been successful to date. Green Energy Program Status Report Renewable Energy No update. Smyrna Solar Project update No update. Customer Sited Generation Policies No update. Energy Efficiency Advisory Council No update. Demand Response No update. Page 5 of 6

6 BUSINESS FROM THE FLOOR Alternate Director David Del Grande shared a request from a Newark councilmember for DEMEC to provide the detailed underlying model used to calculate the monthly residential retail rate comparison chart. The Board discussed the nature of the model and the distribution and publication practices that vary on a member-by-member basis. Several directors communicated the potential risks associated with sharing the internal work product for public consumption and gave explicit direction to the President and staff not to share the detailed underlying model of the rate calculator. EXECUTIVE SESSION No Executive Session was held on December 6, NEXT MEETING DATES The following meeting dates have been set: Tuesday, January 17, 2017 Tuesday, February 21, 2017 Tuesday, March 21, 2017 ADJOURNMENT Being no further business, upon motion by New Castle and seconded by Dover, the Board voted to adjourn at 11:47 am. Page 6 of 6

Public Power. The Power of Community. Powered by You. For You. DEL AWA RE MUN I CI PA L ELECTR I C COR POR ATI ON

DEL AWA RE MUN I CI PA L ELECTR I C COR POR ATI ON Public Power. The Power of Community. Powered by You. For You. AN N UA L REPOR T 201 6 Delaware Municipal Electric Corporation Public Power. The Power