The City’s History and Acquisition of Scholl Canyon Landfill Gas Corporation
One of the readers of Vanguardian News Service, an insider, who read my article on the resignation of Glenn Steiger, whether it Cover-up for something more Ominous Part II, contacted me regarding some alleged unscrupulous undisclosed activity involving the City’s acquisition of Scholl Canyon Landfill Gas Corporation. So, I undertook my own examination.
Some Background Information First.
Scholl Canyon is located at one of the 20 largest landfills in the United States. Since the Scholl Canyon Landfill opened in 1963, 26 million tons of trash have accumulated (Article July 17, 2007); at a rate of 1,500 tons of trash daily, the currently permitted site is projected to operate through 2019. Note- this date may be extended due to less trash attributed to the city’s recycling and renewable energy program, irrespective of the City’s current effort to expand the size of Scholl Canyon.
The 535–acre site is owned by the City of Glendale, Los Angeles County and Southern California Edison, and is operated by the County Sanitation Districts of Los Angeles County. It also collects trash from Glendale, La Canada Flintridge, Pasadena, South Pasadena, San Marino and Sierra Madre. Approximately 100 acres of the landfill – closed but still producing gas – have become a part of the community and include an 18–hole golf course, tennis courts, baseball fields and hiking trails. (1)
Back in 1983, the City had installed a gas collection and recovery system made up of 28 wells and more than 10,500 feet of pipeline in Scholl Canyon at a cost of $350,000. The methane was channeled to a $3-million power plant at the base of the landfill that converted it into electricity capable of serving 2,500 homes, about 1% of Glendale’s customers. The power plant was shut down in 1987 because of toxic and smog-inducing emissions from the internal combustion engines at the plant exceed standards adopted in 1985 by the South Coast Air Quality Management District (AQMD) (2). The explosive levels of leaking methane gas also caused the indefinite closure of the Scholl Canyon Golf and Tennis Complex.
Back in 1991 Scholl Canyon landfill; was again producing tons of filthy, rotting ,festering and, putrid methane gas that caused a stench smell to surrounding neighborhoods. The City attempted to address the neighborhood complaints by installing a flare system, burning the methane gas into the atmosphere. However, the AQMD found the City to be in violation of RULE 1150.1. CONTROL OF GASEOUS EMISSIONS FROM MUNICIPAL SOLID WASTE LANDFILLS. The AQMD stopped the City from burning methane gas since by doing so it was emitting sulfur into the atmosphere. Then in 1991, Palmer Inc. approached City officials, to let them know that Scholl Canyon dump could actually be used to produce clean energy. (3)
Palmer had recommended to the City that it utilize the gas being flared (approximately 9 million cubic feet per day) by cleaning it, compressing it and piping it to the City’s own 250 MW power plant 5 miles away. After several internal studies and a competitive bid process, in October 1991, Palmer was selected by the City for the development and implementation of its landfill gas resource project. The gas lease and sale agreements was signed in 1992. (4) Scholl Canyon Landfill Gas Corporation operates as a producer and supplier of methane gas. The company was founded and incorporated in 1992 and is based in Cohasset, Massachusetts; 13 Elm Street Suite 200, Cohasset, MA 02025, United States. Note, this is the same address for Palmer Capital Corporation. (5)
April 11, 1993 The Scholl Canyon Golf Course, closed because of dangerous levels of methane leaking from the landfill below, will be rebuilt with a new 18-hole layout under a 40-year lease approved Tuesday by the Glendale City Council. The 18-Hole Golf Course to Be Rebuilt on Top of Scholl Canyon Landfill at the eastern end of Glenoaks Boulevard in the San Rafael Hills. Terms of the lease call for American Golf to pay the city at least $5.5 million in rent and concession fees over the life of the 40-year agreement. The course, to be constructed on about 56 acres of the 410-acre landfill, will take 12 to 18 months to complete. (6)
July 28, 1993, GLENDALE CALIFORNIA — A plan to build a five-mile pipeline to transport methane gas from the Scholl Canyon Landfill to the city power plant was approved by the Glendale City Council on Tuesday. The gas will be used to produce enough electricity each year to supply 30,000 homes. As part of a 20-year agreement, the city will buy the refined methane gas from Scholl Canyon Landfill Gas Corp. of Massachusetts, the company that will build the pipeline and the City will pay at least $330,000 per month for the fuel. A 15% royalty on sales of electricity, which could amount to $50,000 a month, is expected in return, said Kerry Morford, assistant public works director. In year 11 of the agreement, the city will begin to get a 1% royalty bonus in addition to the 15%. City officials estimate that, over the 20-year period of the contract, the city will save about $20 million. The design of the pipes and construction of the processing plant will cost Palmer Inc. an estimated $8.5 million. (7)
- Per Insider, City staff misrepresented the facts to the City Council. The contract should not have tied to market price, with a slight discount, since the City had already owned the gas. This demonstrated the City staff’s lack of expertise and should have had an expert on board to help negotiate the contract. As it turned out, this cost the city and residents tens of millions of dollars more in higher BTU costs and electric fees.
