October 9, 2011

USC's biomass plant debacle

On June 28, 2009, an explosion rocked the biomass-fueled power plant on the campus of the University of South Carolina.

The force of the blast sent a metal panel some 60 feet toward the control office of the plant at Whaley and Sumter streets, according to documents obtained from USC by The State newspaper through a Freedom of Information Act request.

No one was hurt, but USC officials were concerned enough about the “potentially lethal accident” that they ordered an independent safety review and, in a strongly worded letter to the company that had built the plant, made it clear that university staff would not be allowed back into the building until the review was completed.

The blast underscored what some USC officials privately grumbled about for years: That the plant has been a $20 million disaster, a money pit that was poorly planned and built by a company that had never constructed such a cutting-edge “green energy” power plant before.

Interviews with USC officials and a spokeswoman for the company as well as a review of more than 1,800 pages of documents show that:

• USC, whose officials touted the plant “as the cat’s meow” before its startup in December 2007, closed it in March of this year after it had been shut down more than three dozen times. In one two-year period, the plant only provided steam – its purpose – on 98 out of 534 days, according to a USC review.
• There was no separate bidding process for the construction of the plant. The firm that built it, Johnson Controls Inc. of Wisconsin, was the only firm that included the construction of a biomass plant as part of its effort to win a competitively bid energy services contract. JCI won that $33.6 million energy services contract, then alone negotiated with USC the added cost of the biomass plant.
• USC paid JCI an additional $19.6 million for the plant. The university was to get its money back in energy savings or payments from JCI. So far, JCI has paid USC $4.3 million because the plant did not perform as promised. As things stand now, USC will recoup its $19.6 million investment by 2020 from payments by JCI.
• Despite a relationship that was, at one point, so acrimonious that USC hired outside legal counsel, the university continues to work with JCI. One option that USC now is considering is putting natural gas-fired turbines in the closed biomass plant to produce power, and JCI may be involved, a USC official says.
• Most substantively, however, the biomass experience led USC to change its structure of governance, giving a reformulated committee of its board of trustees responsibility for overseeing and vetting projects.

Now sitting idle, with spider webs and a thin film of dust replacing a plant’s hard-hat hustle and bustle, the biomass plant stands as a monument to the university’s failed push toward new, “green” technology, inadequate oversight and naïveté, some of its own officials acknowledge in internal documents.

The plant blemishes the legacy of the late Andrew Sorensen, the beloved, bow-tied president who was in charge of USC when the plant was conceived and constructed. And it also raises questions about whether USC’s revised system of oversight will be able to prevent future instances of idealism gone wrong that marred the biomass project from the beginning.

“A (expletive) mess with many layers,” is how William “Ted” Moore, a former USC vice president of finance and planning, described the plant in an email to Ed Walton, USC’s chief financial officer.

In another email, this one to USC president Harris Pastides, who succeeded Sorensen, Moore said: “The value of this thing may be scrap metal.”

That’s not the way JCI sees the project.

“We remain committed to the long-term success of the USC project, and the university has been supportive and appreciative of Johnson Controls’ efforts to fulfill its commitment,” said Karen Conrad, the company’s director of marketing communications.

‘This wasn’t

a crap shoot’

Moore, now provost at Georgia Southern University, was one of several USC staffers trying to clean up a financial and operational mess they felt was left to them by Sorensen and two of his top administrators, Rick Kelly and Helen Zeigler.

Emails show that current USC officials think it was Kelly, the university’s retired vice president for finance, and Zeigler, USC’s director of business affairs, who became convinced JCI could turn wood chips into enough steam to meet most of the university’s power needs even though the firm had never built a biomass plant before.

“Helen was fed a line of crap that she believed blindly and Rick supported her,” Thomas Quasney, USC’s associate vice president for facilities, wrote in an email to USC CFO Walton on May 3 of this year.

Kelly and Zeigler vigorously dispute that.

In a joint interview Friday, the two said they examined the idea of a biomass plant for more than a year before deciding to have it built. They made site visits to biomass plants, consulted with industry experts and had JCI’s financial strength assessed.

“This wasn’t a $20 million gamble,” Kelly said. “This wasn’t a crap shoot in Las Vegas.”

