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Gazette Premium Content Costs, doubts rise at Colorado Springs power plant

By Dave Philipps Updated: March 2, 2014 at 11:54 am

In 2008, Colorado Springs Utilities unveiled a plan for an experimental scrubber at its downtown coal-fired power plant that it said was not just a new way to remove pollutants, but a revolution.

The scrubber, designed by local physicist David Neumann, would remove the main pollutants regulated by the federal government - sulfur dioxide and nitrogen oxides - at a fraction of the cost of existing technologies. And it would remove carbon dioxide - the greenhouse gas behind global climate change and the biggest problem for the coal industry - thereby shifting the power production paradigm for the entire planet.

The innovation would be worth untold billions, Utilities said. And Utilities stood to make $200 million because it was in a partnership with Neumann's company, Neumann Systems Group.

In the six years since, the revolution has fizzled.

The cost of the Neumann scrubber has soared from an initial estimate of less than $20 million to $131 million - a cost that could grow as the scrubbers are built. At the same time, the pollutants it is expected to remove at Utilities' Martin Drake Power Plant have dwindled to one: sulfur dioxide.

And the billions of dollars of business Neumann hoped to make by selling the technology to other plants has yet to materialize. To date, the company has only one customer: Colorado Springs Utilities.

Construction on the Drake scrubbers started a year ago and will continue for two more years - a time when the future of the power plant about a mile from City Hall and the character of the downtown area are at a key turning point. With the Neumann system now so different from what was first envisioned, and the cost so much higher, critics and some experts say Utilities made a bad deal and is taking great risk continuing to go forward with experimental scrubbers on a plant the community may not want anyway.

Utilities officials said they are still firmly behind Neumann because a traditional scrubber would cost $158 million - $27 million more than Neumann.

"Lower cost, better performance environmentally, lower water use. For all of those reasons, we believe it was the right thing to do," said Bruce McCormick, Utilities chief of energy operations.

But people within Utilities are quietly saying the risk of Neumann not working as promised is too high. And a former Neumann Systems Group chemist has questioned if Neumann will meet government standards, which could open up the city to stiff fines from the Environmental Protection Agency.

It is hard to find anyone in the industry bullish on the technology.

"There are people at Utilities right now who think this will not work," said former City Councilman Tim Leigh, a longtime critic of the technology. "If it is such a great deal, how come no one is buying it?"

Even Utilities seems disinclined to work with Neumann again. When Utilities takes bids for a scrubber on its Ray Nixon Power Plant this year, McCormick said, Neumann Systems Group won't be bidding.

Investing in technology

Utilities' relationship with Neumann Systems Group started in 2007 when Neumann, a local laser specialist and Air Force Academy graduate who designed technology for defense contracts, called Utilities and explained that he had a new technology that would help the city's aging Drake Power Plant meet pollution standards for sulfur dioxide and nitrogen oxides. In addition, he said he could remove carbon dioxide, which was not yet regulated, but might be if laws changed.

The invention essentially sprayed fine jets of liquid at exhaust gases coming out of the plants' boilers. As with many "wet scrubbers" on the market, the solution would react with exhaust gases, absorbing pollutants to be removed later, but because of his innovations, Neumann claimed he could do it in less space and for less money.

At the time, Drew Rankin, Utilities general manager of energy supply, said Neumann scrubbers would cost less than $20 million while traditional scrubbers would cost more than $100 million.

"It's almost too good to be true," Rankin told The New York Times in 2010.

Utilities and Neumann entered into a deal in which Utilities would pay for testing and construction of the scrubber and in return would get a small percentage of future sales.

Utilities began test runs, first using a small exhaust pipe coming out of Drake, then a larger pipe, until in 2009 it was cleaning 20 megawatts of exhaust - about a tenth of the plant's capacity.

In 2010, an independent group called the Electric Power Research Institute monitored the testing and said the technology seemed to work as promised. But by that time, costs had risen dramatically. Utilities had spent $17 million on testing Neumann and estimated it would spend $80 million more to build a complete system.

Around that time, with no fanfare, Utilities abandoned the Neumann system for removing carbon dioxide and nitrogen oxides, known as NOx.

Scott Hente, who at the time was on the City Council, which also acts as Utilities board of directors, said it became clear as testing progressed that removing nitrogen oxides and carbon dioxide would be too expensive.

"We always knew it would just be sulfur dioxide," Hente, a longtime supporter of Neumann, said last week. "And if it could do NOx and CO2 all the better, but that was never a primary driver."

Utilities had made a deal that it would get a percentage of sales for the first few years the technology was marketed.

