The “WRE Kauai 22.5 LLC” document is without any doubt the least informative, least-professional and most-poorly written project proposal that I have encountered during my 25+ years in the electric power industry. I have given much consideration to that statement and do not make it lightly, nor do I write it with any intent to be insulting to anyone... but there is simply no other way to state it, as the contrast between this proposal and every other proposal I have reviewed - for any type of product or service - is so stark.

The document provides a minimal amount of information about the proposed project, includes absolutely no substantive information about the past or ongoing performance of the technology or the past or ongoing performance of the companies involved, and includes absolutely no information about the credentials, experience or accomplishments of the principals.

What precisely is the project?

• As near as I can tell, once one separates the extraneous from the substance, it is a proposal to build three 7.5 MW combustion units. (Actually, because a large portion - 2.5 MW - of the output would be used for station power and the private “Fast Grow Greenhouse” owned by the project owners, the average delivered power to KIUC is more like 6.7 MW net, for a total of 20 MW.)

• From what the proposal says, the project would be baseload (the proposal’s words) and appears to lack the dispatchability that would enable KIUC to more readily accommodate the integration of more intermittent resources, such as solar, wind, and demand-side management, into the grid. (In my opinion, dispatchability is a very important attribute for KIUC resource acquisitions.) From what I could tell, the proposal seems to imply that KIUC must schedule the full output of 1 or 2 units off-peak and the full output of 2 or 3 units on-peak.

• The fuel would be imported from the Pacific Northwest, and would comprise 91% wood products and 9% plastics and other materials. The fuel supply is purported to be renewable, but there is nothing in the proposal to indicate that it has actually received such certification, or that any official accreditation body has acknowledged that either the project or the fuel would be entitled to Renewable Energy Attributes.

• The project sponsors have not accomplished anything (at least from what is written in the document) to date regarding site acquisition, certification of the green attributes of the concept, or any of the other basics that a project developer would normally bring to the table.

So what we have here is apparently a 20 MW, limited dispatchability, wood/plastic-burning power plant that might or might not qualify as a renewable project. Nothing too exceptional so far... Unfortunately, beyond that, it’s all unknown, unstated, or hand-waving.

Here are some important questions that should have been answered by the proposal:

1. The technology: where has a 7 MW power plant, burning this particular fuel, built by this company, using exactly the technology that is being proposed, been in operation for any length of time, providing its output to an electric utility? With whom could one speak to verify technical and contractual performance and ask other questions?

2. The technology: although it is not directly relevant to KIUC (because the project owner would own the “Fast Grow Greenhouse” that receives the CO2 from the plant), it still is important to the overall financial and technical viability of the proposal to know: where has this Fast Grow Greenhouse been implemented as part of such a project? With whom could one speak to verify technical and contractual performance and ask other questions?

3. The technology for the fuel supply: although it is not directly relevant to KIUC (because the project owner would be responsible for constructing, owning and operate the “CT Fuel” CarbonTech solid biofuel conversion facility in the Pacific Northwest), it is still important to the overall project viability: where has this type of facility been operating, for how long, as part of what utility-scale project? With whom could one speak to verify technical performance and ask other questions?

4. The long-term security of the fuel source: the proposed project would require 3.6 million tons of fuel over 20 years. Do the project sponsors have either the physical or financial options lined up for that much fuel? Are they willing to provide performance bonds or other means to acquire such options so if the project sponsors go belly-up a few years after operations begin, KIUC won’t find itself without a viable resource to meet its customers’ demand? (Including proposals with some lumber mills in the Pacific Northwest, as was done in the proposal, gives me no confidence whatsoever, when considered in light of the apparent lack of experience and depth of the project owners. It’s not as if Bechtel or Shell is backing up the proposal.). In other words, what do the project sponsors propose to ensure to KIUC that there will indeed be a 20 year supply of fuel?

