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Denton Energy Center's troubled past makes future uncertain

A pair of $100 million contracts under a cloud.

Denton Municipal Electric general manager's sudden resignation 10 days ago.

Two high-level employees fired, but not before they filed a lawsuit against the city. 

It’s hard to pinpoint the moment when DME management went off the rails. But one thing about the Denton Energy Center project is clear: A handful of DME executives got on board two years ago and put the pedal to the floor.

Construction continues on the new Denton Energy Center. The large building behind this expanded substation will be the location of the center.DRC
Construction continues on the new Denton Energy Center. The large building behind this expanded substation will be the location of the center.
DRC

The Denton Energy Center is a new natural-gas fired generating plant under construction on 100 acres near Denton Enterprise Airport. The energy center was designed to launch one, some or all of its 12 natural gas-fired engines as soon as electricity prices start climbing hourly or daily on the Texas grid. With a new, quick-generation capability, DME could catch those high prices and make millions. 

The profits could subsidize lower electric rates, DME officials said. But first, the city-owned utility needed Denton ratepayers to back $265 million in revenue bonds to build the energy center. The project is believed to be the city’s largest-ever capital purchase.

Two DME employees — Mike Grim and Jim Maynard — filed a lawsuit July 10, one day before they were fired. They alleged the city violated the Texas Open Meetings Act and the Texas Whistleblower Act while investigating contract irregularities with the energy center.  

Leaving the station

Dan Shelledy, a Houston-based representative from Wärtsilä, emailed Grim in April 2015 to set up a meeting. The Finnish engine manufacturer wanted to sell gas engines to DME and eventually won a $100 million contract from the city of Denton 18 months later. Those engines will become the heart and soul of the energy center's electric generation program.

The first contact between Wärtsilä and DME — as far as the public knows — came in a series of emails in April 2015. 

Wärtsilä's CEO, Bjorn Rosengren, was visiting the U.S. He could stop on May 6, 2015, in Dallas, according to emails between Shelledy and Grim obtained by the Denton Record-Chronicle.

Grim included others at DME in the invitation to meet with the CEO. Whether Rosengren would meet for afternoon tea, dinner or drinks in the evening, the meeting was a priority for the company because Denton was “a key potential customer,” Shelledy wrote.

The meeting between Wärtsilä and DME finally happened at McAlister's Deli on Loop 288 in Denton. No evidence has surfaced publicly that DME met with any other bidder interested in selling $100 million worth of gas-powered engines to Denton.

Wärtsilä officials in Finland declined Monday to respond to specific questions about the purpose of the meeting or what was discussed. 

By August 2015, Maynard and fellow DME employee Bill Bunselmeyer were on a plane to Portland, Oregon, to attend Wärtsilä's Flexible Power Symposium. The annual invitation-only event brings power engineers and economists together to explain the new kind of power plant that can be built with Wärtsilä engines.  

Wärtsilä is well-known in the shipping industry for its natural-gas fired engines. About 10 years ago, the company began aggressively marketing its engines to a new market: power generation that can start quickly when electricity from wind and solar farms falters.

An electric grid must always stay in balance between supply and demand. If supply cannot keep up with demand, the grid fails and causes blackouts.

Fast-track, inside track

When Bunselmeyer and Maynard returned from Wärtsilä's symposium in August 2015, DME officials shifted into high gear.

They had already identified locations for the power plant, according to state records at the Texas Commission on Environmental Quality. In early September 2015, Burns & McDonnell — the Missouri engineering firm that eventually won the other $100 million contract to build the power plant — submitted to TCEQ an air permit application on behalf of DME. 

On the permit application, Burns & McDonnell used Wärtsilä engine specifications for the site now under construction, north and west of Denton Enterprise Airport.   This all happened before city council members formally approved construction of the energy center. 

<br>Staff graphic

Staff graphic

Burns & McDonnell spokeswoman Kristi Widmar declined to comment Monday on her firm's role in the Denton project. 

Usually, securing an air permit for a big project, such as a power plant, takes time. Regulations require extra steps, such as public hearings, to make sure community planning and public input are taken into account before the permit is granted. Burns & McDonnell helped DME get a different kind of air permit that bypassed those time-consuming steps.

In mid-September 2015, DME announced one contract for engines and another for a general contractor, and asked companies to bid for the work. 

In late September, DME asked Burns & McDonnell to prepare another air permit application, this time for a location on the east side of town. Plans for that site were later abandoned. 

With all that paperwork in hand, including an appraisal for the land it wanted to buy for the power plant, DME was ready to tell the public about its plan.

The unveiling

After uncovering the air permit applications, the Denton Record-Chronicle broke the news that DME planned to build a new, gas-fired power plant.

But that wasn’t how DME officials viewed the project. They unveiled the “Renewable Denton Plan” with a formal press conference in October 2015. They mailed ratepayers a postcard, depicting cows and wind turbines against a beautiful Texas sunset, to announce the plan.

Renewable Denton Plan cover artCourtesy photo
Renewable Denton Plan cover art
Courtesy photo

The new power plant would allow Denton to negotiate wind and solar contracts on its own terms, DME officials said. Denton would get about 70 percent of its energy from renewable sources by 2019. 

