Oct. 10, 2001 – After hearing from a standing-room-only crowd of utility experts, the Water and Power Authority governing board decided Wednesday to postpone its vote on a proposed $180 million gasification facility which according to its proponents would solve the territory's solid waste woes.
WAPA and Caribe Waste Technologies, the company leading a group of firms proposing to finance, build, own and operate the waste-to-energy plant, have been in negotiations since June trying to work out an acceptable contract for WAPA to purchase power and water from CWT. The Turnbull administration earlier this year selected CWT as the provider for the territory's solid waste plant, but the agreement is contingent on WAPA committing to buy power and water from CWT that would be produced by the plant.
WAPA is a major part of the picture because it could reduce the government’s costs by about $11 million to $12 million a year over the 30-year period of the contract by purchasing the water and power generated from the plant, Mark Augenblick, CWT chief executive officer, said at a St. Croix Chamber of Commerce meeting in September.
If WAPA were to sign a contract with CWT to purchase power and water – something the utility’s management has said that it doesn’t need — the government would still have to meet payments of approximately $25 million a year. Augenblick said that cost would likely be covered by grants and subsidies from the federal government and by a solid waste "user fee" for homes and businesses. That fee could range from about $1 to $18 a month for residents to $100 a month for businesses, Augenblick said at the September chamber meeting.
Joseph Thomas, WAPA executive director, and Augenblick, have been at odds from the very first over the issue of "avoided costs" — the amount of money WAPA would otherwise spend to produce the same amount of energy and water. In July they agreed to hire Stone & Webster Consultants of Boston, Mass., to determine what the avoided costs would be.
Joseph told the WAPA board Wednesday, "We would have paid more than $400 million more if we hadn't gotten the experts." He said the initial contract called for 9.5 cents per kwh of electricity and $17 per 1,000 gallons of water. The charges have now been set at 7.2 cents per kwh of power and $7.78 per 1,000 gallons of water, he said.
Skadden Arps, a Washington, D.C., firm hired by the WAPA board, found fault with Stone & Webster's analysis, but Joseph said most of those concerns had been worked out. He said there was no material disagreement between the two consultants' reports.
'Avoided costs' still an issue
However, Thomas wants Stone & Webster to readdress the avoided costs. He said the firm was given estimates, not "real data," to work from. "We don't want estimates," he said. He also said he wanted the board to permit him to proceed with Skadden Arps projections. Joseph said Skadden Arps had worked out another contract addressing all of its concerns and satisfying WAPA's concerns.
Two major concerns addressed Wednesday were the proposed gasification plant's reliability and its consequent "financeability." WAPA's bond counsel, Patricia A. Goins of Hawkins, Delafield & Wood in New York, cautioned the board to bear in mind its bond indebtedness, currently about $150 million. "There is serious concern about solid waste, but we have our contractual obligations to bondholders," she said.
The main point of contention among the almost 40 board members, attorneys, consultants and staff crowded into the conference room on St. Thomas was reliability of the Thermoselect System which will run the gasification process.
James Galambas, an executive engineer consultant of Skadden Arps, said repeatedly, "The process is not commercially proven." The catch word is "commercially." There is no plant in existence currently using this technology, according to Galambas. He said there are two Thermoselect facilities operating in the world, one in Germany and the other in Japan, but neither uses internal combustion engine-driven generators to produce electricity, such as is proposed for the St. Croix plant to use.
Galambas said the three-year-old German plant has been operating at 10 percent of its rated capacity, and the two-year-old Japanese plant has been operated at 50 percent of rated capacity.
Galambas said he was unable to set up a telephone conference call to the German facility, but when he spoke to a representative at the Japanese plant, he was told, "I wouldn't recommend [the system] to anybody."
Further, he said, there are no Jenbacher 20-cylinder engines, such as CWT proposes for the V.I. plant, using the synthesis gas which the facility would produce. "There is no historical data indicating the engines would run on the synthesis gas," he said.
Galambas said the lack of a commercially proven track record for the technology would make the financing of the proposed St. Croix facility "very difficult."
WAPA liability concerns raised
Augenblick countered that the process is commercially proven. Tom A.R. Morton, vice president of Montenay Power Corp., which CWT has designated to operate the facility, defended the technology. "We are a world leader in water and energy production," he said. "We wouldn't put our reputation or finances at risk with uncertain technology."
Morton stressed his confidence in the technology, "We were skeptical at first," he said, "but that has turned into enthusiasm." He said his company has been studying the gasification process for years.
That process basically takes waste and subjects it to extremely high temperatures, producing a gas burned in a generator. This creates electricity and water, which in turn, would be sold to WAPA.
WAPA board members asked about the utility's liability should the facility not produce, or should the engines fail. Augenblick said he would have no problem inserting language into the purchase agreement addressing those concerns and clarifying and strengthening WAPA's protection.
Board member G. Luz James Sr. said, "The more I read the reports, the more uncomfortable I become, because it's the first of a kind. As an attorney, I'm worried about WAPA's protection."
"There is no chance that WAPA would have to take over the operation of the CWT facility," Augenblick said. He said the structure puts the sponsors, "not the government," at risk. He explained that if the facility is finished in 2004, as planned, the government will have had three years to review the process.
"All documents on any contract go to the underwriters in the States," Augenblick said. "Winston Strawn, PaineWebber, the government's counsel, have to review all these documents," he said.
The strongest challenge for CWT may come before the Legislature, which must approve the project before the contract can move forward.
Attorney General Iver Stridiron, a WAPA board member, questioned the experts throughout the meeting on the technology's validity. I don't mind being on the cutting edge of technology," he said, "but I don't want to see us bloodied in the process."
Thomas received board approval to have the Stone & Webster representatives stay on St. Thomas for a few more days to recalculate the avoided costs and to work with WAPA and CWT's attorneys to revise the proposed purchase agreement. That revision is expected to take into account several protections and changes advised by Skadden Arps.
The board set a tentative date of Oct. 19 to review the revised proposal. Thomas said, "In our zeal to complete this, let's not make the same mistake we did before rushing Stone & Webster." He said the process should proceed in a timely manner "as long as we cover all issues," adding that
"CWT seems to agree on all points."
Board members attending the meeting in addition to Stridiron and James were board chair Carol M. Burke, Alphonso Franklin, William E. Lomax, Claude A. Molloy Sr. and Andrew Rutnik.
