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WAPA SAYS NO TO SOLID-WASTE PLANT DEAL

Nov. 15, 2001 – After almost six months of studies, negotiations and sometimes-turbulent board meetings, the Water and Power Authority board voted Thursday against making the financial commitment needed for the development of a $180 million gasification facility that Gov. Charles W. Turnbull had touted as the answer to the territory's chronic solid-waste woes.
Joseph Thomas, WAPA executive director, told the board there were too many drawbacks to Caribe Waste Technologies' proposed facility to balance the risks involved.
The proposal before the board was to agree to purchase electricity and water produced by the solid-waste processing plant over the length of a 30-year contract. Its doing so was presented as being critical to the project moving forward, because that income for the plant was projected to reduce the government's costs by $11 million to $12 million a year, according to CWT, leaving payments of about $25 million a year to the company. CWT's president, Mark Augenblick, had said the lesser amount could likely be funded by federal grants and a "user fee" for solid-waste disposal services.
The board had expressed grave doubts about the CWT proposal in a series of meetings. At the behest of Turnbull last month, the board members agreed to postpone their vote until Nov. 15. Carol Burke, board chair, said they acquiesced because the project was "important to him and his administration and the territory."
The territory is under federal orders to come up with alternatives to its current use of the existing two landfills to dispose of its solid waste.
The U.S. Environmental Protection Agency has ordered the government to bring the dumps on St. Thomas and St. Croix into federal compliance, and the Federal Aviation Administration has ordered the territory to close the one on St. Croix by the end of 2002 because birds that feed off of it and smoke from frequent garbage fires pose danger to aircraft at the nearby Henry E. Rohlsen Airport. If the Anguilla landfill isn't closed by then, the FAA could shut down the airport.
No plan for an interim solid-waste system has put forward. Had the WAPA board voted in favor of the CWT proposal, it would have been expected to take about three years to become operational.
The administration selected Caribe Waste Technologies earlier this year as the lead company of a group of firms proposing to finance, build, own and operate a waste-to-energy processing plant on St. Croix that would serve the whole territory. The agreement was contingent on WAPA agreeing to buy electricity and water — which the utility's management has said it doesn't need — that would be produced in the chemical processing of waste.
Thomas said he met in Puerto Rico last week with Neftaly Garcia, a CWT environmental consultant, and Jose Colucci, a University of Puerto Rico chemistry professor and member of a task force which reviews solid-waste companies. "Neither of them, including CWT's own consultant, recommended using the gasification technology as it now stands," Thomas told the board Thursday.
Puerto Rico turned down CWT's bid to establish a plant there, instead opting for an incineration process coupled with recycling, Thomas said. He said Garcia told him CWT's technology is "in the early stages" and that Puerto Rico was not taking a chance on anything that was not commercially proven.
Same criticism from different sources
"We want to take our fair share of responsibility for the Virgin Islands," Thomas said Thursday, "but when you do private-eye work and you keep getting the same answer from different sources, you start to think maybe you've hit pay dirt."
WAPA's own consultants have said the gasification technology proposed for the St. Croix plans is not in use anywhere now.
James Galambas, an engineer hired by WAPA's consultants, Skadden Arps, has said repeatedly that "the process is not commercially proven." The key word is "commercially." There are two facilities in the world that use the Thermoselect process proposed for the CWT plant, Galambas said, one in Germany and the other in Japan. But he said neither produces electricity using generators driven by internal combustion engines, such as the proposed St. Croix plant would do.
Galambas said the German plant, in use since 1998, has operated at just 10 percent of its rated capacity, and the Japanese plant, started up in late 1999, at 50 percent of capacity. He said he had been unable to arrange a telephone conference call with officials at the German facility. He said that when he spoke to a representative at the Japanese plant, he was told, "I wouldn't recommend [the system] to anybody."
CWT proposed generating power with Jenbacher 20-cylinder engines using the synthesis gas which the facility would produce. Galambas said there are no such engines now operating in that manner, and "no historical data indicating the engines would run on the synthesis gas." He said the lack of a commercially proven technology would make the financing of the proposed CWT facility "very difficult."
