A stalled bio-gas project will get at least one more review from Tulare’s Board of Public Utilities (BPU)despite the Board’s denying the company behind the project a second 12-month discount on its rent.
Instead of another year of reduced payments–at a loss of some $53,000 for the city–Colony Energy Partners received a one-month reprieve on a scheduled rent increase for city-owned property on Paige Avenue, and another shot at selling its project to the Board during that body’s next meeting on May 18.
On Borrowed Time
As early as 2012, Colony Energy Partners, a group of investors with several alternative energy projects, approached City Hall with a plan to turn waste from several sources into fuel. Later, with the idea Colony might ink an agreement with the city to harvest its waste in an extension of the original plan, company officials signed a long-term lease that allowed them to pay a reduced rent until the project was underway.
The clause covering the discounted rent payment that ran out last year. In May 2016, the former BPU, which has since been replaced, agreed to extend the period of reduced payments for a year. The extension, Colony said at the time, would allow it to complete negotiations with the city on the $20-million, two-decade deal. Then talks stopped and controversy began.
Where They Left Off
The controversy hasn’t ended, and both the old and new BPU have met
repeatedly in closed session with its lawyer to discuss the potential of a lawsuit resulting from the Colony deal, but now company reps say they’d just like to pick up as if the negotiations never stalled.
Unfortunately, the situation isn’t that simple anymore.
After City Hall and Colony stopped negotiating, the BPU assumed the deal was dead, and they had a letter from Colony they thought said so. City staff asked for and got permission to start negotiating with another company–Fuel Cell Energy–that answered the original request for a proposal. Fuel Cell has since signed a separate agreement to operate a 2.8-megawatt plant at the Tulare Waste Water Treatment Facility, and the company is deep in negotiations for the waste supply Colony needs to make a go of its project.
The city and Fuel Cell have a power purchase agreement (PPA) ready for the BPU’s approval scheduled for consideration at an upcoming BPU meeting, and no serious talks with Colony have taken place since July of last year.
“The PPA for that system is done,” interim City Manager Joe Carlini told the BPU at its May 4 meeting. The only thing that could stop the contract with Fuel Cell, he said, would be rejection by the BPU. “Unless you deny that, we’re here.”
New Board, Old Deal
Still, Colony is being given more time to plead its case. The latest look at Colony’s offer comes after an appearance by Mayor Carlton Jones at a BPU meeting back on February 16. At that meeting, which followed a presentation by Colony Energy reps to the City Council in January, Jones expressed his concerns about the BPU deciding not to have its lawyer review the appropriateness of staff’s communications with Colony during negotiations.
At the same meeting, the BPU heard another presentation from Colony reps hoping to get new life for their project. The Board then voted to OK the start of negotiations for a PPA with Fuel Cell for the same gas Colony called “imperative” to getting its project off the ground.
The following month, the City Council removed two of the BPU members. The remaining three resigned. Only one, James Pennington, returned after being reappointed. He now serves as BPU president, governing a group that was not overly welcoming to Colony’s executives, who again appeared before them on May 4.
Lukewarm Reception
Despite being there only to plead for reduced rent while his company tries to get negotiations with the city restarted, Colony’s managing partner, Kent Hawkins, couldn’t avoid pitching the deal he’s hoping the BPU will go for instead of the partnership with Fuel Cell.
“We haven’t left. We’re still here,” Hawkins told the BPU. “We’ve spent almost $2 million on this project, working through this process with the state. We have a lot invested, so we have a really personal interest in getting this done with you. It’s important. We have never gone away.”
That’s not the way Carlini tells it.
According to the interim city manager, the city received an email on August 3 from Colony ending negotiations. The email, he said, came before a letter from the city to Colony pausing negotiations while it assessed a costly piece of equipment Colony said it needed for its project. Ed Henry, one of the two former BPU members dismissed in March, said the email was in response to a request for proof of Colony’s funding.
BPU member Gregory Blevins summed up Carlini’s explanation of events: “So, basically, what we have here is a failure of Colony to negotiate successfully with the city,” he said.
“They pulled out of negotiation,” Carlini reiterated. “They’re saying they didn’t, but they did.”
Cutting to the Chase
BPU member Erica Cubas put the question bluntly to Colony’s VP for project development, Matt Schmidt, who was also on hand at the May 4 meeting.
“You pulled out, did you not?” she asked.
Schmidt denied it.
