Attachment

UTILITY COMMITTEE AGENDA December 8, 2008 - 5:00 P.M. - Council Chambers - City Hall - City of Dover Public comments are welcomed on any item and will be permitted at appropriate times. When possible, please notify the City Clerk (736-7008 or e-m ail at Tm cdowell@dover.de.us) should you wish to be recognized. AGENDA ADDITIONS/DELETIONS 1. PACE/NAES Monthly Report (October) A. Emissions and Allowance Management a-1. Greenhouse Gas Emissions Issue/SO2 Market: DC Circuit Court Vacation of CAIR (Requested during 9/22/08 Utility Committee Meeting) 2. Energy Efficiency, Conservation, and Climate Change A. Federal Energy Efficiency and Conservation Block Grant - NLC Legislative Action Request B. State Energy Plan - Brief Update by Committee Chair on Overall Planning Process C. Dover's Climate Change Plan - How Do We Benchmark and Measure Our Progress in Reducing Greenhouse Gas Emissions 3. Adjournment by 5:55 P.M. /tm S:\ClerksOffice\Agendas&Minutes\Committee-Agendas\2008\12-08-2008 UTILITY.wpd THE AGENDA ITEMS AS LISTED MAY NOT BE CONSIDERED IN SEQUENCE. THIS AGENDA IS SUBJECT TO CHANGE TO INCLUDE THE ADDITION OR THE DELETION OF ITEMS, INCLUDING EXECUTIVE SESSIONS.

City of Dover October Monthly Report Energy and Operations Management November 20, 2008 This Report was produced by Pace Global Asset Management, LLC (“Pace Global”) and is meant to be read as a whole and in conjunction with this disclaimer. Any use of this Report other than as a whole and in conjunction with this disclaimer is forbidden. Any use of this Report outside of its stated purpose without the prior written consent of Pace Global is forbidden. Except for its stated purpose, this Report may not be copied or distributed in whole or in part without Pace Global’s prior written consent. This Report and the information and statements herein are based in whole or in part on information obtained from various sources as of October, 2008. While Pace Global believes such information to be accurate, it makes no assurances, endorsements or warranties express or implied, as to the validity, accuracy or completeness of any such information, any conclusions based thereon, or any methods disclosed in this Report. Pace Global assumes no responsibility for the results of any actions and inactions taken on the basis of this Report. By a party using, acting or relying on this Report, such party consents and agrees that Pace Global, its employees, directors, officers, contractors, advisors, members, affiliates, successors and agents shall have no liability with respect to such use, actions, inactions, or reliance. This Report does contain some forward-looking opinions. Certain unanticipated factors could cause actual results to differ from the opinions contained herein. Forward-looking opinions are based on historical and/or current information that relate to future operations, strategies, financial results or other developments. Some of the unanticipated factors, among others, that could cause the actual results to differ include regulatory developments, technological changes, competitive conditions, new products, general economic conditions, changes in tax laws, adequacy of reserves, credit and other risks associated with City of Dover and/or other third parties, significant changes in interest rates and fluctuations in foreign currency exchange rates. Further, certain statements, findings and conclusions in this Report are based on Pace Global’s interpretations of various contracts. Interpretations of these contracts by legal counsel or a jurisdictional body could differ. over 25 Website: www.paceglobal.com Washington New York Houston Columbia San Diego London Moscow Mexico City

TABLE OF CONTENTS 1.0 - Executive Summary.....................................................................................................................2 2.0 - Budget Report..............................................................................................................................5 2.1 – Variance Report ..................................................................................................................5 2.2 – Variance Analysis...............................................................................................................7 3.0 – Energy Management...................................................................................................................8 3.1 - Purchased Power .................................................................................................................8 3.2 - Generation Management ...................................................................................................11 3.3 - Emissions and Allowance Management............................................................................18 4.0 – Operations Management..........................................................................................................20 Appendices..........................................................................................................................................36 I. PJM Invoice Breakdown....................................................................................................36 II. Load, All In Energy and all in cost of service table ..........................................................37 III. Glossary ........................................................................................................................38 Proprietary & Confidential 1 Dover Monthly PGAM Report October 2008 - Final

1.0 - EXECUTIVE SUMMARY All In Unit Energy Cost - Actual v Budget Generation MWh's: Actual v Budget Actual Load vs Budget Load 12,500 $96 100,000 $94 10,000 75,000 $92 $90 7,500 MW h MWh 50,000 $ /M W h $88 5,000 $86 25,000 $84 2,500 $82 0 $80 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Budget Gen Actual Gen Budget Actual Budget ($/MWh) Actual ($/MWh) Budget WA Actual WA Purchased Power Management Wholesale load for the month of October was 58,391 MWhs versus a three year historic weather normalized load of 61,170 MWhs. Hedged transactions accounted for 55,720 MWhs or 95.4% of this volume (91.1% of forecasted load) at a cost of $4.38 million. Spot Market purchases resulted in a PJM charge of $272 thousand ($365 thousand charge in the Day Ahead market and a $93 thousand credit in the real time market). Other PJM related charges accounted for an additional $1.109 million cost, inclusive of all load related fees. October All-In Energy Unit Cost, excluding capacity obligations and credits was $0.13/MWh above the October 2008 budget of $87.47/MWh. For the year, projected All-In Energy Unit Cost is $0.38/MWh above the budget; based on YTD actual results and budgeted values for subsequent months. Generation and Asset Management For the month of October, PJM did not dispatch the McKee Run or the Van Sant units. Stable PJM system grid operations and lower system demand resulted in neither favorable nor unfavorable production margin. Emissions and Allowance Management During the month of October, Pace arranged for the sale of 28 tons of NOx allowances at $750 per ton resulting in $20,720 of net revenue to the City (after $10 per ton commission). Total net revenue through October 30th from allowance sales for the 2008-09 fiscal year is $165,470, accounting for Broker’s fees. No SO2 allowance sales have occurred in the 2008-09 fiscal year. Given current dispatch expectations, the market value of the Dover allowance inventory is $484,740 at the time of this report. If sold, Dover would realize $650 thousand in revenue for the year. This would result in a $782 thousand unfavorable variance. SO2 allowance prices continue to remain depressed as uncertainty remains regarding the post SO2 regime since the D.C. Circuit Court of Appeals’ vacature of the Clean Air Interstate Rule (CAIR), and it does not appear that prices will significantly increase in the near term. EPA and several Proprietary & Confidential 2 Dover Monthly PGAM Report October 2008 - Final

environmental groups requested that the US Court of Appeals re-hear certain parts of CAIR. Since the request several petitioners have filed briefs with the Court urging that the re-hearing be denied. With debate continuing regarding appropriate actions and timelines for addressing the vacature, many are now looking to the new Congress to enact a legislative solution to the CAIR battle. EPA also expects a further increase in the bank of SO2 allowances due to the projection that 2008 emissions will again fall below the 8.95 million ton cap. The combination of this net long SO2 position and worsening financial conditions has further depressed allowance prices to $170 per ton. Seasonal NOx allowance prices have steadily declined as the December 1 true-up approaches. Generators appear to be in aggregate long NOx allowances due to lower energy demand and reported well-functioning emission controls. Buying interest has decreased, and prices have dropped well below the City’s target price to $550 per ton. The City sold 150 tons at $975 per ton and 28 tons at $750 per ton. After the close of the first RGGI quarterly auction in September, allowance prices moved to $4/ton. The next auction is scheduled for December 17, 2008. Based on projected generation and emissions Dover is projected to have an excess of 70,000 allowances through 2013 with a market value of $280,000. Pace will continue to monitor the RGGI market and will advise Dover regarding allowance sales if the market alters. EMISSIONS & ALLOWANCE SUMMARY Allowance Allowance Emissions Emissions Allowances Allowances Allowance Vintage Allocation Month YTD Sold Month Sold YTD Balance SO2 – 2007 2723 0 98 0 2076 549 1 SO2 – 2008 2723 0 30 0 0 2,693 NOx – 2007 198 0 32 0 166 0 NOx – 2008 198 0 20 0 178 0 Operations Management Summary During the month of October, there were no employee or contractor related OSHA injuries, illnesses or time loss accidents. There were zero Environmental Notices of Violations issued during the month. All the McKee Run Units were on planned outage during the entire month. The VanSant Unit was available but not called for by PJM. There was an environmental deviation during the month due an underground oil leak which was discoverd during a pipe flushing process being performed as part of the pollution remediation project. Monthly Budget Variance – The actual expenses attributable to O&M of the two sites for the month of October were $479,722. The expenses were $71,024 above the approved budget of $408,698. The principal reason for the negative variance is due auxiliary electric and water usage bills not expensed September but were paid in October. 1 Corrected 2007 SO2 tons emitted to reflect actual emission for Units 3 & 11. December, 2007 report included emissions for all four units. Proprietary & Confidential 3 Dover Monthly PGAM Report October 2008 - Final

Major activities for the Month include the Pollution Remediation Project construction work along with the planned outage work for all McKee Run Units. Risk Management Summary Energy commodity prices continued to fall since the last reporting period, driven by instability in the financial markets and concerns about the slowing economy and reduced demand. Forward crude oil prices fell below $60/barrel, while natural gas forward prices decreased to the mid- $6/MMBtu range. In turn, PJM forward power prices decreased by $2.48/MWh (3.6%) for Fiscal Year 2009-2010 and $1.39/MWh (2.0%) for Fiscal Year 2010-2011. As a result of lower forward power prices, the City’s projected wholesale Cost-of-Service for all forward power years decreased compared to the last reporting period, as shown in the table below: Wholesale Cost-of-Service Summary (Projected) $/MWh 2 Budget November October September Cost-of- Cost-of Hedge Year-to Forecasted Cost-of Cost-of Service Service Ratio Year over Service Service Power Year Budget $/MWh Increase 2008-09 $/MWh $/MWh Budget 2008-2009 $90.18 $90.88 92%* 9.9%** 0.77% $91.07 $91.17 2009-2010 N/A $93.56 87% 3.0% 3.75% $93.66 $94.24 2010-2011 N/A $88.82 62% -5.1% -1.51% $89.30 $90.82 2011-2012 N/A $85.21 51% -4.1% -5.51% $86.30 $87.86 2012-2013 N/A $85.85 27% 0.7% -4.81% $86.07 $87.48 * Reflects balance of year hedge ratio for current Power Year ** FY 07/08 Cost-of-Service is $82.70/ MWh 2 Includes Energy, Load Following, PJM Fees, and PGAM Base Fees and estimated Incentive. The values in the table reflect the terms of the First Amendment to the Energy Management Agreement. Proprietary & Confidential 4 Dover Monthly PGAM Report October 2008 - Final

2.0 - BUDGET REPORT 2.1 – VARIANCE REPORT Budget Actual Variance Oct-08 Oct-08 Oct-08 Load Forecast 61,170 58,391 2,779 Power Supply Power Supply $4,038,112 $4,385,374 ($347,262) Power Supply Management $227,837 $241,991 ($14,154) Capacity Charges - Load $885,313 $893,960 ($8,647) PJM Charges - Load $1,084,524 $487,547 $596,977 Total - Power Supply $6,235,785 $6,008,871 $226,914 Generation Plant Operations $407,446 $479,721 ($72,275) Generation Fuel $23,911 $19,749 $4,162 Capacity Credits ($765,406) ($765,406) $0 PJM Credits ($5,403) ($5,729) $325 Total - Generation ($339,453) ($271,665) ($67,787) Emission Allowance Sales Total - Emission Allowance Sales $0 ($20,720) $20,720 Total Power Supply & Generation $5,896,333 $5,737,206 $159,127 Total Power Supply, Generation & Emission Sales $5,896,333 $5,716,486 $179,847 Unit Costs Total – Power Supply $101.94 $102.91 ($0.97) Total - Generation + Emission Sales ($5.55) ($5.01) ($0.54) Final Cost of Service to City of Dover Ratepayers $96.39 $97.90 ($1.51) Proprietary & Confidential 5 Dover Monthly PGAM Report October 2008 - Final

Budget Actual Variance YTD YTD YTD Load Forecast 292,157 278,704 13,453 Power Supply Power Supply $20,094,923 $21,465,209 ($1,370,286) Power Supply Management $958,824 $1,024,097 ($65,273) Capacity Charges - Load $3,512,694 $3,547,686 ($34,992) PJM Charges - Load $5,180,969 $2,849,290 $2,331,679 Total - Power Supply $29,747,410 $28,886,281 $861,128 Generation Plant Operations $2,023,168 $1,722,568 $300,600 Generation Fuel $1,721,028 $1,376,108 $344,920 Capacity Credits ($3,088,384) ($3,070,013) ($18,371) PJM Credits ($1,995,079) ($1,483,327) ($511,752) Total - Generation ($1,339,266) ($1,454,664) $115,398 Emission Allowance Sales Total - Emission Allowance Sales ($144,500) ($168,470) $23,970 Total Power Supply & Generation $28,408,144 $27,431,617 $976,526 Total Power Supply, Generation & Emission Sales $28,263,644 $27,263,147 $1,000,496 Unit Costs Total – Power Supply $101.82 $103.65 ($1.83) Total - Generation + Emission Sales ($5.08) ($5.82) $0.75 Final Cost of Service to City of Dover Ratepayers $96.74 $97.82 ($1.08) Proprietary & Confidential 6 Dover Monthly PGAM Report October 2008 - Final