Kelly and Zeigler also stressed the $20 million spent on the biomass plant could not have been spent on something else, as internal USC critics opine. “There is no correlation between that $20 million and some other needs on campus,” Kelly said. “It doesn’t work that way.”

That $20 million, however, did not buy USC a plant that works, a reality that rubbed some other USC officials raw.

In one bitter email, Moore noted Sorensen described the proposed plant as a “no brainer” in a presentation to the S.C. Commission on Higher Education, the state board with some oversight responsibilities for public colleges and universities.

“Sorensen’s ‘no brainer’ continues to be the poster child for university governance and planning gone completely off the tracks,” Moore wrote in an email to Pastides on Nov. 30, 2010.

‘Very green

thing to do’

In broad terms, the idea behind the biomass plant was simple enough.

USC would take wood byproduct, plentiful in South Carolina, heat it up and create steam that would be used to supply up to 85 percent of the Columbia campus’ energy needs.

Some environmentalists have questioned whether that process is actually “green,” since it creates a demand for wood products. USC, however, saw the move as a step toward the cutting-edge future of energy production, a chance to move away from fossil fuels.

“Getting away from fossil fuels to a renewable energy source is a very positive, very green thing to do,” Kelly told The State in 2006. “We are excited about being on the leading edge of this.”

On Friday, Kelly reiterated his belief in biomass as a new and important fuel source. He and Zeigler said those who are critical of the project don’t understand the circumstances that USC faced when it sought proposals from firms that could help the university save energy and money.

The university’s energy system was inefficient, they said. Several boilers were being used past their expected lifespan, and the price of natural gas, the university’s primary source of fuel, was rising sharply.

It was in that context, Zeigler and Kelly said, that the university sought ideas from companies for how USC could save energy and money.

JCI had been working on energy projects for USC for many years before the university sought proposals to improve its energy system. “We knew them,” Kelly said. “They weren’t fly-by-nighters.”

An important bonus for USC was the belief that its energy costs would be reduced by going with biomass. JCI promised that USC would save $2.1 million a year though the biomass plant or JCI would pay the university any difference between its actual savings and that sum – a pledge USC nailed down in writing.

To help pay for the project, USC would borrow money by selling bonds, and the university would use its energy savings – or JCI’s payments – to make the debt payments.

‘Drifting toward ... potential disaster’

From the very beginning, however, almost everything about the biomass plant went wrong.

USC originally had planned to have the facility built in a flood plain. Changing those plans, along with other delays JCI and USC came to blame each other for, led to a delay in when the plant was to be completed – and a delay in when the university could begin to see its energy costs go down.

Meanwhile, JCI, a Fortune 500 company, didn’t get the necessary permitting for the plant.

JCI did not obtain a building permit, a zoning permit, a ground disturbance permit or a permit to have a steam line cross an area railroad track. Also, no permission was sought to build a retaining wall on city of Columbia property, and the plant’s plans and specifications were not shared with the S.C. Office of State Engineer.

Those shortcomings led to a stinging rejection from the state engineer, in October 2007, when JCI sought permission to occupy the plant.

“While I was not present during the course of much of this project, I understand that there were numerous failures by Johnson Controls or USC or both to follow the requirements of State Law,” state engineer John St. C. White wrote in a letter rejecting the request for a certificate of occupancy.

The university said the failure to obtain the proper permitting for the plant rests with JCI.

“USC managed it as a large equipment purchase and relied upon JCI for construction management,” Luanne Lawrence, USC’s vice president for communications, wrote in an emailed response to questions about the biomass plant from The State. “Our contract specifically charges JCI with the responsibility for permitting and approvals. We will work with JCI to ensure that all permits are in place prior to any new work on the site.”

While it answered a series of other questions about the biomass plant, JCI did not answer a question about why it did not get the required permits. The proper permits were later acquired and, in December 2007, the plant was started, a year behind schedule.

JCI and USC, however, were continuing to spar over those guaranteed savings payments. With the plant working in fits and starts – USC officials complained it was built without the system redundancies that would prevent a single problem from shutting it down – USC wasn’t getting energy savings.

JCI, still holding to the position that the initial delays were USC’s fault, was withholding payment. And USC officials were getting angry – very angry.

The university hired outside counsel, the Columbia law firm of Bruner Powell Robbins Wall and Mullins, to make it clear to JCI that USC expected energy savings or savings payments or both.

