Wednesday, April 2, 2014

Utilities goes on the offensive vs. Gazette

Posted By on Wed, Apr 2, 2014 at 2:25 PM

click to enlarge David Neumann
  • David Neumann
In a highly unusual move, Colorado Springs Utilities has issued two public statements in the wake of two newspaper articles in efforts to have the city's position known about the Neumann Systems Group emissions control technology being installed on the Drake Power Plant downtown.

The statements are in response to two stories that appeared in the Gazette in March, both highly critical of the NSG technology. The articles quote Tim Leigh, who wasn't re-elected to City Council in 2013 after he spent two years on a campaign to discredit the technology. Leigh beat an ethics charge filed by NSG owner David Neumann, who alleged Leigh maligned his business, among other things.

The March 2 article, titled "Costs, doubts rise at Colorado Springs power plant," also quoted Boris Nizamov, a scientist who worked for Neumann:
In fall 2012, Leigh got an email from a chemist who had recently left Neumann Systems Group. Although Leigh would not disclose the name of the sender, The Gazette confirmed it was Boris Nizamov, who was instrumental in creating the Neumann technology and shares credit on 17 patents with David Neumann.

"I left NSG last summer when I came to the conclusion that NSG has no future because there will be no customers other than CSU," he wrote in the email.
The article also quoted Nizamov as saying the NSG system was initially going to cost $13 million and now is estimated at $130 million.

On March 10, Springs Utilities issued a statement titled, "Neumann System right decision for Drake."
In response to the March 2, 2014 article in The Gazette regarding emissions control at the Martin Drake Power Plant, I want to provide the following points to clarify several inaccurate and misleading statements:

The NeuStream scrubber is the correct option for Drake Power Plant to comply with emissions control requirements.

* It is cheaper and more efficient than competing scrubbers;
* Compared to other technologies NeuStream works best for the facility's
unique space requirements;
* It has lower capital, operating and maintenance costs, and
* Uses less water and power than conventional systems.

The cost of the Neumann system on which the 2011 decision was made was $121 million, which includes required plant upgrades (due to inflation current total cost projections are $131 million) compared to an independent study estimate of $168 million for conventional technology (including plant upgrades). Cost estimates quoted before 2011 are not pertinent as there was no design work done and no agreement to build scrubbers at that point.

Our 3-year testing process showed that the NSG system reliably removes 97 percent of sulfur dioxide from plant exhaust compared to 90 percent removal for conventional technology. In addition, an Electric Power Research Institute (EPRI) study was performed which verified the system was scalable to the level needed and provided realistic cost estimates. Early testing indicated that the NSG scrubber could also remove nitrogen oxides and carbon dioxide, but we chose to go only with SOx removal based on regulatory requirements and financial considerations.

The royalties on future sales were not a factor in the decision to move forward with NeuStream. We are confident that a market exists for the scrubber, and such proceeds would always be an added benefit. Using the NSG scrubber is a sound business decision for our community even if no future sales are made.

Bruce McCormick
Chief Energy Services Officer
Colorado Springs Utilities
click to enlarge PAM ZUBECK
  • Pam Zubeck
On March 30, The Gazette came back with another article, "Cost of scrubbers at Colorado Springs power plant keeps rising." 

But Utilities jumped the gun by issuing a statement two days earlier, on March 28, with the heading "NeuStream - A Sound Investment for Our Customers."
Recent news coverage about an emissions control project at the Drake power plant has lacked complete information, and Colorado Springs Utilities would like to share the facts about the approach we are taking to meet new EPA mandates by the end of 2017.

Colorado Springs Utilities and its board selected a wet scrubber process, called NeuStream in 2011 - a technology developed by local business Neumann Systems Group (NSG). The NSG technology has been rigorously tested and is proven to control sulfur dioxide emissions. Springs Utilities recommended and the Board has supported this solution because it will allow us to meet strict federal regulations, cost less than other technologies, and accommodate the unique construction requirements of the Drake plant.

