AGENDA #5c

MEMORANDUM

TO: Mayor and Town Council

FROM: W. Calvin Horton, Town Manager

SUBJECT: Preliminary Report regarding Burial of Town’s Utility/Power Distribution System

DATE: February 24, 2003

The purpose of this report is to provide preliminary information on the financial and environmental implications of burying the Town’s electrical power distribution system.

If the Council wishes to pursue action to bury Town electrical facilities, then we recommend waiting until completion of a report on this subject by the N.C. Utilities Commission’s Public Staff.

Attachment 1 provides preliminary information about the implications of burying the Town’s electrical system, including costs involved, environmental impacts, and legislative requirements.

BACKGROUND

This report provides preliminary information in response to a January 13 petition from Mr. Joe Capowski, who requested that the Council initiate a process to bury the electrical power distribution system serving citizens and businesses in Chapel Hill.

Mr. Capowski’s petition requests that the Town Council take steps to begin placing the existing electrical distribution system underground, because it is vulnerable to damage by severe weather conditions, as it was during Hurricane Fran and the December 2002 Ice Storm (Attachment 2). The Council has also received petitions from citizens in recent months, requesting that the Council require burial of three-phase power distribution lines associated with new development.

DISCUSSION

According to Mr. Scott Gardner, District Manager of Duke Energy, the cost of burying overhead facilities could be approximately $2.5 million per mile in Chapel Hill and total approximately $500 million. According to the N.C. Utilities Commission, the Town would not be able to require that this cost be borne by Duke Energy, which would mean that the cost would be passed on either to the Town or to utility customers.

N.C. Utilities Commission

According to Mr. James McLawhorn, Utilities Engineer on the Public Staff of the N.C. Utilities Commission, the Commission allows Duke Energy to pass along extra costs to a third party requesting the burial of electrical lines. The National Electric Safety Code (NESC) permits providers to operate and construct distribution lines using “least-cost” methods, and the standard method for power distribution is overhead construction.

The Utilities Commission has requested that the Commission’s Public Staff begin a study to assess the feasibility of burying overhead electric distribution systems and provide a source document for responding to continuing inquiries from the general public (Attachment 3). According to Mr. Ben Turner, Electric Division Director on the Public Staff of the Utilities Commission, the study is expected to be complete by June 30, 2003. A draft outline of the report to be prepared by the Public Staff is included as Attachment 3.

The Public Staff was created in 1977 to review, investigate, and make recommendations to the Commission regarding utility rates, service, and public policy (Attachment 4).

Duke Energy Policies

According to Mr. Scott Gardner, District Manager of Duke Energy, the company’s service regulations approved by the N.C. Utilities Commission provide that transmission, distribution, and service facilities “will be installed above ground on poles, towers, or other fixtures” (Attachment 5). Generally, the standard rates for electric service reflect the cost of installing facilities overhead. Duke Energy will install underground service under the provisions of their Underground Distribution Installation Plan, which is approved by the Utilities Commission (also Attachment 5). The requesting party is responsible for the costs of underground installations, unless otherwise provided for under the Plan.

NEXT STEPS

The Public Staff of the Utilities Commission is studying costs and other issues involved in converting overhead electrical utility systems to underground. This report is expected to be complete by June 30, 2003.

Information on legislation to authorize special taxes to fund the undergrounding of utility lines is contained in the attached report.

We recommend that the Council await the Public Staff’s report on undergrounding of utility lines before taking further action.

The Council was scheduled to meet with the Legislative Delegation on February 17 to discuss items of interest as part of the Town’s Legislative Program. This meeting was canceled because of the ice storm, and a new date has not been set as of this writing.

If the Council wishes to pursue action to bury Town electrical facilities, then we recommend waiting until completion of a report on this subject by the N.C. Utilities Commission’s Public Staff.

We will take further action as directed by the Council.

ATTACHMENTS

1. Preliminary Report on Implications of Utility/Electrical System Burial (p. 4).

2. January 13, 2003 Petition from Joe Capowski (p. 10).

ATTACHMENT 1

MEMORANDUM

TO: W. Calvin Horton, Town Manager

FROM: Bill Stockard, Assistant to the Manager

SUBJECT: Preliminary Report on Implications of Utility/Electrical System Burial

DATE: February 24, 2003

This attachment provides further information about the financial, environmental, and legislative implications involved in possible burial of the Town’s electrical distribution system.

BACKGROUND AND DISCUSSION

Current Policies

Existing Electrical Facilities

Duke Power Company acquired the electrical power distribution system from the University on January 1, 1977, and began burying some facilities at that time, although the University had previously buried some lines. According to Mr. Scott Gardner, District Manager of Duke Energy, approximately 35% of the Town’s electric distribution facilities are now underground (see Attachment 6 to the main memorandum). The attached information from Duke Energy lists major underground installations since the 1970s. For example, some neighborhoods, such as Booker Creek or Briarcliff, have had underground lines since the 1970s, while others, such as Southern Village or Meadowmont, have been more recent and have occurred with new development. The University maintains its own power distribution system for the main campus.