“We did not,” he said. “We gave you folks an offer. We put a two-week sunset on it, because they (city staff) said, ‘Hey, we want to go look at another piece of equipment, which was not part of the RFP.’ So, they basically changed the scope on us.”
Schmidt said Colony had a “deal points” memo with the city that was intended to lead to a successful conclusion of the contract. It got the memo just five days before the letter from city suspending talks while it looked at the gas skid.
“We were almost done,” he said. “Since then, we’ve had some interaction emails. (We) never heard from staff again, ever.”
It was then Carlini gave staff’s version of events.
Cart Before the Horse
All pleas for reconsideration aside, the May 4 meeting was about why the BPU should agree to give Colony another $53,000 break on its 20-year lease with the city. The lease was signed in May 2015, meaning the city has already granted Colony $106,000 in rent reduction.
In the lease, Colony expressed its intent to use 10 acres of the 18-acre property for a “digester project” and another eight acres for waste transfer, trammeling, and used fats, oils and grease (FOG) conversion. The company has yet to begin construction. Original plans began as early as 2012.
“When you entered into this lease, did you have a clear understanding of what project you were going to do under the lease?” Blevins asked Colony’s reps.
The company, Schmidt said, “had an idea,” but that the project has changed “depending on what the market you’re working on.” Colony, he said, was pursuing an agreement to buy the city’s waste methane for conversion to natural gas with retired City Manager Don Dorman when, to avoid the possibility of a conflict of interest, the city decided it had to allow any interested company a chance to offer their own proposals. Despite not having the contract, Colony signed the lease.
“Then why would you enter into it, because you didn’t have it (an agreement with the city) at the time?” Blevins asked.
Shovel-Ready
Hawkins told the BPU Colony signed the 20-year lease because company officials were excited by the possibility of expanding their original proposal to include processing the city’s waste methane.
“We had discussions about it, and we were excited about doing it,” he said. “We didn’t know how we were going to go about doing that.”
While it negotiated with the city, Colony was not idle on other fronts.
“We’ve already received a conditional-use permit (CUP). That’s done. We’ve extended that CUP. That’s done,” Hawkins said. “So, all of the CEQA (California Environmental Quality Act reporting) is done. All the air permits are done. All of our state documents are done. We have an interconnect with SoCalGas … done. So, basically, we have all our permits in place.”
The project, he said, is “shovel-ready,” and the only things lacking are site plan approval and a building permit. And, of course, a contract with the city approved by the BPU.
So why hasn’t construction started?
“Because it’s changed. Over time, the project changed,” Hawkins said. “It requires working with the city to complete the project. So again, real simple: Without working with the city on their bio-gas, there’s no need for a ground lease, because there won’t be a project.”
That doesn’t, however, mean the lease ends. So far, Colony’s monthly rent has been $833. When the entitlement period ends, their rent goes to $5,250 a month, providing the city with $1.2 million in revenue during the 18 years remaining on the lease.
Colony Blames City
Hawkins and Schmidt say Colony’s project could break ground within 90 days, if the BPU will reconsider awarding it a contract. In fact, they say construction would have been complete by the fall, had the city not allegedly cut off communication.
“It’s a shame that got put on hold by staff. That was not our doing. They decided to do that,” Hawkins said. “We think that was done inappropriately, but they decided to do it anyway. We were not given any more discussion after that. We’ve been trying to work with staff during that interim period with no communication at all, zero.”
Hawkins offered no reasoning why the city would have ended talks. Neither he nor the BPU addressed former BPU member Henry’s assertion Colony had withdrawn after being asked information about its grants and financing.
“We were in good faith working together. We were doing great,” he said. “We would have been successful. I’m confident of that, but we were put on suspension by staff.”
30-Day Notice
In the end, despite Colony’s confidence, the BPU granted just a one-month extension of the rent reduction. It doesn’t seem likely they’ll get it this week, when they appear before the BPU again.
“As far as I’m concerned, I haven’t seen anything yet to prove the last 12-month extension has done anything for the city,” said BPU President Pennington. “Why should I approve 12 more months for something I don’t see anything going to be done going forward.”
The BPU will take up the Colony Energy deal again on at a 7pm meeting on May 18 in the City Council Chambers, 491 N. M Street.
It may be the last time the BPU takes the issue up.
“I hasten to say our next decision will be a last and final decision in this matter,” said BPU member Howard Stroman. “We are comprised of a new board, and we kind of inherited this, and it’s just not something I feel we have the necessary tools to deal with this at this time.”