A Sound Decision

Colorado Springs Utilities is moving forward with construction of the NSG project. Our goal is to hire as many local contractors/vendors as possible to build the system, providing needed economic stimulus for the local economy.

Changing direction at this point is not in our customers' best interest. Springs Utilities has already made the majority of the required investment in the NSG project. And based upon extensive testing, we remain confident that the NSG technology remains the best approach for Drake.

Facts about Drake

Drake reliably generates about one-third of our electricity and is a key reason we can deliver cost effective electric service to our customers. Colorado Springs Utilities electric rates for residential and commercial customers are lower than both Xcel and Blackhills Energy in all categories. Additionally, Drake and all of our power plants meet or exceed all EPA air quality standards.
Answers to frequently asked questions


Answers to Frequently Asked Questions

Has the price increased?
The cost of the Neumann scrubber on which the 2011 decision was made was $111.8 million. When accounting for required and expected site improvements (necessary for any type of scrubber), as well as price escalation for construction and materials, the 2013 projection is $131 million. Cost estimates quoted before 2011 are not representative as there was no design work done and no agreement to build scrubbers at that point.

Does it work?

The 3-year testing process, verified by an independent 3rd party, demonstrated that the NSG system is capable of reliably removing 97 percent of sulfur dioxide from plant exhaust. An Electric Power Research Institute (EPRI) study was performed which verified the system was scalable to the level needed and provided realistic cost estimates. NSG system components are commonly used in a wide variety of applications, including power plants. The proprietary NSG process has been effectively used in other applications as well.
Did NSG originally expect removal of all emissions?

Early testing demonstrated positive results for removal of SOx, NOx, particulates and CO2, and NSG believes there is market potential for removing these substances. However, Colorado Springs Utilities purchased only SOx removal to meet regulatory compliance requirements at the lowest cost for the following key reasons:

Particulate removal and mercury standards are already being met with existing emissions control equipment;
NOx removal can be achieved at lower cost using other methods, so NOx was not purchased from NSG; and
No regulatory mandate currently exists for CO2 removal.

Has Colorado Springs Utilities benefitted from the sales of NSG to other customers?

Using the NSG scrubber is a sound business decision for our community even if no future sales are made. We believe that a market exists for the scrubber, although, no other company has purchased the technology at this point. As scrubbers are sold, our agreement with the vendor allows for proceeds to benefit our customers.

Why invest $131 million on an aging coal plant?

While the Martin Drake site has been in operation for over 80 years, the three units currently in operation are units 5, 6 and 7, built in 1962, 1968 and 1974, respectively. The Drake power plant has been well maintained over the years to operate efficiently and reliably while meeting regulatory requirements. The units have had continuous runs exceeding 100 days several times in recent years, which is an industry benchmark of excellence. The plant complies with all EPA environmental regulations.

The Drake facility provides about one third of the community's electricity needs. Shutting the plant down would require purchasing power from for-profit utilities or spending hundreds of millions of dollars on a new power plant, which would have adverse rate impacts for our customers. The Utilities Board and our customers are currently reviewing a third-party study on decommissioning options and will make a recommendation on the future of the plant.
The release also contained this comparison:

click to enlarge Screen_shot_2014-04-02_at_10.54.48_AM.png

Meanwhile, NSG filed suit on March 28 against Nizamov, alleging that he signed a nondisclosure agreement when he began working as a consultant for NSG on June 21, 2004. In it, Nizamov agreed to "protect proprietary information." Nizamov left NSG Aug. 19, 2011. In December 2012, he agreed to a settlement agreement with NSG after "he made public certain confidential information about NSG that he obtained when he worked for the Company," Nuemann's lawsuit states.

Yet, the lawsuit states, he disclosed information to The Gazette for his March 2 report.

The lawsuit also alleges that Nizamov's disclosures interfered with NSG's contract with Utilities and thereby jeopardized that contract, as well as a potential new contract for scrubber technology at Ray Nixon Power Plant south of Colorado Springs.

Nizamov's response to the lawsuit characterizes the newspaper article as "the exchange of ideas in a healthy public debate regarding a public works project. Any statement made by Mr. Nizamov was simply a spontaneous remark that was injected into this debate."

