In 2008, the Winona City Council approved a $1.7 million contract with construction and consulting firm McKinstry Essention for a series of energy-savings projects. The biggest and most expensive project—at $800,000 and counting—is a methane combustion system at the Winona Waste Water Treatment Plant, which has been plagued with problems for years. It was supposed to save the city money and energy, but, despite new equipment, the system is still not working properly.
The city council approved the expenditure using a Minnesota law that allows municipalities to bet on savings from a project as long the partnering company guarantees the savings. However, whether such a guarantee still exists between the city and McKinstry is in question.
The methane system, which takes methane gas captured at the sewer plant and burns it to produce electricity and heat, has never lived up to its projected savings. Despite the installation of a $120,000 piece of new equipment last summer, the system still is not working right.
When asked if the savings are still guaranteed by McKinstry, City Manager Judy Bodway said, "I can't tell you. I don't know."
There are a number of details concerning the methane system that the city does not seem to know. Public Works Director Keith Nelson presented an update on the project to the city council on December 17, 2012, including an announcement that the project was $38,000 short of its $125,321 expected savings for the year. However, that number came from a McKinstry report from over a year ago. In an interview, Nelson said that to his knowledge, there is no up-to-date summary of actual savings from the methane system. He did say that the new equipment installed to fix the system is not working properly.
A Winona Post e-mail and mail records request showed that the city has had no contact with McKinstry in the time the new equipment was installed and mid-way through last month. A McKinstry spokeswoman confirmed this lack of communication, saying that they had not had any contact with the city—not even a complaint—until a call from The Winona Post in late December spurred them to "reach out to find out whether there is a problem."
"I think it's pretty standard if the customer thinks there is a big problem that the customer would let the service provider know," the McKinstry spokeswoman said.
Following McKinstry's recent inquiry, Bodway, Nelson, and new city Safety Coordinator Paul Douglas met with McKinstry's regional director to discuss the project on Tuesday, January 15, according to city officials. The results of this meeting were not available at press time.
In 2008, McKinstry representative Greg Ackerson said, "If those [savings] aren't happening, we write a check."
The contract actually signed by the city, however, is not so straightforward.
The contract between McKinstry and the city does include an energy-savings "guarantee." However, it also states that if the City does not pay McKinstry to provide "On-going Performance Assurance" after the first year, "the guarantee will also be terminated."
When asked if the City has paid for that "On-going Performance Assurance" to be done, Bodway said, "I cannot tell you. I don't know."
Minnesota Statue 471.345 sets rules for what sort of contract municipalities can make and how they can make them. Subdivision 13 of that statute states that municipalities can enter into energy-savings contracts only if there is "a written guarantee that the energy or operating cost savings will meet or exceed the cost of the system." The statute allows the city to avoid competitive bidding laws when entering into such a guaranteed energy-savings contract.
The city did not seek bids for this project.
The Methane Combustion System
The initial cost of the methane combustion system was $800,000. In its first year, it was $18,000 short of its expected savings and ran up $22,000 in unexpected maintenance costs.
Methane is burned in two separate parts of the system: a micro-turbine used to generate electricity and a boiler used to produce heat. Burning methane in the boiler did not work, and the city has been burning natural gas instead.
In November 2011, rather than ask for reimbursement for lost savings, the city agreed to a proposal by McKinstry to provide a new boiler for the system at the company's expense. The idea was that the new boiler would be able to burn methane and would also run more efficiently, providing additional savings. However, the new boiler is still unable to burn methane, and the city is still burning natural gas to power it, according to Nelson.
A contract for the new boiler was made between the city and McKinstry in 2011. That contract states that the city has a one-year "verification period" to make sure that the new boiler is running smoothly. According to the contract that one-year period begins "the first day the boiler may be operated by the City." Since the boiler was installed in "July or August," according to city officials, presumably that means that the city is half-way through that verification period and has just touched base with McKinstry.
However, Nelson said, "No we are not [half-through that period]. In my viewpoint, that hasn't even started yet." Nelson said that the period will start when the boiler is "operating the way it is supposed to."
When asked what would happen if McKinstry did not read the contract that way, Nelson said, "You're right, that whole area is really a legal discussion and I'm not an attorney."
Meeting with McKinstry
Prior to her meeting with McKinstry on Tuesday, Bodway said her goal for the meeting was "looking to complete the project. I guess we will have to decide what completion of the projection means."
When asked if she would ask for McKinstry to reimburse the city for lost savings or do whatever is necessary to make the project meet its projected savings, Bodway said, "I think that is open for discussion. …I am going to leave my mind open in our discussions today."
The spokeswoman for McKinstry said that they are "committed to making sure that all of the energy savings are realized."