FINAL REPORT - San Bernardino Superior Court

3. Power Plant Developments
The City of Victorville and the Southern California Logistics Airport Authority
(SCLAA) initiated large, high risk electrical generation-related capital projects
in the mid 2000’s without proper pre-project risk assessments or project
controls. The analysis supporting such decision making was based on
recommendations from contractors who have had an interest in the projects.
Further, this decision making has not been transparently presented to the
public. The subsequent failure of these projects resulted in substantial losses and
contributed to a heavy long-term debt burden for the City and the airport.
In September 2005 the Victorville City Council, acting as the SCLAA Board,
entered into a no-bid professional services agreement with Inland Energy, Inc.
for the development of a 500 megawatt power plant, later known as Victorville
Power Plant #2 (Victorville 2). The Victorville 2 project was initiated by City
officials based on an evaluation and recommendation from Inland Energy, a
firm with a significant financial interest in having the City build a large power
plant. The project was initiated without a clear project plan, project goals or
understanding of risks involved.
Notably, the City’s agreement with Inland Energy includes a provision giving
the company a right to five percent of net operating profits in perpetuity. This
clause created a conflict of interest for the company and may be hampering the
City’s efforts to sell development rights to the project. The agreement with
Inland Energy also includes a provision that provides the City Manager with
broad authorization to procure additional services unrelated to the Victorville 2
project.
In December 2007 the City also entered into a high risk $182 million agreement
with General Electric for the procurement of turbines for the Victorville 2 power
plant. City officials entered into this agreement without an independent risk
assessment or secured financing to pay General Electric. The lack of funds
resulted in the City defaulting on its obligation to General Electric, which
ultimately cost SCLAA over $50 million in losses, with over $76 million invested
in the project to date. Further, the City Council adopted this agreement in closed
session, possibly violating the Brown Act.
On another project, the City procured no-bid services from a consultant firm,
Carter and Burgess, Inc., beginning in June 2004. This firm was retained to
design, develop, and construct a cogeneration power plant to service the energy
needs of tenants at the Foxborough Industrial Park in the City’s former Bear
Valley Redevelopment Area. The project was undertaken by the City without a
thorough assessment of risks or sufficient controls. Through a series of mishaps
the project was never completed, wasting tens of millions of dollars of public
funds. Ultimately, the City was awarded $52 million as a result of civil litigation
against Carter and Burgess and its successor, but the City’s costs for the failed
project, over $91 million, are nearly double the amount initially awarded.
Harvey M. Rose Associates, LLC
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