2.2 – VARIANCE ANALYSIS Power Supply • Power Supply realized an unfavorable $347 thousand variance compared to the budget due to the purchase of additional forward positions totaling 3,720 MW hours in October. This purchase was transacted after the FY 2008 budget was submitted to Dover. • The Power Supply Management variance is merely an estimate at this point. • As discussed on during the July, 2008 Management Committee the PJM Base Residual Auction on April 3, 2008 resulted in a new $ per MW.day UCAP charge. This charge results in unfavorable variances each month. • PJM Charges Load resulted in a favorable variance of $597 thousand compared to the budget. The increased hedge position reduced the open position MW hours relative to budget accounting for more than half of this variance, In addition, the reduced demand resulted in an additional reduction of 2,779 MW hours accounting for $227 thousand of variance. Finally, the basis between the locations hedged and Dover resulted in an additional favorable variance. These favorable variance were partially offset by a combination of unfavorable variances in the transmission network integration charges the transmission rights credits and the ancillary services. Generations • Plant O&M resulted in an unfavorable variance of $72 thousand compared to the approved budget of $407 thousand due to auxiliary electric and water usage bills paid in October for September usage. • Generation Fuel realized a favorable variance of $1.1 thousand for the month primarily due to lower than expected base load gas costs, and fixed fuel and credits to Eastern Shore imbalance. Emission Allowance Sales • On October 14, Pace arranged and executed the sale of 28 tons of current year vintage NOx allowances, resulting in $20,720 (including broker’s fees) of revenue for the City. Proprietary & Confidential 7 Dover Monthly PGAM Report October 2008 - Final

3.0 – ENERGY MANAGEMENT 3.1 - PURCHASED POWER Management Highlights • Dover’s October load was 58,391 MWh which was 95.4% of the historic weather normalized load of 61,170 MWh. Hedge volumes also equaled 95.4% of actual load for the month. • October All In Unit Energy cost excluding capacity of $87.60 is $0.13 per MWh above budget for the month. The 7% increase in the hedge volume compared to budget with the 4.5% decrease in the volume resulted in a 71% reduction in the open position volume. This resulted in a positive absolute dollar variance for the open position. Actual Load vs Budget Load 100,000 75,000 MWh 50,000 25,000 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Budget Actual Proprietary & Confidential 8 Dover Monthly PGAM Report October 2008 - Final

All In Unit Ene rgy Cost - Actual v Budge t $96 $94 $92 $90 $/MWh $88 $86 $84 $82 $80 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Budget ($/MWh) Actual ($/MWh) Budget WA Actual WA Proprietary & Confidential 9 Dover Monthly PGAM Report October 2008 - Final

Purchased Power Variance Report Budget Actual Variance Oct-08 Oct-08 Oct-08 City of Dover Load Load Obligation (MWh) 61,170 58,391 2,779 Unit Energy Costs ($ per MWh) Energy Cost (inc. Load Following & Pace Fees) $82.02 $81.30 $0.72 Pass Through $4.45 $5.01 ($0.56) Incentive Fees $1.00 $1.29 ($0.29) Total - All In Unit Energy Cost $87.47 $87.60 ($0.13) Purchased Power Variance Analysis • Actual Dover load of 58,391 MWh was 95.5% below the projected October load of 61,170 MWh. • The All In Unit Energy Cost resulted in an unfavorable $0.13 per MWh variance predominantly caused by higher than anticipated open energy costs per MWh; an increased hedge cost due to the placement of a hedge in June at a price greater than the weighted average price of the existing hedges and the $ per MWh unfavorable variance for the open position and other PJM charges.. The unfavorable variances were partially offset by a favorable volume variance. • The Management Incentive fee variance on a $/MWh basis is merely an estimate at this point. PJM Power Balancing and Load Related Fees Purchased Power (Hedges): 55,720 MWh’s @ $78.70/MWh: $4,385,373 Power Balancing and Additional PJM and Energy Manager Fee 3: $1,623,498 Total Cost to Serve Load (58,391 MWh’s) $6,008,871 ALL in $/MWh load cost inclusive of Energy Manager Fees: $102.91/MWh 3 Includes estimated Incentive Fees. Proprietary & Confidential 10 Dover Monthly PGAM Report October 2008 - Final

3.2 - GENERATION MANAGEMENT • As budgeted for the month McKee Unit 3 and VanSant units did not operate for PJM. Generation MWh's: Actual v Budget 12,500 10,000 7,500 MWh 5,000 2,500 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Budget Gen Actual Gen Proprietary & Confidential 11 Dover Monthly PGAM Report October 2008 - Final

2008-09 Generation Production Margin v Budget $500 Thousands $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 ($50) Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun ($100) Budget ($) Actual ($) *Notes: July 2008 Report’s 2008-09 Generation Production Margin v Budget graph displayed incorrect actual amount. The graph shown above has been corrected to reflect the actual value. Proprietary & Confidential 12 Dover Monthly PGAM Report October 2008 - Final

Generation Management Variance Report Budget Actual Variance Oct-08 Oct-08 Oct-08 Self-Supplied Capacity from Gen (MW) McKee Run 1 13.2 13.2 0 McKee Run 2 16.7 16.7 0 McKee Run 3 97.4 97.4 0 Van Sant 38.1 38.1 0 Self Supplied Capacity from Gen (MW) 165.4 165.4 0 Additional Capacity from PJM Incremental Auction 7.9 7.9 0 Total Capacity from Gen (MW) 173.3 173.3 0 Gen Capacity Sales to PJM ($/MW.d) $148.80 $148.80 0 Incremental Auction Sales to PJM ($/MW.d) $10.00 $10.00 0 Power Sales Power Sales (MWh) 0 0 0 Sales Revenue ($ per MWh) $0.00 $0.00 $0.00 Power Sales Revenue ($) $0.00 $0.00 $0.00 Variable Fuel & Transport Fuel Oil No.2 Volume (gal) 0 0 0 Fuel Oil No.2 ($/gal) $0.00 $0.00 $0.00 Fuel Oil No.2 Cost of Goods Sold ($) $0.00 $0.00 $0.00 Fuel Oil No.6 Volume (gal) 0 0 0 Fuel Oil No.6 ($/gal) $0.00 $0.00 $0.00 Fuel Oil No.6 Cost of Goods Sold ($) $0.00 $0.00 $0.00 Gas Volume (Dth) 0 0 0 Unit Gas Price ($/Dth) $0.00 $0.00 $0.00 Variable Gas Cost ($) $0.00 $0.00 $0.00 Transport ($) $0.00 $0.00 $0.00 Variable Gas and Transport Costs ($) $0.00 $0.00 $0.00 Variable Fuel & Transport Costs ($) $1,200.00 $0.00 $1,200.00 Testing $0.00 $0.00 $0.00 Generation Production Margin $1,200.00 $0.00 $1,200.00 Generation Capacity Payment Total - Generation Capacity Payment ($765,406) ($765,406) $0.00 Proprietary & Confidential 13 Dover Monthly PGAM Report October 2008 - Final

Generation Management Variance Analysis Fuel Expense • PJM did not dispatch Dover units into the market and it did not consume any fuel oil nor spot natural gas purchase for the month. • Natural gas was consumed for heating the residual resulting in a fuel cost of $15,307. Generation Production Margin Transaction Volumes Revenue/(Cost) PJM Invoice for Power Sold 0 MWh’s $0 Fuel and Transport 0 dth gas/0 gal #2 oil ($0) 0 gal #6 oil Generation Production Margin 0 MWh’s $0 The following non-production energy revenues and costs are generally fixed and not directly related to generation dispatch and power production. PJM Invoice (Black Start) $5,729 Fuel Oil Tank Heating & Black Start Gas Supply ($12,927) Eastern Shore Demand Charge ($4,490) Eastern Shore Transport and Imbalance Charge $1,457 Transco Demand Charge ($3,789) Non-Production Energy Revenue/Costs ($14,020) Proprietary & Confidential 14 Dover Monthly PGAM Report October 2008 - Final

Fuel and Transportation The McKee Run Unit 3 and Van Sant Unit 11 were not dispatched for the month; hence neither units required any purchase of spot natural gas. Date Volume (Dth) Price ($/Dth) Total Commodity Cost ($) New Jersey NG Sub-Total 0 $0 Hess Corp Sub-Total 0 $0 Chesapeake Sub-Total 0 $0 Total 0 $0.00 $0.00 Gas was contracted and purchased on a firm basis in October to maintain the No.6 fuel oil inventories at McKee Run at approximately 160 degrees. This firm delivery base load gas supply has been purchased from Sempra Energy. The Details of this deal are as follows: Firm Gas Supply Price Per dth Total Cost 55 dth/day $7.582 $12,927.31 Proprietary & Confidential 15 Dover Monthly PGAM Report October 2008 - Final

Gas Transportation Purchased Eastern Shore Natural Gas Pipeline and TransCo agreements provide for deliveries to the McKee Run and VanSant stations. These charges include a firm demand charge and prior period adjustments as follows: ESNG FT Demand Charge $4,490 TransCo FT Demand Charge $3,789 Total Purchases $8,279 Other Gas Purchases Commodity and transportation imbalances on Eastern Shore Pipeline for the month resulted in a credit of $1,457.26 and it is summarized as follows. Eastern Shore Transport and Imbalance Charges Imbalance/dth Estimated Cost/dth Estimated Total Cost 446 $3.37 $1,500.79 $1,500.79 Transport Volume/dth $/dth Total Cost Firm/IT 1,197 $0.04 ($43.53) Net $1,457.26 Purchased Commodity Fuel Oil Summary In preparation for the upcoming fuel oil conversion project, McKee Unit 3 tank inventory no.6 fuel oil was sold to FCC at $0.98 per gallon with 122,598 gallons totaling $120 thousand revenue for City of Dover. Once the no. 6 fuel oil was extracted from the tank, the initial inventory of low sulfur no.2 fuel for McKee tank was required to extract remaining fuel in the pipeline and post operational tests. McKee tank received initial inventory of $50,000 gallons and the total purchase was nearly $124 thousand. Van Sant dispatches in September required an additional purchase and replenish of fuel oil no.2 to Van Sant inventory. Approximately 56,801 gallons were purchased, totaling purchase of $230 thousand. Proprietary & Confidential 16 Dover Monthly PGAM Report October 2008 - Final

Tank Inventory Estimates as of October 31 Tank Tank Capacity Inventory In Days of Burn (gallon) (gallon) (Typical Dispatch 4) McKee Run (#6 Fuel 2,554,105 49,630 N/A Oil to #2 Fuel Oil) VanSant 258,000 111,412 3 (#2 Fuel Oil) October 2008 Fuel Oil Purchase Date #2 Oil Inventory Cost Purchased Price ($/gal) (gal) McKee Oct-17 14,164 $2.4434 $34,608 Oct-20 28,729 $2.4864 $71,432 Oct-21 7,107 $2.4864 $17,671 Total 50,000 $2.47 $123,710.95 Van Sant Oct-28 14,197 $2.079 $29,516 Oct-29 14,200 $2.079 $29,522 Oct-30 14,200 $2.079 $29,522 Oct-31 14,204 $2.079 $29,530 Total 56,801 $2.079 $118,089 4 McKee Run Unit 3 is undergoing a planned outage to convert its fuel oil to distillate oil. #6 Fuel Oil was sold and #2 Fuel Oil was purchased. Under typical dispatch, VanSant consumes 3,000 gallons per hour and under typical dispatch would be dispatched up to six hours. Proprietary & Confidential 17 Dover Monthly PGAM Report October 2008 - Final

3.3 - EMISSIONS AND ALLOWANCE MANAGEMENT As shown in Exhibit 1, total net revenue from allowance sales for the 2008-09 fiscal year is $165,470, accounting for Broker’s fees. City of Dover holds 2,693 tons of vintage 2008 SO2 allowances and no tons of vintage 2008 NOx allowances. Additionally, the City has a balance of 549 tons of vintage 2007 SO2 allowances. At the August 21, 2008 Management Committee meeting the Committee set a trigger price for the SO2 allowances of $260/ton whereby if the City could achieve this price it would sell half of its SO2 allowances. Exhibit 1: Emissions and Allowance Summary through October 30, 2008 2008-2009 EMISSIONS & ALLOWANCE SUMMARY SO2 NOx Date Action Allowance Sale Revenue1 Allowance Sale Revenue1 Allocation Price Allocation Price 1/1/08 Initial 2008 2,723 -- -- 198 -- -- Allocation 1/1/08 2007 549 -- -- 0 -- -- Carryover 7/21/08 Sold 150 -- -- -- -150 $975.00 $144,750 tons NOx 10/14/08 Sold 28 -- -- -- -28 $750 $20,720 tons NOx 10/30/08 2008 YTD -30 -- -- -202 -- -- Emissions Totals - 2007 Vintage 549 -- -- 0 -- -- Allowances - 2008 Vintage 2,693 -- -- 0 -- $165,470 Allowances $165,470 $0 Total Revenue $165,470 Notes: (1) Revenue calculations account for a $1/ton broker fee for SO2 and a $10/ton broker fee for NOx. (2) NOx emissions pertain only to seasonal emissions (May 1 – Sep 30). During the month of October, Pace arranged for the sale of 28 tons of NOx allowances resulting in $20,720 of net revenue to the City. There was no change in the inventory values of the City’s emission allowances. Total net revenue through October 30th from allowance sales for the 2008-09 fiscal year is $165,470, accounting for Broker’s fees. No SO2 allowance sales have occurred in the 2008-09 fiscal year. Given current dispatch expectations, the market value of the Dover allowance inventory is $484,740 at the time of this report. If sold, Dover would realize $650 thousand in revenue for the year. This would result in a $782 thousand unfavorable variance. Proprietary & Confidential 18 Dover Monthly PGAM Report October 2008 - Final

