Besides treating the city’s wastewater to make it reusable, Santa Maria’s Wastewater Treatment Plant also has a secondary function, part of which is collecting methane gas from the biosolids and converting it into useful electricity. It’s called cogeneration and it helps the city maintain its role in contributing to a healthy environment.
Or at least it did. The city’s contract with Boston-based CHP Clean Energy, the company that runs the cogeneration system, expired, according according to Santa Maria Utilities Director Shad Springer. And the cogeneration system is set to be removed from the plant as early as mid-May.
Springer said that after months of negotiations with CHP, the city wasn’t able to reach an agreement.
The failed contract renewal was a surprise to Tim Krochuk, CHP’s CEO. He said that as the contract was set to expire, there was an expectation that the city was going to either renew the contract or at least buy the system and operate it themselves.
Originally, the system was built and operated by Minnesota-based U.S. Energy Systems. That company and the city negotiated a 10-year contract, Krochuk said. CHP took over the contract halfway through. At that time the system was operating at 40 percent capacity. CHP invested more than $1 million and brought it up to around 90 percent, Krochuk said.
Krochuk explained that CHP took over the contract because the city wasn’t happy with the performance rate of the system under U.S. Energy Services. Springer acknowledged that CHP took over the contract halfway through but couldn’t specifically confirm why because he wasn’t in his current position at the time.
U.S. Energy Systems didn’t return calls from the Sun before press time.
“The expectation when we took it over is that we would get it back up to appropriate operating conditions sometime in the next 4 1/2 years, [and] we’d work on a renewal and an extension with the city,” Krochuk said. He said that CHP and the city made that arrangement on “a handshake,” however, Springer couldn’t confirm because it was before he was employed in his current position. The previous manager, Shannon Sweeney, said she couldn’t comment because of city policy prohibiting her from doing so.
Part of the original deal was that CHP would sell the equipment to the city for $250,000, although Krochuk dropped the price to $100,000 after negotiations. At that price, he said, the city is essentially getting the equipment at cost.
But Santa Maria isn’t interested in buying it. Springer told the Sun that the system is outdated and needs to be rebuilt. He said the system was reviewed by a third party familiar with the system who advised the city that it needs work.
Krochuk said the city would continue paying a rate of roughly 9 cents per kilowatt hour if it purchased the system, which is lower than the rates the city pays to Pacific Gas and Electric, its main electricity supplier.
However, Springer said that purchasing the equipment and the added cost of maintenance would drive up the rates.
Krochuk confirmed that the engine needs maintenance. He said that it’ll cost around $250,000, but that the company would have fronted the cost and the city would have continued paying the current rate for electricity if the contract was renewed.
The city isn’t wholly reliant on the cogeneration system for electricity. It’s typically used to offset peak electricity rates for the city.
“It’ll cost hundreds of thousands of dollars and it wasn’t protective of the city’s ratepayers’ financial interest,” Springer said.
It’s not easy to run a cogeneration engine in California, according to Krochuk, since the state has some of the strictest air quality laws in the nation. Also, shoddy construction in some cogeneration systems makes engines more difficult to operate, he said.
Methane is the second most prevalent and one of the most harmful of all greenhouse gases, according to the Environmental Protection Agency. Until the city finds a new vendor, Springer said the city is flaring off excessive methane at the plant, which is better than simply releasing it into the atmosphere.
Springer said the city is still interested in using a cogeneration engine and that CHP is welcome to bid on a new contract.
“We recognize it’s a resource we want to utilize,” Springer told the Sun. “If it’s really worth the money they say it is, they can go to a different municipality and take it somewhere else.”
And they have. Currently, the Sun confirmed that CHP is operating cogeneration systems in Thousand Oaks’ Hill Canyon Wastewater Treatment Plant and the Los Virgenes Municipal Water District in Calabasas. Officials in both cities told the Sun they are satisfied with CHP’s engines.
At this point, Krochuk said he doesn’t think the city will get a better deal than what CHP offered them.
“I believe CHP will have an ‘I told you so moment’ in the future,” Krochuk said.
Staff Writer David Minsky can be reached at dminsky@santamariasun.com.
This article appears in May 19-26, 2016.