Pre-2003 Development Ordinance

The pre-2003 Development Ordinance (Section 14.10) required that all utility lines “other than those used to transmit electricity between generating stations or substations and three-phase electric power distribution lines” be placed underground. In response to citizen petitions, the Council asked that the revised Land Use Management Ordinance contain more provisions for burial of three-phase distribution lines.

On June 24, 2002, the Council adopted a resolution that expanded Special Use Permit application submittal requirements to further describe the current Utility Plan requirement. The resolution required identification of all proposed utilities on- and off-site, as well as upgrades, and the nature of any proposed improvements.

2003 Land Use Management Ordinance

The new Land Use Management Ordinance, enacted on January 27, 2003, contains more specific language regarding burial of three-phase electric distribution lines, providing circumstances for burial of lines with new development.

The new Ordinance (Section 5.12.2) expanded on the pre-2003 Development Ordinance language by requiring burial of three-phase electric power distribution lines if:

· Duke Energy agrees in writing to provide utilities underground;

· there is a “rational nexus” between the impact of a proposed development and the proposed utility requirement;

· the costs of placing utilities underground are roughly proportionate to the impacts of development;

· the development applicant has the legal right to place lines underground where they are located off-site.

The Land Use Management Ordinance does not require burial of three-phase lines if an applicant or Duke Energy demonstrates that the burial would create “economic hardship or a danger to public health or safety.” The Council’s requirements for burial have followed guidelines established by the N.C. Utilities Commission and National Electric Safety Code.

The Council has also expressed interest in legislation from the N.C. General Assembly that would establish a mechanism for burying power distribution lines. We have provided information below under “Legislative Initiatives.”

Conversion Costs

According to information provided by Duke Energy, BellSouth, Verizon, and Time Warner Cable, burial of existing overhead utilities, including electric distribution, telephone, and cable television lines and equipment, would cost more than $500 million, as explained below.

Duke Energy

Power lines are usually buried 36 inches or deeper, telephone lines 24 inches, and cable lines 12 inches.

In estimating the expense of conversion from overhead to underground, Duke Energy’s considerations would include:

· Trenching and burial costs

· Trees that must be removed and possibly replaced

· Potential damage to property and landscaping

· Parking lot or other infrastructure damage

· Moving feeders and cost of service upgrades to businesses

According to the attached Report to the Town of Chapel Hill: Duke Power Underground Facilities, Duke Energy estimates that the costs for an undeveloped area installation can run more than six times the cost to install overhead lines (Attachment 5). In developed areas, conversion costs can be more than 18 times the cost of installing facilities overhead.

Mr. Gardner estimates that conversion costs could be approximately $2.5 million per mile in Chapel Hill and total approximately $500 million to place the Town’s overhead distribution and service lines underground. The $500 million estimate does not include the cost to convert individual services or meter installation from overhead to underground. Duke Energy serves more than 21,500 customers in Chapel Hill, Mr. Gardner said. If the $500 million undergrounding cost is spread over 10 years, if all customers paid equally, then:

· $500 million over 10 years = $50 million per year

· $50 million per year divided by 21,500 customers = $2,326 per customer per year

· $2,326 per customer per year divided by 12 months = $194 per month for 10 years – in addition to the customer’s existing electric bill.

Mr. Gardner said that the average customer bill is currently between $70 and $80 per month. We recognize that the above preliminary estimates are based on customers paying equally, and that there are other methods of dividing costs between customers.

A survey of 457 North Carolinians conducted between December 21-29, 2002, by the Howard W. Odom Institute for Research in Social Science at the University and RTI International found that 47 percent of respondents were willing to pay extra on their monthly utility bills to bury power lines. About 24 percent said they would pay $1-$5 extra; 12 percent said they would pay $6-10, and 11 percent said they would pay more than $10 monthly (Attachment 7).

Burial of the system would also involve coordination to bury the overhead lines of other utilities, such as telephone and cable.

BellSouth

According to Mr. Ed Penny, Director of Corporate and External Affairs for BellSouth, there are 1.6 million feet of aerial telephone cables in Chapel Hill, representing approximately 25% of BellSouth’s lines in the Town. (The other 75% of facilities are already buried.) Mr. Penny said that burial of the existing overhead lines would cost about $13.3 million at today’s costs.

Mr. Penny also said that operation and maintenance costs are often higher for below-ground cables due to delays in locating the failure and special equipment required to expose problem areas. Mr. Penny said that BellSouth experiences more damage to below-ground cables due to digging activities. Because electrical cables are buried more deeply than telephone cables (generally 3 feet for electrical, versus 2 feet below the surface for telephone), telephone facilities are more vulnerable to digging activity than power lines, Mr. Penny said.

According to Mr. Nat Carpenter of the Public Staff Communications Division of the N.C. Utilities Commission, the Town could only require a telephone company to bury lines through a condition imposed for the use of the right-of-way. The Town does not have a franchise agreement with BellSouth. The Town had a previous franchise with BellSouth dating back to 1902, but by law, the franchise was limited to 60 years and expired in 1962. BellSouth has refused to enter into a new franchise. We believe that the company might refuse to bury the facilities without compensation.