SO2 allowance prices continue to remain depressed as uncertainty remains regarding the post SO2 regime since the D.C. Circuit Court of Appeals’ vacature of the Clean Air Interstate Rule (CAIR), and it does not appear that prices will significantly increase in the near term. EPA and several environmental groups requested that the US Court of Appeals re-hear certain parts of CAIR. Since the request several petitioners have filed briefs with the Court urging that the re-hearing be denied. With debate continuing regarding appropriate actions and timelines for addressing the vacature, many are now looking to the new Congress to enact a legislative solution to the CAIR battle. EPA also expects a further increase in the bank of SO2 allowances due to the projection that 2008 emissions will again fall below the 8.95 million ton cap. The combination of this net long SO2 position and worsening financial conditions has further depressed allowance prices. Seasonal NOx allowance prices have steadily declined as the December 1 true-up approaches. Generators appear to be in aggregate long NOx allowances due to lower energy demand and reported well-functioning emission controls. Buying interest has decreased, and prices have dropped well below the City’s target price to $550 per ton. After the close of the first RGGI quarterly auction in September, allowance prices moved to $4/ton. The next auction is scheduled for December 17, 2008. Based on projected generation and emissions Dover is projected to have an excess of 70,000 allowances through 2013 with a market value of $280,000. Pace will continue to monitor the RGGI market and will advise Dover regarding allowance sales if the market alters. Proprietary & Confidential 19 Dover Monthly PGAM Report October 2008 - Final

4.0 – OPERATIONS MANAGEMENT Management Highlights • Completed the month of October accident free and have now recorded 1,304 consecutive days without reportable accidents. • During the month, there were no unit dispatches of any of the McKee Run units due to the Pollution Remediation/Oil Conversion Project Outage. Unit #11 at VanSant was available for the month of October but was not dispatched. • As part of the Oil Conversion Project, Pace Global on behalf of the City of Dover contracted with FCC to purchase the remaining #6 fuel oil inventory. • Progress continues on the Pollution Remediation Project which includes the fuel oil conversion from #6 fuel oil to #2 fuel oil. On October 1, Units 1, 2 and 3 went into a planned outage scheduled to last until December 31, although it is expected that the conversion will be completed in early December. • During the month of October, the McKee Run facility began flushing the fuel oil transfer piping with No. 2 fuel oil as part of the pollution remediation project. During the flushing process, a leak was discovered in the fuel oil supply line coming from the tank to the plant. Immediate actions were taken to find the source of the leak which was located in the piping that passes through the earthen dike. Notifications were made to DNREC, NRC and emergency cleanup contractors. • The replacement of the CEMS computers at McKee Run and VanSant Generating Stations were completed. These computers were installed to comply with EPA reporting requirements which specified that EDRs be submitted in .xml format. • Completed the installation of new low NOX gas burner spuds for all MRGS units as part of the Pollution Remediation Project which began on October 1, 2008. • The Maintenance Supervisor Position was filled by an in-house candidate, Phil Marvel, who prior to accepting the position, was the Plant Electrician. With Mr. Marvel assuming the new position, it has now created a void in the maintenance team that the plant is actively working to fill. The position of IC/E Technician has been posted on the NAES website and in several of the local papers. • Three senior operators attended Fred Pryor leadership training on Coaching Skills for Managers and Supervisors on October 15th. This training was designed to improve their leadership and coaching skills for the future. • The following is the NAES Monthly Report as submitted to PGAM Proprietary & Confidential 20 Dover Monthly PGAM Report October 2008 - Final

North American Energy Services Dover, DE October 2008 Monthly Report Unit 3 – “A” Deck Oil System Modifications Proprietary & Confidential 21 Dover Monthly PGAM Report October 2008 - Final

Table of Contents 1.0 Environmental, Health and Safety 2.0 Financial 3.0 Operations 4.0 Maintenance 5.0 CIP 6.0 General Plant Information 7.0 Summary of NAES Performance Proprietary & Confidential 22 Dover Monthly PGAM Report October 2008 - Final

1.0 Environmental, Health and Safety Completed the month of October accident free and have now recorded 1,304 consecutive days without a reportable accident. During the month of October, the McKee Run facility began flushing the fuel oil transfer piping with No. 2 fuel oil as part of the pollution remediation project. During the flushing process, a leak was discovered in the fuel oil supply line coming from the tank to the plant. Immediate actions were taken to find the source of the leak which was located in the piping that passes through the earthen dike. Notifications were made to DNREC, NRC and emergency cleanup contractors. The clean up process began the following morning and included the remediation and the staging of contaminated soil from a section of the earthen dike and surrounding area. It is expected that the damaged piping will be replaced, the earthen dike repaired and all contaminated soil tested and removed from the facility all during the month of November. Environmental, Health and Safety Statistics Month Fiscal Year to Date (October 2008) (7/1/08-6/30/09) NOVs 0 0 Opacity Deviations 0 2 Environmental Deviations 1 1 OSHA Recordable 0 0 OSHA LTA's 0 0 First Aid cases 0 0 Restricted Workday Accident 0 0 Near Miss 1 2 Man Hours Worked 5,305 20,679.25 Date last OSHA Recordable 4/05/05 Date last Lost Time Accident 4/05/05 Days since last OSHA recordable 1,304 Days since last Lost Time Accident 1,304 Emissions (NOx & SO2) All data thru 10/31/08 NOx Summary - Year (May-Sept.)Tons Year Unit #1 Unit #2 Unit #3 Unit #11 TOTAL 2005 20.16 20.64 103.3 2.19 146.29 2006 1.82 1.78 19.25 1.72 24.57 2007 3.3 2.7 25.9 0.7 32.6 2008 1.01 0.96 17.0 1.28 20.25 NOx Allowances Summary NOx NOx NOx Allowances Available Total NOx NOx Allowance Allowances (Per Facility, Prior to Sale) Tons Emitted Allowance Vintage Sold YTD McKee Run VanSant (NOx Season) Balance 2007 165 191 7 33 0 2008 178 191 7 20 0 2009 0 191 7 0 198 Note: NOx Season is May 1 to September 30. Proprietary & Confidential 23 Dover Monthly PGAM Report October 2008 - Final

SO2 Summary - Year (Jan.-Dec.)Tons Year Unit #1 Unit #2 Unit #3 Unit #11 TOTAL 2005 49.91 52.08 530.24 2.30 634.69 2006 3.69 1.51 50.7 0.40 56.30 2007 6.28 5.31 97.69 0.28 109.56 2008 0 0 28.9 0.6 29.5 SO2 Allowances Summary SO2 Allowances SO2 Available Total SO2 SO2 Allowances (Per Unit, Prior to Tons Allowances SO2 Allowance Sold - YTD Sale & Emitted – Balance Vintage Reconciliation) U3 and U11 Unit #3 Unit #11 YTD 2006 2725 2586 139 51 0 2007 2076 2585 138 98 549 2008 0 2585 138 30 2693 2009 0 2585 138 0 2723 CO2 Allowances Summary* CO2 CO2 CO2 Allowances Available Total CO2 CO2 Allowance Allowances (Per Facility, Prior to Sale) Tons Emitted Allowance Vintage Sold YTD Balance McKee VanSant Run 2009 0 60,128 2,056 0 62,184 2010 0 48,102 1,645 0 49,747 2011 0 36,077 1,234 0 37,311 2012 0 27,058 925 0 27,893 2013 0 15,032 514 0 15,546 * Note: All CO2 allowance values are estimated at this time. Proprietary & Confidential 24 Dover Monthly PGAM Report October 2008 - Final

2.0 Financial Financial – Current Month Month – October 2008 Actual Budget Variance Personnel 225,220 229,974 4,756 Administrative 65,899 80,574* 14,675 EH & S 2,876 2,000 (876) Maintenance Expense 49,971 31,850 (18,121) Operations Expense 135,755 64,300 (71,455) Total $479,722 $408,698* ($71,024) *-Includes Operator Incentive Expense (Not Invoiced until end of fiscal year) Financial – Fiscal Year to Date Number of Months – 4 Actual Budget Variance Personnel 908,737 1,045,430 136,693 Administrative 408,835 479,195* 70,360 EH & S 3,460 7,500 4,040 Maintenance Expense 81,504 122,900 41,396 Operations Expense 294,990 373,150 78,160 Total $1,697,527 $2,028,175* $330,648 *-Includes Operator Incentive Expense (Not Invoiced until end of fiscal year) 2.1 Variance analysis For the month of October, an unfavorable variance of $71,024 was achieved due to the following: PERSONNEL EXPENSES – A favorable variance of $4,755 was achieved by realizing lower labor costs due to fill-in shift coverage expenses. ADMINISTRATIVE EXPENSES – A favorable variance of $14,675 was achieved primarily due to lower insurance expenses costs than budgeted and operator incentive not invoiced(will be invoiced in June). ENVIRONMENTAL, HEALTH, AND SAFETY EXPENSES – An unfavorable variance of $876 was realized because of the newly implemented fire retardant uniform rentals for plant employees. MAINTENANCE EXPENSES- Unfavorable variance of $18,122 was due to the purchase of spare low NOx gas tips for all three McKee Run unit burners as part of the McKee Run Pollution Remediation Project and McKee Run battery charger replacement due to equipment failure. OPERATING EXPENSES – An unfavorable variance of $71,455 was realized when the previous months’ auxiliary electric and water usage invoices which were not paid in September were instead paid in October. YEAR-END EXPENSES- A favorable variance of $330,648 has been realized for this year-to-date. We are currently forecasted at $5,774,863 expensed versus $5,921,643 budgeted for a 97.52% expense-to-to-budget rate. This includes the updated Employee Incentive and Employee Incentive Burdens which will be invoiced in June 2009. Proprietary & Confidential 25 Dover Monthly PGAM Report October 2008 - Final

3.0 Operations Unit Operations / Outages / Trips • During the month, there were no unit dispatches of any of the McKee Run units due to the Pollution Remediation/Oil Conversion Project Outage. Unit #11 at VanSant was available for the month of October but was not dispatched. Month – October 2008 McKee McKee McKee MRS VanSant Total Unit 1 Unit 2 Unit 3 Facility Unit 11 All Units Capacity MW 17 17 102 136 39 175 On Line Hours Hrs 0 0 0 0 0 0 Starts # 0 0 0 0 0 0 Gross Generation MWh 0 0 0 0 0 0 Net Generation MWh 0 0 0 0 0 0 Total Auxiliaries MWh 25.012 25.012 138.818 188.842 1.767 190.609 Auxiliaries purchased MWh 25.012 25.012 138.818 188.842 1.767 190.609 Fuel Gas Used MMBTU 0 0 0 0 0 0 Fuel Oil Used MMBTU 0 0 0 0 0 0 Fuel Oil Used Gallons 0 0 0 0 0 0 Total Fuel MMBTU 0 0 0 0 0 0 Net Heat Rate BTU/KWh 0 0 0 0 0 0 Unit Trips # 0 0 0 0 0 0 Capacity Factor % 0 0 0 0 0 0 Availability Factor % 0 0 0 0 100 25 Commercial % 0 0 0 0 0 0 Unavailability (CU) Planned Outage 737.00 737.00 Hours 737.00 2,211.000 0 2,211.000 Hours Maintenance Outage Hours 0 0 0 0 0 0 Hours Forced Outage Hours Hours 0 0 0 0 0 0 Reserve Shutdown Hours 7.00 7.00 7.00 21.000 744.00 765.000 Hours HW Boiler Gas Usage MMBTU 1,219 1,219 Pilot Gas Usage MMBTU 0 0 0 0 # Note: Does not include HWB or Pilot Gas. Fuel usage numbers are taken from fuel flow instruments Proprietary & Confidential 26 Dover Monthly PGAM Report October 2008 - Final

2008-2009 Fiscal Year-to-Date (4 Months) McKee McKee McKee MRS VanSant Total Unit 1 Unit 2 Unit 3 Facility Unit 11 All Units Capacity MW 17 17 102 136 39 175 On Line Hours Hrs 0 0 0 0 0 0 Starts # 0 0 0 0 0 0 Gross Generation MWh 0 0 0 0 0 0 Net Generation MWh 0 0 0 0 0 0 Total Auxiliaries MWh 94.062 94.063 1,378 1,567 5.596 1,573 Auxiliaries purchased MWh 94.062 94.063 614.878 803.003 4.788 807.791 Fuel Gas Used MMBTU 0 0 51,381 51,381 9,754 61,135 Fuel Oil Used MMBTU 0 0 45,213 45,213 6,273 51,486 Fuel Oil Used Gallons 0 0 297,805 297,805 45,328 343,133 Total Fuel MMBTU 0 0 96,593 96,593 16,028 112,621 Net Heat Rate BTU/KWh 0 0 11,801 11,801 12,931 11,949 Unit Trips # 0 0 0 0 0 0 Capacity Factor % 0 0 2.72 2.72 1.08 1.82 Availability Factor % 75.03 75.03 75.03 75.03 100 81.28 Commercial % 0 0 0 0 0 0 Unavailability (CU) Planned Outage Hours Hours 737 737 737 737 0 2,211 Maintenance Outage Hours 0 0 0 0 0 0 Hours Forced Outage Hours Hours 0 0 0 0 0 0 Reserve Shutdown Hours Hours 2,215.000 2,215.000 2070.734 6,500.734 2915.916 9416.650 HW Boiler Gas Usage MMBTU 5,158 5,158 Pilot Gas Usage MMBTU 0 0 0 0 VanSant Lifetime through 10/31/08 Actual Starts Factored Starts Fired Hours VanSant 1189 2000.15 3,912.2 Since HGP - Dec 2004 140 332.45 528.578 Fuel Oil Inventory Monthly Monthly Fuel Monthly FY 08-09 Fuel FY 08-09 Inventory Inventory Purchases Inventory Inventory Purchases Inventory (Start) (End) (Month) (Change) (Start) (YTD) (Change) McKee Run (#6 Fuel Oil 134,852 49,630 49,781* (85,222) 426,048 49,781* (376,418) to #2 Fuel Oil) VanSant (#2 Fuel Oil) 56,633 111,412 56,801 54,779 99,950 56,801 11,462 Note: As measured by tank level instruments. Tank levels may change due to oil temperature. Note: VanSant oil tank level gauge calibrated on 8-19-08. Note: * - #6 Fuel Oil was sold ( approx. 122, 000 gallons) and #2 Fuel Oil was purchased Proprietary & Confidential 27 Dover Monthly PGAM Report October 2008 - Final

