Pagosa Springs geothermal project: Concerns over legality of funds transfer to public-private partnership

September 14, 2014
Pagosa Hot Springs

Pagosa Hot Springs

From the Pagosa Springs Sun (Ed Fincher):

According to 18th century Scots poet Robert Burns, “The best laid plans of mice and men often go awry.”

Pagosa Verde owner Jerry Smith must have this line of poetry running through his mind all the time when dealing with the federal, state and local government, and Monday night’s meeting of the Pagosa Area Geothermal Water and Power Authority was probably no exception.

The authority, which consists of three town councilors (David Schanzenbaker, John Egan and Mayor Don Volger), the three county commissioners (Michael Whiting, Steve Wadley and chairman Clifford Lucero) and one at-large seat held by Mike Alley, just barely had enough members show up at Town Hall to achieve a quorum for the meeting.

Town Manager Greg Schulte, along with County Administrator Bentley Henderson and County Attorney Todd Starr, acts as staff for the authority, began by giving some background information for the people in the audience who may not have attended the authority’s previous meetings.

The original intent of the authority, as spelled out in the agreement between the town and the county, was to enter into an agreement with Pagosa Verde to form a separate entity — Pagosa Waters LLC — as a public/private partnership.

Pagosa Waters would then consist of three people: one appointed by the authority, one appointed by Pagosa Verde and one at-large member. The point being, this arrangement would ensure joint ownership of the project between the two local governments and Pagosa Verde, while at the same time allowing the project to be managed by a full-time, working board instead of part-time government volunteers.

According to Schulte, a wrinkle in the plan occurred because of a recently awarded grant from the Colorado Department of Local Affairs worth nearly $2 million. Archuleta County was the official applicant for the grant because DOLA only deals with local government bodies, not private companies.

The $2 million grant from DOLA counts as matching funds for a $4 million grant from the U.S. Department of Energy, which was awarded earlier this year to Pagosa Verde. However, since Pagosa Verde is a privately owned, for-profit company and Pagosa Waters LLC would be a public/private partnership, DOLA had concerns about the legality of Archuleta County funneling its funds into the project.

Schulte then alluded to a meeting held last week involving himself, town attorney Bob Cole, Starr and another attorney, Russ Dykstra, who has some experience with similar situations.

Starr then took over the briefing, explaining, “He has been involved in some very large public/private partnerships … and his suggestion was that, from everybody’s stand-point, an LLC is probably not the form we want to take. Some sort of concession agreement is the best way to do it because we can take care of all of Jerry’s requirements and all of our requirements.”

More Pagosa Springs coverage here.


Geothermal in Pagosa Springs — The Mountain Town News

August 8, 2014


From The Mountain Town News (Allen Best):

Nobody doubts that the Colorado town of Pagosa Springs has hot water. It bubbles to the surface at around 140 degrees and in quantities sufficient to sustain a large commercial spa and several more public pools along the San Juan River.

As well, the hot water heats 13 businesses and 5 homes in downtown Pagosa Springs plus the Archuleta County courthouse, delivering this energy at a cost roughly 20 to 25 percent below the going rate for natural gas and 30 percent less than electricity.

But is there sufficient hot water available to produce electricity, warm 10 acres of greenhouses, and deliver heat to 600 homes?

Geologic modeling suggests there is, but until additional wells are drilled, as is expected later this summer, there’s no way of knowing for sure. If those exploratory wells confirm large volumes of hot water, then two large-bore wells will be required to extract the hot water and, after the heat is transferred from the water, return it underground.

Federal and state grants this year have given the project traction. The U.S. Department of Energy delivered $3.9 million, followed by $1.9 million from state sources. The town and county governments created a consortium called the Pagosa Area Geothermal Water and Power Authority to provide 30 percent in local funds, or $520,000, as required by the federal grant.

A private company, Pagosa Verde, which is pushing the project, came up with an equal amount in in-kind services. It owns 20 percent of the project and has the backing of a South Carolina-based investment firm called Natural Energy LLC.

