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Company pulls plug on power plant deal
Victorville continues mission to recoup $76M for VV2
The city launched the Victorville 2 Power Plant seven years ago in hopes of generating revenue and luring business to Victorville. It was to be a hybrid solar and natural gas-powered plant north of Southern California Logistics Airport, with city officials touting that the $450 million project would be the largest of its kind in the world.
Victorville signed an open-ended contract with Newport Beach-based Inland Energy in 2005 to develop the project, in the wake of Inland’s success in building the private High Desert Power Project. Only this time, taxpayer-backed bonds would fund design and permitting work, while the city used its power of eminent domain to claim hundreds of acres of needed land.
The city and Inland worked for three years to secure a pricey permit from the California Energy Commission to build VV2. The CEC approved the project in mid-2008, and VV2 was supposed to start pumping 570 megawatts of power into the state energy grid by summer 2010, producing an estimated $6 to $8 million in annual revenue for the city.
Instead, with some $80 million in design work, land purchases, environmental permits and equipment in place, the project fell apart in late 2008 before construction ever started. By then, its price tag had ballooned to $1.2 billion, the city defaulted on payments to General Electric for equipment and the financial market had collapsed.
Victorville then began scrambling for a buyer to take over the project, with the city looking to recover at least a portion of its investment. Roughly a half-dozen companies have entered into exclusive agreements with the city over the last few years to explore building VV2 as originally planned or to build the solar portion alone. However, no deal has materialized, with Inland Energy guaranteed a share of revenue through that 2005 contract, no power purchase agreement in place and other encumbrances driving buyers away.
VV2: By the numbers
• 7 — Years since project was first launched
• 570 — Megawatts of power hybrid plant was supposed to produce
• 520 — Megawatts to come from natural gas-powered plant
• 50 — Megawatts to come from 250 acres of solar panels
• $450 million — Original cost of plant projected in 2005
• $1.2 billion — Cost projected in 2009 to build VV2
• $76.1 million — Total amount Victorville has invested into the project, including land, permitting, engineering and equipment
• $10.2 million — Amount spent buying 300 acres north of SCLA for the project
• $15.9 million — Total spent on permitting and engineering work
• $50 million — Lost to General Electric after the city failed to make payments on $173 million turbines and walked away from its deposit
• $193 million — Total $50 million loss will cost by the time Victorville pays off bond debt used to make down payment
VICTORVILLE • It's back to the drawing board for the Victorville 2 Power Plant, as the city continues a nearly five-year search to find someone who’ll take over the stalled project and help Victorville recoup some of its $76 million investment.
Victorville was optimistic in August about a deal with Panda Fund Development Company, a private equity firm headquartered in Dallas. Under the proposed agreement, rather than sell the plant’s land and development rights — as Victorville has attempted to do for years — the city would contract with Panda to build VV2. Panda would sell the plant to the Los Angeles Department of Water and Power, which needs additional electricity to meet demand going forward. Then Victorville would receive $25.3 million, covering its investment minus $50 million lost when the city failed to make timely payments to General Electric for the plant’s turbines.
However, Panda recently withdrew from the Victorville project after its offer to LADWP expired without a deal being struck, according to company spokesman Bill Pentak.
“We are disappointed but not surprised,” City Manager Doug Robertson said in an email.
Robertson said LADWP’s request for proposals had called for repowering of an existing power plant, but that the city and Panda were confident they could build VV2 in time to meet the agency’s deadlines.
“We felt we could meet the deadlines for power requested but were not short-listed to continue in the process,” Robertson said. “Although our project wasn’t what they were looking for, it cost the city nothing in the attempt.”
Victorville has invested at least $76 million into land, plans and equipment for VV2. The hybrid natural gas- and solar-powered plant was supposed to be complete in 2010 near Southern California Logistics Airport. Instead, financing fell apart and the city failed to land an agreement to buy the power, and so construction never started.
In its highly critical June 29 report on the city, the San Bernardino County Grand Jury attributed the failure of VV2 largely to Victorville’s failure to perform due diligence before committing to spend tens of millions in taxpayer dollars. And the decision to take that risky venture was based largely on recommendations of contractors such as Inland Energy that had a vested interested in the project.
Inland Energy, which oversaw development plans for VV2, attended meetings on the city’s behalf to explore the option of selling to LADWP. Had that deal advanced, the Newport Beach-based company was supposed to release the city from a vague and generous 2005 contract that guaranteed Inland an estimated $5 million annually for the life of VV2 — estimated to be 30 years.
However, a source close to the deal said that Inland contract helped drive Panda away, just as it has with other potential buyers of the plant who were unwilling to give up such a significant chunk of the revenue stream.
The city recently found some resolution to its other flopped energy venture, after securing a $54 million settlement with the designer of the failed Foxborough Power Plant. Victorville launched that project at around the same time as VV2, but was forced to abandon it in 2007 after investing $120 million.
While residents, online commentors and some city leaders have suggested Victorville also consider suing Inland Energy for its role in VV2, there has been no public discussion about that possibility.
Still, city officials remain hopeful that there will be a happy ending for VV2.
“We will continue to look for opportunities to bid into requests for proposals for power purchases,” Robertson said, with confidence there will be additional calls for power within the next two to three years. “As the economy comes back we anticipate more opportunities and a need for more power, especially if San Onofre is ultimately shuttered for good.”
See Sunday's Daily Press for a timeline of the power plant's development.
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