Capacity Testing – FY 2008-2009 Summer 2008 (June 1- Aug 31) Winter 2008-2009 (Dec 1- Mar 1) Unit Rated Net Reported Net Unit Rated Net Reported Net Capability (MW) Capability (MW) Capability (MW) Capability (MW) 1 17 17.09 1 17 NT 2 17 17.55 2 17 NT 3 102 102.72 3 102 NT VanSant 39 40.09 11 40 NT Total 175 177.45 Total 176 0 Note: NT depicts a unit that has not completed capacity test for the PJM Demonstration Period in FY 2008-2009. It is expected that all units will be entered into the PJM Winter Capacity Test Exemption Program. Team Report: The operators continue to use the plant readiness program for training and refreshing their plant knowledge on different systems to improve the plant’s reliability. Some of the training involved promotes teamwork with other staff members to work together to find a solution and to promote further discussions on equipment operation. The operators also use the GPi Learning courses to improve their knowledge and skills. Three senior operators attended Fred Pryor leadership training on Coaching Skills for Managers and Supervisors on October 15th. This training was designed to improve their leadership and coaching skills for the future. Operations also had training on the new CEMS software that was installed at McKee Run and VanSant in October. Every operator that was available had an opportunity to learn more about the new program software and computer display screens with a VIM Technologies representative. The operators are continuing their on line training for PJM Systems Generation Operator and plans are being made to set up a training session in the first part of next year. Proprietary & Confidential 28 Dover Monthly PGAM Report October 2008 - Final

4.0 Maintenance During the month of October, plant maintenance staff continued addressing the backlog of work orders and focused on keeping all units available to our client. Seventy –one work orders were issued during the month, with thirty-one work orders being completed during the month. The table below summarizes the monthly work order activities. Work Order Report October - 08 Outstanding From Outstanding Previous Issued This Completed at the end of Priority # Months Month This Month the month P1 0 1 0 1 P2 1 1 0 2 P3 7 3 6 4 P4 14 16 10 20 P5 25 11 10 26 P6 0 0 0 0 P7 3 0 2 1 P8 0 0 0 0 P9 4 2 0 6 P6 - 1 0 0 0 0 P6 - 2 0 0 0 0 P6 - 3 0 0 0 0 P6 – 4 1 0 0 1 P6 – 5 0 0 0 0 P6 – 6 0 0 0 0 P6 – 7 0 0 0 0 P6 - 8 0 0 0 0 PM 19 37 3 53 Totals 74 71 31 114 Note: PM's are included in the priority totals Proprietary & Confidential 29 Dover Monthly PGAM Report October 2008 - Final

Notable activities during the month include: 1) Completed the installation of new low NOX gas burner spuds for all MRGS units as part of the Pollution Remediation Project which began on October 1, 2008. 2) Installed new CEMS sample line. 3) Drained #1 Fuel oil tank and flushed tank/pipe lines with #2 Diesel fuel. 4) Installed new burner shrouds on unit 3 boiler. 5) Installed new temperature probe for the City of Dover Radio room. 6) Removed insulation from all fuel oil heaters in preparation of mechanical contractor work. 7) Installed new Beck air register drive units. 8) Contracted out work for the asbestos removal for the areas around the unloading , transfer and burner pump. 9) Electrical contractor mobilized to start the modifications associated with the Pollution Remediation Project. Proprietary & Confidential 30 Dover Monthly PGAM Report October 2008 - Final

5.0 Capital Improvement Projects (CIP) Project Description Update Number EG0801 MR Fire Progress: Project deferred to 2009 to investigate Protection an alternative technical approach. System Upgrades Schedule: Installation now projected to be June 2009 EG0804 MR Pollution Progress: Installation phase of the project was Remediation officially started as the planned outage of all units Equipment commenced October 1. Engineering work is 95% complete. Critical materials were received through out the month. Major equipment not yet received include the Unit 1 and 2 burner pumps. Schedule: On track for fall 2008 outage installation and June, 2009 compliance testing EG0901 MR Unit 3 Progress: Bids received from the vendors higher Continuous than expected resulting in increased project Emissions estimate from original. Equipment and installation Monitor PO issued. REGGI reporting requirements will now be incorporated into project scope (CEM) Schedule: Replacement was completed in October 2008. EG0902 VS Unit 11 Progress: Bids received from the vendors higher Continuous than expected resulting in increased project Emissions estimate from original. Equipment and installation Monitor (CEM) PO issued. REGGI reporting requirements will now be incorporated into project scope. Schedule: Replacement was completed in October 2008. EG0903 MR Unit 3 Progress: This same work was performed on Continuous VanSant unit in 2008. We are expecting to utilize Opacity Monitor the same vendor that did the work on Van Sant. (COM) Schedule: Unit 3 replacement equipment has been ordered to be completed in fiscal year 2008-09. Proprietary & Confidential 31 Dover Monthly PGAM Report October 2008 - Final

EG0904 MR & VS Arc Progress: Phase one will determine scope and Flash Analysis costs to implement which will provide input to cost benefit analysis/ justification to proceed with the second phase. Task statement defining the scope of work currently being developed Schedule: The initial phase of the project to be completed no later than June of 2009 and the second phase to complete in May 2010. 5.1 CIP Budget Project Description Original Budget Latest Number ($ X 1000) Estimate ($ X 1000) EG0801 MR Fire Protection System 50 50 Upgrades EG0804 MR Pollution Remediation 3800 2600 Equipment EG0901 MR Unit 3 Continuous 30 50 Emissions Monitor (CEM) EG0902 VS Unit 11 Continuous 30 50 Emissions Monitor (CEM) EG0903 MR Unit Continuous 30 30 Opacity Monitor (COM) EG0904 MR & VS Arc Flash Analysis 125 125 The current total for Project EG0804 expensed to date is $561,036.48. The expenses for the month of October were $227,809.04. Proprietary & Confidential 32 Dover Monthly PGAM Report October 2008 - Final

6.0 General Plant Information Training Plant employees continue working on their General Physics topics during the month. The inclusion of these courses has provided opportunities for increased knowledge of plant operations, to satisfy OSHA and PJM requirements, and to build a solid foundation for cross training employees at the City of Dover generation facilities. These courses are included in the Employee Qualification program that will help prepare operators for advancement within the line of progression jobs. For the coming year, several Seniors Operators have been tasked with achieving PJM Generation Systems Operator certification. Operations staff members continue to help calibrate gauges and provide other support in an effort to aid maintenance and provide cross training in different areas of the plant. Operations personnel continue dry run training on the units as part of our Plant Readiness program. Aaron Jester and Eric Carrow continue to work with the maintenance department when they are not needed for operations support. Other operations staff will be utilized during the coming months to support various outage related activities while the McKee Run Facility makes the conversion from #6 fuel oil to #2 fuel oil and installs boiler modifications. Personnel Plant staffing for shift personnel has been reduced in order to provide additional manpower support to the outage. During the course of the outage, shift staffing has been reduced to two men per shift except for Saturday and Sunday day shift when three men will be on shift. The three man shift is to ensure the plant is manned properly should the combustion turbine be dispatched. The Maintenance Supervisor Position was filled by an in-house candidate, Phil Marvel, who prior to accepting the position, was the Plant Electrician. With Mr. Marvel assuming the new position, it has now created a void in the maintenance team that the plant is actively working to fill. The position of IC/E Technician has been posted on the NAES website and in several of the local papers. Applicant screening and the conducting preliminary interviews will be conducted by a three-person team of Phil Kosek, Ray Lavender and Phil Marvel. Other Events As part of the Oil Conversion Project, Pace Global on behalf of the City of Dover, contracted with FCC to purchase the remaining #6 fuel oil inventory. Work was coordinated with plant personnel to unload the tank into waiting FCC trucks via existing plant oil pumps until suction was lost and the pumps could no longer be used. Vacuum trucks were then supplied by FCC to remove the remaining oil from the tank and from the plant’s oil lines. New oil (#2 w/0.05% sulfur) was then purchased for use as the flushing medium for the oil lines. Progress was being made in the flushing process when an apparent leak was identified on the pipe section which passes through the tank berm. The appropriate authorities were notified regarding the leak and work commenced under the guidance of Compliance Environmental. It is estimated the spill was less than one hundred gallons. Proprietary & Confidential 33 Dover Monthly PGAM Report October 2008 - Final

Approximately 350 tons of contaminated soil was unearthed and is presently onsite waiting for soil sample results to be returned in order for the soil to be disposed of at an appropriate landfill. Reinstallation of the pipe is slated to occur in November. Information of approved pipe materials has been provided by the Tank Management Section of DNREC who has been most helpful in the entire process. The approved materials have been purchased, some of which have been already received. Progress continues on the Pollution Remediation Project which includes the fuel oil conversion from #6 fuel oil to #2 fuel oil. On October 1, Units 1, 2 and 3 went into a planned outage scheduled to last until December 31, although it is expected that the conversion will be completed in early December. Tasks completed during the month included the change out of gas spuds to a low NOx design on all three units, installation of fixed burner shrouds and Beck Drives to provide improved combustion control at the burner, installation of new gas scanners, burner throat repairs, and the installation of inserts in the OFA ports to provide higher velocity OFA air penetration into the boiler. Work continues to progress on modifying the oil and steam systems at the burner deck levels, modifications in the burner pump room to eliminate the oil heaters, replace several of the Unit 1/2 burner pumps, replacement of the fuel oil transfer and unloading pumps and the installation of the fuel oil unloading meter. While work is still progressing, some parts are still on back order although it is not expected these parts will hold up progress of the project. As part of the operational testing that will be performed on Units 1, 2 and 3 at the conclusion of the oil conversion and boiler modifications, system checklists are being developed to ensure all equipment is fully operational and that the unit(s) are able to meet load expectations. In addition, operator training will be a prime focus throughout the entire process. The replacement of the CEMS computers at McKee Run and VanSant Generating Stations were completed. These computers were installed to comply with EPA reporting requirements which specified that EDRs be submitted in .xml format. The underground oil piping system at the VanSant facility has an installed and operating cathodic protection system. Recent testing of this system revealed a lack of adequate protection along with a finding of several defective insulating bolts. Repair and replacement of system components resulted in restoring system functionality. As part of the DNREC AST Regulation, pressure testing of the pipe is required and will take place in November. Calendar of Events Date McKee Run Units 1, 2 and 3 Outage – Oil Conversion Project October 1, 2008 – December 31, 2008 PJM Winter Capacity Demonstration Period December 1, 2008 – February 28, 2009 EIA Reporting Requirements February 1, 2009 Title V Annual Certifications due February 1, 2009 Proprietary & Confidential 34 Dover Monthly PGAM Report October 2008 - Final

7.0 Summary of NAES Performance to Date Plant Performance FY 2008-2009 Measure Month Year to Date YTD FY Maximum Incentive Incentive Commercial 0% 0% $85,863 $85,863 Unavailability (CU) Safety 0 0 $16,099 $16,099 Environmental 0 0 $16,099 $16,099 Capacity Tests Completed Summer Winter Summer Winter Unit 1 No No Yes No $1,610 $3,220 Unit 2 No No Yes No $1,610 $3,220 Unit 3 No No Yes No $9,660 $19,319 Unit 11 No No Yes No $3,220 $6,440 Total YTD Total YTD 89.29% $134,161 $150,261 Incentive % Incentive Proprietary & Confidential 35 Dover Monthly PGAM Report October 2008 - Final

