In February 2008, The Gazette reported a possible technological breakthrough by a local company, Neumann Systems Group, that seemed to have limitless potential. According to the firm’s president Dave Neumann, the company’s proprietary technology could be used to remove both carbon dioxide and sulfur oxides from coal-fired power plant emissions.
Moreover, he noted, the potential worldwide market for such removal systems would be as much as $700 billion.
“It could be the first homegrown billion-dollar business in Colorado Springs,” he said.
Neumann contracted with Colorado Springs Utilities to test his system. And although CSU’s 2011 contract with Neumann would include a clause giving the city 3 percent of the company’s gross sales during the next 10 years, the company’s supposed billion-dollar potential didn’t factor into City Council’s decision to approve the initial contract.
“We didn’t really anticipate much return on that,” said Larry Small, who served as vice mayor when the testing contract was approved. “We were more interested in the mitigation it would provide.”
Drew Rankin, who then headed CSU’s Energy Supply Department, was interviewed by The Gazette in 2008. He said that removing sulfur dioxide with then-available technology would require massive investment in scrubbers. Installing equipment at one unit alone at the Martin Drake Power Plant was estimated to cost $65 million plus $5 million in operational costs.
Neumann’s device, according to the story, was estimated to cost less than $20 million per unit. That figure, although often cited by Drake skeptics, apparently did not originate with CSU.
“I don’t know where that came from,” said CSU interim Energy Supply manager Dan Higgins. “It didn’t come from us — we knew even then that the figure would be much higher.”
Has the deal worked out as expected? Was City Council informed, involved and fully aware of alternatives, including a long-term energy purchase agreement with Xcel, closing Drake, and/or building a new combined cycle gas turbine plant? Were CSU managers sold a bill of goods by Dave Neumann, or have things worked out just as expected?
The answer isn’t clear — but careful consideration of the facts suggests that weak policy direction from an often-divided city government forced CSU management to make it up as they went along.
While Neumann testing was in progress, CSU hired a consulting engineering firm, Stanley Consultants, to determine the price of conventional scrubber technology that would bring Drake into compliance with new environmental regulations expected to go into effect in 2017.
The reports put the 2010 capital cost of lime spray drier [LSD] sulfur dioxide [SO2] removal systems for Drake units 6 and 7 at $157.7 million.
That estimate was updated to $212 million by CSU in February using standard metrics to determine cost escalation of large-scale industrial construction projects.
Those initial reports, coupled with encouraging testing results, convinced CSU to contract with Neumann in 2011. The “project target cost” was $98,904,385, a figure that was $32 million higher than the “contract target cost” of $66,853,073. Another estimate, included in the “business case” released in 2011, estimated the eventual cost at $111 million, which included contract-related costs incurred by CSU.
The contract was signed by energy supply manager George Luke, as was an accompanying single-source contract. It was executed two days before Chris Melcher took office as City Attorney, and he informed Mayor Steve Bach that the charter required the mayor to sign off on such contracts.
Bach was incensed.
“The Utilities Director signed the sole-source justification and the contract two days before the new city attorney took office,” Bach recalled, noting that departing City Attorney Pat Kelly had ruled the mayor’s OK wasn’t required on such contracts, despite specific City Charter language to the contrary.
“It had no cap, no ‘not to exceed,’ no performance standards,” Bach said. “I asked in 2011, are we sure that we want to spend at that time $76 million on an experimental technology?”
Yet the technology seemed promising, as the Colorado Department of Public Health and Environment noted in a 2011 assessment.
“CSU-Drake is currently testing a new, innovative NeuStream-S wet scrubber system that appears to be as effective, if not more effective, at controlling SO2 emissions with much less pressure drop (less parasitic load from increased fan demands) and requires a much smaller operational footprint area in comparison to traditional wet scrubbing,” CDPHE reported. “It also uses a dual alkali system that is somewhat unique when compared to most traditional wet scrubbers. In comparison to traditional wet and LSD scrubbers, this new technology will have smaller water and energy requirements.”
By 2013, an internal memo cited total capital costs for the Neumann installation of $121 million and annual O&M costs of $4.2 million, providing savings of $37 million in capital outlay and $2.2 million in O&M costs “compared to other scrubbers on the market.”
In March 2014, another CSU memo put total capital cost at $131 million. And in a Feb. 18, 2015, presentation to the Utilities Board, Energy Supply manager Dan Higgins gave a “cost at completion estimate” of $170 million. That estimate did not include the $27.3 million cost of the 2008-2011 pilot project, which established the viability of the Neumann process. That cost is currently assigned to operations and maintenance, which seems a curious choice.
“I don’t know why they were allocated that way,” Higgins said. “That was an accounting decision.”
“I believe it’s fair to add that $27.3 million to the total Neumann scrubber costs for Drake,” said one Drake skeptic, who declined to be named in this article, “because we wouldn’t have needed to spend it for installing commercial solutions for scrubbing such as DSI [direct sorbent injection], LSD or a natural gas plant elsewhere.”
