Biogas plan, moving forward, comes at varying risk

Talks in Englewood, Littleton continue amid concern over rule stability

Posted 1/27/18

Aside from heralding the rare occurrence of residents hearing the word “poop” at a city council gathering, the plan that could make Englewood and Littleton millions of dollars by selling a gas …

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Biogas plan, moving forward, comes at varying risk

Talks in Englewood, Littleton continue amid concern over rule stability

Posted

Aside from heralding the rare occurrence of residents hearing the word “poop” at a city council gathering, the plan that could make Englewood and Littleton millions of dollars by selling a gas byproduct from their wastewater treatment plant has generated much attention from council over the financial risks it may bring.

“My concern is the taxpayers,” said Rita Russell, mayor pro tem, at the Jan. 22 study-session meeting of Englewood City Council, which discussed plans to process the "biogas" for its energy potential.

A factor in the plan's ability to bring in profit is a federal program that allows for selling renewable energy credits, called RINs, or “resource identification numbers.” RINs are assigned to batches of renewable fuel that are sold in the energy market — in this case, that fuel would be the byproduct called “biogas,” which comes from the treatment process at the Littleton/Englewood Wastewater Treatment Plant.

Part of that biogas is currently burned for heating within the plant's system. The rest gets “flared” in a waste-gas burner.

“We have heard from many residents who support this move to be more environmentally conscious as well as to capitalize on the asset that is currently being burnt off,” said Eric Keck, Englewood city manager.

No utility rate increases for residents are tied to the biogas project, Keck said.

The previous city council — before the Nov. 20 swearing-in of new Councilmembers Cheryl Wink and Dave Cuesta — cleared some initial hurdles for the project, but it still faces the snag of whether Littleton and Englewood should pay for the project themselves or partner with a private company and split the profit.

It's a difference councilmembers had questions about for the plant director at the meeting — and that could be a $9 million difference over 10 years.

Long road to fuel profits

The plan could make about $12 million in profit to be split by both cities over 10 years if they proceed without a private company, according to John Kuosman, director of the wastewater treatment plant. The cities would put the fuel in pipelines owned by Xcel Energy, and the project as a whole would cost about $8 million to pull off — a cost split 50/50 between Littleton and Englewood. After about four years, though, it would pay for itself, according to a report to the cities by the firm Carollo Engineers, and the profits stack up after that.

Englewood has nearly $6 million in its sewer reserves, and Littleton's sewer reserves exceed $20 million.

If the cities pay for the project directly, that allows for the most financial gain but would saddle them with higher financial risk. A third, private party could finance, build and operate the necessary biogas facility — enabling Englewood and Littleton to pay nothing out of its reserve funds, according to a city PowerPoint — but the cities would stand to gain about $9 million less in profit if they go that route. However, it would eliminate the possibility of spending reserve money and facing a possible financial setback if the RIN program were repealed.

That third-party option would likely provide the cities the least control over the project, Keck said in October.

It's still a long way off — construction is expected to begin sometime in the second half of 2018, as long as the Englewood council approves the RIN process, the purchase of equipment and construction funds — but before any of that can happen, council must decide how it feels about the perceived risks of the plan.

What's the risk?

One Littleton official once called the project “in essence, a form of gambling.”

“We would be taking on a high level of risk with citizens' money,” said Doug Clark, a former Littleton councilmember, in October.

But Littleton appears to be on board — its city council directed its staff Jan. 23 to start the process to request that cash be appropriated for the project as recommended. Wastewater staff recommended to both cities to cash-finance the project themselves, without a partnership from an outside company.

Councilmembers in Englewood have raised concern that the federal government might change policy on RINs, the renewable energy credit incentives. But so far, Congress has not mounted a viable push to change policy on the Renewable Fuel Standard, the program that requires refineries to blend ethanol and other biofuels into the nation's fuel supply or buy credits from those who make such renewable fuels. The program, begun under President George W. Bush, currently extends until 2022.

The head of the EPA has expressed desire to change the program, but 38 senators in October pushed him to back off lowering the requirement for the amount of renewable fuel blended into the nation's fuel market. The EPA reversed course in November and slightly raised the quota for 2018, Reuters reported Jan. 9.

The White House is facilitating talks on the issue, with some Republican senators working to change the program, Reuters reported, but opponents have not been able to overcome backlash from the corn-industry lobby and Midwest politicians so far.

“There has been no meaningful progress toward taking the required legislative action to repeal the legislation,” Keck said.

Even if the RINs hold, there remains the question of whether Englewood is willing to put up money to get the project off the ground or whether it opts for the third-party financing option — called a public-private partnership, or PPP or P3.

Councilmember Laurett Barrentine expressed concern about the risk, and wastewater plant director Kuosman said the cities' flexibility in reacting to a change in the RIN program would be lessened by a partnership with a private company. So far, Englewood hasn't asked for formal proposals from any companies.

“If the market does change and be less driven by RINs, you're gonna be exploring other avenues,” Kuosman said, adding that the natural gas market is growing all over the world. “One of the huge risks with the (private-company partnership) is (we'd be) giving all the control away.”

Englewood and Littleton could sell the biogas in other ways if RIN policy changes, Kuosman said. It could sell gas to fuel fleets of vehicles, for example.

Construction for the project will take about nine months to a year, Kuosman said, which means it could wrap up roughly 1 1/2 years from now.

In October, Clark in Littleton was hesitant about the plan because of a use tax that both cities would pay on the project. Because Englewood would be paying itself the tax, Littleton would end up shouldering more than half the project's cost. Englewood hasn't decided whether it would waive that tax for Littleton, but Littleton is moving forward anyway.

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