APPENDICES I. PJM INVOICE BREAKDOWN The PJM bill is a record of all Electricity Transactions, Transmission Services, Ancillary Services and Miscellaneous fees that allow the PJM to operate. Below is a list of the line items on the PJM bill including all generator activity. PJM Bill Line Items Load Gen Net Day Ahead Energy $0.00 ($365,257.25) ($365,257.25) Realtime Energy $0.00 $93,386.84 $93,386.84 Transmission Losses Credits $0.00 $76,826.60 $76,826.60 Network Integration Transmission Service Charges $0.00 ($263,622.14) ($263,622.14) Inadvertent Interchange Charges $0.00 ($877.07) ($877.07) Regulation Charges $0.00 ($26,529.76) ($26,529.76) Synchronized Reserve Charges $0.00 ($14,037.81) ($14,037.81) Balancing Operating Reserves Charges $0.00 ($3,193.18) ($3,193.18) Day Ahead Operating Reserves Charges $0.00 ($6,375.54) ($6,375.54) Day-ahead Scheduling Reserve $0.00 ($357.29) ($357.29) Synchronous Condensing Charges $0.00 ($809.61) ($809.61) Reactive Services Charges $0.00 ($2,330.30) ($2,330.30) Meter Correction Charges $0.00 $198.94 $198.94 Day-ahead Economic Load Response Program Charges $0.00 $0.00 $0.00 Real-time Economic Load Response Program Charges $0.00 $0.00 $0.00 Balancing Operating Reserves Credits $0.00 $0.00 $0.00 Day Ahead Operating Reserves Credits $0.00 $0.00 $0.00 Locational Reliability Charges $0.00 ($928,450.00) ($928,450.00) Capacity Transfer Rights Credits $0.00 $32,628.12 $32,628.12 Capacity Resource Deficiency Credits $0.00 $1,862.17 $1,862.17 Demand Response and ILR Compliance Penalty Credits $0.00 $0.00 $0.00 RPM Auction Credits $765,406.12 $0.00 $765,406.12 Auction Revenue Rights Credits $0.00 $75,373.09 $75,373.09 Synchronized Reserve Credits $0.00 $0.00 $0.00 PJM Scheduling System Control and Dispatch Service Charges $0.00 ($5,721.13) ($5,721.13) Transmission Owner Scheduling System Control and Dispatch Service Charges $0.00 ($4,418.85) ($4,418.85) Reactive Supply and Voltage Control from Generation Sources Service Charges $0.00 ($23,573.31) ($23,573.31) Black Start Service Charges $0.00 ($1,230.26) ($1,230.26) North American Electric Reliability Corporation (NERC) Charge $0.00 ($333.04) ($333.04) Reliability First Corporation (RFC) Charges $0.00 ($582.82) ($582.82) Expansion Cost Recovery Charges $0.00 ($451.05) ($451.05) Transmission Enhancement Charges - Sept 2008 $0.00 ($6,397.60) ($6,397.60) Black Start Service Credits $5,728.89 $0.00 $5,728.89 Non-Firm Point-to-Point Transmission Service Credits $0.00 $2,997.70 $2,997.70 Generation Deactivation $0.00 $0.00 $0.00 Market Monitoring Unit (MMU) Funding $0.00 ($321.16) ($321.16) Organization of PJM States, Inc. (OPSI) Funding $0.00 ($32.74) ($32.74) FERC Annual Recovery $0.00 ($2,456.21) ($2,456.21) PPA $0.00 ($7,422.11) ($7,422.11) $771,135.01 ($1,381,506.77) ($610,371.76) Proprietary & Confidential 36 Dover Monthly PGAM Report October 2008 - Final

II. LOAD, ALL IN ENERGY AND ALL IN COST OF SERVICE TABLE Budget Load Actual Load Budget AIE Actual AIE Actual YTD AIE Budget AICS Actual AICS Actual YTD AICS (MWh) (MWh) ($/MWh) ($/MWh) ($/MWh) ($/MWh) ($/MWh) ($/MWh) Jul 81,189 81,060 $92.30 $94.46 $94.46 $94.85 $97.04 $97.04 Aug 82,798 73,039 $92.29 $91.36 $92.99 $101.51 $101.39 $99.10 Sep 67,000 66,214 $85.81 $89.01 $91.80 $93.47 $95.27 $97.89 Oct 61,170 58,391 $87.47 $87.60 $90.92 $96.39 $97.90 $97.82 Nov 58,037 $87.62 $96.60 Dec 59,534 $87.25 $97.05 Jan 64,805 $88.79 $101.90 Feb 63,547 $89.48 $77.20 Mar 58,753 $86.98 $95.92 Apr 56,824 $85.94 $96.34 May 62,655 $85.52 $93.92 Jun 72,496 $88.32 $100.05 Proprietary & Confidential 37 Dover Monthly PGAM Report October 2008 - Final

III. GLOSSARY All In Unit Energy Cost ("AIE") accounts for the wholesale energy costs excluding capacity obligations, capacity credits for Dover-owned generation, generation revenues, generating plant costs, the black start ancillary services credit for the Van Sant plant, and revenues associated with the sale of emission allowances. The AIE includes the costs from settling the hedged or forward transactions; the energy bought on the ISO (Independent System Operator or PJM) day-ahead to cover the open position (un-hedged); load following costs associated with balancing the actual load in the ISO real-time market; energy management service related fees; the ISO transmission charges and credits to load serving entities; the ISO ancillary services charges such as generation regulation, spinning reserve, and reactive power; and the ISO administrative charges and cost of service recovery fees. All In Cost of Service ("AICS") accounts for the net cost of wholesale power to the City of Dover Electric Utility. The AICS starts with the AIE and adds the costs or credits from capacity obligations, capacity credits for Dover-owned generation, generation revenues, generating plant costs, the black start ancillary services credit for the Van Sant plant, and revenues associated with the sale of emission allowances. Black Start is a generating ancillary service that is the process of restoring a generating plant to service without the support of an external power supply to power auxiliary equipment needed for start up operations. Capacity UCAP Obligated Purchased is the obligation and payment by all load serving entities in PJM including Dover for the Unforced Capacity (UCAP) requirement from PJM that satisfies the PJM reserve requirements. Generation Capacity Credit: is the credit provided to generators for supply capcity to the system. The price is determined by the PJM Reliability Pricing Market auction process that includes three auctions for each capacity year. Generation Production Margin accounts for the variable margin excluding variable O&M and emissions. The Generation Production Margin is calculated by taking the PJM revenues credited to the plant including any balancing charges or credits less the fuel costs. Generation Production Margin includes both “Economic and reliability dispatch” and “Testing.” Economic and reliability dispatch equals the margin achieved when Dover’s generating plants are dispatched by PJM for either economic dispatch (the system energy price is greater than the Dover bid price) or reliability dispatch whereby PJM pays the generating cost of the plants for the hours the plant is run to support the system. Generation Testing equals the Generation Production Margin associated with testing. This is usually expected to be a negative margin because the plant is potentially being dispatched / run when energy prices do not cover its costs. Non-Production Revenue equals the credits from PJM to Dover for Generation Capacity Credit, the Black Start Revenue and the sales by Dover of Emission Allowances. Proprietary & Confidential 38 Dover Monthly PGAM Report October 2008 - Final

Energy Efficiency and Conservation Block Grant For years, our nation’s cities have been leading the way in innovation by implementing energy conservation and environmental protection programs to support their communities and the national economy. Last year, Congress and the President enacted historic comprehensive energy reform legislation aimed at moving the U.S. toward greater energy independence and security, increasing the production of clean renewable fuels, and increasing the energy efficiency of products, buildings and vehicles. The legislation included the creation of a new Energy Efficiency and Conservation Block Grant program that would provide grants to cities, counties, and states for innovative practices designed to achieve greater energy efficiency and lower energy usage. These grants would fund local initiatives, including building and home energy conservation programs, energy audits, fuel conservation programs, building retrofits to increase energy efficiency, “smart growth” planning and zoning and alternative energy programs. The law authorizes an appropriation of $2 billion a year through 2012. Message to Congress • Thank you for enacting comprehensive energy legislation, the Energy Independence and Security Act of 2007. • A variety of challenges have brought increased attention and timeliness to sustainability, including the threat of climate change, rising energy prices, and the depletion of natural resources. • Sustainability is a defining issue of our time, representing the broad notion that all activities should take into account implications for people and the environment so that our actions meet the needs of the current generation without compromising future generations. • Our nation’s cities are innovators in implementing energy conservation and environmental protection programs to support their communities and the national economy. • Local governments recognize they have a central role to play in affecting change, but need the support and cooperation of the federal government. By including funds for the block grant program, municipal leaders will be able to expand their efforts to support building and home energy conservation programs, and improve energy efficiency. Request to Congress Appropriate $2 billion for fiscal year 2009 to fund the Energy Efficiency and Conservation Block Grant.

U.S. MAYOR WASHINGTON OUTLOOK January 14, 2008 New USCM Energy Block Grant Program Comes Online Just in Time was established. This is one Meeting in the Conference’s will be participating in the that strengthens and further 10-Point Plan. 76th Winter Meeting, to be Conference empowers the efforts of may- The new law authorizes held January 23-25, 2008 in ors and other local elected $2 billion annually over five Washington, DC. Focuses on officials as they take local fiscal years (FYs 2008-2012) Specifically, this program actions to reduce the nation’s for block grant assistance to emphasizes bottom-up, com- Appropriations energy dependency, promote cities, counties and states. munit y-based strategies increased energy efficiency, A graphic depiction of how to help the nation meet its for New develop greener energy sup- these resources are to be energy and climate protection plies and further climate pro- allocated to support city- and challenges, an approach that Program tection goals. county-based activities is Conference leaders identified Enactment of this new provided in the chart below. early on as a critical element By Conference Staff initiative, called the Energy With the EECBG program of any successful national Efficiency and Conserva- and funding authorization energy strategy. When President Bush tion Block Grant Program in place, the Conference Funding for the EECBG signed the “Energy Indepen- (EECBG), is the product of and its member mayors program takes on even dence and Security Act of a nearly yearlong effort by are now working to secure greater immediacy, as the 2007” into law (PL 110-140), The U.S. Conference of May- actual funding (i.e., appro- nation’s already weaken- a new $10 billion federal ors and its member mayors, priations) for the program, ing economy absorbs addi- partnership with the nation’s as first unveiled one year which is among the top pri- tional ill effects from high cities, counties and states ago during the 75th Winter orities before mayors who energy costs, largely driven EECBG Funding Allocations $2 Billion Annual Appropriation First year funding can be used for strategy development; funding in subsequent years is only for implementation of city and county strategies approved by U.S. DOE. 2% 2% U.S. DOE Competitive Grant Program ($40 million) Tribal Programs ($40 million) All non-formula cities/counties are potentially eligible for funding 68% 28% Formula City & County Program* Balance of State Program ($1.36 billion) ($560 million) • Every city with a population of 35,000 or more • Each state is required to pass through at least 60 % of it funding share to cities and • Every county with a population of 200,000 or more counties not receiving direct formula funding • In addition, each state (including Puerto Rico) is guaranteed to have at • Each state decides how to award these funds least its 10 largest cities and 10 largest counties eligible for formula among these cities and counties grants, regardless of population * Law (PL 110-140) directs U.S. DOE to develop a formula for allocating block grant funds among these cities and counties, with population factors a key consideration. The United States Conference of Mayors • usmayors.org U.S. MAYOR Page 

U.S. MAYOR WASHINGTON OUTLOOK January 14, 2008 by record oil prices. Already, mitment to prompt EECBG tary, and the factors used to A key trigger in the law Congressional and Admin- funding as a response to allocate funds among formula is a directive that the Energy istration leaders are calling these conditions. recipients are different as well, Secretary must publish in the for action on an economic While the following pro- with the new law requiring the Federal Register, not later 90 stimulus package and there vides a brief overview of the Energy Secretary to develop days from the beginning of is renewed attention to the key features of the EECBG a formula based largely on each fiscal year for which need for more immediate program, the actual legisla- population factors. grants are to be made avail- and more dramatic efforts to tive language can be found As depicted in the accom- able, the formula to distribute curb the nation’s energy use, in Title V (Sections 541-548) panying chart, two percent of funds under this program. In especially petroleum. of Public Law 110-140. program funding is reserved effect, if Congress provides In addition, when the to Indian tribes, and another appropriations, either in a mayors’ campaign to enact EECBG Modeled two percent is retained by supplemental measure and/or this block grant program after HUD’s CDBG, the Secretary of Energy to in a FY 2009 appropriations was first initiated, slightly with Differences support a competitive grant bill, the Secretary would have more than 350 mayors had The new EECBG program program. In addition to local to move immediately to issue signed The U.S. Conference is largely modeled after the funds provided by formula or the formula for the program. of Mayors Climate Protec- highly-successful Community through the state, any non- Once a formula city or tion Agreement. Currently, Development Block Grant formula city or county can county receives its first year 773 mayors have joined on (CDBG) program, which was also apply to the Secretary funding, it must develop an as signatories. Importantly, first enacted in 1974. for funds under this program. Energy Efficiency and Con- the five-year authorization Like CDBG, the largest However, the Secretary is servation Strategy pursuant period for the EECBG pro- share of total funding (i.e., 68 directed to give priority to to the requirements of the law gram is nearly concurrent percent) is allocated directly localities applying for funds and submit it within one year with the five-year period, by formula to eligible cities from less populated states of receipt of these funds. In ending December 31, 2012, and counties. Similarly, each (i.e., two million or less) or subsequent years, additional which is the Agreement’s tar- state receives a funding share to local projects that result in funding is limited to imple- get date for achieving emis- (i.e., 28 percent) to serve cit- “significant energy efficiency mentation of an approved sion reduction goals set forth ies and counties not directly improvements or reductions strategy. in the Kyoto Protocol. eligible for formula funds. in fossil fuel use.” Within two years of receipt of an initial grant, each for- mula recipient must report to the Secretary on the status of its implementation of the strat- Enactment of this new initiative, called the Energy egy, including an assessment Efficiency and Conservation Block Grant Program of the energy efficiency gains. Annual reporting is required (EECBG), is the product of a nearly yearlong effort each year thereafter. by The U.S. Conference of Mayors and its member The new law generally mayors, as first unveiled one year ago during the identifies three key goals for recipients of these block 75th Winter Meeting in the Conference’s 10-Point grant funds: 1) reduce fossil Plan. fuel emissions, 2) reduce total energy use; and 3) improve energy efficiency in the trans- portation, building, and any other appropriate sectors. Mayors participating in Also, funds provided under Key Process Steps It supports the achievement the Conference’s upcoming the EECBG program require With enactment of the new of these goals by authoriz- Winter Meeting, which will no matching share. law, the U.S. Department of ing a broad range of local feature a special session on Unlike CDBG, the Secre- Energy is now beginning its programs, projects and other the program, will be working tary of the U.S. Department of preparations for issuing vari- activities that can be funded to make sure that Congressio- Energy is the program admin- ous rules, policies and guid- with available block grant nal leaders and other policy- istrator, not the Housing and ance to support the startup of resources (see Sec. 544 of PL makers make a strong com- Urban Development Secre- the program. 110-140). U.S. MAYOR Page  usmayors.org • The United States Conference of Mayors