Another milestone occurred in late May, when Colorado Gov. John Hickenlooper stopped in Pagosa to sign H.B. 14-1222 into law. The law, co-sponsored by Sen. Ellen Roberts, a Republican from Durango, and Sen. Gail Schwartz, a Democrat from Snowmass Village, lengthens the repayment period and otherwise provides great flexibility for private-activity bonds issued with the backing of the state government for geothermal and other renewable energy projects.

Michael McReynolds, policy advisor at the Colorado Energy Office, says the new law recognizes the large costs of proving the geothermal resource exists before development can occur.

However, other areas of the state are interested in replicating the business model of diverse revenue streams being assembled at Pagosa Springs. “It really depends upon the specific communities and what they want to pursue,” he said when asked if the new law will be used to finance other community renewable energy projects.

Jerry Smith, the chief executive at Pagosa Verde, says the new law was “huge” in allowing the project in Pagosa Springs to go forward.

In providing access up to $16.7 million available for as little as 2 percent interest, Smith’s project can now proceed. He estimates the need to spend $26 million before revenue can be gained.

“It’s a community-scale project, replicable throughout the Rocky Mountain states. I wanted town and county citizens to own it,” says Smith. “They only way they could participate was by forming an authority, similar to a housing authority. It’s a quasi-governmental authority.”

The public-private partnership is called Pagosa Waters LLC.

Because of the lower-cost money produced by the state and federal grants plus the clear bonding authority enabled by the new state law, he sees a financial path opening up.

Bonds will be just 2 percent. “That’s essentially free money,” he says. “We can borrow as much as we need to secure revenue for the project, “and it’s a way we go.”

Cheap borrowed money also relieves the onus of finding extremely hot water and arranging for sale of electricity, says Smith. If tests reveal merely hot water, such as bubbles up in the local springs, then that’s still hot enough for greenhouses and living rooms.

From the Romans forward

Hot water originating underground has long been put to practical uses. Romans at Pompei used hot water to heat buildings.

The Idaho Capitol Building has been heated with water drawn from 3,000 feet below ground, but 86 buildings with more than 5.5 million square feet of space are also heated by a separate geothermal heating district, according to Jon Gunnerson, geothermal coordinator for the City of Boise Public Works. It is the largest geothermal heating system in the United States, he says.

Commercial electrical production from geothermal sources began in 1911 in Larderello, Italy. The first commercial electrical production in the United States began in 1960 at The Geysers in California.

In 2013, according to the Geothermal Energy Association, the United States had 3,386 megawatts of installed geothermal capacity, or about three times as much as the trio of giant coal-fired power plants found in the Comanche complex near Pueblo, Colo.

Less prominent than photovoltaic panels, geothermal was nonetheless responsible for 0.41 percent of all electrical generation last year, ahead of solar at 0.23 percent. Biomass, wind, and hydro all produced more than geothermal.

California far and away has the most geothermal installed capacity, followed by Nevada, then trailed more distantly by Hawaii, Utah, and Idaho.

In Colorado, geothermal resources have been used to heat small greenhouses associated with the Mt. Princeton Hot Springs, near Buena Vista, as well as commercial springs. But no electrical production has been achieved because of concerns that new uses will rob existing users of their heat.

“Until very recently, Colorado’s geothermal potential for generating electricity has been assigned little promise,” notes the Colorado School of Mines at its geothermal website. “This appears to be based more on a lack of study, rather than on sound science.”

The website article goes on to note that a 2008 report from the Massachusetts Institute of Technology found that Colorado is the top state in the nation for potential commercial development of its heat, mostly if deep wells are drilled near Rico, Trinidad and other hot spots in a process called enhanced geothermal recovery.

Potential in Pagosa

Just how much electricity the Pagosa project could produce depends upon the heat of water. Colorado School of Mines studies concluded a strong likelihood of substantial hot water 2,000 to 5,000 feet under the land leased by Smith’s company about two miles south of downtown Pagosa Springs. Hot water for the downtown heating district is drawn from a depth of 300 feet.

Smith says it’s a cinch that the water found 2,000 to 5,000 deep will be at least 140 degrees Fahrenheit, the temperature of the water found closer to the surface. If so, it should be enough to produce four megawatts of round-the-clock electricity, what is called base-load generation.

If the water is 250 degrees, as the geological modeling suggests, it could generate 12 megawatts—and still have residual heat for the greenhouses and the homes.

