Millions of dollars on the line in Gypsum biomass plant district court case | VailDaily.com

Millions of dollars on the line in Gypsum biomass plant district court case

DENVER — An Oregon company, Wellons, said it was stiffed millions of dollars when it built the Gypsum biomass plant. Wellons also charges that Eagle Valley Clean Energy, the company that owns and operates the plant, fraudulently hid that money and more to keep from paying Wellons.

Eagle Valley Clean Energy insists it did not pay Wellons because of construction defects in the plant, which, the company claims, resulted in a 2014 conveyor belt fire that led to the plant sitting idle for a year.

The nine-day civil trial between the two entities started Tuesday with a six-person jury and one alternate — four women and three men — and 21 lawyers in Judge R. Brooke Jackson's U.S. District courtroom in Denver.

"This case, like many, is about money, and this one is about quite a lot of money," said Steve Leatham, Wellons' attorney.

Federal funds

The biomass plant was part of the Obama administration's renewable energy plan and landed $18.5 million in federal funding in September 2014. Leatham said Wellons anticipated some of that money would be used to pay back what it was owed, which now amounts to $17.5 million.

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"Did any of that money make it from (Eagle Valley Clean Energy) to Wellons? Not a dime," Leatham told the jury.

Instead, Leatham said, Eagle Valley Clean Energy owners Kendrick Wait and Dean Rostrom funneled that money into companies owned by their wives and themselves.

Scott Greene, Rostrom and Wait's lead attorney, countered that Wellons did not receive payment because it built a bad plant.

"The trial is truly about a contractor, Wellons, that did not perform as it was contracted to do," Green said.

"Are they defects, or are they excuses they're using to try to not pay the millions they owe Wellons?" Leatham asked in response.

Leatham said Wellons built a biomass plant in Gypsum that is generating more electricity than was first anticipated.

"It's working well," Leatham said.

How it works

A biomass plant burns fuel to create heat and steam. The steam rises and turns turbines that generate electricity. The Gypsum biomass plant is supposed to burn wood damaged by pine beetles, which have decimated large parts of local forests.

"Before Dean and Kendrick came alone, the U.S. Forest Service were scratching their heads about what to do with these piles of dead wood," Green said.

Attorney Mike Frasier argued that 20 percent of the biomass plant's fuel is beetle kill. The rest comes from sawmills in Colorado and Wyoming, Frasier said.

Eagle Valley Clean Energy also paid twice as much for fuel than they thought they'd have to, paying $81 per ton instead of the $35.08 per ton that they anticipated, Frazier said.

The biomass plant generates 11.5 megawatts of electricity per hour — enough to power 10,000 homes. Holy Cross Energy buys some of that power and has said the amount of money it pays for that energy is "confidential."

Going back

As part of the construction deal, Wellons also acquired 6 percent of Eagle Valley Clean Energy. Rostrom and Wait wanted Wellons to acquire up to 25 percent. After talks broke down, Wellons decided it was fine with its 6 percent, Leatham said.

The next day, Eagle Valley Clean Energy began asserting construction defects, Leatham said.

Wellons president Martin Nye was the only person to take the stand following opening statements in the trial on Tuesday, and Leatham was the only attorney to question him.

Nye has been with the company since 1972 and president since 1994. He said Wellons invests as much as 12,000 engineering hours to bring a plant online. It usually takes six months or so to work out all the kinks and issues. It's not a turnkey operation, Nye said.

"It's really a good plant. I still think that today," Nye said.

Staff Writer Randy Wyrick can be reached at 970-748-2935 and at rwyrick@vaildaily.com

What’s being debated

• Wellons, an Oregon company, built a biomass plant in Gypsum, which started generating electricity in December 2013.

• Wellons says it’s owed $17.5 million by Eagle Valley Clean Energy, the plant’s owner-operator, for construction work on the plant.

• Wellons also asserts that instead of using some of the $18.5 million in federal funding Eagle Valley Clean Energy received from the U.S. Department of Agriculture Rural Development Service to pay that balance, Eagle Valley Clean Energy and others allegedly conspired to commit “fraudulent transfers” and “civil conspiracy” and divvied up the money amongst themselves.

• Wellons says Eagle Valley Clean Energy also prohibited Wellons from completing the items on its final punch list.

• Eagle Valley Clean Energy, a Provo, Utah-based consortium, claims it is owed $19.6 million by Wellons because of alleged construction defects in the plant.

• Eagle Valley Clean Energy says some of Wellons’ construction defects caused a conveyor-belt fire on Dec. 13, 2014, which led to the plant sitting idle for a year.

• GCube, the insurance company that covers the biomass plant, says Wellons owes it $3.5 million for the December 2014 conveyor belt fire.

• Wellons countered that the fire started because Eagle Valley Clean Energy didn’t clean the conveyor.

About that fire

The Gypsum biomass plant fire was discovered and reported at 4:20 a.m. Dec. 13, 2014. When firefighters arrived 4 minutes later, they found that the fire hydrants, owned by Eagle Valley Clean Energy, were delivering only 15 percent of the water they were supposed to — 350 gallons per minute, instead of the 2,250 gallons per minute the 12-inch pipes were designed to carry.

The hydrant’s valves had been deliberately closed to a trickle, the fire department’s investigation found. To fight the fire, firefighters from all over the region had to haul water with tanker trucks and run hoses from the American Gypsum wallboard plant next door.

Eagle Valley Clean Energy restarted the plant on Thanksgiving Day 2015.

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