RW Beck Study-Part 2: Scope and Exclusions

In considering any professional opinion, it is important to educate yourself as to the scope of that opinion. Any doctor, lawyer or engineer will be careful to describe what subject areas an opinion covers and, usually, will be more careful to tell you what areas the opinion does not cover. Before considering the R.W. Beck Review of the Proposed Highwood Generating Station, we should consider its scope.

According to the Review itself, it is a "Our analysis is a limited review including:
Anticipated construction cost
Environmental and permitting
Anticipated operating costs
Fuel and fuel transportation
Electric transmission issues
Forecast of cost of power from
City’s power sales plan."

Additionally, there are many things that the Review did not consider.

The Review does not offer "any opinion as to the outcome of such legal challenge or any other legal challenges or permit appeal requests that might be initiated in the future" which "have the potential to influence project schedule and costs." p. 6

RW Beck refuses to speculate about specific carbon dioxide regulations. The Review does, however, state that "future carbon dioxide regulations will likely occur and will increase the cost from the Project. In addition, the wholesale market prices for energy in the Pacific Northwest will also increase due to the future regulations. While carbon dioxide emissions from gas fired
facilities are less than carbon dioxide emissions from coal-fired facilities, both types of plants will be impacted by the future regulations. Since gas fired generation is often the generation type that sets wholesale market prices (now and in the foreseeable future), such future regulation impact on natural gas fired generation is expected to cause market prices to rise." p. 7

That's a nice way of putting it, but I am pretty sure it is saying that some type of carbon tax or regulation is coming, and that while it will probably impact the electricity market as a whole, it will likely have a greater deleterious effect on coal generation than gas generation. Beck's refusal to offer an opinion, as well as its collateral language about coal vs. gas, sure makes one wonder about City staff's carefree attitude toward this issue.

"The budgeted interest during construction amounts to $68,269,000. We did not review the basis of this budget line item." p. 8. The City has been telling us that this project will cost $515,000,000.00. According to Beck's figures, which I will discuss in more detail later, the project will cost $720,000,000.00. Increasing this budgeted interest during construction by the same percentage as the overall cost (which may or may not be legitimate), this would mean we have an unreviewed budget line item in the amount of $95,444,039.00.

The Review points out that, at present, the City's utility, Electric City Power, has contracts to sell 20-25 MW of load. p. 18 The City's share of the total output will be roughly three times that, or 62.5 MW. "Since no contracts for the new loads have been signed or committed at this point it is not possible to definitively discuss the amount of load ECPI will have in 2011." p. 18

Thus, the City will have a share of power in excess of its present needs. Beck points out that we don't know what the City's needs will be in 2011 when the plant is proposed to come on line. It's actually even more vague than that. Since the City and SME "declined" to disclose the nature of the City's relationship with SME, we do not know if the City will be compelled to purchase excess power, whether it will be sold into the grid, potentially for the City's benefit, or what. They just won't tell us. Apparently they didn't tell Beck either.

R.W. Beck refused to opine as to the validity of contracts that might exist. "We make no representations or warranties, and provide no opinion concerning the enforceability or legal interpretation of contracts..." No worries. According to the City, there aren't any.

Finally, according to R.W. Beck, "This report is not sufficient in scope or disclosure to be used in the financing of ECPI’s interest in the Project." p.19

I find this last part very interesting, because we were told that one of the reasons for the R.W. Beck review was a request by the bond underwriters. We'll have to stay tuned on this one.