One More Legal Hurdle Between ARPA & City of Lamar

The lawsuit titled Part 31 is all that’s left in the on-going litigation between ARPA, Arkansas River Power Authority, Syncora and the City of Lamar. And this is the one that’s the crux of the matter, a lawsuit brought by the city to dismiss the bonds issued to pay for the cost of the Lamar Repowering Project, approximately $170 million at the outset.  The actual price once the interest over the life of the bonds has been factored in is roughly $255 million.  At the current rate of payment, ARPA customers will have paid that off by the year 2043, at which point utility bills will no longer reflect the cost of the bonds.  City Administrator, John Sutherland, explained, “The City initiated the current lawsuit because customers were being charged each month for a non-working plant.  If this were (Public Utilities Commission) PUC controlled they would never allow it.”  The bonds insurer, Syncora Guarantee Corporation, which also had litigation filed regarding the ARPA vs City suit, had claimed the request to withdraw from ARPA and cease payment of bonds would be a significant financial hit to ARPA to repay its bondholders.  The City of Lamar contributes roughly 30% of ARPA’s annual capital from power sales to local customers.

ARPA earns its revenue by brokering electricity to six member municipalities in southeast Colorado: Lamar, Trinidad, Las Animas, La Junta, Holly and Springfield.  The door was open for Lamar to bring a suit against ARPA because the city council refused to pass a requested resolution releasing ARPA from future claims by the City, nor did the council sign the reaffirmation for their obligations to ARPA, as did the other member cities.  That allowed Lamar to continue its July 2014 lawsuit.

The City of Lamar asked for their day in court to have the bond payments dismissed, to be removed from membership in ARPA and to be free to broker electric rates with an outside provider. The city’s prime contention is that utility customers, for the past several years, have had to pay an estimated five to six cents for each kilowatt of power they consume to pay down the bonds used to construct the failed power plant.  There were four issuances of bonds, in 2006, 2007, 2008 and 2010 mostly to deal with cost over-runs during the construction period other than the initial bonds for construction.  Several times ARPA representatives presented their case for extra bonds before the Lamar City Council, which was granted, although apparently reluctantly for the final requests.

The bonds were insured by a nationally rated insurance company, Syncora, which was involved in past litigation regarding ARPA municipal members, Lamar and Trinidad. Trinidad and Syncora dropped their suits against each other for a cash settlement to Trinidad which ended those legal proceedings two years ago; Lamar has continued their suit up to this point, with depositions now being taken from the interested parties.  It’s expected that the hearings, for which the city has requested a jury trial, will  begin in September, bur are expected to take the remainder of this year and carry on into 2017.  The trial will not be held in Lamar due to a change of venue request.

ARPA has no real property invested in the suit, excepting what portions remain of the Lamar Repowering Project which was supposed to convert a natural gas plant into a coal fired operation. Some of the property, such as the coal domes, will remain as city property.  In 2004, some Light Plant personnel recommended the conversion believing it would save money for customers with the anticipation of increased natural gas costs across the country.  There is still plenty of coal available in the U.S., but as the cost of the plant’s construction began to increase, the anticipated increase in natural gas never materialized to expectations for any duration.  Construction delays, running into months, equaled higher costs for construction materials, mostly concrete and steel, and one provider went bankrupt which hampered additional development in the early stages of construction.  Nor was the conversion an easy process.  The boiler never functioned to the capacity required to provide sufficient power to local customers and it exceeded air quality levels which brought an environmental group, WildEarth Guardians into the mix. They sued ARPA for a sum of money, plus the court ruling in their favor which blocked the Repowering Project from operation until 2022.  A moot point, as ARPA brought a lawsuit against Babcock and Wilcox, the manufacturers of the boiler, who claim the problem is one that ARPA needs to fix, not them.  That lawsuit has not been resolved. Overall, the project simply never worked as intended.  Another factor in this case was, the City of Lamar, as their contribution to the project, put up the 25MW natural gas plant which was dismantled.   The city says it needs to be made whole for the replacement of the plant, running into the millions.

ARPA has no tangible assets other than some used power-related equipment and what is their portion of the coal fired plant they are trying to sell on the open market. Both ARPA and Syncora filed motions to dismiss.  If Lamar wins its case and discontinues membership, it’s expected that will leave the remaining communities having to bear the brunt of the construction bonds for the failed project.  Lamar will no longer be obligated to continue with the power purchase agreement made by ARPA, so the city can seek its own power supplier.

By Russ Baldwin