Construction began in January 1994 and the project commenced sales to the power plant in July 1994, that would harness 9 million cubic feet of gas per day, clean it on site, compress it and ultimately pipe it to Glendale’s own 250MW power plant 5 miles away. (8) Palmer capital gas company owned the gas coming out of the land fill. they owned the gas, the pipes, the compressors and the gas lines going to the landfill
August 6, 1994; Glendale Turns on the Gas From Landfill to Power Homes : Waste: Experts say methane-to-energy systems help the environment and can generate a profit for agencies.
- At the turn of a valve, gas created by garbage rotting at a local landfill was used to generate enough electricity for 30,000 homes in Glendale. Methane and carbon dioxide gas naturally emitted by decomposing trash at the Scholl Canyon Landfill is collected, treated, compressed and dehydrated with equipment at the site of the $10-million project in Glendale. (9)
- The gas is transported to the city’s power plant 5 1/2 miles away through an underground pipeline. When it reaches the Grayson Power Plant, the gas is blended with more methane and used to fuel the boilers that produce electrical power. Over 20 years, Glendale officials anticipate revenues and savings of $40 million stemming partly from less money spent on gas needed to operate the power plant. The project’s developer, Palmer Capital Corp. of Massachusetts, will sell the treated gas to the city for at least $330,000 a month, a discount of 12.5% from what the city spent for natural gas. (9)
The City has reaped substantial benefits from this project including over $4 million from the Department of Energy’s Renewable Energy Production Incentive Program (REPI). (8)
In 2003, the Glendale City Council approved a renewable energy policy to ensure that 20% of
the electricity consumed by Glendale customers would be supplied by renewable resources by 2017. We currently get enough energy from these resources to provide 21% of the energy required by our retail customers, well ahead of any state mandates; additionally, we are on track to achieve enough renewable energy to meet 33% of Glendale’s needs by 2020.
GE is diversifying its renewable energy portfolio by increasing its investment in one of the largest landfill gas-to-energy projects in the United States. GE Energy Financial Services acquired a 90 percent interest in a limited partnership that operates the Scholl Canyon Landfill gas project in Glendale from Scholl Canyon Landfill Gas Corp., an affiliate of Palmer Capital Corp., which will continue to manage and direct the operations. No financial information about the transaction was disclosed.
Scholl Canyon, GE Energy Financial Services’ sixth US landfill gas project investment, is located at one of the 20 largest landfills in the United States. This investment was made in the company’s commitment to expand its portfolio of cleaner energy products while reducing its own greenhouse gas emissions. (10)
- The question that needs an answer was, what was Palmer Capital’s real intentions by selling 90% of its interest to GE Financial Services, with 7 years remaining on the contract and recovering its financial investment, presumably at a profit?
Per another insider, the city did not negotiate any options to buy the contract out during the life of the lease or at the end of 20 years. With GE’s 90% investment in the Scholl Canyon Landfill gas limited partnership, this made it much more difficult for the City to buy out its contract. When the contract was signed, the cost to the city was about $1 per BTU, expecting it to rise to about $3 per BTU during the life of the contract. But such was not the case. Below was the Cost of BTU from 2007 to 2011- Black average spot price:(11)
Based on the foregoing, the cost of BTU spiked in June 2008 to about $14, dropped below $3 in July 2009, and back up to over $6 by the end of December 2009. As the price skyrocketed, the City attempted to buy out its contract but was unsuccessful.
In May 2009, the City Council approved a Professional Services Agreements with Public Financial Management & PACE Global Regarding Analysis of Scholl Canyon Landfill Gas and Facilities Lease Purchase Option. GWP was in the process of a “Request For Proposals” (“RFP”) to look at integrated resource planning over a 20-year timeframe to consider the most efficient way to scale renewable energy resources into its supply portfolio. A portion of that analysis includes a look at alternatives for burning the landfill gas purchased under the Scholl Canyon Landfill Gas Purchase Agreement. (12)
Special Meeting M I N U T E S
COUNCIL – CITY OF GLENDALE
DECEMBER 15, 2009
The Council of the City of Glendale met in a Special Meeting in the Council Chambers, City Hall, in said City, at the hour of 1:00 p.m. of the above date under CLOSED SESSION
c. Conference with Real Property Negotiators – Re 7721 N. Figueroa St., Los Angeles, CA 90041. City’s Negotiators are: James Starbird, Yasmin Beers, Glenn Steiger, Ron Frank, Steve Lins, Stephen Zurn, Robert Elliot, Bill Fox, William Frymann, and Michael Garcia. Negotiating Parties: Scholl Canyon Landfill Gas Corporation. Under Negotiation: Option to purchase lease rights and associated rights under Landfill Gas and Facilities Lease.
