Power Plant Still on Drawing Board

Nearly seven years ago, Palmdale promised its residents that by mid-2012 it would be home to a state-of-the-art hybrid power plant capable of generating enough energy for the city with extra left over to sell. Instead, the city has invested at least $30 million into a project that has yet to secure a developer, much less break ground or create jobs. City officials say they have received project proposals and in recent weeks have been negotiating with a few potential development companies. Soon, they say they may open the project for a formal bid, requiring prospective partners to submit Request for Proposals, possibly before the end of the year. Palmdale, much like other communities in California and elsewhere, is hoping to fill a void for clean and affordable energy. Their approved $950 million hybrid power plant will use natural gas, steam technology and a solar thermal system to generate 570 mega-watts of power, roughly enough to power about 500,000 homes for a year. However, with such an ambitious project, there are no guarantees for success, and other projects in the state have failed to get off the ground. About 50 miles east of Palmdale, in Victorville, one hybrid power plant launched in 2003, while an attempt at a second plant has failed, creating a financial mess for the city. The Victorville projects were shepherded by Inland Energy, a Newport Beach-based project consulting firm, which also struck a deal with Palmdale in 2005. In both cities, the company received fee compensation for obtaining permits for the projects and secured a financial stake in the future plants. Tom Barnett, executive vice president of Inland Energy, referred comments on the project to city officials. Despite little progress up to this point, Palmdale officials are optimistic they’ll recoup at least the money already invested by finding a developer to invest in the build. “Certainly we are going to get our money back,” said Director of Public Works Mike Mischel. City officials say the sluggish economic climate largely has contributed to the project’s delay. “We started this process back in 2004,” Mischel said. “The big thing that has really been hampering the project is the economy.” In 2005, the city council unanimously approved a plan to develop and build the Palmdale Hybrid Power Plant. Two years later, the city paid $18 million for roughly 615 acres of prime desert real estate from Lockheed Martin in its first move toward building the plant. It pledged the plant would bring revenue and jobs to the area, especially during the 27-month construction, when 367 workers would be needed during the first year and another 767 for the remainder of the project. The city expected the permitting process, conducted through the Energy Commission, to take about a year. Instead, the application was filed in August 2008 and a permit was issued in 2011. Questions about air quality control partially contributed to the delay, although those issues were cleared up. Mischel says the proposed power plant still is at least two or three years away from generating power for the city. “This is nearly a billion dollar project,” he said. “We don’t have a billion dollars.” At least initially, the city has two primary options: sign on a developer who is willing to pay for the project and stay heavily involved in the project; or, sign on a developer who will buy out the city’s stake in the project and lead operations. Either way, the operator of the power plant also must secure a contract with a power company, such as Southern California Edison, in order to monetize the excess energy. For now, the only thing the city has locked down is a permit to build the plant. It spent about $10 million to secure the permit, according to City Manager Dave Childs, who assumed his role in April. The permits have a roughly five-year shelf life before they expire and the city must start over or file for a costly extension. Lessons learned A neighboring project in Victorville may offer a glimpse of the city’s worst case scenario: the Energy Commission permit for the Victorville 2 hybrid plant is set to expire in less than a year and there is no developer in place. “We don’t want that to happen here,” Childs said. “We’re going to make sure that doesn’t happen here.” According to a 2011-12 San Bernardino County grand jury report that looked into Victorville’s finances and practices: “City management has made attempts for over three years to sell the development rights to the project. Despite a request for proposals sent out in May 2009 to 13 firms, which had expressed interest, the city has not been able to successfully identify a project developer. City officials have noted that potential buyers must negotiate primarily with Inland Energy, due to the clause in the firm’s development agreement with the city granting the right to five percent of project operating profits, estimated at $4 million to $5 million annually, for the life of the project.” Additionally, the Grand Jury report notes that Victorville has also lost $50 million to General Electric for turbines that it will not need, but had already contracted to purchase. Palmdale Mayor James Ledford said the city has a similar deal with Inland Energy, which essentially makes the firm a long-term partner in the project in exchange for a share of revenue generated by the plant. He said that he did not know the exact terms of the deal. According to Inland Energy’s Barnett, “As far as we’re concerned, the only thing we do differently from the Victorville project is not have the economy collapse.” He added that no one investigating Victorville finances for the Grand Jury ever reached out to or spoke with anyone from his firm. Ledford said if necessary the Inland component of any future development deal could be negotiated. “If it’s not viable, 100 percent of nothing is nothing,” he said. However, he says Palmdale won’t repeat the mistakes of Victorville. “It’s because they tried to self-manage. And they spent some serious money on equipment that would not be allowed.” He and other city officials acknowledge that more research and discussion is needed to help the power plant project advance. However, they remain confident that it will get built. “There is going to be a need for hybrid energy in this state,” Mishel said. “And we’re going to provide it.”