The lawsuit also states that the only statement by Nizamov "that is not clearly in the public domain is the '$13 million' figure that was misquoted and relates to estimated costs of the NSG scrubber six years ago. However, a figure of 'less than $20 million' has been in the public domain for a long time."

Moreover, the response says, if Nizamov did want to inject his opinions into the debate, those statements would be protected by the First Amendment.

On Tuesday, NSG issued this release:
Neumann Systems Group, Inc. (NSG) has filed a lawsuit against Dr. Boris Nizamov alleging violations of the employment agreements he signed when he was employed by NSG. The suit is tied in part to actions by reporter Dave Phillips and the Gazette in publishing information provided to them by Tim Leigh and Dr. Nizamov. In his employment agreements with NSG, Dr. Nizamov agreed to, among other things, not disclose confidential and proprietary information that he obtained when he was employed by the company. NSG has alleged that Dr. Nizamov disclosed NSG’s confidential and proprietary information, including technical, project-specific, cost, and customer information to third parties on several occasions. An initial hearing on the case will be held Tuesday at 1:30 p.m. in El Paso County District Court. Joel Neckers of Wheeler, Trigg, O’Donnell LLP will represent NSG. The hearing involves NSG’s request that the Court enter a temporary restraining order against Dr. Nizamov preventing Dr. Nizamov from disclosing information in violation of his employment agreements.

During the almost five and one-half years Dr. Nizamov was employed by NSG as a senior scientist, he received total compensation in excess of $700,000. While at NSG, Dr Nizamov was named as co-inventor on 39 US and international patents and patents pending for which NSG holds all the rights. He also gained his US citizenship during his time at NSG. When Dr. Nizamov voluntarily resigned from the company, he gave notice in writing and stated, “I appreciate the opportunity I was given at NSG and I want to thank you for it.” During his out-processing from the company less than two weeks later and after he had been denied a follow-on consulting agreement with the company, he made broad accusations of wrong doing by the company. He declined, in writing, to elaborate. Dr. Nizamov did not respond to a subsequent second written attempt by the company to obtain specifics. More recently Dr. Nizamov interviewed with Dave Philipps, reporter from the Gazette, and released an email and statements about NSG which he had previously sent to Mr. Tim Leigh under a false name.

According to recent publications, Dr. Nizamov works for a company in Denver called either Pioneer Astronautics or Pioneer Energy where his work involves development of a carbon capture system for application to enhanced oil recovery. Dr. Neumann, NSG’s President, said: “This is an area that NSG has been involved with dating back to laboratory experiments in 2007 and 2009 measurements at the Martin Drake plant. I am concerned that given Dr Nizamov’s demonstrated disregard for his legal responsibilities to protect NSG confidential and proprietary data, he may have employed NSG owned intellectual property and trade secrets in the performance of his duties at Pioneer.”

NSG is an advanced technology company conducting externally funded research and development projects in emissions controls and carbon capture. Its largest contract is for desulfurization equipment for the Martin Drake power plant owned by Colorado Springs Utilities. Most of the forty+ contracts and grants received by NSG over the past decade have been competitively awarded by the federal government. NSG is pursuing national and international market opportunities for its NeuStream® emission control and carbon capture systems. More information on NSG can be found at www.neumannsystemsgroup.com.
At a court hearing Tuesday afternoon, attended by one reporter, yours truly, District Judge Gregory Werner granted NSG's request for a temporary restraining order against Nizamov disclosing information. A hearing for a longer-term injunction is set for April 11.

Nizamov's attorney, Gregory O'Boyle, argued, "If Mr. Nizamov is commenting about information in the public domain, he has a right to do that. This agreement doesn't prevent him from doing that."

NSG's lawyer, Joel Steven Neckers, countered that Nizamov's statements have violated the confidentiality agreement. "He's done this four separate times," he said. "The information was not in the public domain when he was speaking. NSG is involved in a very public debate on its scrubber technology. Having past or current employees talking about price and other things causes harm."

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