September 1, 08
Austin Energy to Build $2.3 Billion Biomass Power Plant in Texas

The Austin City Council unanimously approved a $2.3 billion contract for biomass power Thursday amid ongoing criticism from environmentalists and another biomass power company.

Under the contract with Nacogdoches Power LLC, a private company, Austin Energy will buy power from a 100-megawatt plant, fueled by wood waste, to be built near Sacul in East Texas. Austin Energy customers will start paying for the contract when the plant comes online in 2012. The plant could provide enough power for 75,000 homes for up to 20 years.

Austin Energy officials have billed the contract as a key step toward renewable energy goals, but the deal has been controversial because of its price tag and questions about its terms and environmental impact. The council voted Aug. 21 to negotiate the contract but didn't give final approval until Thursday.

During the week of negotiations, the city also asked outside legal counsel to evaluate the contract to ensure it had provisions to protect Austin Energy from any risks.

That attorney, Tim Unger of Andrews Kurth LLP, told council members at Thursday's meeting that the contract was in "customary legal form for transactions of this type."

He said the contract mitigates Austin Energy's financial risks, including provisions that specify the utility will not pay for anything if it does not receive power from the facility and the rate paid for the power will be contingent on availability and output at the plant.

If the cost of purchasing the power exceeds the $2.3 billion contract before the 20-year time frame expires, Austin Energy will have the option of ending the contract at that point.

On the environmental side, the contract requires Nacogdoches Power to comply with Texas Forest Service best management practices and current renewable energy credit requirements.

Nacogdoches Power will be required to make reports of its environmental protection efforts, including forestry practices and air and water quality effects.

"You can terminate the contract if they're in breach of the contract and they don't cure that breach," Unger said.

Unger, who said he has spent the past 25 years working on power industry projects as an attorney, will receive $440 an hour for his analysis. The total amount he will be paid was not available Thursday because he has not yet sent the city a bill.

But about a half-dozen people who spoke at Thursday's council meeting weren't convinced that Austin Energy should go forward.

Valorie Davenport, an attorney representing Michael Bishop, president and chief executive officer of American Biorefining & Energy Inc., questioned why Austin Energy did not take bids.

Cyrus Reed, conservation director of the Lone Star Chapter of the Sierra Club, said his group did not think the biomass plant would be environmentally friendly and also said he opposed the contract on a philosophical basis.

"This should have been a much more public process," Reed said.

Council Members Laura Morrison and Randi Shade said they wished therehad been more public input in this case but voted for it anyway.

Mayor Will Wynn and Council Member Sheryl Cole said they were comfortable moving forward on the biomass contract.

"We've spent a little extra time to evaluate this project, and we've determined that it is feasible and in the best interest of the city and in the interest of our renewable goals," Cole said.

Council Member Brewster McCracken said the utility will also pursue other renewable energy sources, such as solar power, in the future, but needed something to meet demand in the meantime.

"We need to pick the best option in the midterm ... and the best option is this biomass proposal," McCracken said.