Archuleta County altogether has baseload demand for 20 megawatts of generation. Another renewable source, a proposed biomass plant that would burn forest products to generate electricity, would generate 5 megawatts. Both biomass and geothermal generators probably need to get paid more for their electricity by the local electrical cooperative, La Plata Electric, than what the cooperative currently pays.

Biomass plant proponent J.R. Ford last winter said he needed 15 to 20 percent more than what the La Plata and other electrical cooperatives pay wholesale provider Tri-State Generation and Transmission. Tri-State’s power comes primarily from coal, natural gas, and hydroelectric.

Distributed generation

Both the geothermal and biomass projects in Archuleta County are representative of small sources of electricity called distributed generation. In a famous 1976 essay published in Foreign Affairs, Aspen-area resident Amory Lovins advocated more localized generation as necessary to shift power production from giant but often distant coal-fired power plants. In that same essay, Lovins also stressed that more local sources of electricity would reduce the vulnerability of the grid to terrorism.

“Distributed energy is what the world needs to get to,” says Smith, who cites Lovins as one of his heroes.

Smith moved to Archuleta County in 1989 after a career in the entertainment industry in California. He describes himself as a “liberal arts guy who values things that most people find technical and dry.”

Pagosa Skyrocket via Native Ecosystems

Pagosa Skyrocket via Native Ecosystems

Geothermal is wet, of course, but whether it moves forward in Pagosa Springs depends upon the outcome of a review by the U.S. Fish and Wildlife Service. The 600 acres of land leased for the drilling between the San Juan River and Highway 84 has a plant species, the Pagosa skyrocket (Ipomopsis polyantha), which has been listed as endangered under the Endangered Species Act.

The plant grows one or two feet tall, often in the understory of Ponderosa pine, and has been found in only three places, all near Pagosa Springs.

The federal grant money triggered the need for a biological assessment, which will be the basis for a biological opinion. If adverse effects can be avoided, such as by using care in the placement of wells, the Fish and Wildlife Service can approve the drilling this summer.

Existing wells reach a maximum 1,200 feet, but Smith expects to need wells 2,500 to 5,000 feet deep. The working hypothesis is that the underground rocks at the site are fractured than those that provide the water for the commercial hot springs and downtown heating district.

How will anybody know if the new wells are tapping a new source of heat instead of robbing the existing geothermal resource? Smith says his company will inject heat and pressure gauges on all local hot-water wells, “so they know immediately whether we are tapping the resource.” Colorado law and new regulations in Archuleta County protect existing geothermal users in case of damage to their resource.

Chris Gallegos, who administers the town’s geothermal heating district, says it’s “an unknown” whether Smith’s project would impair the existing users. “Through the test wells we should be able to determine whether the extraction of that heat would affect us or not,” he says.

Additional resources:

http://coloradogeologicalsurvey.org/energy-resources/renewables/geothermal/uses/electrical-generation/

http://www.eesi.org/files/geothermal_030206_gawell.pdf


Colorado Takes Steps to Expand Geothermal Development — Energy.gov

June 3, 2014

Geothermal Electrical Generation concept -- via the British Geological Survey

Geothermal Electrical Generation concept — via the British Geological Survey


Here’s the release from Energy.gov:

Colorado Governor John Hickenlooper signed a geothermal bond bill May 30, providing $1.98 million in state funding and matching the Energy Department’s investment in geothermal energy exploration at Pagosa Springs. The project, which demonstrates Colorado’s strong support for geothermal energy development, leverages a $3.8 million award from the Department for evaluating and exploring the geothermal resource potential at Pagosa Springs.

Pagosa Springs has long been recognized as a potential target for geothermal energy development, based on surface evidence and assessments such as geophysical exploration conducted by the Colorado School of Mines. The Pagosa Verde project proposes a cost-effective, phased approach for locating and evaluating the viability of geothermal resources in the southern end of the Pagosa Springs area. The project will assess the potential for power production as well as direct use applications for residential, industrial and other purposes.