Verizon

Verizon also provides telephone service to the Town, mostly the eastern part of town and in Durham County. According to Mr. Steve Toler, Region Director for Verizon Public Affairs, it would cost approximately $1,719,000 to bury existing aerial facilities underground. Mr. Toler said that this was not a formal estimate, and that a more formal estimate would require considerable time and expense to determine. Verizon does not have a franchise agreement with the Town.

Time Warner

According to Ms. Virginia Yopp, Public Affairs Manager for Time Warner, burial of existing above-ground cable would cost approximately $50,000 to $60,000 per cable mile in the Town. There are approximately 108 miles of aerial cable within the Town limits, which equates to a total cost of approximately $6,480,000 to bury all cables. The Town does not have provisions that would require Time Warner to bury existing aerial cables underground.

Town Traffic Signal System

The Town of Chapel Hill has approximately 17 miles of pole-mounted signal cables (above ground) and 4 miles of underground signal cables. Most of the underground cable is in the downtown, Manning Drive and Airport Road areas. We do not have cost estimates for placing the system underground.

Issues to Consider regarding Burial of Electric Distribution Lines

Weather Exposure

Overhead systems are more exposed to high winds, weather, wildlife, and several environmental factors that would not affect underground systems. During snow and ice storms, fallen trees and debris are not as likely to affect underground systems. According to Mr. Turner of the Utilities Commission, virtually all electric lines damaged during the December ice storm were damaged by trees and not directly by ice. As pointed out in Mr. Capowski’s petition, there were substantial costs and safety issues involved when nearly all Chapel Hill residents were without electrical service during the December 2002 ice storm. Some residents were without power for more than week, forcing residents to either leave their homes or find alternative heat sources.

Underground systems are vulnerable to damage from flooding or erosion, or accidental severance through unauthorized digging.

Community Appearance

Overhead systems are viewed as unsightly. Community appearance would be improved if power lines were buried, as stated in Mr. Capowski’s petition (Attachment 2).

Costs and Rates

Overhead systems are the standard, “least cost” method for power distribution, as stated by the Utilities Commission. With an underground system, overall utility rates could increase. According to Mr. Turner of the N.C. Utilities Commission, electric rates could more than double if overhead lines are required to be buried.

Maintenance and Reliability

Overhead systems are more easily maintained than underground lines, according to Duke Energy officials. It is more difficult to determine where problem areas are with underground lines because the network is buried (Attachment 5). Mr. Gardner said that once the location of the damage is determined, it takes an average of one hour to repair an overhead line, but it would take an average of four or more hours to repair an underground line.

Environmental Impacts

Overhead systems necessitate the trimming of trees to clear branches away from power lines. The December ice storm renewed discussion about tree-trimming practices in the Town limits. In the past, poles for distribution lines were typically installed in the right-of-way and/or in standard 30-foot-wide utility easements.

Over the last 10 years, Duke Energy has used “directional pruning practices,” a system of selective removal of limbs and branches to minimize conflicts with utility lines. Duke Energy maintains its easements in accordance with the terms of an annual tree work permit originally negotiated with the Town in 1989. This tree work permit includes a requirement that the company notify the Town’s Urban Forester of ongoing easement maintenance work and that it use Town landscaping standards, including directional pruning.

Underground systems would require the removal of some trees, which may be lost during the trenching process involved in burying lines (see Attachment 8).

Legislative Initiatives

We are not likely to be able to force Duke Energy and other utilities to bury overhead lines and pay for the cost from their own profits. If the Council were to pursue burial of electrical or other utility systems, we believe that special enabling legislation would be necessary in order to finance the project. We believe that the funding mechanism could involve formation of a Utility Tax District and/or the creation of a Municipal Service District with a special property tax.

Utility Tax District

Creation of a Utility Tax District would enable the Town to levy a tax on utility bills to fund the burial of electric utility lines. The N.C. General Assembly has authorized this legislation for Dare County (Session Law 1999-127) (Attachment 9). The Legislature permitted Dare County to create one or more Utility Tax Districts for the specific purpose of “raising and expending funds to underground electric utility lines in the district.” The Dare County district could levy up to $1 per month for each residential electrical customer and up to $5 per month on each commercial or industrial electrical customer.

The Dare County legislation also specifies that the tax is “added to the sales price and shall be passed on to the purchaser instead of being borne by the utility.” We believe that if the Legislature were to authorize such legislation, even at $1-$5 per customer, we would still not have sufficient reserves to fund burial of utilities.

Special Service District

Creation of a Municipal Service District would enable the Town to levy a special property tax in a given area to fund burial of electric utility lines. Currently, State law allows service district taxes to be levied for burial of utilities only in service districts that are Historic Districts.

Under the current provisions of the N.C. General Statutes, the Town established the Downtown Service District in 1989 to enhance the downtown area. The Downtown Commission provides services funded from the Downtown Service District tax. Similarly, with additional special enabling legislation, the Council could create service districts other than just Historic Districts within the Town for the purpose of funding utility line burial in those districts.

CONCLUSION

If the Council wishes to pursue action to bury Town electrical facilities, then we recommend waiting until completion of a report on this subject by the N.C. Utilities Commission’s Public Staff.