No agreement on 'avoided cost'
For WAPA, much of the controversy surrounding the proposal centered on its "avoided cost" — the amount of money the utility would spend to produce the same amount of electricity and water that it was being asked to buy from an external source instead.
Thomas and Mark Augenblick, CWT president, were at odds over the cost figure from the get-go, leading CWT and WAPA jointly to hire a utility consulting firm, Stone & Webster, to determine the avoided cost. The board called a halt to the firm's research at the last board meeting, pending further negotiations and/or a vote.
Thomas said Thursday that after a late October meeting with Turnbull, the consultants had gone back to work, but their findings weren't in as yet.
Another point Thomas made at the board meeting was that WAPA is now in good standing with its investors, a position he said the utility intends to retain.
Basically, there were four arguments against WAPA making the commitment to CWT, according to Thomas and the consultants.
– The technology isn't commercially proven, and the Virgin Islands would be a test case, a risky proposition.
– CWT's financial background is not good for the proposed project, according to a report by WAPA's financial consultant.
– WAPA doesn't need the power now, and paying for it would cause bond market investors to question the wisdom of such a deal. "Adding that power now is carrying unused capacity," Thomas said.
– The cost could be $14 or more per month per household, according to Thomas.
And so, Thomas told the board, "We do not support it."
Patricia A. Goins, WAPA bond counsel, said it is a common practice for governments to subsidize the cost of solid waste by passing it off to their utility companies. "Investors are aware of this practice," she said. But when Burke asked her if the bond market would welcome the proposal, Goins said, "No, they need positive news."
Proposal not put before the PSC
The last straw for the board, however, was learning that CWT had not met certain requirements of the Public Services Commission and therefore could not properly put a proposal before the board. The V.I. Code specifies that any co-generation pacts the utility might make must be approved by the PSC before WAPA can make a formal commitment.
Burke asked Augenblick what he was doing there if he hadn't met the PSC requirements.
Augenblick admitted he had not taken the proposal before the PSC. "We have spent enormous amounts of money on this and logically put it in writing," he said. "We have gone down the path with WAPA. We would write a contract that says we have to fulfill the PSC requirement."
He also said that CWT's parent company, Interstate General Co., has fulfill
ed performance bonds.
Augenblick had said in previous meetings that the technology proposed for the plant was commercially proven. At one board meeting, Tom A.R. Morton, president of Montenay Power Co., the CWT partner thar would operate the proposed plant, said, "We are a world leader in water and energy production."
At that meeting and again on Thursday, Augenblick failed to convince all board members of the viability of the technology or to allay other concerns.
Claude "Tappy" Molloy, who has been outspoken in his disapproval of the project, told Augenblick. "You have been less than honest with us. You didn't tell us that parent company of yours had been convicted of a criminal offense." Molloy did not specify what he was referring to, but he also pointed out that the government had not signed a contract with CWT.
Augenblick countered, "How about Microsoft or General Electric? Would you not do business with them because of one incident?"
Dejected, he added, "Maybe we all made a mistake."
Two other board members, Attorney General Iver Stridiron and Licensing and Consumer Affairs Commissioner Andrew Rutnik, expressed support for further study of the project.
Stridiron said, "I'm not impressed with the financial consultant's letters I've seen. I think they're conservative." He stressed that any new venture entails risk, and that "all new technology must start somewhere."
Rutnik said, "We have a critical solid-waste problem, and I would never put WAPA at risk, but I'd like to see a better than 70 percent chance that CWT would work."
When Thomas said WAPA couldn't set a rate until CWT had been qualified by the PSC, Stridiron said the PSC matter could be classified as "conditions subsequent" to the contract, and negotiations could proceed. Other board members disagreed.
G. Luz James Sr. made the motion to "deny and terminate further discussion on this matter, since CWT is not qualified to sell water and power."
It passed in a 5-2 vote, with Burke, James, Molloy, William E. Lomax and Alphonso Franklin in favor and Stridiron and Rutnik opposed. Board members Ira Hobson and J.Arthur Downing were absent.

