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Tampa Bay Water takes a series of steps to protect itself against the company's financial problems.
By CRAIG PITTMAN, Times Staff Writer
© St. Petersburg Times, published January 29, 2002
CLEARWATER -- Despite its downward financial spiral, the New Jersey-based company building a massive desalination plant on the shores of Tampa Bay refuses to be bought out and is insisting it will finish the job.
So officials from Tampa Bay Water agreed Monday to take a series of complicated steps to wall off their project from any liability should Covanta Energy slide into bankruptcy.
"We're going to make this thing work," promised water board member Charlie Miranda, a Tampa council member, just before the water board's unanimous vote.
Nevertheless, the prospect of losing yet another contractor clearly unsettled some board members. In 2000 the original engineer, Stone & Webster, declared bankruptcy and dropped out of the project.
"Now we're at two strikes," warned Tampa Bay Water board member Ronda Storms, a Hillsborough County commissioner.
If Covanta survives, there should be no problem finishing the project on time, thus avoiding any impact on the water bills for the utility's 2-million customers, said Jerry Maxwell, Tampa Bay Water's general manager. If Covanta does collapse, though, hiring a new company to finish the job may delay the project and boost its price tag.
Unless Covanta bails out of the project voluntarily, though, Tampa Bay Water is stuck with it. Terminating the contract would require paying a $13-million penalty, utility officials say, and efforts to negotiate a buyout failed.
Buying out Covanta's contract "requires both parties to agree," said John Wilcox, Tampa Bay Water's attorney. "They don't want to be bought out."
Covanta Energy president Scott Mackin wrote to the board that "legitimate questions are being expressed" about his company's ability to finish the job, but he insisted Covanta has "committed . . . to complete the desal facility on schedule, and we intend to live up to our commitment."
Covanta is halfway done with construction of the largest desalination plant in the western hemisphere, next to Tampa Electric Co.'s Apollo Beach power plant. Officials from Tampa Bay Water and the Tampa Bay Desal partnership, which is overseeing the plant's construction, repeatedly pointed out Monday that it's on time and within budget.
When completed, the plant is supposed to take brackish water from the bay, remove the salt and produce 25-million gallons of freshwater a day to slake the thirst of the growing Tampa Bay area.
The project first ran into trouble in 2000 when the original engineer that Tampa Bay Water had hired, Stone & Webster, declared bankruptcy and dropped out of the project. So last year Tampa Bay Desal replaced Stone & Webster with Covanta, hiring it to build the plant for $74-million and to operate it for 30 years for about $7-million a year.
However, last summer's energy crisis in California crippled Covanta's cash flow, leaving it holding millions of dollars in uncollected debts from utilities.
On the day Tampa Bay Water was supposed to close on its $110-million bond sale to finance construction of the plant, Covanta was unable to put up a performance bond that would guarantee the plant's construction. That forced Tampa Bay Water to postpone its bond sale.
At the time Covanta was chosen, no one had any inkling that the company might soon face major financial problems, said Tim DeFoe of Tampa Bay Desal. Of the six firms in the running to replace Stone & Webster, "Covanta was financially viable, and they had the lowest price."
However, Covanta's core business is energy, not water. Once known as Ogden Martin, the company has built and operates 20 waste-to-energy incinerators around the country, including one in Hillsborough County and one in Pasco.
The incinerator business has landed the company in hot water with environmental regulators. In 1993, the U.S. Environmental Protection Agency fined Ogden's Indianapolis plant $350,000 for spewing too much pollution into the air. In 1998 and 1999, an Ogden plant in Okahumpka, west of Orlando, put out too much mercury, incurring $150,000 in fines from the Florida Department of Environmental Protection.
A few of Covanta's incinerators also operate small desalination plants, according to Scott Whitney of the Covanta Water Systems subsidiary. This is the company's first major desalination project.
The only large-scale water system that the company has built is a 24-million-gallon one that it completed two years ago in Bessemmer, Ala., near Birmingham. That system was built for $56-million and was finished nine months ahead of schedule.
To board member Storms, the lesson for Tampa Bay Water is that it should not rely on the size of a corporation as a security blanket guaranteeing the successful completion of a big project.
"It is a little threadbare blanket with holes in it," she said.
-- Times researcher Caryn Baird contributed to this report.