“The project is substantially late, has yet to operate for any reasonable period of time and has yet to achieve the promised energy costs savings,” Henry P. Wall wrote to a JCI vice president on May 1, 2008. “The university has lost confidence in Johnson Controls’ commitment and ability to complete this project. It appears that this project, which is of great importance to both parties, is drifting towards litigation and potential disaster.”

‘Prone to hidden flaws’

The economy hadn’t crashed in 2003, when the idea of building a biomass plant first gained traction. USC was in the midst of transforming itself into a research haven. It would be a place that embraced new ideas, new ways of doing things.

Turning wood byproduct into power fit that theme.

USC solicited bids for a series of energy savings projects, and JCI put forward its ideas, one of which was the construction of a biomass plant. None of JCI’s competitors in that bidding process proposed building a biomass plant.

Zeigler said USC might have run afoul of state procurement rules if it had taken JCI’s idea for a biomass plant and allowed the firm’s competitors to bid for that work. “That’s like taking somebody else’s work,” she said.

In touting its qualifications to handle USC’s energy needs, JCI noted its work at several colleges and universities, including the universities of Texas, New Orleans and Florida State. But JCI made no mention of building a biomass plant for those schools or for anyone else. That’s because it never had built one, university and company officials said.

“Johnson Controls has implemented biomass technology for other customers, but nothing the size, scope and complexity of the USC plant,” JCI spokeswoman Conrad said.

Kelly said JCI had done enough work in the industry to convince USC that it could handle the project.

Jeffrey Morehouse, an associate professor in USC’s Department of Mechanical Engineering, reviewed the energy savings proposal put forward by JCI and vouched for the company’s ability to complete the work.

But Morehouse’s April 9, 2004, letter to Sorensen did sound a note of caution. “I hope,” Morehouse wrote, “a thorough examination of this particular project is undertaken.”

Zeigler said she and others followed Morehouse’s suggestion by visiting biomass facilities and getting feedback from industry experts.

JCI’s financial strength also was assessed. The A.G. Edwards financial firm of Atlanta wrote Zeigler on April 20, 2004, declaring JCI “appears to be extremely financially stable” and it “should be very capable of completing the long-term contract contemplated by the university.”

Having the financial muscle to get the job done, however, didn’t mean JCI could get the job done.

A reliability report on the biomass plant, conducted for USC in the spring of 2010, would conclude this way: “The nature of biomass plants is that they are prone to hidden flaws, and that continuous operation is difficult to achieve.”

That painful truth, however, would not be clear to USC until after it had spent $20 million and countless work hours trying to move the plant from a promising idea to a productive reality.

‘An irrevocable catastrophe’

“There was no explosion,” Conrad wrote when asked what happened at the biomass plant on June 28, 2009. “A fuel auger ruptured.”

Documents show USC’s description of the scale of what happened that day differs significantly.

In a letter to JCI, USC’s Quasney described the incident as “the third potentially lethal accident that occurred within the past year during the construction of the biomass plant.”

“An explosion in the number 1 feed hopper blasted a metal access panel as estimated sixty feet toward the control office,” Quasney wrote. “An irrevocable catastrophe may have occurred if a worker or visitor had been in this location.”

Shortly thereafter, JCI wanted to restart the plant. Quasney was adamant that it not be restarted until a safety review USC had ordered was complete. “If JCI believes the plant is safe enough to operate, we will relocate our employees and permit your company to operate the plant,” Quasney wrote.

The State asked USC what other accidents had occurred at the plant, and Lawrence said a steam joint ruptured on Dec. 8, 2007, and an expansion joint ruptured on Feb. 9, 2008.

No one was hurt in any of the accidents.

There are several residence halls within a two-block radius of the biomass plant, and students are frequently in the area.

Asked in an email if a larger explosion could have threatened the safety of USC students or staff, Lawrence wrote: “We recognize it’s possible someone could have been hurt, and while our engineers assess the threat as low, we take the threat seriously and insist that we have a safe and functional plant delivered as promised.”

Quasney, giving a tour of the plant last week, also stressed he does not think the safety of anyone outside of the plant was at risk.

Still, the June 28 explosion was yet another time when the plant had to be shut down.