The collaborative framework at Pagosa Verde provides a replicable model of public-private partnership and grassroots support. The company has engaged the local community to garner support and promote future geothermal development that could create jobs and generate clean, renewable energy for the region. Landowners, city and county officials, utilities, and private investors worked with the Colorado School of Mines and the Colorado Energy Office to demonstrate the value of this project and its vital role in bringing geothermal energy development to the state.

Learn more about how geothermal energy systems work through this new Energy 101 video.

More geothermal coverage here and here.


Loveland: Senior center utilizes geothermal for heating and cooling

January 23, 2014
Geothermal exchange via Top Alternative Energy Sources

Geothermal exchange via Top Alternative Energy Sources

From the Loveland Reporter-Herald (Jessica Maher):

In most buildings, the center of heating operations is called the boiler room, but the three-story Mirasol Phase II building is unlike most buildings, and is the first of its kind in Loveland. There are no water boilers, no air conditioning units. Instead, the 60 units in the building are heated and cooled by a geothermal exchange system and hot water to faucets comes from a solar collector system on the roof…

So how does it work? Temperatures below the earth’s surface remain unchanged throughout the year. By capturing that water and pumping it through a buried loop system, a heat exchange either cools the water down or heats it up. There are five closed loop heat exchange systems located in the basement of the Mirasol Phase II building, and the thermostat inside each unit dictates the action of the heat exchange…

Geothermal exchange systems can also be used to heat and cool homes but carry a hefty price tag, largely because of the need for wells to access the underground water. At Mirasol, 36 holes 500 feet deep were drilled where the parking lot is currently located, according to Joe Boeckenstedt of Pinkard Construction Co., which was the general contractor for the Phase II project.

Of the $13.4 million to build Mirasol Phase II, the solar panels and the geothermal exchange cost about $460,000, according to Loveland Housing Authority maintenance supervisor Bill Rumley, who said the agency expects to see a return on investment for the alternative energies within a decade.

More geothermal coverage here.


Pagosa Springs hopes to tap geothermal for electrical generation

December 31, 2013
Geothermal Electrical Generation concept -- via the British Geological Survey

Geothermal Electrical Generation concept — via the British Geological Survey

From the Pagosa Sun (Randi Pierce):

The Town of Pagosa Springs council met in executive session with town attorney Bob Cole last Thursday, Dec. 19, with the topic of conversation centering on matters involving funding for a possible geothermal electric utility. According to town manager David Mitchem, council gave Cole instruction during the executive session. Mitchem said that the executive session did, “move the process forward,” but that no decisions were made at the meeting. A decision, Mitchem indicated, is expected in the next three weeks to a month…

Mayor Ross Aragon said the geothermal utility discussed Dec. 19 was the same contract the county [Archuletta] earmarked money for, and said the town and county have been and are expected to continue to be on par with each other in contributing to the project.

In 2013, both the town and the county pledged $65,000 toward research on geothermal resources and the possibility of using a geothermal resource to create power. That exploration work is being done by Pagosa Verde, LLC, headed by Jerry Smith.

More geothermal coverage here and here.


Chaffee County green-lights geothermal 1041 regulations

October 6, 2013
Geothermal Electrical Generation concept -- via the British Geological Survey

Geothermal Electrical Generation concept — via the British Geological Survey

From The Mountain Mail (James Redmond):

Chaffee County commissioners passed a resolution approving the county’s new geothermal 1041 regulations and lifting the moratorium on geothermal development in the county during their meeting Tuesday. The county commissioners heard and incorporated comments from Chaffee County attorney Jenny Davis on the proposed geothermal 1041 regulations. Her recommendations changed some of the recommendations made to county commissioners by the Chaffee County Planning Commission.

In July the planning commissioners asked the county commissioners to postpone any decision on their draft 1041 regulations for “Use of Geothermal Resources for the Commercial Production of Electricity.”

At the county commissioners’ Sept. 3 hearing on the proposed 1041 regulations, commissioners instructed staff members to incorporate most of the Chaffee County Planning Commission recommendations.

The Planning Commission had recommended that the 1041 regulations not govern surface uses related to geothermal development, leaving surface uses to be addressed through a county land-use change permit. Davis recommend the 1041 regulations include surface uses and not require the applicants to go through both the 1041 and the land-use change processes. Having an applicant go through both “would be a redundant process,” Davis said. Having the 1041 process address the above-ground uses would allow for more flexibility in a process tailored for geothermal projects.

