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Powerdyne: How it works
Powerdyne's promise of riches has turned into costly legal battle

City on the Brink: Crisis sent city hunting for cash

From the CITY ON THE BRINK: A Tribune-Star Special Report series
  • 6 min to read

With the City of Terre Haute’s financial condition deteriorating and indications of deeper deficits on the horizon, Mayor Duke Bennett in 2013 and 2014 began looking for other revenue sources to help shore up city finances.

What he found was a fledgling California company — Powerdyne Inc. — with an innovative plan to convert sewage sludge to diesel fuel and a flashy, enticing promise to bring riches to potential partners who would enter into long-term contracts. The company proposed to build a $300 million conversion plant locally that its president, Geoffrey Hirson, claimed would create up to 1,000 jobs during construction and up to 150 full-time jobs when completed and online.

The idea was simple, even though details of the plan were complicated. In essence, the city would provide sewer sludge for use in the fuel conversion process. Powerdyne would build a plant to convert the sludge to fuel, then sell the diesel back to the city at a fixed price. The city would then enter into a third long-term contract with another company — Sodrel Fuels — to purchase and ship the fuel at a fixed price to its customers.

In his effort to find solutions to the city’s financial crisis, Bennett quietly orchestrated the Powerdyne deal and initial contracts were sent to the Board of Works, whose members were encouraged to sign them immediately rather than take them under review.

Details of those contracts, signed by the Board of Works in mid-2014, emerged a couple of months later, and Bennett said there would be $6 million in revenues coming from the deals — $3 in late 2014 and another $3 million in 2015.  The City Council approved the city’s 2015 budget based on that promised additional revenue.

Critics of the plan soon began to emerge, challenging both the technology Powerdyne claimed it would be using and its business plan. But the mayor and others in his administration insisted the plan was sound, and said on numerous occasions said that the city’s role in the partnership carried no risk, even if the project were to fail at any point. And when asked about options for dealing with the city’s cash deficit if the Powerdyne plan did not bear fruit, the mayor said he was confident he would need no other options.

“I don’t expect not getting it,” Bennett said at the time. “So I haven’t really gone down that path yet.”

Days shy of the new year, Bennett said he anticipated the money to arrive in the city’s bank accounts by close of business Dec. 31. It did not. Nor has it arrived any day since.

‘Unenforceable’ contracts

Beyond the money void, the sludge-to-diesel plan has since become mired in contract do-overs, partner substitutions and legal challenges.

City Councilman Todd Nation, among others, was troubled by another kind of void. Wording inserted in the contract with Powerdyne appeared to make the agreement iron-clad. It stated the contract could not be voided even if the City Council refused to sign it.

“I’m not even sure that’s legal,” Nation said more than once.

Nation kept asking for a legal opinion, and last Jan. 14, he got one. Under questioning, then-city attorney Chou-il Lee summed up the contracts’ legal status in one word: “Unenforceable.” 

Lee, who had endorsed the contracts when they went before the Board of Works for approval, abruptly resigned three months later. But he said his decision to leave the administration without notice had nothing to do with the Powerdyne controversy.

Lee’s was the second resignation from the Bennett Administration. Just days before, Bob Murray resigned as president of the Board of Works. He had signed the original Powerdyne contracts, and later signed a side agreement with another company which offered $750,000 in up-front money to secure the city’s sludge-drying work.

Murray said he was told the city needed the money “to make payroll,” but when that agreement didn’t go before the full Board of Works at its next meeting, as he had been told it would, Murray said he’d had enough. The agreement was on the agenda for the next meeting, but then pulled because “changes” had to be made, he said.

The Board of Works ultimately did approve the agreement, after he resigned.

In retrospect, Murray said the Board of Works should have been more diligent in its handling of the initial contracts, rather than signing without a thorough review. He said it wasn’t uncommon for the board to be asked to quickly approve contracts because of timing issues, so he wasn’t concerned when the Powerdyne contracts were being pushed through. He said he was assured by wastewater treatment plant director Mark Thompson and the city attorney that the project would be good for the city and that the contracts were sound.

