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Unanimous Council OK’s biomass contract

Friday, August 29, 2008 by Mark Richardson

After reassurances from outside counsel, the Austin City Council unanimously approved a $2.3 billion, 20-year contract Thursday to purchase 100 megawatts of electric power generated through biomass. The contract with Nacogdoches Power LLC contained a number of guarantees that would keep the city from paying if the contractor does not complete the plant or generate power as planned.

As part of an ambitious plan by the city to generate at least 30 percent of its energy from renewable sources by 2020, the contract commits Austin Energy to purchase power generated from the burning of wood waste. The plant, to be built in Nacogdoches County in East Texas, is scheduled to go online in April 2012, and produce energy almost 90 percent of the time for 20 years.

According to Austin Energy, the contract may affect a residential customer’s bill by either cutting it by as much as $1.50 or raising it up to $2.50 per month. The price range depends on factors such as the cost of fuel and whether federal or state officials continue renewable energy incentives. Council members voted Aug. 21 to negotiate the contract, giving city staff one week to hammer out an agreement before Thursday’s vote.

The contract has generated some controversy, mostly within the environmental community. Those complaining cited the lack competitive bids and public input in the process. Austin Energy General Manager Roger Duncan said the timing of the project did not allow for either competitive bids or extended public debate.

“The energy market moves very quickly, and we simply did not have enough time to open up for bids on this project,” Duncan said. “We have already lost four contracts recently–two for wind and two for natural gas – because by the time we completed the bid process, the companies could not hold their prices. Nacogdoches Power can only hold equipment in production lines for so long, so we felt we had to move on it.”

Council Member Sheryl Cole had asked Austin Energy to engage an outside attorney to review the contract and report to Council on whether the contract would deliver what Austin Energy officials said it would. The City Attorney hired Tim Unger, co-head of Business Transactions for Andrews Kurth LLP.

“This agreement is specifically designed to deal with the risks involved with a biomass generated power plant,” Unger said. “Should the facility not be built, the city would not pay. If it is late in starting, the city would not pay, and the contractor would pay $1,000 per day. Nacogdoches will bear responsibility if fuel costs rise above a benchmark level.”

Unger addressed a number of other aspects of the contract, and in response to a question from Cole, said the contract is typical of those used in the energy industry. He also assured Council members that the $2.3 billion price tag was the maximum amount the city would pay, and that at the point when the city’s payments totaled that amount, it had the option to cancel the contract.

A number of citizens and environmental activists continued to speak out against the project Thursday, saying the plant cost too much and there were too many parts of the agreement were kept from the public.

“While this contract is a major improvement over what we were looking at last week, we still cannot support the plant,” said Cyrus Reed with the Lone Star Chapter of the Sierra Club. “We feel the way the Texas Commission on Environmental Quality issues air quality permits is flawed and there is a feeling that there will be more pollution that anticipated. We also think there needs to be a more public process.”

Some speakers mentioned the city’s problems decades ago with buying into the South Texas Nuclear Project, but AE’s Duncan – who opposed Austin’s participation during that era – said many of the lessons learned on the “nuke” ware applied to this process.

“We learned a lot from that process and took that into consideration when looking at this project,” said Duncan. “The South Texas Project was bid on a cost-plus basis, which meant that the city paid for all cost overruns. The city was not protected then, but we have taken steps to make sure that the city is protected in this process.”

Duncan said the city plans to consider other biomass projects in the future, along with wind and solar power, to meet the 2020 goal of 30 percent renewable power.

Council members approved the contract on a 7-0 vote. Cole made the motion to approve and Council Member Lee Leffingwell seconded.

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