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Nov. 15, 2001 - After almost six months of studies, negotiations and sometimes-turbulent board meetings, the Water and Power Authority board voted Thursday against making the financial commitment needed for the development of a $180 million gasification facility that Gov. Charles W. Turnbull had touted as the answer to the territory's chronic solid-waste woes.
Joseph Thomas, WAPA executive director, told the board there were too many drawbacks to Caribe Waste Technologies' proposed facility to balance the risks involved.
The proposal before the board was to agree to purchase electricity and water produced by the solid-waste processing plant over the length of a 30-year contract. Its doing so was presented as being critical to the project moving forward, because that income for the plant was projected to reduce the government's costs by $11 million to $12 million a year, according to CWT, leaving payments of about $25 million a year to the company. CWT's president, Mark Augenblick, had said the lesser amount could likely be funded by federal grants and a "user fee" for solid-waste disposal services.
The board had expressed grave doubts about the CWT proposal in a series of meetings. At the behest of Turnbull last month, the board members agreed to postpone their vote until Nov. 15. Carol Burke, board chair, said they acquiesced because the project was "important to him and his administration and the territory."
The territory is under federal orders to come up with alternatives to its current use of the existing two landfills to dispose of its solid waste.
The U.S. Environmental Protection Agency has ordered the government to bring the dumps on St. Thomas and St. Croix into federal compliance, and the Federal Aviation Administration has ordered the territory to close the one on St. Croix by the end of 2002 because birds that feed off of it and smoke from frequent garbage fires pose danger to aircraft at the nearby Henry E. Rohlsen Airport. If the Anguilla landfill isn't closed by then, the FAA could shut down the airport.
No plan for an interim solid-waste system has put forward. Had the WAPA board voted in favor of the CWT proposal, it would have been expected to take about three years to become operational.
The administration selected Caribe Waste Technologies earlier this year as the lead company of a group of firms proposing to finance, build, own and operate a waste-to-energy processing plant on St. Croix that would serve the whole territory. The agreement was contingent on WAPA agreeing to buy electricity and water -- which the utility's management has said it doesn't need -- that would be produced in the chemical processing of waste.
Thomas said he met in Puerto Rico last week with Neftaly Garcia, a CWT environmental consultant, and Jose Colucci, a University of Puerto Rico chemistry professor and member of a task force which reviews solid-waste companies. "Neither of them, including CWT's own consultant, recommended using the gasification technology as it now stands," Thomas told the board Thursday.
Puerto Rico turned down CWT's bid to establish a plant there, instead opting for an incineration process coupled with recycling, Thomas said. He said Garcia told him CWT's technology is "in the early stages" and that Puerto Rico was not taking a chance on anything that was not commercially proven.
Same criticism from different sources
"We want to take our fair share of responsibility for the Virgin Islands," Thomas said Thursday, "but when you do private-eye work and you keep getting the same answer from different sources, you start to think maybe you've hit pay dirt."
WAPA's own consultants have said the gasification technology proposed for the St. Croix plans is not in use anywhere now.
James Galambas, an engineer hired by WAPA's consultants, Skadden Arps, has said repeatedly that "the process is not commercially proven." The key word is "commercially." There are two facilities in the world that use the Thermoselect process proposed for the CWT plant, Galambas said, one in Germany and the other in Japan. But he said neither produces electricity using generators driven by internal combustion engines, such as the proposed St. Croix plant would do.
Galambas said the German plant, in use since 1998, has operated at just 10 percent of its rated capacity, and the Japanese plant, started up in late 1999, at 50 percent of capacity. He said he had been unable to arrange a telephone conference call with officials at the German facility. He said that when he spoke to a representative at the Japanese plant, he was told, "I wouldn't recommend [the system] to anybody."
CWT proposed generating power with Jenbacher 20-cylinder engines using the synthesis gas which the facility would produce. Galambas said there are no such engines now operating in that manner, and "no historical data indicating the engines would run on the synthesis gas." He said the lack of a commercially proven technology would make the financing of the proposed CWT facility "very difficult."