Davis also recommended the commissioners keep existing language regarding use of geothermal resources in the environmental impact analysis section of the application process and not limit those uses to “legal uses.” With a domestic well, the owner has no legal right to the water’s heat, only the water itself, Fred Henderson, chief scientific officer for Mt. Princeton Geothermal, said previously. People using heat from geothermal water without a legal right to the heat can change their well permits to define and allow use of the heat, he said. Some businesses, such as bed and breakfasts or vacation rentals, may have used the heat from their wells for years, not realizing they need to change their permit to authorize that use, Don Reimer, Chaffee County development director, said previously.

Leaving the language open to all uses allows the commissioners to hear comment from all users, Davis said.
Henderson spoke in favor of keeping the change that requires a notification for exploratory drilling to a depth of less 2,500 feet, and the commissioners concurred.

Jeanne Younghaus with Chaffee County League of Women Voters, said the league has concerns about companies drilling and leaving without cleaning up their exploration.

More information about the county’s geothermal 1041 process is at http://chaffeecounty.org/Geothermal-1041.

In other business, Chaffee County commissioners instructed staff to draft a resolution that would amend Nestlé Waters North America Inc.’s 1041 and special land use permits to allow them to switch their augmentation agreement from the city of Aurora to the Upper Arkansas Water Conservancy District.

More geothermal coverage here and here.


Chaffee County commissioners continue 1041 hearings for geothermal regulations

September 9, 2013

geothermaltempswesternususgs.jpg

From The Mountain Mail (James Redmond):

Chaffee County commissioners instructed staff Tuesday to incorporate most of the Chaffee County Planning Commission’s recommendations for the county’s draft geothermal 1041 regulations. During their Tuesday regular meeting, county commissioners also voted to continue hearings on the 1041 regulations for “Use of Geothermal Resources for the Commercial Production of Electricity.”

Commissioners continued the hearing so staff could gather more information about existing use of geothermal resources and to allow time for the League of Women Voters of Chaffee County to review the recommendations.

The commissioners did not make a decision on a recommendation to add the words “legal uses” before “geothermal resources” in the environmental impact analysis section of the application process.

With a domestic well, the owner has no legal right to the water’s heat – only the water itself, Fred Henderson, chief scientific officer for Mt. Princeton Geothermal, said. People using the hot water illegally can change their permits to define and allow use of the heat, he said.

Some businesses, such as bed and breakfasts or vacation rentals, may have used the hot water from their wells for years not knowing they need to change their permit to authorize their use, Don Reimer, Chaffee County development director, said.

The original language of the draft 1041 regulations did not specify “legal” geothermal resources because its vagueness could offer more protection to county residents who use a geothermal resource, Jenny Davis, county attorney, said.

In some cases people may have used the resource before a process to define and authorize the use existed, she said. If people who rely on the hot water can change their well permits and make their use legal “without breaking their backs,” Chaffee County Commissioner Frank Holman said he would “like to place some onus” on the users to do so.

He asked staff to get more information, such as what is involved in the process, how much it costs and how long it takes.

Of the Planning Commission’s more than 20 recommended changes, most consisted of small changes such as correcting errors and clarifying language, Reimer said.

The substantial change recommendations the commissioners instructed staff to add to the draft include:

• Making all surface use go through a county land-use change permit, instead of addressing the uses in the 1041 process.
• Making exploration going less than 2,500 feet deep require only a notice to the county and no decision.
• Allowing for the appeal of decisions made by the director on activity notices to the board of commissioners.

County commissioners told staff not to incorporate a recommendation allowing for a discharging system. County commissioners started public hearings on the geothermal 1041 regulations in May. During a July 30 public hearing on the proposed new land-use code, planning commissioners decided to ask county commissioners to hold any decisions on the 1041 regulations until the Planning Commission could review and comment on them. The county commissioners agreed Aug. 6 to hold any decision on the regulations and continued their public hearing. The county commissioners will hold their next hearing on the draft regulations Oct. 1. “We’re really close,” Commissioner Dave Potts said.

More geothermal coverage here and here.


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