5. The renewable attributes of the resource: where to date has this CTFuel source been certified as eligible for REAs, and by what credible accreditation agency? (There is really nothing in the proposal that assures me that the project would not ultimately entail anything other than using up fuel that is already in the forest. It isn’t clear to me that chopping down forests in the northwest - or the Amazon or anywhere else - is “renewable” unless the trees are replanted and reharvested in an ongoing cycle. But that is not my call - it’s the call of an industry-recognized REA accreditation agency.) With what organization(s) have the project sponsors worked to ensure that their proposed REAs are indeed legitimate, will not be double-counted, will be properly accounted, etc.? Why haven’t the project sponsors already handled this, versus claiming that “we will go to the Hawaii Energy Commission in the future?” In my opinion, the question of the REA certification of CT Fuel should have been addressed before the project proponents even walked in the door. (Leaving that key matter unaddressed is no way to market a new technology, in my book.)

6. The product: what, in greater detail, is the proposal offering? For example, the proposal states that it offers “Economy Base Load Energy, delivered all hours.” Is the project really offering non-firm energy (that’s what economy energy is), making no contribution to KIUC’s capacity requirements or reliability needs? How much flexibility would KIUC have over the output of the three units? (Is it all-or-none? Is there a minimum load? Are there ramping constraints? etc.) In other words, more information is needed about the operating characteristics of the proposed boiler/turbine/generator.

7. Emissions: The proposal claims that there would be negligible emissions of hazardous pollutants. I do not have the expertise to comment on those claims... but in my gut I am somewhat skeptical, particularly in light of burning plastics. This is an issue for someone else to look into. (Also, I note that page 22 compares emissions to coal and raw wood, rather than to the fuels used by KIUC. Not very relevant.)

8. The financial credibility of the project over its lifetime: If the project owners do not have substantial capital of their own invested in the project, there is little to keep them from walking away from the project if future market conditions result in future operating costs that exceed future operating revenues. The proposal says that Kauai 22.5 intends to use tax credits... it will package ITCs with a KIUC Power Purchase Agreement as security for capital equity and loan... it will use production tax credits as security for working cash... How much real investor capital is involved, as opposed to leveraging against tax credits and KIUC’s financial credibility? How highly leveraged is the project? It is a very bad omen if the developers have little or no skin in the game, particularly when one considers all of the other warning flags regarding credibility (some of which I will list below). What guarantees will be provided that in year n+1, if the project owners’ costs escalate for any number of reasons, so that the plant would be operating at a loss (after having been operating at a profit during years 1 through n), the project owners will continue to perform?

9. The financial credibility of the project owners: There are many issues related to default that need to be addressed when any business wants another business (such as KIUC) to enter into a long-term contract. What if the project owners do not perform? What are will be the consequences to them, versus simply walking away from a project that is highly leveraged (see #8 above). What if they simply close up shop? Where does KIUC obtain the replacement capacity on short notice? Are there significantly high penalties for non-performance, and more importantly, would the project owners have enough investment and equity (vs. leveraging tax credits) to actually pay for such non-performance? Alternatively: are banks or other institutions willing to ensure payment through performance bonds? What if the project owners cause damage or injury? If they are not sufficiently-capitalized, KIUC and its customers will be the deep pockets in any lawsuit. These are especially important issues in this case, where it appears (from the limited information provided in the proposal) that the developers’ corporate office could simply be a rented room above a strip mall in Arizona.

10. The pricing arrangement: While I recognize that the actual numbers would be subject to negotiation and to some extent should be confidential at this time, there are still some basics regarding the structure of the desired pricing arrangement that should be presented. So while I do not fault the proposal for containing no specific prices, I am concerned that what little information is provided is unclear. On the one hand, the proposal refers to a 20-year term that includes a 1% annual escalator in the pricing. On the other hand, the proposal says that prices will not increase during the first year, implying that future years are not set by the 1% escalator, but by other factors. Which is it? As to structure of the pricing: do the developers propose level payments (that would increase by 1% per year) that would exceed either the developers’ marginal operating costs or KIUC’s avoided energy costs in the early years of the contract? That type of payment structure could backfire on KIUC in later years if inflation drives up operating costs so that the KIUC payments in later years became less than the developers’ operating costs in those years. (In that case, unless KIUC insisted on a large performance bond or escrow account, the developers could simply abandon the project, leaving KIUC in the lurch.)