No agreement on 'avoided cost'
For WAPA, much of the controversy surrounding the proposal centered on its "avoided cost" -- the amount of money the utility would spend to produce the same amount of electricity and water that it was being asked to buy from an external source instead.
Thomas and Mark Augenblick, CWT president, were at odds over the cost figure from the get-go, leading CWT and WAPA jointly to hire a utility consulting firm, Stone & Webster, to determine the avoided cost. The board called a halt to the firm's research at the last board meeting, pending further negotiations and/or a vote.
Thomas said Thursday that after a late October meeting with Turnbull, the consultants had gone back to work, but their findings weren't in as yet.
Another point Thomas made at the board meeting was that WAPA is now in good standing with its investors, a position he said the utility intends to retain.
Basically, there were four arguments against WAPA making the commitment to CWT, according to Thomas and the consultants.
- The technology isn't commercially proven, and the Virgin Islands would be a test case, a risky proposition.
- CWT's financial background is not good for the proposed project, according to a report by WAPA's financial consultant.
- WAPA doesn't need the power now, and paying for it would cause bond market investors to question the wisdom of such a deal. "Adding that power now is carrying unused capacity," Thomas said.
- The cost could be $14 or more per month per household, according to Thomas.
And so, Thomas told the board, "We do not support it."
Patricia A. Goins, WAPA bond counsel, said it is a common practice for governments to subsidize the cost of solid waste by passing it off to their utility companies. "Investors are aware of this practice," she said. But when Burke asked her if the bond market would welcome the proposal, Goins said, "No, they need positive news."
Proposal not put before the PSC
The last straw for the board, however, was learning that CWT had not met certain requirements of the Public Services Commission and therefore could not properly put a proposal before the board. The V.I. Code specifies that any co-generation pacts the utility might make must be approved by the PSC before WAPA can make a formal commitment.
Burke asked Augenblick what he was doing there if he hadn't met the PSC requirements.
Augenblick admitted he had not taken the proposal before the PSC. "We have spent enormous amounts of money on this and logically put it in writing," he said. "We have gone down the path with WAPA. We would write a contract that says we have to fulfill the PSC requirement."
He also said that CWT's parent company, Interstate General Co., has fulfill ed performance bonds.
Augenblick had said in previous meetings that the technology proposed for the plant was commercially proven. At one board meeting, Tom A.R. Morton, president of Montenay Power Co., the CWT partner thar would operate the proposed plant, said, "We are a world leader in water and energy production."
At that meeting and again on Thursday, Augenblick failed to convince all board members of the viability of the technology or to allay other concerns.
Claude "Tappy" Molloy, who has been outspoken in his disapproval of the project, told Augenblick. "You have been less than honest with us. You didn't tell us that parent company of yours had been convicted of a criminal offense." Molloy did not specify what he was referring to, but he also pointed out that the government had not signed a contract with CWT.
Augenblick countered, "How about Microsoft or General Electric? Would you not do business with them because of one incident?"
Dejected, he added, "Maybe we all made a mistake."
Two other board members, Attorney General Iver Stridiron and Licensing and Consumer Affairs Commissioner Andrew Rutnik, expressed support for further study of the project.
Stridiron said, "I'm not impressed with the financial consultant's letters I've seen. I think they're conservative." He stressed that any new venture entails risk, and that "all new technology must start somewhere."
Rutnik said, "We have a critical solid-waste problem, and I would never put WAPA at risk, but I'd like to see a better than 70 percent chance that CWT would work."
When Thomas said WAPA couldn't set a rate until CWT had been qualified by the PSC, Stridiron said the PSC matter could be classified as "conditions subsequent" to the contract, and negotiations could proceed. Other board members disagreed.
G. Luz James Sr. made the motion to "deny and terminate further discussion on this matter, since CWT is not qualified to sell water and power."
It passed in a 5-2 vote, with Burke, James, Molloy, William E. Lomax and Alphonso Franklin in favor and Stridiron and Rutnik opposed. Board members Ira Hobson and J.Arthur Downing were absent.