Florida Utility Settles Desalination Plant Dispute

February 10, 2004

The builders of a problem-plagued desalination plant and the region's utility have reached a settlement that ends disputes about the plant's construction and opens the way for Tampa Bay Water to assume control of the facility.


If approved by a judge in U.S. Bankruptcy Court, the settlement would give Covanta Tampa Construction the $4.4 million in construction cost held in reserve by Tampa Bay Water. The utility withheld 10 percent of the $79 million construction cost pending completion.


The company also dropped all claims against Tampa Bay Water for delays in construction and cost increases and surrendered a 30-year contract to run the plant that would have grossed about $10 million a year for the company.


In return, Tampa Bay Water will keep about $3 million of the construction reserve and use an additional $550,000 from the reserve to pay subcontractors who have gone unpaid ever since Covanta declared bankruptcy in 2003.


Tampa Bay Water also gets immediate control of the plant near Apollo Beach and can find a new company to fix the plant's problems and operate it.


Signed Friday by Covanta and approved Monday by Tampa Bay Water's board, the settlement eliminated the uncertainty and cost of a trial that would have started next month and potentially dragged on a year pending appeals.


This practical approach helped bring together both sides after a week of mediation and more time negotiating by telephone.


After spending about $100,000 a month in legal fees since November, the utility could have piled up $500,000 in a trial and appeals, according to Don Conn, Tampa Bay Water general counsel.


Also moving the utility toward the settlement was the possibility Covanta would win the $10 million or more in claims that Tampa Bay Water was responsible for construction delays and added expenses.


Though the plant produced water since opening in March, it did not pass tests required in the contract. The expensive membranes that filtered out salt wound up clogging more quickly than projected.


That resulted in more frequent, costly cleaning — driving up operating costs and threatening to void the warranty for the membranes. Covanta was unable to find a solution.


That will be the challenge for another company the utility will hire, possibly as early as May, to take over the plant and fix its operating problems.


Tampa Bay Water will have the $3 million it withheld from Covanta's payments and $4.9 million pulled from other sources to pay for corrections at the plant.


Utility officials don't expect the costs to affect rates charged to Hillsborough, Pinellas, Pasco, Tampa, New Port Richey or St. Petersburg for water, General Manager Jerry Maxwell said.


The plant will be shut down until experts can find a possible solution.


Whitney said months of growing frustration and accusations between Tampa Bay Water and Covanta would make it difficult for both to function during the 30-year operating agreement.

Source:

Tampa Bay Online

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