Written Notice of said meeting was given, which Notice consisted of a copy of the foregoing Call, and was served on each Member of the Council not joining in the Call, on December 10, 2009 at 5:00 p.m. (13)
At the end of 2009 the City of Glendale successfully negotiated a buyout of its contract, and to purchase the facility, its equipment and operations. Financial terms were not disclosed. (8)
City Purchases Landfill Gas Contract
GLENDALE, Calif., Jan. 5, 2010 — The city of Glendale issued the following news release: Taking a major step forward in its ability to control fuel costs, Glendale recently purchased the contract to operate the Scholl Canyon landfill gas facility. This contributed to the reduction of the Fuel Adjustment Charge on Glendale Water & Power (GWP) customer bills by 1.4 cents per kilowatt-hour effective Jan. 1, 2010 – about a 9% reduction on a typical residential electric bill. (14)
I was able to verify the above by analyzing my GWP for 2009 vs. 2010
Rate Decrease 2009 to 2010 $0.0174 $ 0.0131
Percentage Decrease 9.52% 7.69%
GWP 2010 Year of Accomplishments – Scholl Canyon Landfill Gas Project Purchase contributed to a 9% rate decrease on the typical residential electric bill. (15)
Per the Minutes to the 1/11/10 GWP Commission Meeting
Mr. Steiger reported that we originally factored in a small profit, referring to the original contract. However, at one point, our cost of natural gas became eight times the natural gas index, (June 2008) and it was time to begin negotiations to buy-out the contract. Extensive negotiations took place, and effective January 1, 2010, GWP owned the contract and facilities to the Scholl Canyon Landfill representing a savings of approximately $9 Million (16)
Per the GWP Commission Meeting 1-11-2010 Video
Glenn Steiger, former GWP General Manager speaking –
GWP had successfully negotiated a buyout of Scholl canyon landfill gas contract, consummated in early 1990’s, with a slight discount of what it would cost to buy landfill gas over the cost of natural gas. Natural gas is very beneficial to GWP because it provides renewal energy. However, over the years due to a flaw in the formula, GWP in a reversal at one point, was paying 8 times the price of natural gas index for the same gas.
Over the last six months, the city has engage in negotiations to buy out the contract through the end of termination in 2014. The negotiations required a deal be consummated by the end of 2009. Now that GWP closed the deal, it now owns the contract, the facilities, the facilities, and gas in the landfill. GWP will now see an immediate savings over the remaining contract reduction of $9 million dollars and more savings, that will allow GWP to lower rates by 9% by the first of the year of GWP electric rates.
- Was this immediate savings based on the current Natural Gas Market Price that was over $6 per BTU when the deal was consummated? If so, the $9 million or more in savings never materialized. Remember this deal was struck with the nation in a deep recession. City officials thought they got a great deal. Also the 9% residential rate reduction in 2010 was short lived, circumvented with a 29.1% electric rate increase over five years beginning 2014.
Note- the electric rate increase was actually planned to begin in 2013, but was delayed because Najarian and Friedman were up for reelection and they were concern about voter backlash.
- Another factor to the City’s urgency to buy out the contract was that City officials have been contemplating the expansion of Scholl Canyon for more than seven years, since 2007. (17)
Steiger was asked whether the City could sell the gas to someone else at a higher price. He said that it is a possibility but we have not explored that option. Landfill gas represents 6% of that 20% of Renewable energy. Landfill gas has a lower BTU than natural gas and is thus not as efficient. Steiger said that now that we have control of the landfill gas, we are looking at one of the options of modification to improve efficiency, bringing the landfill up to the same BTU content and quality of natural gas that will give us much more flexibility.
- Per Insider, the City only has equipment sufficient to convert gas for use at the Grayson Plant, not to sell to other outside entities, i.e. Southern. Calif. Gas. It would be cost prohibitive for the City to buy equipment in order to sell landfill gas outside of Glendale.
Herbert Molano noted that GWP’s electrical kilowatt rate per hour for commercial was 50% higher than other cities LA, Burbank, & Pasadena. ($.10 to .12 per kilowatt hour vs. Glendale at $.16 to $.18 Kilowatt).
1. He asked in the short term, what steps will be taken by GWP to lower the costs, noting that 23,000 customers asking for some kind of relief or postponement of the bill,
2. where did the $9 million come from to purchase out this contract.
3. The landfill contract lease was dated, signed on the April 7, 1992, a 20 year contract, noting that the GNP reported that the contract was through 2014. He asked for clarification of this discrepancy.