There are certainly a number of other questions, but those are some of the biggest ones. And beyond that, there is the question of the developers’ credibility, experience, competence, and ability to deliver. There are a lot of yellow and/or red flags:

• The writers of the proposal show little knowledge of the technical field and/or the jargon of the power industry. They misuse the concepts of “efficiency,” the term “negawatts” (which they call power consumed within the plant; the conventional definition of negawatts is power saved by measures taken to reduce consumption), and the concept of economy energy. The proposal states that there is no need for an interconnection study if the project is connected to a KIUC substation, when there are clearly numerous interconnection-related issues that virtually always need to be studied, even in such an instance. Etc., etc.

• The proposal is plagued by lack of attention to detail: there are numerous misuses of MW vs. MWH; there are errors in stating the deliveries for days vs years, and there are errors in tons of fuel per hour vs. tons of fuel per day; there is lack of attention to detail in tables (the same number of MWHs are delivered in 28 day months as in 31 day months); there are no page numbers; there is no table of contents or structure to the proposal... Each of these is individually minor, but cumulatively such lack of attention to detail is disturbing, and particularly so in a proposal to a potential client by an unknown entity with no track record: it does not instill any confidence as to the competence of the project sponsors, the quality of the product, or the commitment to doing the job right. Again, while this might seem like nit-picking, I believe these are little signs are of extra importance when dealing with entities that have made no attempts to illuminate their credentials or experiences, and have provided no references. So what else is left as a basis for judging the capabilities of the project sponsors.

• Even some of the most basic knowledge of the elements of contracts seems to be lacking in the proposal. The lengthy so-called “Amendments to the Proposal” are just attachments, not amendments. So-called Amendment 1, supposedly about CT Fuel, provides little meaningful data on CT Fuel - much of the information is generic information about biomass; and while I do not know anything about the credibility of the analytical labs used, they seem like less-than-noteworthy labs. “Amendment” 2 is also irrelevant: it comprises just generic articles on biocrops and has little to do with the proposal itself.

Track Record / Credentials of Project Sponsors

There is no information about the project financing or the backers of the proposed project. To the contrary, here are the different entities mentioned in the proposal:

1. CarbonTech Integrated Cooperative Companies

2. CarbonTech Cooperative

3. Clearstream Technologies

4. WRE Investor Group

5. Western Renewable Energy

6. Mountain Country Co Generation Inc (MCCG)

7. KMW Engineering

I urge you to google them. Please let me know if you find any credible references to any of them... I did not find any (although my time limited the depth of my search). That’s strange. It is also strange that while the proposal claims that “MCCG/KMW team has an international reputation... it has built over 100 operating biomass combustion facilities in North America since 1963,” the proposal did not include any specific references to any biomass combustion power plants or their owners.

Here are the names of the individuals mentioned in the proposal:

1. Steve Hall, Kauai 22.5 LLC, Show Low AZ, steve@westernrenewables.com

2. Robert Hennkens, Kauai 22.5 LLC, Tucson AZ, rhennkens@gmail.com

3. Doug Fant, Phoenix AZ, dsfant@gowebway.com

4. Dennis Ryan, Swanville MN, morgancreekfinance@gmail.com

Gmail.com, gowebway.com: these do not seam like solid, professional email addresses for principals in a company that wants to be a counter-party to multi-million dollar contracts! Westernrenewables.com: go to that website... let me know if you find anything of substance there?

