Cleveland incinerator: Consultant gets caught cooking the books
CLEVELAND — “When the City of Cleveland notified Peter Tien on February 23, 2012, that he was in default on his $1.5 million no-bid contract to design a garbage incinerator for Cleveland Public Power, Utilities Director Barry Withers’ letter said there were numerous errors in Tien’s reports.
Ohio Citizen Action filed a public records request for copies of Tien’s reports and received several copies of reports on March 9. We still have requests pending for updates that Tien apparently submitted at the end of last week.
Although there were a variety of errors and inconsistencies in Tien’s filings, making all of the numbers suspect, the most damning mistake appears to be a miscalculation of the profit and loss for the facility.
Tien apparently submitted three different versions of his “Design Memorandum” to the city, one dated February 4, one dated February 11, and one dated February 17 (all had the wrong year on them, 2011 rather than 2012).
Tien’s analyses all showed that the facility would make money, with the final document on February 17, showing an annual profit of $4.7 million after covering operating cost and debt service.
But if he had done the math correctly, the February 17 report would have shown the facility losing approximately $17 million per year after operations and debt service.
Here’s the documentation:
1) Tien’s design memorandum dated “February 10, 2011” contained a financial breakdown on pages 7-9. A key figure in the revenues is an estimate for how much would come in from sales of electricity (electricity would be sold to Cleveland Public Power, presumably).
Tien estimated that electricity would be sold for $.055 per kilowatt hour, at 10 megawatts per hour. He listed revenue from these sales at $132,000/dayThe $132,000 per day figure, added to other revenue estimates, made total daily revenues total $227,628 per day, and Tien then totaled this number to an average of $40,674,572 per year. With annual operating costs and debt service of approximately $35 million per year, Tien’s numbers showed the facility making a profit. But Tien was off by an order of magnitude — the amount listed should have been $13,200 per day.
2) When Tien submitted the next version of the memorandum, on February 17 he changed the assumptions on the electric generation, to $.055 per kilowatt hour at 12 megawatts per hour. The daily revenue for this column then was totaled to $15,840 per day.
Although this figure dropped by an order of magnitude, changing the daily revenue to $101,367 (down 46.5% from the last estimate), Tien left the total average annual revenues at the same figure as the February 10 report, at $40,674,572 per year.
3) If Tien had decreased the annual revenue by 46.5%, as he should have, the average annual revenue would have dropped to approximately $18.9 million per year.
4) With operating expenses of $2.3 million per year, the facility would lose $4.5 million each year. Debt service, estimated at $12.5 million would be added to that, for an average loss of $17 million per year.
No wonder the City wants to cancel the contract.
— Sandy Buchanan, Executive Director, Ohio Citizen Action