Picking up the pieces of the failed Lamar Power Plant

Posted: Jan 06, 2017 11:18 AM
Picking up the pieces of the failed Lamar Power Plant

After the failure of any major project, the participants inevitably begin sorting out who to blame. In the case of the failed Lamar Power Plant, there are plenty of candidates.

In 2006, the Arkansas River Power Authority and its constituent cities created the Lamar Repowering Project, a plan to convert a Lamar natural gas power plant to clean coal.  Beset from the outset by cost overruns and high labor costs, ARPA eventually issued $146 million in debt for the project, with the blessing of its member towns.  The project was effectively declared a failure in 2011, and by 2014 ARPA decided to try to sell the plant whole.

The aftermath has been unpleasant for all concerned.

Colorado made frequent national headlines throughout the year

DEBT-RIDDEN: The city of Lamar in southeastern Colorado is embroiled in a lawsuit over a failed power plant.

The city of Lamar lost its power plant; ARPA has had to purchase electricity from other sources and resell it to its ratepayers; and the citizens of these towns have continued to pay the debt on the failed plant.

The failure also spawned more than 50 lawsuits, including two of particular interest.  ARPA sued the plant’s boiler manufacturer, Babcock & Wilcox, for failure to perform.  And Lamar has sued to withdraw from ARPA, a case that is still pending.

Babcock & Wilcox suit

In November, a jury awarded ARPA $4.2 million in damages from Babcock & Wilcox.

The Authority had sought $20 million, the day-of-contract price, while B&W had argued that ARPA’s mismanagement was responsible for the boiler’s failure to meet emissions standards.

“We are disappointed with the jury’s decision in the case and disagree with its verdict,” B&W spokesman Ryan Cornell said in a prepared statement. “As we’ve stated from the beginning of this litigation, we’re confident in the quality and reliability of our technology, as well as the recommendations we made to our customer. That view has not changed.”

ARPA General Manager Rick Rigel was more upbeat, feeling vindicated by the judgment.

“I think part of the jury instructions included the value of the boiler that was received vs. the value of the boiler that was promised,” he surmised.

“It confirms our position that we didn’t get delivered what was promised, that it was B&W’s design flaws were why it didn’t work.  We wish the damages would have been higher, but it does demonstrate that the boiler was the main technical issue,” Rigel said.

B&W has post-trial motions waiting to be ruled on, but Rigel characterized those as mostly refilings of previously dismissed objections.  Once those are decided, B&W would have 30 days to appeal, and the process could then take between 12 and 18 months to resolve.

 Lamar secession suit

In the meantime, the suit between Lamar and ARPA remains in court.

Lamar is seeking to become the second town to withdraw from ARPA (Raton left in 2010).  ARPA is fighting the suit, fearing that without its major electricity purchaser, it might be unable to service its debt.

Each blames the other for having a hand in mismanaging the project, and much of the finger-pointing centers on Lamar’s special role: It was the town that gave up its power plant for conversion, and in return, the Lamar Utilities Board (LUB) was named the operating agent for the new plant.

This operating agent role was explicitly granted in the ARPA bond issue documents for the initial project offering, and the role is confirmed by both sides of the dispute.  Both parties agree that the role gave Lamar a special relationship with ARPA, but disagree as to the nature and extent of that relationship.

“The  Lamar Operations Supervisor answered to the LUB which is a part of the City of Lamar government,” said ARPA General Manager Rick Rigel.  “Lamar had to approve all of the actions that were taken.  They were in lockstep with ARPA all the way through until the lawsuit was filed.  They were all-in until things didn’t go right, and then they wanted out.”

Lamar’s government takes a different view of things.

“Our operational role didn’t start until the plant fired up for testing,” City Manager John Sutherland told Watchdog. “In terms of construction, the LUB and the City of Lamar had no decision-making authority – nothing.  ARPA was the decision-maker.”

Sutherland also downplayed the importance of LUB’s operational role during testing – the plant never did become fully operational – was essentially providing feedback to the plant designers and engineers. “It was along the lines of, ‘This isn’t working right,’ or, ‘We can’t read this gauge,’” he said.

Before this started, Sutherland said, there was a three-way joint operating agreement among ARPA, Lamar and the LUB. He said “the roles were clearly defined in those documents.”

Palpable frustration gets personal

The situation is made more complicated by the dual role held by Rigel at the time of the project.

Rigel had been superintendent for Lamar Light & Power and the LUB since October 2003.  In 2007, by his accounting at the request of ARPA, he also became the repowering project manager under a contracting relationship between ARPA and the LUB.

By the middle of 2011, Rigel had become the interim ARPA general manager after then-GM Jim Henderson became ill, and assumed the permanent ARPA GM position Jan. 1, 2012.

According to Sutherland, who has been city manager since late 2012, “there was considerable slop-over on a personal basis.”  LUB didn’t have any institutional authority, but Sutherland said that Rigel was, through force of personality, able to strongly influence the decision-making of both ARPA and Lamar.

“There were times where I had to take a very strong position in favor of LUB to the ARPA board.  Had to do with the 2010 funding,” recalls Rigel.  “I worked for LUB, and I would have certain situations where I had to represent LUB’s positions strongly to ARPA.”

Rigel declined further comment on specific situations in light of the ongoing litigation, and Sutherland, when pressed, was unable to recall any particular instances of “slop-over.”

But Sutherland remained adamant that responsibility for the project’s failure lies with ARPA.

“I think the hands-on operation of LUB, that’s where you see the difficulty in separating out Rick’s role as LUB superintendent and ARPA GM.  But the design questions were all at the ARPA Board level.”