City will go to arbitration, seek negotiations with biomass company
Published: Thursday, December 20, 2012 at 8:23 p.m.
Last Modified: Thursday, December 20, 2012 at 8:23 p.m.
The City Commission on Thursday unanimously voted to file for arbitration against the Gainesville Renewable Energy Center, saying that the late 2011 sale of a 40 percent stake in the biomass plant constituted a control of ownership that should have triggered the city’s contractual right of first refusal to make an offer to buy.
At arbitration, the city would seek to require GREC to fulfill the contractual obligation to give the city an opportunity to make an offer to purchase a controlling interest in the plant.
In the vote, commissioners also authorized Gainesville Regional Utilities General Manager Bob Hunzinger to attempt to negotiate an alternative resolution with GREC while arbitration is pending — a resolution that would require future City Commission approval.
Such talks could potentially involve a renegotiation of the 30-year contract for the city to purchase all power from the plant.
Hunzinger declined comment on what specific resolution the city might seek.
“We do think there’s an opportunity to lower rates and operating costs associated with the facility,” he said.
Hunzinger did say that during talks on a potential agreement to prepay for power from the plant — talks that have now ceased without an agreement — “both sides had parts of the contract they would like to open up and discuss.”
Commissioners also did not say much publicly on the issue. In an interview after the meeting, Commissioner Todd Chase, who has been outspoken in his concerns about the financial and rate impact of the plant, said “negotiating in public does no good.”
“I support this because I think it provides us an opportunity to improve the contract to a point where it improves the viability and the sustainability of it for all parties,” he said.
Several members of the public opposed the decision to go to arbitration and objected to Hunzinger engaging in closed-door negotiations. As the staff head of GRU, Hunzinger oversaw negotiations of the biomass contract that commissioners ultimately approved in May 2009. The city will pay $130 per megawatt-hour for electricity under that 30-year contract.
Paula Stahmer, a plaintiff in a settled lawsuit that challenged permits for the biomass plant, said city officials worked to sell the plant to the public on the premise that it would be privately owned and operated and all financial risk would be with the company until the plant was built and online. Now, before construction is completed, the city has shifted gears and may seek to buy the plant, she said.
The city’s claim for arbitration involves Tyr Energy’s late December 2011 sale of its 40 percent stake in the plant to Starwood Energy Group Global, a Connecticut private equity firm that focuses on energy projects.
That came several months after Fagen Inc., the construction firm building the plant, bought a 17 percent stake.
City officials say that combined for a 57 percent change of ownership or the transfer of a controlling interest.
Al Morales, the GREC chief financial officer, said the company disputes the city’s assertion. He declined further comment, including whether the company is interested in selling the city an ownership interest, because of the looming arbitration.
Under the contract between the city and GREC, disputes over contract performance go to arbitration. State law requires that such a claim be filed within a one-year window. Thursday’s vote came 10 days before that window closed.
Attorneys with GRU legal consultants Orrick, Herrington & Sutcliffe said much of the last year had been spent requesting more information and documents on the late 2011 sale of a stake in the plant, but GREC had not provided the requested information.
Carl Lyon, a partner with Orrick, said some time was spent negotiating matters that would have “alleviated the need to bring this action” — including prepay talks that are now “very much on the backburner, from GREC’s standpoint.”
The city had for years identified establishing a third-party conduit to prepay for some of the plant’s electricity as one way to lessen the rate impact. Hunzinger said those talks with GREC tailed off around late October.
On Thursday, multiple commissioners worked to describe the city’s relationship with GREC as amicable, despite the dispute over the sale of a stake. Commissioner Lauren Poe said he expects a “collaborative arbitration.”
Contact Christopher Curry at 374-5088 or firstname.lastname@example.org.