Geothermal power project faces concerns about public/private partnership

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.”

Starr then explained that a concession agreement would be the tool one would use to allow Coke, for example, the exclusive rights to sell its product at the high school’s football games. A concession agreement between the authority and Pagosa Verde would be the same thing, but on a larger scale.

Instead of creating a separate entity, a concession agreement would reduce the relationship between Pagosa Verde and the authority to a contract, which would clearly spell out the rights and responsibilities of both entities. While Starr argued this arrangement would be much simpler, there was still a need to do additional research on the idea, and he suggested conducting further meetings between himself, Dykstra and Smith’s attorney.

Starr cited similar examples from Chicago and Indiana, where concession agreements were used to give public highways and toll roads to private companies, which then took over the daily operations of those publicly owned infrastructures.

Smith, though not a member of the authority board, was allowed a seat at the table by chairman Lucero. Smith expressed concern about changing the plan this late in the game, and suggested instead putting more pressure on DOLA to accept the LLC, as originally proposed.

The authority board members generally agreed with Smith that the idea was still so brand new that they were unable to make any decisions on it at this point, but they also agreed with their staff that it was worth looking into further, and instructed them to do so.

Meanwhile, plans are still in place to begin drilling exploratory temperature-gradient wells before the end of this month.

This story was posted on September 11, 2014.