That implies the cost of the Neumann system is now almost exactly that of a traditional system from an established manufacturer. Such a system presumably would have included meaningful warranties and performance guarantees and the high probability that the manufacturer would still be in business years after the installation was completed.
It appears that Dave Neumann’s plans to build a billion-dollar company have come to naught. The company declined to bid on SO2 removal systems for CSU’s Nixon plant and apparently has no other utility contracts.
In February 2013, Neumann was in visible disarray, as Amy Gillentine pointed out in a Business Journal story. The company laid off 11 people and blamed everything on Steve Bach.
“We currently do not know how a small, high-tech business like ours can survive the toxic Colorado Springs business environment being created by the mayor, the city attorney and Councilmember [Tim] Leigh with their lies, threats, violations of the City Charter and Code of Ethics and behind-closed-door deals with Xcel and the Sierra Club,” Neumann said.
“The appearance to the nation of an unstable, unfriendly and autocratic city government with its unprovoked attacks against the strongest and one of the best-performing public institutions in the nation — Colorado Springs Utilities — is doing tremendous damage.”
Neumann filed ethics charges against Leigh, which were eventually dismissed. But thanks in part to the apparently bogus ethics charges, Leigh and fellow Drake skeptics Angela Dougan and Brandy Williams were not re-elected to City Council in April 2013.
Their successors (Don Knight, Joel Miller and Keith King) received support from both the coal industry and a CSU employee group.
Away from public view
Last October, Neumann hired former (retired) CSU Energy Supply manager George Luke, who had signed the original Neumann contracts on behalf of CSU, as operations manager. The company maintains a very low profile, without a publicly accessible website. The site, neumannsystemsgroup.com, is “not available” to search engines.
A rarely updated Facebook page is the only public sign of Neumann’s existence. Neumann did not bid on the SO2 removal system planned for the 208-megawatt, coal-fired unit at the Nixon site.
“We didn’t ask anyone to bid,” said Higgins. “We put up the RFP, and they were not among those who responded.”
On March 25, CSU chose giant multinational Babcock & Wilcox to build a spray dryer absorber to control SO2 emissions. The cost: $40.3 million.
“B&W’s qualifications and experience with these types of projects supports Colorado Springs Utilities’ goal to bring best-value solutions for our customers to meet emissions control regulations,” said Higgins in a press release.
“It may seem a lot cheaper than it is, compared to Drake,” said Higgins in a subsequent interview. He pointed out that the Nixon plant is on an unconstrained site and that there’s only one generator, as opposed to three at Drake. Other costs will bring the total cost of emission controls at Nixon to $110 million, compared to $183 million at Drake. Both figures include controlling emissions for nitrogen oxides as well as SO2.
Despite Neumann’s travails, Higgins is confident that the system is fairly priced and will perform adequately. Will it remove 92-97 percent of SO2, as specified in the contract?
“It’s like your car,” said Higgins. “You can run it at 100 mph down the freeway, or you can go 75. We can get to 97, but we don’t have to be that high. We can meet our goals at a lower figure.”
The elephant in the room
On March 31, President Obama announced that the United States will commit to reduce carbon emissions 26 to 28 percent below 2005 levels by 2020. It’s an ambitious commitment, one that can only be met by enforcing proposed EPA power plant regulations.
Those regulations will make most coal-fired power plants uneconomical to operate, apparently dooming ancient and inefficient plants such as Drake.
Assuming that congressional Republicans and the coal industry are unable to block or delay the regulations, what will CSU do? Won’t the utility have to shutter Drake?
Absolutely not, said Higgins.
“Drake can run at full capacity on natural gas,” said Higgins. “Depending on the regulations, we can run a mix of fuels, as we do now on unit 5, or go completely to gas.”
Do existing gas transmission lines provide enough capacity?
“On the coldest winter days, we might want to cut back gas use for Utilities so that we don’t reduce pressure for business and residential customers downtown,” Higgins explained, “but that’s very rare. Gas use peaks in the winter, while electrical demand peaks in the summer. The gas supply is plentiful in the summer, so you’ve got that option. You can blend [with coal] or go to 100 percent gas.”
Retaining Drake has other advantages. Given that the city’s electrical transmission network has been designed around the Drake site, changing fuels obviates the necessity for expensive system-wide upgrades.
Yet although running Drake on gas might buy some time, it would be inherently inefficient. Regardless of fuel, Drake’s steam generators can only attain a thermal efficiency of about 34 percent. Coal is relatively cheap, so thermal inefficiency doesn’t much matter.
It does for gas, which is only price-competitive with coal when burned in a combined-cycle gas turbine such as the 400-megawatt Front Range Power Plant at the Nixon site.
Such plants can achieve thermal efficiencies of 55-60 percent.
If gas prices escalate in the next few years, CSU customers may find that Drake has been transformed from a cheap, reliable source of power to an expensive one.
Whose fault will it be?
Drake skeptics and downtown boosters will blame CSU for hanging on to Drake well past its “sell by” date, while CSU board members and coal fans might take another tack.
Blame it on the Bossa Nova? Nope — President Obama.
Editor’s note: This is the last installment of a two-part series.