Mayor dumps firm planning to build 2 or 3 power plants

(Published in The Press of Atlantic City on Saturday, Dec. 22, 2007.)

VINELAND

Mayor Perry Barse has dumped a Texas energy firm that spent months planning to build as many as three power plants in Vineland that could have more than increased the city’s energy production five-fold.

Barse’s move came one month after two top city officials questioned whether Barse’s support of Montgomery Energy’s plan gave the firm an unfair “competitive advantage” over other bidders.

Barse said he planned to drop Montgomery long before those concerns were raised, reserving that right in his August letter that granted Montgomery the support necessary to secure a key feasibility study. He made the decision “within the last 48 hours,” Barse said Friday just after 5 p.m.

The move startled Montgomery owner Dan Hudson, who said at 5:50 p.m. he’d only heard the rumor of Barse’s decision “within the last hour.” Hudson said he had not seen any paperwork and didn’t know why Barse suddenly killed the relationship that was built over several months.

“I don’t know what’s behind it,” Hudson said.

Montgomery planned to build a 58- to 64-megawatt plant tying into a city substation along Peach Street and a 130-megawatt biofuel or natural gas plant on land owned by the Landis Sewage Authority, according to city documents. A third plant’s location was unclear, but city documents show it could have been an expansion of the LSA site. City officials provided local energy data to support Montgomery’s development.

City officials now plan to move forward with or without Montgomery. The city’s request for proposals on new power plants should be public sometime in January.

Barse said he ended the Montgomery relationship to level the playing field for bids and began the relationship to give the city a placeholder in line for a study by PJM, the organization that manages the energy grid for New Jersey and several other states. Without that study, no entity can connect to the energy grid, according to PJM.

“Because we want to have a competitive advantage as a city to get in that queue,” Barse said when asked why he moved to drop Montgomery.

Barse’s decision came several days after The Press of Atlantic City requested city documents related to plans for the plants, a written request Barse said he saw.

The documents, obtained Friday, show VMEU officials had serious concerns about the Montgomery plan. VMEU Chief Engineer Harry Maloney and Superintendent of Electric Generation Joe Isabella wrote that they felt “ethically compelled to voice our concerns” about Barse assigning Montgomery the role of energy developer “without the benefit of competitive bidding.”

“By doing this, the city has put Montgomery in a favorable position (competitive advantage) as compared to other potential bidders,” Maloney and Isabella wrote in a Nov. 19 joint memo to VMEU Director Paul Yatcko.

In an Aug. 17 letter, Barse granted site control to Montgomery.

Though Yatcko stressed “site control” was simply a PJM term and gave Montgomery no lease or “right to put anything on our sites yet,” it allowed Montgomery to secure the first of three PJM studies.

With those studies complete, Montgomery could sell energy capacity at the Reliability Pricing Model auction in May 2008 or 2009, even if the firm had not built a plant yet. Capacity is sold for three years ahead of time, so capacity for the year 2011 would be sold in 2008, PJM spokesman Ray Dotter explained.

“If I’m building a plant, I could sign a deal to give out capacity,” Dotter said, though he was not specifically referring to the Montgomery project when explaining the process. “I could use that to help borrow the money to build the plant.”

Barse’s granting of site control could give Montgomery a competitive advantage over other bidders for the energy development, Maloney and Isabella warned.

“Montgomery Energy, most likely, will be the only developer reasonably able to bid their proposal into the May 2008 PJM RPM auction,” Maloney and Isabella wrote. “In effect, Montgomery will have a year head start over other bidders if, in fact, there are any other bidders. Also, Montgomery will be viewed as favored by the city because, by granting site control, the city will be responsible for Montgomery Energy not having to go through a site selection and procurement course of action, which will save them considerable project development expenses as compared to other developers.”

The two offered a plan Nov. 20 to “remediate any potential competitive advantage given to Montgomery,” including reclaiming of site control that Barse eventually exercised, and felt the public would shoot down any RFP because of Montgomery’s advantage.

Such a delay if the public shot it down could keep in place high energy costs for Vineland customers, who pay more for energy because it’s transferred from the western United States, according to Maloney and Isabella.

“One of the many potential impacts will be that much needed capacity will be further delayed, subjecting VMEU’s customers to at least another year of high capacity and congestion charges,” Maloney and Isabella wrote.

Maloney and Isabella voiced their concerns six days after city officials confirmed Nov. 13 they would request proposals for potential construction of a new power plant. At the time, City Councilwoman Sheena Santiago said she believed that RFP would be rigged and tailored specifically to Montgomery’s plan, a claim that prompted a move for censure by Councilwoman Barbara Sheftall.

Yatcko said he began pushing for open bidding a year ago, and city records show he was still trying as recently as two months ago.

“I’ve been trying to convince the Mayor to approve an RFP, in the context of considering Montgomery Energy’s concept,” Yatcko wrote Isabella in an Oct. 25 e-mail, after Isabella warned Yatcko of strategic losses. “I’ve had him there twice, and both times he reconsidered. I’m still trying. Obviously, it’s not about the economics.”

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