- A City staff explained that it started from the date the facility became operational and the city began receiving gas which was in 1994 to 2014. Steiger said that the $9 million came out of GWP reserves, adding that they may opt to finance it later on, adding we don’t have to do that since we had a substantial reserve and was still in the accepted standard of reserves. He denied that Glendale’s rates are 50% higher if you take into consideration the blended rate. He admitted that Glendale’s rates are at the higher end, but they just lowered electrical rates by 9% at the first of this year, and will continue to do everything to lower rates and to stabilize that differential.
Per another insider, Palmer Capital initially asked $21 million for the City to buy out the contract.
- This may had to do due with the price of natural gas, at the time in the higher stratosphere, and/or also paying a higher premium to buy out GE’s 90% investment in the limited partnership that was contrary to GE’s long-term plans to expand its portfolio into cleaner energy products.
What wasn’t reported was that Palmer Capital was not initially receptive to the City buying out the contract with almost 6 years left on the contract. The question was, what prompted Palmer to finally relent and let the City buy out the contract with about 5 years remaining on the contract? Also, the actual negotiated cost was never publicly disclosed to the GNP or other news outlets. Steiger also did not reveal the details of the City’s $9 million in savings, which could have meant a $9 million reduction on the $21 million to $12 million dollars.
By December 2009, the price of natural gas was trading around $6 per BTU. Another consideration for Palmer was he role that natural hydraulic gas fracking will play in the United States’ energy future.
Fracking is a relatively new drilling technology – high-volume horizontal hydraulic fracturing (fracking) – now makes it possible to reach natural gas reserves that underlie much of the eastern part of Ohio. Hydraulic fracturing is the use of sand, water, and chemicals injected at high pressures to blast open shale rock and release the trapped gas inside. (18)
For the first time in 18 years, America is poised to produce more of its own oil than it buys from other nations due to hyfraulic fracking. The latest EPA Inventory of Greenhouse Gases found that methane emissions from natural gas systems fell 17 percent from 1990 to 2012, while natural gas production grew 37 percent during the same period (19)
This will have a dramatic decrease in the price of oil and natural gas, as currently seen at the gas pumps. As of July 2014, the price of natural gas was back down to a little over $3 dollars, well below the $14 reach in July 2008, that prompted Steiger to contact Palmer to try to buy out its lease contract. The City appears to be reactive instead of proactive.
Even with the City’s recent effort with the Scholl Canyon Landfill Expansion, April 2, 2014, City officials aim to increase the life of the 535-acre Scholl Canyon Landfill by more than a decade with two proposed expansion options that are currently under environmental review. The second includes both horizontal and vertical extensions equaling about 16.5 million cubic yards, increasing the landfill’s life by 19 years. (17)
Per another insider, In 2001, GWP had about $365 million in cash reserves to with stranded investments. The following is GWP’s Cash and Cash Equivalent at the end of the year. Source: City’s CAFR’s
Cash and Cash Equivalents at End of Year
FYE Electric Fund Water Fund
2003 $ 219.1 $ 9.0
2004 $ 201.4 $ 10.2
2005 $ 193.2 $ 8.1
2006 $ 126.8 $ 6.7
2007 $ 110.9 $ 3.2
2008 $ 160.7 $ 44.1
2009 $ 154.7 $ 26.5
2010 $ 116.7 $ 8.6
2011 $ 70.9 $ 3.5
2012 $ 69.0 $ 3.5
2013 $ 73.7 $ 32.9
When regulation went bust, and the need for stranded investments was no longer necessary, per insider, Steiger and Starbird used the GWP reserves as their own personal piggyback. The insider heard that Steiger may have lost between $27 to $79 million trading hedge funds on gas futures, betting that prices would go up, but they eventually went down due to fracking. Steiger had traded on the commodities market using the City’s gas from its wells, the 3 wells in New Mexico as leverage. It’s my understanding that Steiger did not have approval of the City Council, although Starbird, former City Manager knew about it.
This substantially ate up GWPs reserves, from 2008 to 2012, in addition to the real cost to buy back the contract from Palmer Capital, the smart meter fiasco, the annual $20 million transfers from GWP revenue to the General Fund (not from surplus), GWP failing to set aside $20 million annually for GWP facility and equipment depreciation replacement reserves resulting in substantial decreases in GWP reserves for infrastructure repair on a as needed basis. Also, the Disney deal was an unexpected drain on GWP reserves, costing GWP over $30 million to relocate its plant facility location, change location of its power lines, sewer. water gas , electric lines, parking. GWP also was required by the City to buy two pieces of property from Disney at a premium for its new facility, with no reimbursement from the City’s General Fund. Maybe all of the above had something to do with Glenn Steiger’s Ominous departure as GWP General Manager.