[dropcap]L[/dropcap]ast month Hamilton City Council voted to limit the location of any future biosolids incineration project to the Woodward Avenue Water and Wastewater treatment site. In so doing, council further delays the nearly 10-year odyssey of California-based Liberty Energy through the sometimes hazardous shoals of City of Hamilton procurement policies.
It also raises an interesting question about weighing the city’s obligation to treat potential vendors honorably while at the same time deriving maximum taxpayer benefit out of its procurement decisions.
The journey started in 2004 when Wilson Nolan, chief executive officer of the firm, started scouting locations in Hamilton for a plant that would convert sewage sludge and other biomass products like grass clippings and wood shavings into electricity through a low-emission gasification process. The high-efficiency, super high heat process, in addition to producing low smokestack emissions, would produce enough electricity to power 8,000 homes. It would also yield an ash residue that could be used as a replacement for Portland cement in concrete production; eliminating the current practice of trucking sewage sludge long distances and spreading it on farmers’ fields.
By the summer of 2009, Nolan presented an unsolicited proposal for a $110 Million plant on Strathearne Avenue to council, who approved rezoning the property to allow the development.
The scope of the Liberty Energy plan called for the plant to consume all of Hamilton’s sludge, plus sludge from neighbouring municipalities.
From the beginning the plant was controversial and was strongly and vocally opposed by Councillors Collins and Merulla, whose wards either contain or are near the proposed plant. For the next two years Liberty fought off attempts to impose a full environmental assessment on the project rather than the thorough but less rigerous Environmental Screening Report that Liberty had prepared.
City Council, in a move headed by Councillors Collins and Merulla, filed a bump-up request with the Ministry of Environment, but by February 2008 the province had given its approval to the Liberty EA.
Still, the overall notion of converting sludge into electricity, and the elimination of rural spreading of sludge, something that was coming under scrutiny by the Environment Ministry, was attractive to city staff.
Jim Harnum, the city’s manager of water and wastewater, soon put his own proposal for a city gasification project in front of council. The problem with the Harnum plan was that it couldn’t compete with Liberty economically, because it relied entirely on the city’s supply of sludge, which was insufficient to generate the kind of power and revenue the Liberty proposal claimed. In fact, the Harnum proposal would require a certain amount of natural gas as fuel to function properly which added to the overall cost of the project. Liberty countered by offering to enter into a joint venture with Hamilton at the Strathearne site. Instead, the city decided to subject the two competing plans to a “peer review” by consultants Black and Veach.
The Black and Veach review identified risks with the Liberty plan, most significantly the reliance on outside sources for a large part of its fuel stock. Would outside communities enter into long-term agreements to supply sludge to Hamilton? Could contracts be enforced? Liberty said they could, but the consultant was more sceptical.
The B&V review also produced numbers that suggested the city proposal would be cheaper than the Liberty proposal — a fact strongly contested by Liberty. It was during a council discussion of the accuracy of the B&V report that staff were accused of fudging the numbers to disadvantage Liberty which prompted City Manager Chris Murray to threaten to clear the council chamber of staff if the attacks on staff integrity were to continue.
Ultimately, the city agreed to submit the B&V peer review to another peer review—this one involving former city treasurer Joe Rinaldo and the accounting firm Deloitte.
Whether the numbers provided to B&V had been distorted or not, the Rinaldo team produced a report that blew holes in the financial assumptions of B&V. They identified erroneous assumptions totalling tens of millions of dollars, and once again the Liberty proposal, or a joint venture between Liberty and the City, was far and away the cheapest option.
Through the peer review process, however, Liberty had been obliged to lay bare all of its financial assumptions and its complete technical design and business plan for all to see including potential competitors. In 2011, the City decided to do just that — enter into a process that would introduce competition into the equation. The federal government had announced a program that would encourage private-public partnerships, by contributing to the capital cost of such ventures, very similar to Liberty’s proposal two years before. Staff recommended and council agreed to apply for the funding.
For Liberty, the catch was that federal support would require an open competition for private partners. An idea that had first been mooted almost a decade earlier, when nobody was proposing such a venture was now public domain and Liberty had effectively done everybody else’s homework for them.
Still, the possibility of a joint venture between Liberty and Hamilton remained until council nailed the door shut last month eliminating the Strathearne site from the P3 process. Liberty, to remain in the fray, would have to beat back competing firms who had now seen Liberty’s numbers, plus it would have to operate in a model that would not accept outside sludge and therefore not produce sufficient electrical power to make the project as viable as Strathearne.
Observers estimate that eliminating Liberty’s Strathearne Avenue site will nearly double the city’s cost to manage its sludge over the next 30 years and may result in sludge still being trucked long distances and spread on agricultural land.
Over the past few years as the sludge debate raged on, some councillors had expressed the fear that the city could end up with two incinerators; and that fear could yet be realized. Liberty is sitting with the necessary environmental and zoning approvals to operate at the Strathearne site if fuel stock can be obtained somewhere.