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Political turmoil could doom Springs company, founder fears

September 28, 2012
photo - David Neumann, founder and CEO of Neumann Systems Group, poses with boxes that are a part of the system the company manufactures to scrub sulphur out of exhaust gas. Photo by Mark Reis, The Gazette Photo by MARK REIS, THE GAZETTE
David Neumann, founder and CEO of Neumann Systems Group, poses with boxes that are a part of the system the company manufactures to scrub sulphur out of exhaust gas. Photo by Mark Reis, The Gazette Photo by MARK REIS, THE GAZETTE 

David Neumann thought he was going to show the world a cheaper, more efficient way to remove toxic gases from coal-fired power plants.

He thought his company, Neumann Systems Group, Inc., would grow into a 500-employee, $1 billion-a-year business headquartered in Colorado Springs.

He thought he would bring other utility companies from across the globe to see his scrubber technology at the Martin Drake Power Plant downtown, after signing a $73.5 million contract with Colorado Springs Utilities to install it at the city-owned facility.

But now, Neumann doesn’t know what to think.

Neumann worries that the window of opportunity to market his technology is closing fast amid a divisive community and political debate about whether to keep the towering power plant downtown open.

“If we don’t get off the ground here, we won’t anywhere,” said Neumann, an Air Force Academy graduate who spent most of his career managing technology programs for the government.

The project has already been delayed by months because the City Council, sitting as the Utilities Board, took a time-out on installing the project at Drake earlier this year to discuss the future of the aging facility.

Utilities can do major maintenance on its power plants only from September to November and March to early May when electricity use is down, said George Luke, general manager of Utilities’ Energy Services Division.

“We’ve lost enough time that we’ve lost that window,” he said, adding that construction work scheduled for spring will probably have to wait until fall.

Luke, a chemical engineer, said he’s “extremely” confident the Neumann sulfur dioxide scrubber system at Drake will work at full scale. So far, it has worked at 20 megawatts, a finding confirmed by the Electric Power Research Institute, an independent research group. The Drake power plant, which supplies about one-third of the city’s power, is 254 megawatts.

“We need to keep moving forward to meet the deadlines and do it efficiently,” Luke said. “Right now, the timing has me concerned.”

Utilities, a $1.1 billion, four-service utility owned by the city, started looking at scrubbers for Drake in the early 2000s amid looming stricter environmental regulations by the Environmental Protection Agency. Early efforts focused on Drake but then expanded to the Ray Nixon Power Plant south of Colorado Springs, too, Luke said.

“The state implementation plan for air quality in this region, which we expect to be approved by the EPA any time now, it’s going to dictate we put scrubbers on both the Drake and Nixon units by the end of 2017,” he said.

The utility hired a consultant who determined it would cost ratepayers about $158 million for conventional scrubbers. The utility was eyeing conventional scrubbers when Neumann came in the picture in late 2007.

Neumann said what he called a “big program” he was supposed to run for the government was canceled, so he started looking for applications for his technology and found it could be applied to power plants.

Neumann said he scheduled a meeting with Drew Rankin, Utilities’ former energy supply general manager, “to get a critique” and learn more about what other utilities were using.

“He told me they had one whacko scientist a week coming with a pitch, but he saw our history of doing really solid scientifically sound (research and development) work for the government,” he said. “He gave us a chance to explain more about what we could do.”

After a few more meetings, Utilities revealed it planned to spend about $350 million on emissions control and asked Nuemann what his equipment would cost, Neumann said.

“We came back with a low cost estimate,” he said, adding that it was enough for Utilities to give him an initial contract for a demonstration project at Drake.

Dave Grossman, a Utilities spokesman, said the utility thoroughly reviewed Neumann’s previous test procedures and results and determined that his emissions control concept was fundamentally sound.

“The 2008 contract allowed small scale, onsite testing to begin,” Grossman said in an email. “This first step required relatively small investments on Utilities part, and the partnership could have been ended at any point.”

The technology kept working as it was scaled up. Around the same time, Utilities conducted an electric integrated resource plan, which is updated every five years. The so-called EIRP is a long-term strategic plan for supplying electricity.