But Murray said he and another board member began to grow skeptical upon reviewing the contracts more closely and seeing what they thought were flaws. The two questioned them, and were told the contracts would be adjusted and rewritten to correct problems, Murray said. “They were poorly written.”

Murray said he regrets not being more aggressive in his initial review of the contracts, and if he could do it over again, he would. 

“We would have slowed down the whole process, reviewed the contracts a lot more, and tried to get some outside consultants,” he told the Tribune-Star in a recent interview. 

The city eventually had to return the $750,000 to Terre Haute Dewatering, the company with whom it failed to reach an accord on sludge drying. That wasn’t the only financial misstep made by the Bennett administration. Early on, the city’s Sanitary Board canceled the purchase of sludge-drying equipment, after being told another company, Highland Terre Haute/Overseas Lease Group, would be making the purchase. Terre Haute did, then didn’t have a sludge-drying contract with OLG, which felt spurned after the city turned its attention to Terre Haute Dewatering.

Eventually, the Sanitary Board had to take back the equipment cost. 

But that turned out to be the least of the city’s problems.

Rather than reaping a revenue windfall on the purported riches-without-risk project, the Powerdyne deal produced a costly legal battle. Highland Terre Haute/Overseas Lease Group, originally tabbed as a partner with the city and Powerdyne, filed a breach of contract lawsuit in federal court against the city in June, seeking recovery of $172.6 million in projected profits, as well as out-of-pocket expenses incurred, estimated at $1 million.

In response, the city hired an Indianapolis law firm, Bose McKinney and Evans, at more than $400 per hour. Between late April and late July, the law firm had billed the city $69,551 for legal work related to the city’s wastewater sludge drying and the pending lawsuit, invoices show.

Bose McKinney is no stranger to municipal business, and has also done legal work for bonds to finance the expansion of the city’s wastewater treatment plant. Along with several other Indianapolis law firms, it is a major contributor to Bennett’s re-election campaign. Bose McKinney contributed $5,000 to the mayor’s campaign last year, according to Bennett’s 2014 annual campaign finance statement. 

The court case is making its way through the system, with a response filing by the City of Terre Haute due today. Highland/OLG will have one more opportunity to respond before the merits of the case go under judicial review. 

The lawsuit follows an earlier filing of intent to sue by a citizen group headed by Pat Goodwin — who served as the city engineer under three mayors. Yet to file a formal lawsuit, Goodwin did establish a Facebook site, Terre Haute Inquiries (Thinq), which has provided a forum for discussion of the Powerdyne contracts and their implications.

'Not my problem'

The Powerdyne project is now on hold pending the outcome of the lawsuit. But the mayor is not convinced the project is over. “It’s hard to say. I would not say it’s over,” he said in an interview last month. “This lawsuit has to be resolved before anything can happen. It’s a showstopper right now because it’s got to be resolved.”

Even if legal matters were resolved in the city’s favor and the project resurfaced, former Board of Works president Murray does not believe the city should proceed with it. “Not only no,” Murray said, “but hell no. It’s a farce.”

Despite such strongly held feelings surrounding the project, Bennett says he has no regrets in pursuing Powerdyne and will continue to seek public-private partnerships. He believes he did everything properly and rejects the criticism that the city was not as transparent as it could have been with the public in developing the project.

“Any time you negotiate with a company to come to the community, it’s all confidential ... it’s that way everywhere,” Bennett said. “Terre Haute is not unique. If we get a contract, it will be brought to the board of works, or the sanitary board or whatever. That’s the public component. That’s as transparent as you can get. So that’s bogus for anybody to say it wasn’t transparent. They just didn’t know it. They didn’t follow it. They weren’t paying any attention. Not my problem.”

Bennett said you can always look back and reflect on what could have been done differently to head off problems. “Sure, you learn from this stuff. But we did it by the book. And we did nothing inappropriate. ... Detractors of mine didn’t know about it, so they are looking for political fire.”

But Murray said there is more to public criticism than politics. “It did not make any sense,” he said of the project. “I think the city was desperate for money and it was probably too good to be true.”

Sue Loughlin contributed to this story. Contact her at sue.loughlin@tribstar.com, or by phone at 812-231-4235. Follow her on Twitter, @TribStarSue.

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