In 2010, Rankin lowered expectations of profit, telling the Colorado Springs Independent newspaper that Utilities expected to make $40 million off the Neumann deal, not $200 million, as it had initially hoped. However, Rankin said, Utilities would still save $147 million by going with Neumann over a conventional scrubber.

Rankin resigned a month later to take a job in Connecticut. He did not respond to multiple calls and emails for comment.

A few weeks later, then-Mayor Lionel Rivera complained during a vote on a Utilities rate increase that the budget was too vague and getting details on spending was "like pulling teeth," but he said he would vote on it anyway because of the Neumann deal. "That's leading-edge technology and I believe it will be exported to many, many utilities around the country and around the world," he said, adding it would be a legacy "for all of us on this council."

Councilman questions deal

Several companies build power plant scrubbers to remove sulfur dioxide, including multinational firms Siemens and Alstom. In September 2011, Utilities signed a contract with Neumann for $73.5 million without seeking bids from other suppliers. As part of the contract, Neumann was guaranteed a 10 percent profit above his costs, which gave him little incentive to come in below budget.

McCormick, who signed the contract for Utilities, said Utilities could not seek other bids. "He's the only one who provides the technology we need," McCormick said.

When The Gazette pointed out that a number of companies build sulfur dioxide scrubbers, he said Neumann "was believed to be better technology that had unique properties in terms of space considerations. It tested to have lower water use, lower operation and maintenance costs. All those advantages are why we went forward."

McCormick, 54, has announced he will retire at the end of this month.

By October 2011, the estimated cost of installing the Neumann system, including improvements to the plant, had climbed to $113 million.

In November, a new City Council was elected. Among them was commercial real estate agent Leigh.

Within a few months, Leigh had begun to question the Neumann deal.

"We had a no-bid deal with no date it would be finished and no guarantee it would work," Leigh said in a recent interview. "It just smelled bad to me."

In June 2012, in a weekly email Leigh sends to a few thousand friends and business associates, he started asking whether the city was taking a big risk on a technology that had never been used at the proposed scale.

Within days, Neumann's lawyers sent a cease and desist letter to Leigh, calling his comments "libelous."

Concerned that he could not trust Utilities, which by that point had spent $40 million on Neumann, to give him reliable figures, Leigh began reaching out to other industry consultants. Emails provided to The Gazette by Leigh show people in the industry shared his concerns, calling Neumann "too experimental" and urging him to push the city to look at other technologies or consider shutting down the power plant.

Leigh kept raising the issue of Neumann with the City Council throughout the summer.

Hente, who was council president at the time, said he did try to limit the debate.

"I thought Leigh was shooting us in the foot, and all his talk was counterproductive to Utilities and the community," he told The Gazette last week. "I tried very hard back then to stop that. Looking back, I think I would have tried to do that more."

In 2012, business and environmental interests in the city started pushing to shut down Drake. Saying it was a blight on the city that hurt its image and discouraged development, they called for a study. The future of the power plant also has become a part of discussions about City for Champions, a proposal to build four tourism projects in Colorado Springs, including an events center and an Olympic museum near the power plant.

In July 2012, the City Council voted 5-4 to delay studying whether it made sense to shut down the power plant. Instead, the council went ahead with Neumann. The study is taking place now, after an additional $35 million has been spent for the Neumann scrubber.

"We already had a contract with Neumann," Hente said. "There was never talk of decomissioning before Neumann. Now all the sudden there was talk of decomissioning, but we had a contract in place. I was not a fan of going back on my word."

At the time of the vote, downtown business owner Richard Skorman and Chris Jenkins of Nor'wood Development Group, which has downtown real estate interests, urged the council to reconsider, saying spending on Neumann would make later discussion of decommissioning the power plant impossible.

"Going ahead full bore with Neumann" before studying the options, Skorman told the council, "was one of the worst decisions you have made as a group. I'll be honest with you, it is going to have a real long-term impact on the viability of this community."

Performance is uncertain

In fall 2012, Leigh got an email from a chemist who had recently left Neumann Systems Group. Although Leigh would not disclose the name of the sender, The Gazette confirmed it was Boris Nizamov, who was instrumental in creating the Neumann technology and shares credit on 17 patents with David Neumann.

"I left NSG last summer when I came to the conclusion that NSG has no future because there will be no customers other than CSU," he wrote in the email.

He warned the technology did not work as well as promised and "would not pass a careful review by an expert scrubber engineer."

He also cautioned that operating cost estimates produced by independent studies were "of limited value" because the estimates were based on early tests and more recent results showed the "scrubber looks significantly worse than the competing technologies."