And in addition to reliability problems, the plant raised environmental worries, too.

Area residents expressed concern in 2006 about potential pollution from the plant, and USC had scrubbers installed that its officials say all but eliminated particulate matter from escaping the plant’s smokestack.

Still, William “Buddy” Harley, USC’s employee safety manager, expressed concern to JCI that other pollutants were escaping into the environment.

“JC has allowed fly ash to contaminate the soil between the concrete pad and the creek on the West side of the building,” Harley wrote in a letter to JCI. “Someone needs to remove the contaminate(d) soil and replant grass, shrubs, and possibly one tree.”

Lawrence said the site has been cleaned.

‘Bad plant but a good contract’

The plant, however, continued to encounter one problem after another.

Documents show Quasney quickly was losing patience with the plant’s unreliability – and with what he and other USC officials perceived as JCI’s back-and-forth posturing regarding those guaranteed savings payments.

In a May 3 email to Walton discussing the ongoing dispute about the guaranteed savings payments, Quasney wrote: “We have trusted them (JCI) for too long. It’s time to begin the end of the relationship.”

He suggested that USC had two options on the biomass plant. “(1) dismantle and suffer the embarrassment and loss, thanks to those who got us into this mess or (2) invest another $10M and get it operating properly.”

Documents show Quasney laid the blame for the biomass “mess” at the feet of Kelly and Zeigler, but Walton told him he needed to move past that frustration, particularly since Quasney had told USC board members the plant was coming together.

“You have to stop blaming Rick and Helen,” Walton wrote. “They may have gotten us into it, but as soon as you briefed it as capable of being resolved, it became yours.”

Quasney said he would be willing to tell board members that he “fell for” JCI’s assurances that it could get the plant running.

“I’m happy to tell the BOT (board of trustees) that I fell for it, but now we need to begin to put the pressure on them to produce or face legal action,” he wrote. “I don’t want to be like Rick and Helen and keep believing them forever.”

Kelly and Zeigler said they did not accept JCI’s promises without examination. They tied the company to its promises of guaranteed savings in its contract with USC.

“We wouldn’t have done this if we didn’t think it would work,” Kelly said. “Do you think Johnson Controls would have offered that guarantee if they didn’t think it would work?”

Having that contract enforced, however, proved to be difficult.

USC thought JCI owed it $6.3 million in guaranteed savings payments through Oct. 31, 2010, but the university took responsibility for some of the early delays and accepted $4.3 million.

Because of the guaranteed savings pledge it made, JCI will owe USC energy savings or $2.1 million a year through Oct. 31, 2020.

“We have a bad plant but a good contract,” Walton said in a brief interview.

‘Advance the energy frontier’

Before he left to go to Georgia Southern, Moore worked to ensure what he called the “travesty” of the biomass deal doesn’t happen again.

He received approval from USC’s Board of Trustees to rename its Fiscal Policy Committee as its Audit and Compliance Committee, and he worked with colleagues to update the committee’s charter, giving it more authority to review project proposals.

In a Dec. 8, 2010, email to USC board member J. Egerton Burroughs, Moore said the new committee would give the board an institutionalized process for evaluating big projects.

“If taken seriously, and I believe it will be, the monitoring function of the Board will be elevated to the level of intensity and sophistication needed to guide and control a billion dollar a year enterprise,” Moore wrote. “You know that I drafted this version with specific examples of governance collapse in mind. ... Had this reborn committee been in place four years ago ... Biomass would have been given serious review.”

The plant remains idle – for now. Its future is as uncertain as its construction has been.

USC and JCI are considering a series of options for the facility, including converting it for use with gas turbines, a step back from the environmental cutting edge the university wanted the plant to represent.

The changes, Lawrence said, would be paid for by JCI.

For its part, JCI did not answer directly when asked why it could not deliver on its promise to build a biomass plant that would function consistently and provide the savings it promised.

President Pastides said USC balanced the risks of the biomass project with JCI’s financial guarantee.

“The problems that occurred with the biomass plant were due to a high pressure, high volume plant design by Johnson Controls,” he said. “While conventional power plant technologies may prove to be less of a risk, I believe that universities should be willing to ‘advance the energy frontier.’ In doing so, the university took the extra step of protecting public finances through a careful business strategy.”

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