All minor things, one might argue. But what else is there to go by, since overall, there is nothing in the proposal that instills any confidence that there is any track record on the part of the individuals or the companies involved? (Note: I can not say that there is not such a track record; but it is extremely unusual that if such a record existed, it would not have been a part of the proposal.)

The proposal seems to attempt to imply some credibility/substance/experience by including:

• On page 13: a map with purported CT Fuel mills in Washington. That needs investigation... they could just be pulp processing yards by another name. And what contractual relationship exists to the project sponsors?

• On pages 14-16: a 2005 proposal by EFS Bio Energy West Generation LLC (note: I found no credible google references to this company) to buy wood chips. (By the way, the photo looks like a lumberyard - if the source of this “renewable fuel” is from thinning forests, is that really a “perpetually” renewable resource? It seems not much different than consuming a resource like oil, unless a part of the process is replanting as much as is cut down. Or is this just another biomass scam like corn ethanol?) The proposal on these pages does not demonstrate any experience as part of an operating power plant project. Other names on this sample: EFS Clearstream Technologies (no google references); westernrenewablefuels.com (I did not find anything showing its existence on the web)

• On p17: A 2006 letter expressing interest in building a cogen plant in Washington. A letter of interest? Big deal and of no consequence... Did it get built? What has been its operating experience?

If these are the strongest indicators of experience that the project sponsors could provide in the proposal, that is another big warning as to the real substance of their experience.

The above are some of the reasons why I am skeptical and harbor the suspicion that this could at best be either a tremendously risky venture (in which KIUC and its customers would bear the risk), and at worst, a giant con job. My concerns are not allayed by the inclusion of all of the politically-correct hand-waving about renewables and the use of ludicrous phrases like “will perpetually maintain 90 days of fuel supply” and “perpetual family jobs.” It all seems like language intended to divert the reader’s attention from the lack of substance in the document.

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Based on all of the above, my experience and intuition say: walk away from this proposal as quickly as possible. But, what if this is just a poorly written proposal that did a very bad job of presenting a very good project? (Not very likely... but anything’s possible.) In that case, if I were responsible for reviewing projects and my boss ordered me to give this another look, to forget about what has already been sent out and start fresh with a clean slate, then the first thing I would want is all of the information that I outlined above (actually, a lot more, if it was really my job and I was being paid to diligently evaluate potential multi-million dollar contracts).

But first: I want to state that none of what I outlined above remotely qualifies as “confidential information,” and no confidentiality agreement should be required by the recipient of such information. In fact, if I was asked to sign any agreement of any type with anyone before receiving and evaluating the information above, I would just walk away from the entire proposal. (Among other things, scam artists can use confidentiality agreements - which really are only appropriate in the later stages of negotiations - as “evidence” in nuisance suits in which they claim that they were led on by the recipient of the proposal and were forced to invest time and energy on the proposal, and are therefore entitled to some compensation.) In addition, I would never sign any sort of confidentiality agreement before first ascertaining the credibility - by speaking with a number of references - of the other party. The other party’s track record is not confidential, and absolutely must be provided before even considering any confidential discussions.

Second: while the information that I outlined above might seem to be somewhat more than might be reasonable to require in an initial proposal, I believe that it is reasonable in light of the lack of demonstrated experience of the project sponsors and their technology. Yes, the hurdle is indeed somewhat higher for start-up companies than for companies with established track records. And that’s the way it should be. Failure to recognize that basic principle was one of the causes of the dot.com bubble, to the dismay of investors and dreamers who did not exercise due diligence.

And lastly: everything that I wrote above was based solely on the document that was provided to me. I could not judge the credentials, capabilities or integrity of the parties who drafted the proposal based solely on the document that was provided. Therefore, I have not done so, and I do not want you to walk away from this review thinking that I have done so. Rather, I have only expressed my skepticism based on an informed reading of the document, my experience, and the caution that I would use if I was asked to invest my own money (and come to think of it, since KIUC is a coop, it is my own money).

I hope that these thoughts were of some help to you.

Carl Imparato