Contacted recently by The Gazette, Nizamov said he could not comment because of a legal agreement with Neumann Systems, but he added: "Look at it this way. When we first contacted CSU, the scrubber was going to cost $13 million. Then it was $70 million. Now it is $130 million. What is the final number? It will be one of the most expensive scrubbers in the country and no one else is buying it."

Reached by phone, inventor David Neumann declined to comment.

Neumann Systems CEO Todd Tiahrt dismissed claims of high costs and uncertain performance. "If you look at our costs, they are significantly lower than competitors - $30 million lower," he said.

Neumann's lack of customers stems not from problems with the technology, he said, but from a "war on coal" that is causing coal plants in the United States to shut down. Neumann is instead looking at buyers in places such as China, he said.

"The technology is good," he said. "It's been verified by the industry. The marketplace will expand."

Utilities officials said they are confident that the Neumann system will work as promised, that the final cost will not be more than $131 million and that operating costs will be much lower than other scrubbers.

Utilities pointed to the studies Nizamov said were "of little value" to back up operating cost claims.

In fall 2012, Leigh, Jenkins, Skorman and Mayor Steve Bach continued to raise questions about going forward with Neumann, calling for an independent, third-party review.

Leigh told fellow council members in an email, "If you're digging a hole and you want out, the first step is to stop digging."

Scrubber cost a concern

In December 2012, Leigh received an anonymous email from a senior employee of Utilities that said, "I need to provide some insight into the NSG project. We need to talk."

The employee, whose identity was confirmed by The Gazette, requested anonymity for fears of being fired from Utilities.

Over several email and phone conversations shared with The Gazette by Leigh, the employee said other scrubbers would cost $20 million to $30 million less than Neumann and were guaranteed to work.

The employee warned that the sulfur dioxide removal levels for Neumann were below what others guaranteed, and Utilities had not been diligent in reviewing the available technologies.

"I'm trying to protect our employees and our ratepayers by preventing us going down a path that could cost us millions and no viable product. It's possible that the product could work, but why are we taking that risk?" the employee wrote.

The employee gave Leigh contacts for vendors and told him to ask for cost estimates to install a scrubber.

Leigh emailed the energy giant Alstom for a quote. An account executive wrote back: "Market pricing for a dry scrubber delivered and installed, worst case $70M-$75M."

Leigh sent the price differences out in his group emails and talked to the council.

A few weeks later, in January 2013, David Neumann asked the Colorado Springs Independent Ethics Commission to launch an investigation of Leigh, claiming Leigh stood to benefit from real estate deals if Drake was shut down and therefore his actions were "clouded by a conflict of interest and bias."

In April , Leigh lost his council seat in the city election. He said he thought it was largely because of his statements against Neumann. Utilities employees, encouraged by their CEO, campaigned against Leigh, according to Utilities employees. An anonymous group called "Citizens for Free and Fair Elections" distributed fliers trumpeting Leigh's pending ethics violation.

Leigh was cleared of wrongdoing in July.

"It was never about Neumann or knocking down Drake," Leigh told The Gazette last week. "It was about trying to ask the questions to make sure we were doing the right thing."

Construction underway

Utilities broke ground on the Neumann scrubbers at Drake in spring 2013.

On a tour this January, project manager Mike Brady walked across open ground between the power plant's coal burners and its steaming cooling towers.

"This is where it will go," he shouted over the din of the plant.

Nearby workers were welding the enormous ductwork for the scrubber.

Coal exhaust will blow through precision nozzles spraying a solution that absorbs sulfur dioxide, then precipitates it out as gypsum in massive tanks being erected to one side.

To date, Utilities has spent $75 million on the project. It expects to spend $56 million more in the next two years. The scrubbers are supposed to start operating by 2016, a year before new clean air rules kick in.

This spring, Utilities will begin taking bids on scrubbers at Ray Nixon Power Plant, south of Fountain. Utilities has said repeatedly that conventional scrubbers for Drake would cost $158 million. It estimates a scrubber on Nixon, which is slightly smaller than Drake, will cost $90 million.

McCormick said Neumann is not in the running for the Nixon job but would not explain why, saying Utilities needs to finish a selection process this month before "we can fully answer that question."

Jan Martin, the only person who has been on the City Council since the Neumann deal began, said while the system is not what she once expected, she still supports it.

"Yes, costs have gone up and cost of other systems have come down, but I think (Neumann) is still a little cheaper or at least still equal," she said. "If we had known it would take seven years and the whole industry changing so rapidly, I don't know, I suppose it could have been open for more discussion. But I really do believe we looked long and hard and thought we had made a good decision."

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Follow Dave Philipps on Twitter: David_Philipps

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- Read an email from a Neumann Systems chemist.

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