Puna Geothermal Venture, developer of the geothermal plant at Pohoiki, in the Big Island district of Puna, is a partnership made up of OESI Power Corporation and Constellation Investment, Inc., a subsidiary of Baltimore Gas & Electric Company. OESI (formerly Ormat Energy Systems, Inc.) is a Delaware corporation having its executive office in Sparks, Nevada.
OESI’s principal stockholders are Lucien Y. Bronicki and his wife, Yehudit; and a Philadelphia company called LFC, an LFC subsidiary, and several of LFC’s present and former officers (including its president, Frank P. Slattery Jr. and former vice president James W. Porter Jr., who is now OESI’s chief executive officer). Bronicki also is president and founder, in 1965, of the Israel-based OTL, previously known as Ormat Turbines, Ltd. OESI has a marketing agreement with OTL that gives OESI exclusive rights to market OTL’s energy converters.
Another major player in Puna Geothermal Venture is a syndicate of banks led by Credit Suisse and including Bank of Hawai`i and Banc Nationale de Paris. This syndicate has agreed to provide PGV with construction loans of as much as $100 million. To date, PGV claims to have invested more than $120 million in the development of geothermal energy on the Big Island.
The plant now under construction, what PGV calls “Puna I,” is intended ultimately to provide 25 megawatts of capacity to Hawai`i Electric Light Company (HELCO). OESI is hoping eventually to develop a second project, called Puna II, with a capacity of 30 megawatts.
A Checkered History
Ormat has been involved in the construction and operation of several geothermal power plants in California and Nevada. Perhaps controversy is inevitable in the very nature of this industry. Nonetheless, Ormat’s operations have seemed to generate more than their share.
In 1987, Ormat entered into a consent decree with the state of Nevada concerning Ormat’s operations at Steamboat Springs. The state’s Division of Environmental Protection had found Ormat in violation of water-pollution regulations — specifically, Ormat had pumped fluids into an injection well at a rate faster than what was permitted. To settle the state’s complaints, Ormat paid a fine of $7,500 and agreed to develop a computerized data base and statistical program for monitoring ground water quality.
A year later, in December of 1988, pipe at an injection well at the Steamboat Springs plant was noted to have risen beyond the normal range of expansion. This was the second rise noted in a four-month period. At first, it was thought that casing in the well had dropped. By March 1989, Ormat determined that the casing had probably failed and decided to undertake a “workover” of the well.
In violation of Ormat’s operating permit, it failed to notify the state of these problems until the decision was made to rework the well. Ormat acknowledged the failure in a report submitted to the state: “Regretfully, because the well had stabilized and it did not appear to have lost integrity, we overlooked notifying [state regulatory] agencies until the middle of March.” It informed the state that “we are modifying our permit monitoring, incident reporting and compliance verifying procedures.”
Ormat no longer operates the Steamboat Springs facilities, but its actions there were the subject litigation. A report prepared by Barry Mizuno, managing director of Hawai`i County, detailing a visit to Mainland geothermal facilities in 1991, describes some of the problems. “Ormat used to manage this operation but the owners [Far West Electric Energy Fund L.P.) took back management due to what has been purported to be poor management on the part of Ormat. When we spoke to the president, he also alleged that the Ormat equipment, the generators, were and are unable to produce the electricity as specified in the contract. There is currently litigation against Ormat in the neighborhood of $7 million. The president [of Far West] felt very confident that they would prevail.” In a prospectus for a stock offering published in the spring of 1991, OESI said it believed “the claims … are substantially without merit,” noting it had filed a counterclaim against Far West. On January 30, 1992, Maurice Richard, PGV manager, stated in one of PGV’s occasional “progress reports” that OESI had been vindicated by the Nevada court, with the judge finding “only minor breaches … in reporting” had occurred.
Knocking Heads
Mizuno’s report describes a visit to another OESI facility, the one at Stillwater, Nevada. “Before leaving Stillwater, we went to the residence of Dale and Dorothy Lawrence, who live about a mile away from the plant,” Mizuno wrote. “They receive a royalty payment [$500 a month] from Stillwater as well as receiving lease payments for the lease of their property for a reinjection well… While Mrs. Lawrence was critical of Ormat in that, as she says, she had to knock heads with them every time they wanted something, she did not believe that Ormat, in operating the plant, was creating any kind of nuisance to the nearby residents. By the way, this is the location where a well blow-out was experienced in February 1989.” (Actually, the blow-out occurred in January. That event resulted in fluids from a geothermal well entering surface water in the Stillwater Wildlife Management Area. The state issued a finding of violation against Ormat and required corrective action.)
Mizuno and his party (county planning commissioners, mainly) met also with several of the people in Nevada responsible for regulating geothermal development. Among them was Marcia Grabeck, underground injection coordinator with the Nevada Division of Environmental Protection. According to Mizuno, Grabeck said that “of all the developers she deals with in Nevada, it seems that she has to ‘ride Ormat harder than anyone else.'” Mizuno adds: “It was also evident in speaking to these regulators that the image of Ormat in Nevada was not very positive. When I asked Dick Whiting” — one of the consultants who investigated the June 1991 blow-out in Puna — “whether PGV should have known that the water source was inadequate prior to the accident on June 12, the answer was that the need for more water should have been evident, especially after the February blow-out” of well KS-7.
Under New Management
In the same prospectus mentioned earlier, OESI described the geothermal equipment, developed by Ormat Turbines, used in its plants. What sets that equipment apart from competitors’, the prospectus claims, is its ability to exploit geothermal resources having temperatures lower than 350 degrees Fahrenheit. The company’s stated strategy was described as one “emphasizing the use of low to moderate temperature geothermal resources, where it believes it has a technical advantage because of its use of” Ormat equipment.
The geothermal resources found in the Kilauea East Rift Zone are among the hottest in the world. If Ormat’s special area of expertise was in exploiting resources at the opposite end of the temperature range, that might help explain some of the extreme difficulty it has had with developing wells in Puna.
Whatever the source of the difficulty, Ormat no longer is in charge of operations at PGV. Since last spring, Steve Morris, an accountant with Constellation, has taken over as vice president and general manager of PGV.
PGV’s contract with HELCO called for it to begin producing power by October 1991 or face penalties. More than a year later, with HELCO having failed to develop other sources of power, the utility is faced with power shortages if even one of its generators experiences problems. HELCO is reported to be seeking $330,000 a month from PGV for the delays. PGV is disputing the penalties.
If one adds to PGV’s costs of operations and debt service, which have been reported to be in the neighborhood of $20,000 per day, the company’s outlays approach $1 million per month.
Finally, PGV is facing several lawsuits from people living nearby who claim the releases of hydrogen sulfide and other toxic substances from the plant have damaged their health and property.
Volume 3, Number 6 December 1992