U.S. MAYOR WASHINGTON OUTLOOK January 14, 2008 Direct Formula City and County Recipients Under the New EECBG Program* City County Total City County Total State‡ Recipients Recipients Recipients State‡ Recipients Recipients Recipients Alabama 12 10 22 Montana 10 10 20 Alaska 10 10 20 Nebraska 10 10 20 Arizona 20 10 30 Nevada 10 10 20 Arkansas 10 10 20 New Hampshire 10 10 20 California 220 27 247 New Jersey 23 15 38 Colorado 20 10 30 New Mexico 10 10 20 Connecticut 16 8 24 New York 18 18 36 Delaware 10 3 13 North Carolina 22 10 32 Florida 69 23 92 North Dakota 10 10 20 Georgia 16 10 26 Ohio 34 13 47 Hawaii 1 5 6 Oklahoma 11 10 21 Idaho 10 10 20 Oregon 14 10 24 Illinois 51 10 61 Pennsylvania 14 18 32 Indiana 23 10 33 Rhode Island 8 5 13 Iowa 13 10 23 South Carolina 10 10 20 Kansas 12 10 22 South Dakota 10 10 20 Kentucky 10 10 20 Tennessee 15 10 25 Louisiana 10 10 20 Texas 77 21 98 Maine 10 10 20 Utah 19 10 29 Maryland 10 10 20 Vermont 10 10 20 Massachusetts 34 10 44 Virginia 18 10 28 Michigan 31 10 41 Washington 27 10 37 Minnesota 22 10 32 West Virginia 10 10 20 Missouri 17 10 27 Wisconsin 20 10 30 Mississippi 10 10 20 Wyoming 10 10 20 * based on 2006 Census estimates of population ‡ Recipeints in Puerto Rico not shown in table. The United States Conference of Mayors • usmayors.org U.S. MAYOR Page 

Delaware Energy Plan Delaware residents recently put on their energy-thinking caps on to do their part in updating the state's energy plan. The same energy-conscious concerns apply for the Governor's Energy Advisory Council, as it strategizes at this critical juncture for energy use and distribution in formulating a new Delaware Energy Plan. Pursuant to Delaware Code, 29 Del.C.Subch.II, "The Delaware Energy Act," the Governor’s Energy Advisory Council has been charged with spearheading the updating of the Delaware Energy Plan every five years. The plan also includes a process for public input and measures for progress in attaining goals identified in the Energy Plan. The previous report developed by the Governor's Energy Task Force was released in fall of 2003, while the new plan is expected to be developed and completed by spring of 2009. Five workgroups have been established in the energy planning process to review current policies, resources and to make recommendations to the Governor’s Energy Advisory Council for Delaware's future energy goals, targets and policies. Workgroups • Reducing Energy Use • Reducing the Environmental Footprint of Energy Used by Delawareans • Reducing Transportation Energy Use • Ensuring Efficient and Effective Energy Transmission and Distribution Systems • Supporting and Growing Delaware's Clean Energy Businesses The Workgroups are to complete their work and report back to the Governor’s Energy Advisory Council by December 31, 2008. Supporting Materials • 2003 Energy Plan “Bright Ideas for Delaware’s Energy Future” • Energy Task Force Report Executive Summary • Ensuring Delaware’s Energy Future - A Response to Executive Order Number 82 • Delaware's Electricity Future: Re-Regulation Options and Impacts Related links • Sustainable Energy Utility Task Force • "Another Look at Delaware's Energy Future" (pdf)

LESSONS FROM THE PIONEERS: TACKLING GLOBAL WARMING AT THE LOCAL LEVEL J O H N B A I L E Y J A N U A R Y 2 0 0 7 I N S T I T U T E F O R L O C A L S E L F - R E L I A N C E 1 3 1 3 5 t h S t r e e t S E , M i n n e a p o l i s , M N 5 5 4 1 4 • t e l e p h o n e : 6 1 2 . 3 7 9 . 3 8 1 5 • w w w. n e w r u l e s . o r g

Other publications from the New Rules Project of the Institute for Local Self-Reliance: Localizing the Internet: Five Ways Public Ownership Solves the U.S. Broadband Problem by Becca Vargo Daggett, January 2007 Big Box Swindle: The True Cost of Mega-Retailers and the Fight for America's Independent Businesses by Stacy Mitchell, November 2006 Climate Neutral Bonding: Building Global Warming Solutions at the State And Local Level by John Bailey, February 2006 The Carbohydrate Economy, Biofuels and the Net Energy Debate by David Morris, August 2005 Minnesota’s Biomass Mandate: An Assessment by David Morris, June 2005 A Better Way to Get From Here to There: A Commentary on the Hydrogen Economy and a Proposal for an Alternative Strategy by David Morris, January 2004 All available at www.newrules.org The Institute for Local Self-Reliance (ILSR) is a nonprofit research and educational organization that provides technical assistance and information to city and state governments, citizen organizations and industry. Since 1974, ILSR has researched the technical feasibility and commercial viability of environmentally sound state-of-the-art technologies with a view to strengthening local economies. The Institute works to involve citizens, governments and private enterprise in the development of a comprehensive materials policy oriented toward efficiency, recycling, and maximum utilization of renewable energy sources. Institute for Local Self-Reliance Minnesota Office Washington DC Office 1313 5th St. SE 927 15th St. NW, 4th Floor Minneapolis, MN 55414 Washington, DC 20005 612-379-3815 www.ilsr.org Cove r g r ap h i c cre di t t o War re n G e t z. 1 3 1 3 5 t h S t r e e t S E , M i n n e a p o l i s , M N 5 5 4 1 4 • t e l e p h o n e : 6 1 2 . 3 7 9 . 3 8 1 5 • w w w. n e w r u l e s . o r g

Executive Summary As of January 2007, 355 mayors in communities representing over 54 million Americans in 49 states have signed the U.S. Mayor’s Climate Protection Agreement (formalized in June 2005). Participating cities agree to reduce community-wide greenhouse gas (GHG) emissions by 2012 to at least 7 percent below 1990 levels. The number of communities involved promises a diversity of strategies and a steep learning curve as communities learn from one another what works, and what doesn’t work. We surveyed the climate change activities in 10 cities to find out how well these “Kyoto cities” were do- ing in meeting their goals and what strategies and methodologies they were using. The overriding con- clusion is that, despite their commitment and their elaboration of significant programs, reducing GHG emissions below 1990 levels will be a major challenge. Many cities will likely fail in their attempts unless complementary state and federal policies are put in place. Our findings include: • The methodologies and assumptions used to create GHG inventories differ among communities, making comparisons between cities problematic. Convenient access to the data was sometimes lacking. A standard GHG estimation methodology is not yet in place, but useable models exist. Convergence and standardization may come soon. Transparency of assumptions is critical. • In all cities, community-wide emissions have risen since 1990, sometimes dramatically. Based on progress to date, it is unlikely that more than one or two of our ten cities and quite possibly none, will reduce their GHG emissions 7 percent below 1990 levels by 2012. Overall emissions increases ranged from 6.5 percent to 27 percent from 1990 baseline measurements. An exception was Port- land, Oregon, which reports a tiny 0.7 percent increase above the 1990 baseline. • Almost all of the cities we surveyed were expecting to realize a significant portion of their GHG reductions as a result of actions taken by higher levels of government (e.g. a state-level renewable portfolio standard or an increase in federal fuel economy standards). Relying too heavily on strate- gies out of the city’s direct control could stunt creative local solutions and inhibit the city’s invest- ments in energy-related projects that have ancillary economic and environmental benefits. • Cities are not investing significant amounts of their own money to reduce GHG emissions. This may be understandable, given tight budgets, but cities should remember that energy-related invest- ments, unlike many public investments, repay themselves, often in relatively short time frames. Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 3

Lessons from the Pioneers: Tackling Global Warming at the Local Level John Bailey, Institute for Local Self-Reliance January 2007 Introduction “Climate change is the biggest In February 2005, the Kyoto Protocol went into effect. More than environmental threat facing our 140 nations formally committed to significantly reduce their greenhouse gas (GHG) emissions. The United States was a highly planet. When it comes to climate visible non-signatory. In response, Seattle’s Mayor Greg Nickels change, we are all part of the challenged mayors across the country to adopt Kyoto-like reduc- problem – and part of the solu- tion goals at the local level. tion.” In June 2005, the U.S. Mayors Climate Protection Agreement was Seattle Mayor Greg Nickels adopted by the U.S. Conference of Mayors. 1 As of January 2007, 355 mayors in communities representing over 54 million Ameri- cans in 49 states have signed the Agreement.2 A number of these cities have had climate action plans in place for five years or more. A larger number have had long standing energy efficiency or energy conser- vation programs. For 33 years, the Institute for Local Self-Reliance (ILSR) has focused on bottom up solutions for national and international problems. The willingness by over 350 U.S. cities to formally agree to do just that with regard to the planetary threat of climate change is a welcome initiative. The number of communities in- volved promises a diversity of strategies and a steep learning curve as communities learn from one an- other what works, and what doesn’t work. Insufficient time has passed to allow for a serious evaluation of the effectiveness and impact of these pio- neering efforts. Nevertheless, ILSR believes there are lessons to be learned even at this juncture. Given the rapidly expanding number of cities signing on to the Agreement, we decided to undertake an initial investigation. Due to a lack of significant funding, we view this report as preliminary and hope it will spur others to undertake a more in-depth, comprehensive examination. This report addresses the following questions: 1) How are the top “Kyoto cities” in the United States measuring success? 2) What strategies and methodologies have they embraced to achieve their goals? 3) How well are they doing? 1 Participating cities agree to reduce community-wide GHG emissions by 2012 to at least 7 percent below 1990 levels 2 Signatories are online at http://www.seattle.gov/mayor/ Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 4

To gather information, ILSR examined ten community-wide GHG reduction programs: Austin, TX; Ann Arbor, MI; Berkeley, CA; Boulder, CO; Cambridge, MA; Minneapolis, MN; Portland, OR; San Fran- cisco, CA; Salt Lake City, UT; Seattle, WA. These cities were chosen in part because they are among the initiatives most visible in the media, in part because they are self-described as having strong and success- ful programs, and in part because experts cite these programs as among the most effective. Findings GHG Emissions - Boulder, CO - 2004 The overriding conclusion of our survey of these By energy source: "Kyoto cities" is that, despite their commitment and their elaboration of significant programs, reducing Other Petroleum Natural Gas 4% Fuels GHG emissions below 1990 levels will be a major 17% 28% challenge. Many cities will likely fail in their at- tempts unless complementary state and federal policies are put in place. Most do not appear to be slowing their GHG emissions more than their state, or the national averages. Electricity 51% ILSR is strongly supportive of this effort but cities should be fully aware that the road ahead will not be easy. By sectors: 1. Data gathering, reporting and availability. Street Lighting Solid Waste 1% 3% At present, these cities do not always gather and Univ. of CO Transportation 6% 30% report GHG emissions in a consistent manner. This Residential 17% makes comparisons among cities difficult. In terms of individual cities, sometimes the data is inacces- sible or presented in a manner that is difficult for the public to understand. Some of the cities de- Industrial 14% scribed their frustrations and difficulties in having Commercial to rely on electric and gas utilities to supply 29% community-wide energy consumption data. Some cities break down data by sector (residential, commercial, industrial, solid waste and transportation); some by a combination of fuel source and sector (electricity, natural gas, motor fuels and solid waste). Some report GHG emissions both ways (e.g. Cam- bridge, Boulder). Most cities report GHG emissions in terms of metric tons of CO2-equivalent emissions, but at least one city reported C02-equivalent emissions in short tons. 3 To allow for maximum uniformity and compatibility, metric tons should be used. At a minimum, there should be two breakdowns of GHG emissions – one by sector and one by energy source. Cities should also break down energy consumption by energy source, sector and end use technol- ogy. The effort to reduce carbon emissions overlaps but is not the same as the effort to improve energy 3 A short ton is 2,000 lbs, a metric ton is approximately 2,204.6 lbs. To allow for maximum uniformity and compatibil- ity with emerging GHG registries and protocols, metric tons should be used. Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 5

efficiency since one can adopt a strategy primarily based on shifting to lower carbon or zero carbon fuels while maintaining the same overall energy consumption. In developing GHG emission numbers, cities invariably will begin with energy consumption data. They should make this available. Boulder's inventory (completed by Econergy International Corporation) has a nice example of a graphical representation of GHG emissions that accompanies the raw numbers (see charts previous page). The charts provide a quick way to identify sectors’ contribution to the community's emissions and which should receive the most attention. Econergy developed an inventory GHG Emissions - Cambridge, MA maintenance system that will make it easy for Boulder staff to update their GHG inventory on an annual basis. Boulder also negotiated an agreement as part of recent fran- chise negotiations with Xcel Energy to have community-wide energy consumption data downloaded di- rectly to the city from the utility. Cambridge's Climate Action Plan report goes a step further and pro- vides an illustration of the fuel types used in each of the main sectors – residential, commercial/industrial and transportation. Ann Arbor has compiled a compre- hensive and transparent GHG emis- sion inventory, thanks to the efforts of a dedicated group of graduate students at the University of Michi- gan’s Natural Resources and Envi- ronment Program.4 The remarkably detailed report (nearly 500 pages) contains an extensive section ex- plaining the methodology. Some city inventories we examined, even when they contained good data on overall emissions lacked any discus- sion of the methodology used to arrive at its quantitative conclusions. 4 Epstein, Seth; Malcoun, Joseph II; Oorbeck, Jenny; and Yamada, Mamoru, May 2003. “City of Ann Arbor Green- house Gas Emissions Reduction Strategy,” Center for Sustainable Systems, University of Michigan. [http://www.css.snre.umich.edu/css_doc/CSS03-02.pdf] Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 6

