Warren County Report

November 24, 2009

Is AMP-Ohio entering the solar mix?

Town's existing energy supplier exploring solar investment in state

Near the outset of a solar update included in the agenda of the Front Royal Town Council’s Nov.16 work session, embattled Town Manager Michael Graham reported town staff had become aware that AMP-Ohio, with whom the town has a long-term power purchase contract, is discussing a solar power project in Danville, Virginia. The fact the proposed Danville project would produce 6 megawatts of solar power at a cost of $29 million has led staff to explore redirecting the AMP-Ohio energy alliance toward the solar project under discussion here.

Recent public-private financing options presented by a new private sector entity created out of a merger of SolAVerde and Middleburg based TrueCast Capital, Standard Energy, has proposed a Phase One development of 9.2 megawatts exclusively for local use in the town energy grid at a total cost of $32 million. While that cost, equaling almost $3.5 million per megawatt is considerably higher than the initial June project cost estimate of $211 million to produce a total of 100 megawatts of solar power, or $2.1million per megawatt, it is still better than projected costs for the Danville project.

TrueCast Capital Managing Partner Steve Lamb estimated an initial kilowatt cost of 9-cents to the town versus average market energy prices of 12 to 13 cents. Graham said the numbers indicated the Danville project cost estimate at 11 to 12 cents per kilowatt hour.

“This solar thing continues to move and appears to be more in our favor,” Graham said. In the wake of a fairly negative council reaction to the private sector request the town put up an $18.2 million revenue bond issue to help fund the $32 million Phase One project, the town manager added that Lamb and his private sector partners are continuing to explore alternate financing options that wouldn’t involve municipal funding.

Lamb and Willi Lauterbach have asserted that the requested municipal bond is simply diverting payments the town would be making for higher cost energy over the length of a 14-year energy purchase agreement with Standard Energy into a pre-payment bond issue. However, the initial council reaction has been divided and at least partially – Holloway, Sayre – hostile.

Mayor Eugene Tewalt continued to express a measured concern over an $18-million town solar bond issue, pre-payment or not, during the work session.

“I want to know how our other bond issues would be affected,” Tewalt said. The town is anticipating a $30 to $40-million bond issue on mandated improvements to its wastewater treatment plant in the next year or so. Later in the work session, Town Finance Director Kim Gilkey-Breeden told council the town currently as an outstanding $12.97 million bond debt, and a current debt limit of $163 million based on assessed town tax values.

“Things are changing by the minute – and nothing is too ridiculous [to consider], except maybe my financing it myself,” Tom Conkey observed of the ever-changing solar landscape. The remark temporarily lightened the mood at a sometimes contentious work session solar discussion.

Tom Sayre, who arrived about 10 minutes after the solar discussion began, urged caution. He asked whether the town would be responsible for its bond issue, were the private sector partners to experience future financial difficulty.

“If this company starts failing, we might have to take a second bond issue to keep this thing afloat,” Sayre reasoned.

Staff responded that were the private sector to fail, they would owe the town either the remaining 14 years of power or the balance of the “unspent” $18 million pre-payment. Previous council discussion has revolved around the potential of the town going it alone in solar power development, or taking over the solar operation, were the private sector to fail. Such potentialities led Conkey to reassert his contention that if approached carefully, the town’s ultimate risk of financial loss is minimal. – “If you build a house and the company that built it fails, you still have the house – I think that is an appropriate analogy,” Conkey said.

Of the town’s potential bond obligation, Gilkey-Breeden observed dryly, “If the sun were to disappear and solar went away, we are still responsible for paying the bond issue.”

Sayre disagreed with calling the town’s potential risk low.

Mayor Tewalt attempted to redirect the conversation toward when to schedule a finance committee meeting on the solar project, which was where the discussion was when Sayre arrived.

“That’s not what we were talking about now – do we meet Wednesday?” Tewalt asked.

After initially agreeing to “be quiet,” Sayre bristled when he interpreted the ongoing questions of others being answered. – “Why is it when everybody else talks about the solar update it’s okay, when I do it, it is off base?”

“He’s telling you what he told everyone else before you got here. – You were the one that came in late,” Tewalt answered sharply. “You’re on the finance committee, do you want to meet Wednesday?” Tewalt asked Sayre.

“I have questions that are not being answered,” Sayre reiterated.

The conversation further deteriorated as the advisability of full council participation versus only the finance committee members and staff on the solar update in the wake of several councilmen going back and forth on their availability through the coming week.

“Just forget the whole thing,” a clearly frustrated mayor finally replied of a Nov. 18 finance committee meeting. Indications were the meeting would be re-scheduled the following week … unless of course the entire town staff is fired or quits (see related story on town manager’s contract).

A solar update is also scheduled for the potentially exciting Nov. 23 council meeting.