DME also unveiled the plan 11 months after Denton voters overwhelming approved an initiative to ban hydraulic fracturing in the city limits. Hundreds of activists and voters, still raw from the ban's later repeal that spring, soon turned their political energy against the plan. Other critics questioned spending millions on a new power plant when the city still owned a share of a coal-fired power plant. 

In November 2015, DME asked the City Council to approve the Renewable Denton Plan. It also asked the council to approve the purchase of the land for the power plant.

Seeing the community opposition, the council was reluctant. But DME appeared ready for the backlash. Plans for the energy center steamed ahead.

Spring break

By February 2016, political opposition to the power plant found new footing. New council member Keely Briggs expressed increasing skepticism. Another new council member, Kathleen Wazny, called for a public vote on the project. A City Council election loomed.

Former City Manager George Campbell offered to hire an independent consultant to evaluate the Denton Renewable Energy Plan and its centerpiece, the Denton Energy Center. The hope was that a consultant report might give the public greater confidence in the project. It's not clear from the public record how Campbell chose the Massachusetts-based Brattle Group over two other consulting groups he could have hired. 

By the time Brattle Group submitted its largely positive report about the energy center in May 2016, the public had learned the consultants had been regular presenters at Wärtsilä's Flexible Power Symposium. Power-point slides showed Brattle employees praising Wärtsilä engines.

In addition, Brattle did not address the question that most interested Briggs: Could Denton go 100 percent renewable?

Incumbent City Council member campaigns for re-election in May 2016 appeared in trouble. Maynard,  DME's energy project development manager, openly campaigned for Greg Johnson. While employees are not prohibited from getting involved in City Council campaigns, most of them keep a low profile during election season. Johnson lost his seat to Sara Bagheri, who was openly skeptical of the energy center project.

Dalton Gregory was re-elected, but what little political support the project had was slipping. 

In June 2016, a divided City Council dismissed Campbell after 10 years as city manager. Mayor Chris Watts and other council members gave no reason. So, it's not known whether the DME issues and contracts played a role. 

Howard Martin, Denton assistant city managerCourtesy photo
Howard Martin, Denton assistant city manager
Courtesy photo

Campbell had shepherded the energy center through key milestones in 2015 and 2016, but his departure didn't slow down the project. Longtime Assistant City Manager Howard Martin stepped in as interim city manager.

All the city's utilities — water, sewer, drainage and electricity — were in his wheelhouse. 

Campbell could not be reached for comment this week.

A bum’s rush

In July 2016, DME went before the City Council to ask again to buy the land it needed.  The purchase had doubled both in size and price by the time the $12 million deal finally closed in November.

In September, DME was back before the City Council with the contracts to build the plant. By that point, few seemed surprised that DME recommended purchasing the engines from Wärtsilä and hiring Burns & McDonnell as the general contractor. 

DME’s deal ostensibly required it to keep the cost of the contracts confidential, even after the contracts were signed. Ratepayers can find little financial or environmental information about the Denton Energy Center. 

For example, the air permit application includes calculations for pollutants from the plant. 

But the city redacted those calculations from public scrutiny in the final contract with Wärtsilä, even though federal law generally does not allow such information to be withheld. 

One key number is known. The City Council authorized $265 million in revenue bonds to pay for the project. 

The bonds were sold last winter. Fitch analysts said DME’s debt ratio was expected to rise considerably this year, but they also expected the leveraging would drop by 2019 through rate increases and higher electric sales. 

Into the tunnel

New City Manager Todd Hileman joined the city at the end of January. Within weeks, some of the city employees who had worked with DME the most on the contracts — the city attorney, the purchasing director and Martin — retired. Hileman reorganized the city management and promoted a number of mid-level managers to higher posts. He also brought in Mario Canizares as a new assistant city manager.

New city manager Todd Hileman listens in during a city council meeting at City Hall in January.&nbsp;DRC
New city manager Todd Hileman listens in during a city council meeting at City Hall in January. 
DRC

On June 20, DME made a surprise announcement. Denton would get a much higher percentage of renewable energy sooner than anticipated — from 70 percent to 88 percent by 2019. The announcement reignited debate among some critics about the economic viability of the new power plant. Then, it became clear that something else altogether was going on at DME. 

Hileman brought in a Fort Worth attorney experienced with investigating workplace misconduct. Julia Gannaway interviewed employees about the energy center contracts and studied their answers. Grim and Maynard were fired after their interviews. Williams, the general manager, resigned. Bunselmeyer was the only employee placed on leave to be cleared of wrongdoing. He was scheduled to return to work Monday. 

It may become clear later this week what triggered the contract investigation and what, if anything, investigators found. The City Council is scheduled to receive another briefing in a special meeting at 1:30 p.m. Wednesday. 

The meeting is expected to include an army of attorneys. Council members are scheduled to discuss the lawsuit filed by Grim and Maynard. They will also continue to discuss the contract investigation with the city's bond attorneys. 

An outside, specialized law firm represents Denton when the city offers to finance capital projects by selling bonds backed by the good faith and credit of Denton taxpayers and ratepayers.

PEGGY HEINKEL-WOLFE can be reached at 940-566-6881.