Cities could copy Ann Arbor’s strategy but it would require that the city have a staff person prepared to guide the project along. Local graduate schools should be eager to assist. Their students, as part of a class or independent project, could quickly, inexpensively and thoroughly gather the baseline emissions data and provide an easy to follow methodology to allow city staffers to regularly update the database. A note of caution that one of our cities pointed out is that a 500 page academic report will not be something that city staffers will want to hand to decision makers and expect them to develop policy around. Any such research analysis must be broken down into a manageable, succinct policy report. Although city activities themselves generate only a tiny portion of the community’s overall GHG emis- sions (typically less than 5 percent), cities should break out GHG emissions and reductions generated from their internal municipal operations in the reports. In reporting on GHG reduction efforts, each of the cities' GHG reports illustrated individual municipal- level and community-wide actions that had been taken. Sometimes the lists contained dozens of actions: improving city-owned vehicle efficiency by purchasing hybrids, switching to LEDs for traffic signals, tightening city government and community-wide building energy codes, expanding public transit, ex- panding recycling and capturing methane. However, most lacked a breakdown of municipal-only GHG emissions over time. Such data is important because the municipal corporation must be the leader and model for community-wide GHG reduction initiatives. The city must clearly demonstrate that large GHG reductions are possible, especially in existing buildings. Perhaps most importantly, several cities lacked a data base sufficient to allow city officials or interested researchers to measure the community’s progress and performance. Of the 10 cities examined, three ei- ther had no baseline or current GHG inventory or the data they did have was too limited to be of signifi- cant utility. 5 The others had adequate inventories but often public access to the information was very dif- ficult. 2. Methodological considerations A standard GHG estimation methodology is not yet in place, but useable models exist. Convergence and standardization may come soon.6 For any GHG inventory process, assumptions will have to be made that will impact the final numbers. One basic assumption will involve drawing the boundary for GHG emis- sions included. For example, should the inventory include GHG emissions generated by inter-city or inter-regional commuters? Transparency is critical and whatever decisions are made, it will be important that future inventories remain consistent to the chosen methodology so that trends in GHG emissions will be comparable. 5 For example, Minneapolis did develop a baseline GHG inventory in 1993 for the year 1988, but a recent examina- tion led the city to reconsider its accuracy. A new baseline analysis and current inventory are in the process of being developed. We deemed Berkeley’s baseline inventory inadequate since it does not include the significant contribu- tions of GHG emissions from the University of California-Berkeley and Lawrence Berkeley National Laboratory. 6 National signatories of the Kyoto Protocol itself are required to meet GHG inventory standards adopted by the Inter- governmental Panel on Climate Change (IPCC) http://www.ipcc-nggip.iges.or.jp/ The IPCC supplies Kyoto countries with a Good Practice Guidance document that provides the methodologies to estimate GHG emissions in four broad sectors: Energy (electricity, heating, transportation, etc.), Industrial Processes, Agriculture and Waste. Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 7

Many of the cities in our sample use a GHG inventory model called the Clean Air and Climate Protection (CACP) software (http://www.cacpsoftware.com/ . Developed jointly by the State and Territorial Air Pol- lution Program Administrators/Association of Local Air Pollution Control Officials (STAPPA/ALAPCO) along with the International Council for Local Environmental Initiatives (ICLEI), CACP first became available in May 2003. Many current and future inventory protocols rely on the ongoing work of the World Resources Institute/ World Business Council for Sustainable Development (WRI/WBCSD).7 The WRI/WBCSD models target the business community but its spreadsheet tools can be modified and used by cities. The California Climate Action Registry 8 (the Registry), established by state statute, has developed a Gen- eral Protocol and industry-specific protocols based on the WRI/WBCSD models. Registry participants use the General Reporting Protocol9 to report emissions, and then they use the Registry’s Certification Protocol to certify that report.10 The Registry is working with other states to help them establish similar protocols for GHG inventories and offset certifications. The Registry appears to be on track to become the default methodology for certifiable GHG emissions inventories at the state and local level. Some cities using the CACP software have expressed concerns that they will not be able to meet the re- quirements of other emerging GHG verification protocols and GHG offset trading systems. Those fears seem to be unfounded. The latest version of the CACP software allows users access to advanced reporting features in order to generate the data necessary to integrate GHG inventory information into the Califor- nia Climate Action Registry. The primary differences between the two approaches are that the California Registry requires third party certification of the GHG report while CACP doesn’t, and the Registry distin- guishes between emissions generated directly and those generated indirectly from the use of electricity, steam, or heat. ICLEI can help cities with an easy workaround to get the data in the correct format for use with the Registry. The Chicago Climate Exchange11 (CCX), the world’s first and North America’s only legally binding GHG emission reduction and trading system, requires participants to complete an independently certified base- line and ongoing inventory. Emissions are quantified using continuous emission monitors (when avail- 7 The WRI/WBCSD developed a GHG Corporate Accounting and Reporting Standard and a Project GHG Accounting and Reporting Standard.(http://www.ghgprotocol.org/) The program currently offers free downloads of a suite of peer- reviewed software tools using Microsoft Excel spreadsheets. 8 http://www.climateregistry.org/ Registry participants include businesses, non-profit organizations, municipalities, state agencies, and other entities. San Francisco, one of our profiled cities, recently became the first U.S. city to cer- tify their emissions inventory with the Registry. 9 General Reporting Protocol, Version 2.1, June 2006 - http://www.climateregistry.org/docs/PROTOCOLS/GRP%20V2.1.pdf 10 General Certification Protocol, Version 2, July 2003 - http://www.climateregistry.org/docs/PROTOCOLS/General_Certification_Protocol_July_03.pdf. The Registry’s ena- bling legislation directs two state agencies, the Resources Agency and the Environmental Protection Agency, to pro- vide technical guidance to the Registry. The Registry participant must submit its GHG reports via a web based soft- ware interface called CARROT (Climate Action Registry Reporting Online Tool). 11 http://www.chicagoclimatex.com/ Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 8

able), or through protocols developed by CCX and those developed by WRI/WBCSD. 12 At this time, cit- ies participating in the CCX are including GHG emissions from municipal operations only not community-wide emissions. Overall, methodological issues do not appear insurmountable. Variations among methodologies are di- minishing. However, some estimation issues may be worthy of further investigation. One involves the way communities assess GHG emissions from activities that cross their borders. One good example is measuring the GHG emissions from gasoline and diesel used for transportation. Estimating emissions from transportation can be especially difficult when there is a great deal of inter-city and suburb-to-city traffic. If citywide gasoline sales are used, the amount of emissions could be underes- timated. If vehicle miles traveled (VMT) are used, emissions levels might be overstated. Both ap- proaches require a variety of assumptions (e.g. allocating gas sales, allocating VMT, vehicle types, mpg estimates) in order to calculate emissions. Regardless of the chosen method, the resulting GHG emissions numbers can only be considered approxi- mate. Ultimately, the most important thing the city can do is to make the calculation and assumptions eas- ily understood and easily evaluated by the public. For the foreseeable future, precise estimates of community-wide GHG emissions from transportation will be difficult to calculate. The community's access to certain types of data (e.g. gas tax revenues or regional VMT statistics) will lead them to use a particular methodology. The CACP software handles both but the software manual steers users to utilize VMT estimates, and many cities are using that approach. In talk- ing to the city of Portland, we came away believing that gasoline taxes (a surrogate for sales) can lead to as accurate if not greater accuracy as VMT. Once again, it is important to make the calculation fully transparent 3. Much of the emission variations among cities may be explained by the different carbon content of the fuels used to generate electricity. Per capita emissions in the ten cities range from a low of 12.2 metric tons of carbon dioxide equivalent (CO2e) emissions, to 20.3 tons.13 The per capita carbon dioxide equivalent emissions was 24.5 tons for the U.S. as a whole.14 The differences can largely be explained by the different fuel source for the city’s electricity. In Austin, for example, over 50 percent of GHG emissions are generated from electricity con- sumption from its largely coal fired power supply. In largely hydroelectricity-dependent Seattle, on the other hand, electricity use accounts for less than 10 percent of the city’s overall GHG emissions. Transportation is the other significant source of GHG emissions, varying from 17-50 percent in the ten cities we looked at. But here too the wide variation may be tracked back to the varying level of GHG 12 Emissions are reported quarterly, and are subject to external verification and audit 13 Translate CO2 emissions into carbon emissions by dividing by 3.67. Thus per capita carbon emissions range from 3.3 to 5.5 metric tons. Insufficient data exists to estimate emission levels in Berkeley, Minneapolis and Salt Lake City. 14 Navigating the Numbers: Greenhouse Gas Emissions. World Resources Institute, 2005. http://www.wri.org/climate/pubs_description.cfm?pid=4093 Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 9

emissions in the electricity sector. Low carbon electricity tends to lead to a higher percentage of commu- nity emissions coming from transportation and vice versa. The differences in the level of carbon in electricity fuels doesn’t necessarily give a city an advantage in achieving GHG reduc- Sources of Electricity (2004 data for Austin, 2005 data for Seattle) tion goals because the goals are a reduction 90% from a 1990 baseline. Low carbon content 80% electricity cities may have a lower baseline, 70% 60% making their absolute GHG reduction goals 50% lower. For Seattle, with a very low elec- 40% tricity fuel carbon content, less future emis- 30% 20% sions reductions can be wrung from the 10% electric sector than in other cities and in- 0% Coal Natural Nuclear Hydro Wind Other stead will have to come from sectors where Gas Seattle, WA Austin, TX community-wide GHG savings are more difficult (e.g. transportation). Austin, on Seattle’s electric utility overwhelmingly relies on renewable fuels. Austin’s has a largely fossil fuel portfolio. Austin's GHG the other hand, expects to meet more than per capita emissions are almost 30 percent higher than Seat- 42 percent of its GHG reduction target by tle’s as a result. developing renewable energy for electric- ity, displacing coal. We should note that Seattle’s municipally owned utility has become the first to be- Per Capita Emissions by Sector come climate neutral by purchasing carbon 12 offsets to cover the remaining GHG emis- 10 sions in the electricity sector (about 8 200,000 metric tons per year). 6 4 2 4. In all cities, community-wide emis- - sions have risen since 1990, some- Transportation Electricity Natural Gas Other times dramatically. Seattle, WA (1990) Austin, TX (1990) This is a key and troubling finding, demonstrating how challenging the effort to achieve even the modest Kyoto goals will be at the local level. Based on progress to date, it is unlikely that more than one or two of our ten cities and quite possibly none, will reduce their GHG emissions 7 percent below 1990 levels by 2012. Overall emissions increases ranged from 6.5 percent to 27 percent from 1990 baseline measurements. An exception was Portland, Oregon, which reports its overall emissions a tiny 0.7 percent above the 1990 baseline. Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 10

The mid point in the range of increases in community-wide emissions among our profiled cities is 17 per- cent. This is almost identical to the 16 percent increase in national GHG emissions between 1990 and 2002.15 However, as the chart below reveals, there seems to be a surprising divergence between the trajectory and slope GHG emissions in Kyoto-cities versus those of GHG emissions of the state in which that city is lo- cated. We offer the chart with the following caveats: different methodologies used in state level GHG inventories from the U.S. Dept. of Energy can result in different results than state level inventories con- ducted by the states themselves. Further complicating the comparisons below are different methodologies used by the cities as compared to the state and federal inventories. We urge a more in-depth analysis of these differences. GHG Emissions Change 1990-2002 and Population Increase 1990-2000 (GHG data as close to 2002 as possible) National California San Francisco, CA Colorado Boulder, CO Massachusetts Cambridge, MA Michigan Ann Arbor, MI Oregon Portland, OR Texas Austin, TX Washington Seattle, WA -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% City or State GHG Emissions Change Population Increase Note: Community level data for the chart is coming from many different sources and state level information is coming from U.S. Dept. of Energy and U.S. Environmental Protection Agency http://www.epa.gov/climatechange/emissions/state_energyco2inv.html 15 Energy Information Administration, International Energy Annual 2004. http://www.eia.doe.gov/ Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 11