“Since the plan’s last update, much has changed,” Utilities said in March 2011. “Federal and state environmental regulations continue to grow, customer usage trends have changed, the immediate need for new generating units has declined, and market prices for fossil fuels like natural gas continue to fluctuate, while the cost for some renewables, such as wind, has come down.”

Luke said the new EIRP showed that the Drake and Nixon plants were worth keeping.

“What it showed us is the coal units were not only viable, but they remained some of our cheapest going forward for the next 20 years, including the environmental costs that we needed for scrubbers,” he said.

The Neumann technology made more sense than conventional scrubbers, he said.

“As we got to looking at it, not only was it easier to build and maintain, it was cheaper,” he said.

“This is something that people need to recognize about the Neumann scrubber. It takes things used in other industries, the types of equipment, and just packages them together differently. It’s not like we’re building a whole brand new reactor that has never been tried before. This kind of technology has been used in other industries at a much smaller scale,” he said.

The Neumann scrubber is designed to clean up sulphur dioxide, one of several kinds of emissions from burning coal.

An added benefit of the Neumann scrubber is that it has the potential to remove 97 percent of sulphur pollutants while conventional scrubbers take out only about 90 percent, he said.

“Our air will be cleaner than it would with a conventional scrubber,” he said.

Neumann said the modular design and chemical solution that pulls the sulphur out of the flue gases makes his technology different than conventional scrubbers.

“I tell people it’s a pretty hostile operating environment with exhaust gases and all of that,” he said about his equipment working in a power plant.

The same could be said about the fight over whether to decommission Drake – a fight that puts the success of Neumann’s technology in jeopardy.

Neumann, who came to Colorado Springs in 1970 and stayed, has threatened to move his business and 60 employees out of the city. He said he’s already lost some key talent because of the uncertainty surrounding the Drake deal.

In addition to being an entrepreneur, Neumann has set up a foundation to provide iPads to every elementary school child in El Paso County. The foundation put iPads in four first grade classroom at Bear Creek Elementary School under a pilot project that showed that students “are more fully engaged in the learning process,” according to the foundation.

The debate about Drake is multipronged and ramped up in earnest in the last few months.

Council members, business leaders and others are asking a variety of questions: Would installing the Neumann system at Drake lock Utilities into keeping the plant open for decades? Would retiring Drake improve the aesthetic beauty of the downtown skyline and spark revitalization or would it lead to higher electric rates? Should the city get away from coal? Is the push to decommission Drake nothing more than a real estate grab? Should the city sell the electric generation side of Utilities and use the money for stormwater infrastructure and other needs?

While the council oversees Utilities, Mayor Steve Bach is flexing his political muscle, arguing for a study on Drake and a review of the city-owned enterprise, including its governance.

After shelving the study of decommissioning Drake until next year, the council flip-flopped earlier this month and decided to press ahead this year.

Neumann said he has requested three meetings with Bach.

“We’ve invited his people over. We’ve invited him over,” he said. “We’ve been turned down.”

A spokeswoman for the mayor’s office said she was unable to provide a response to Neumann’s assertions.

“Something happened in the March, April timeframe,” Neumann said.

In May, The Gazette reported that Bach had separate conversations in January with executives from Xcel Energy and the Sky Sox minor league baseball team. The meetings with Xcel and the Sky Sox were in the mayor’s calendar, which The Gazette obtained under an open-records request.

At the time, Bach said Roy Palmer, Xcel’s senior vice president of public policy and external affairs, wanted to talk about acquiring Utilities’ electric generating capacity and a joint venture. Bach also said he talked with the Sky Sox about the possibility of moving the stadium downtown.

“You don’t move a power plant,” said Luke, Utilities’ energy services manager. “You tear it down and you build something new some place else, and it’s a very expensive proposition.”

Under the agreement with Nuemann, the utility stands to make 3 percent on the company’s gross sales of its scrubbers for 10 years.

While coal consumption in the United States is decreasing, it’s increasing worldwide, Luke said. But the profit that Utilities stands to make on the sale of the technology is like the cherry on top, Luke said.

“For us, the cost savings for building the scrubbers at Drake and Nixon, coupled with the ongoing operational savings, more than pay off and make it the right decision for us,” he said.
“Neumann is a good product, and we have no concerns about it going forward other than being allowed to get it done.”

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