For example, DOE’s data shows Oregon’s emissions rising by about 35 percent between 1990 and 2000.16 The GHG inventory by the State of Oregon estimates an increase of about 18 percent. The dramatic dif- ference arises because of different methods of allocating GHG emissions from the electric sector. DOE calculates emissions based on in-state electrical generation, the state of Oregon calculated GHG emissions based on the regional mix of electricity and argues that it “better reflects the carbon mix associated with the delivery of electricity to Oregon’s consumers.”17 DOE data for Oregon shows a dramatic 300 percent increase in GHG emissions in the electricity sector between 1990 and 2000. The State of Oregon’s data shows a much more modest 17 percent increase in electricity sector GHG emissions from 1990 to 2000. Using the DOE data, in all but two cases, state-level GHG emissions growth was lower, often dramati- cally lower, than GHG emissions growth in the Kyoto city within that state. We also find an interesting correlation between population growth and GHG emissions. In virtually all instances, jurisdictions whose population grew faster had slower emissions growth. California had almost twice the population growth of San Francisco but a smaller emission increase. Colorado’s population growth was almost triple that of Boulder but its GHG emission increase was only a third as rapid. In Texas, on the other hand, population growth at the state level was only half that of Austin’s and Aus- tin’s GHG emission growth rate was 25 percent slower than its state’s. One theory to explain this correlation is that a greater population growth means that more people are liv- ing in much more energy efficient housing and having more efficient appliances. It is also possible that the methodology used by the Department of Energy and that used by the cities differs significantly. Again, more research is needed in this area The only truly atypical case involves GHG Emissions per Capita and Population Portland, Oregon. Over the same time Change 1990-2000 period, Oregon and Portland popula- tions increased at virtually the same Austin, TX rate. Yet Oregon’s GHG emissions increased almost 30 percent (using Ann Arbor, MI DOE data) and 19 percent (using State Boulder, CO of Oregon data) compared to the 0.7 Cambridge, MA percent increase in Portland. Among Portland, OR the cities we examined, Portland is the only one to virtually achieve a zero San Francisco, CA GHG emissions growth. Why? Seattle, WA It is possible that Portland’s urban -30% -20% -10% 0% 10% 20% 30% 40% growth boundaries may have helped in GHG Emissions per capita change Population Change % that its population increase raised its residential density significantly and 16 http://www.epa.gov/climatechange/emissions/state_energyco2inv.html 17 Oregon Strategy for Greenhouse Gas Reductions, State of Oregon, December 2004 (p. 150) http://oregon.gov/ENERGY/GBLWRM/docs/GWReport-FInal.pdf Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 12

led to an increase in the use of mass transit, reducing transportation fuel consumption beyond statewide levels. This is certainly an area needing further investigation. 5. Some cities are relying largely on higher levels of government to implement policies that will allow them to achieve their goals. Almost all of the cities we surveyed were expecting, or hoping to realize a significant portion of their GHG reductions as a result of actions taken by higher levels of government. This can mean relying on a state-level renewable portfolio standard or an increase in federal fuel economy standards (or state stan- dards perhaps, if California's action to limit vehicle CO2 emissions is ruled acceptable by the Supreme Court). As the Cambridge climate change action report notes, "Changes in laws, standards, subsidies, and incentives at the federal and state levels can have huge impacts on local emissions; they can either un- dermine or enhance local actions." • Ann Arbor expects that up to 75 percent of the emission reductions will come from the adoption of a state-wide 50 percent renewable electricity standard by 2020. • Austin proposes to achieve over 30 percent of its overall emission reductions from improved vehi- cle efficiency and trip reductions in transportation. (1997 report) • Cambridge proposes to achieve 60 percent of its overall emission reductions as a result of a state 20 percent renewable electricity standard and an increase in the federal fuel economy standards to 40 mpg. (2003 report) • San Francisco proposes to meet 22 percent of its overall emission reductions from a five mpg in- crease in the federal corporate average fuel economy (CAFE) standards. (2004 report) It is clear that action by higher levels of government will be needed and helpful to the local efforts. Thus, as part of their local climate action plans, cities should add a component that elaborates a strategy to work with other communities to influence state and national GHG and energy related policies. Foreseeing this necessity, the U.S. Mayors Climate Protection Agreement emphasizes that cities should be involved in advocacy for complementary state/federal policies. Through the newly created Mayors Council on Cli- mate Protection under the auspices of ICLEI and the U.S. Conference of Mayors, the Kyoto Cities are forming a stronger policy arm to impact changes at the state and federal levels. Relying too heavily on strategies out of the city’s direct control, however, can have the additional draw- back of stunting creative local solutions and can inhibit the city’s investments in energy-related projects that have ancillary economic and environmental benefits. 6. Many of the reductions to date have come from pollution-shifting, or from a one-time- only capturing of landfill gas Seattle has documented a 60 percent reduction in its municipal operation's GHG emissions from 1990 to 2000. Three actions achieved almost all the reductions. One was the sale by Seattle's municipal electric utility of its share of the Centralia Coal Plant and a switch to purchasing cleaner electricity. One might Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 13

call this strategy pollution-shifting since it did not reduce overall emissions but rather shifted the individ- ual responsibility for those emissions (Seattle believes that the fossil fuel divestment and clean energy substitution sends a strong message to the marketplace that it must become cleaner.) Another step taken by Seattle was to install a methane collection and flaring system in the city landfill.18 Several other cities have achieved reductions largely from tapping into landfills for methane gas. Ann Arbor reported that over 80 percent of its cumulative savings from its 1990 baseline (that is, reductions from projected growth) were a result of tapping into its garbage landfill and recovering methane. The Mayor of Salt Lake City claimed in the summer of 2006 that city operations have met the goals of the Kyoto Protocol by reducing GHG emissions by 22 percent from a 2001 baseline inventory. Over 70 per- cent of the GHG reductions from 2001 to 2005 resulted from one action – capturing methane from a city owned landfill. A third action taken by Seattle, and several other cities, has been to purchase carbon offsets. Seattle pro- poses to meet about 30 percent of its overall emission reductions by purchasing carbon offsets (200,000 metric tons per year).19 Using a related but different strategy, Boulder proposes to achieve 58 percent of their overall emission reductions from purchases of renewable energy. Buying carbon offsets is certainly a legitimate strategy if the offset project results in real reductions in greenhouse gas emissions. But since the carbon-offset projects can often take place outside the city's ju- risdiction, the local government has disconnected responsibility from accountability. Tapping into the car- bon offset market beyond a city's borders should be a lower priority GHG reduction option than initiatives that are local. There is also an increasing public awareness that some sources of carbon offsets and pur- chases of renewable energy credits (RECs) are not resulting in verifiable or real reductions in GHG emis- sions (a concept known as additionality).20 7. Cities are not investing significant amounts of their own money to reduce GHG emissions Many GHG reduction initiatives are funded from state and federal sources. Cities have often been reluc- tant to invest their own money. This may be understandable, given tight budgets, but cities should re- member that energy-related investments repay themselves, often in relatively short time frames. Cities seem reluctant to invest even on initiatives with a relatively short payback. Probably the clearest evi- dence is in the LED traffic light substitution programs. Most if not all cities are substituting LEDs for conventional traffic signals, but few have achieved 100 percent substitution. Many will not achieve that level for several years. Some have delayed action for years, awaiting money from state or federal or util- ity grants, even though LED substitution has a very short payback period. 18 Our Carbon Footprint, Seattle Office of Sustainability, 2006. Flaring methane at landfills reduces CO2-equivalent emissions substantially compared to landfills that are not flaring. 19 Seattle has emphasized local GHG reduction strategies. To that end, a portion of their carbon offset purchases currently come from local GHG reduction projects. 20 A Consumers’ Guide to Retail Carbon Offset Providers, Clean Air-Cool Planet, 2006 http://www.cleanair-coolplanet.org/ Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 14

Cities have the ability to borrow large sums at low interest over a long term, thereby achieving significant reductions in carbon emissions while repaying the debt from energy savings. They should more aggres- sively pursue these opportunities. A city should finance all efficiency improvements that repay them- selves in less than 10 years, or in half the physical lifetime of the improvement. Some cities have sug- gested that maintaining a strong bond rating limits their ability to borrow additional money for energy- savings projects. This may be a valid, albeit surprising situation but one that is beyond the scope of this investigation. Some cities are dedicating ongoing funds to specifically implement climate action plans. In November, 2006, Boulder, CO, voters passed a referendum imposing a "climate tax" on electricity consumption to finance GHG reduction projects. Boulder climate tax will raise $860,265 in the first year, and up to $1,342,000 each year thereafter for the period of April 1, 2007 to March 31, 2013. Seattle’s 2007-2008 proposed budget contains a $37 million investment over two years to reduce GHG emissions by increasing transit ridership and decreasing driving. The city allocated $3 million from its general fund revenues. The remaining $34 million comes from a portion of a tax levy referendum passed by Seattle voters in November 2006. Seattle (like other cities) has other ongoing programs with expendi- tures (perhaps tens of millions of dollars) that can impact GHG emissions but are not delineated for cli- mate change efforts. A small first step for Kyoto-cities that we recommend is a policy of "climate neutral bonding" where any new bond-funded building projects can result in no net increases in GHG emissions within the community when completed.21 If a new construction project is projected to increase emissions, there must be GHG emissions offsets within the community. Another immediate step is for the city to develop a plan to en- sure that city operations become climate neutral as soon as possible. Good ideas for cities taking responsibility for the global consequences of their consumption habits are sprouting up across the country. In May 2006, the U.S. Conference of Mayor's issued an energy and en- vironment best practices guide22 that contains dozens of interesting initiatives that cities around the coun- try have engaged in. ICLEI along with other groups are building up resources in their Cool Mayors for Climate Protection web site at http://www.coolmayors.org/. ILSR’s New Rules Project’s web site on en- ergy (http://www.newrules.org/de/) features a number of innovative policies at the local and state levels. Conclusions America’s Kyoto cities are pioneers - building a path for others to follow. They are to be congratulated for making a visible, public commitment to address global warming. They have gathered data and created a benchmark (1990 emissions) against which to measure their progress. They have developed strategies and implemented programs. They have picked the low hanging fruit (e.g. tapping into landfills, LED traf- fic lights, purchasing renewables). 21 Climate Neutral Bonding: Building Global Warming Solutions at the State and Local Level, by John Bailey, Institute for Local Self-Reliance, February 2006. http://www.newrules.org/de/climateneutralbonding.pdf 22 http://www.usmayors.org/uscm/best_practices/EnergySummitBP06.pdf Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 15

These cities recognize the difficult challenge before them. Most of them are unlikely to achieve their quantitative GHG reduction A Suggested Hierarchy for goals. Many will miss their goals by a wide margin. Few appear Community-wide Carbon to be doing better than their own states or other cities that have yet Reduction Efforts to adopt a Kyoto-like standard. All are learning the limits of their authority to effect significant changes in the energy consumption 1. Target direct emissions reduc- habits of their populations. tions by focusing on the GHG emissions locally by implement- Yet the very number of cities that have formally agreed to partici- ing all cost-effective energy ef- pate in this effort speaks to a widespread desire to take responsibil- ficiency measures (including ity for the planetary consequences of our consumption habits. The efforts to reduce driving), on- number of participating cities promises a wide degree of experi- site renewable energy and mentation and innovation and a very steep learning curve. The switching to cleaner fuels. advantage of many local initiatives is that if there is a failure, the damage done is very small and its lessons can quickly be dissemi- 2. Target indirect emissions of nated. If there is a success, it can quickly be replicated and refined. GHG emissions in the electricity and transportation sectors that It is in that spirit of innovation and refinement that we offered this are beyond the direct control of report. the city. Some outstanding issues to explore in more detail include: 3. Purchase carbon offsets and/ or renewable energy credits that • Urban Forestry and carbon sinks - how to account for GHG reductions from sequestration by trees. are from third-party verified projects that create GHG reduc- • Transportation estimates - how to make comparisons easier tions that otherwise might not and measurements more precise have occurred. • Methodologies - ensuring consistency. Do we need a national standard? • Offsets - Should they be local? How to make them verifiable and additional. • Comparisons - Have the Kyoto cities done better than other cities or states? • Costs - What administrative and operational costs does a municipal climate change program entail? What staffing, budget, data gathering and organizational models exist? • Why have Portland’s GHG emissions remained essentially flat and how can other cities replicate and improve upon their efforts. • Why are cities not investing more in short and medium term energy savings projects? • How far can a city go to achieve Kyoto-like goals within its own jurisdiction and authority? • Information exchange - What is the best way to develop a robust database and information ex- change among Kyoto Cities? Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 16

Links to the Cities and their Climate Change Web Sites Ann Arbor, MI City web site - http://www.ci.ann-arbor.mi.us/ Climate Change Information - http://www.a2gov.org/PublicServices/SystemsPlanning/Energy/ClimateProtection.html Austin, TX City web site - http://www.ci.austin.tx.us/ Austin Energy - http://www.austinenergy.com/ Berkeley, CA City web site - http://www.ci.berkeley.ca.us/ Energy and Sustainable Development Information - http://www.ci.berkeley.ca.us/sustainable/ Boulder, CO City web site - http://www.bouldercolorado.gov/ Climate Information - http://www.bouldercolorado.gov/index.php?option=com_content&task=view&id=1058&Itemid=396 Cambridge, MA City web site - http://www.cambridgema.gov/ Climate Protection Information - http://www.cambridgema.gov/cdd/et/env/climate/climate.html Minneapolis, MN City web site - http://www.ci.minneapolis.mn.us/ Portland, OR City web site - http://www.portlandonline.com/ Climate Protection Information - http://www.portlandonline.com/osd/index.cfm?c=41896 San Francisco, CA City web site - http://www.sfgov.org/ Climate Protection Information - http://www.sfenvironment.com/ Salt Lake City, UT City web site - http://www.ci.slc.ut.us/ Climate Protection Information - http://www.slcgreen.com/ Seattle, WA City web site - http://www.seattle.gov/ Seattle’s Climate Action Plan - http://www.seattle.gov/climate/ Climate Protection Information - http://www.seattle.gov/mayor/climate/ Institute for Local Self-Reliance w w w. n e w r u l e s . o r g Lessons From The Pioneers 17