Syracuse University will appear in court Jan. 19 to protect its steam plant south of downtown Syracuse from a condemnation request filed by the company that operates the plant for SU. The company, Project Orange, accuses SU of multimillion-dollar fraud. Project Orange said SU is ‘blatantly overcharging’ local universities and hospitals for the steam produced by the plant. SU and its customers use the steam to heat their buildings. Project Orange seeks to seize the university’s steam plant, steam lines and associated property through the condemnation request and use them to provide steam at state-regulated rates. This could lead to state government intervention over the disputed property. ‘They don’t care about the community, they don’t care about the environment, all they care about is money,’ said Adam Victor, Project Orange president. ‘As long as we’re around, the university has to worry about getting caught with their hand in the cookie jar.’ SU is contesting the condemnation request in court and denying Project Orange’s accusations, which SU spokesman Kevin Morrow calls ‘frivolous.’ ‘This action is that of a private party trying to take private property for its own private benefit,’ Morrow said.

The university’s relationship with Project Orange

SU owns the Taylor Street steam plant, but Project Orange has operated the steam plant since 1990. The university operates as middleman between Project Orange and their customers, which include the State University of New York College of Environmental Science and Forestry and three public hospitals. When Project Orange signed the 1990 agreement, it agreed to sell SU steam at a 25 percent discounted market price. That price, as negotiated in the 1990 agreement, is approximately $4.27 per 1,000 pounds of steam. The rate applies for the entire 40-year length of the contract. In addition to the steam plant, Project Orange also owns and operates a cogeneration plant. The $4.27 rate was calculated using the projected output of both the cogeneration and steam plants.

The accusations

Project Orange accuses SU of negotiating the 1990 agreement in bad faith and gouging the price of steam it sells to ESF and the public hospitals. Victor, Project Orange’s president, alleges that the university’s cost projection for producing and transporting steam in 1990 was unreasonably low because of the inefficiency of the boilers at the steam plant, which he calls ‘antiquated’ and ‘pre-World War II.’ For instance, the university boilers require 50,000 gallons of water a day for cooling while more modern plants use gas instead, which wastes less resources, he said. The low-cost projection in 1990 has cost his company at least $50 million, Victor alleges. Project Orange filed a lawsuit in November 2008 in an attempt to recoup that money; the university responded with a countersuit and asked a judge to affirm its right to leave its 40-year contract, citing concerns over Project Orange’s ability to stay in business. Morrow, SU’s spokesman, said the university denied misrepresenting its costs in the 1990 agreement and raising the resale price unfairly. The university said the only markup to the steam it sells to ESF and the hospitals is for distribution and labor costs. The price ‘does not include any profit,’ said Timothy Sweet, director of Energy and Computing Management. But the rate at which the university sells the steam has varied wildly in the last several years. From June to October 2005, for example, the added distribution costs ranged from $3.64 to $7.52 per 1,000 pounds of steam, even though demand remained steady, according to an affidavit from Sweet. In July 2008, the rate shot to $35 per 1,000 pounds and remained at that level for six months. SU said it did that because it was unsure that Project Orange would be able to continue supplying it at the agreed upon $4.27.

The future of the plant

Project Orange is seeking ownership of the plant through eminent domain. Since ESF and the hospitals are public institutions, Project Orange argues it would be for the public good for it to own the plant and sell the steam directly to the institutions. The condemnation request must be granted before Project Orange can assume ownership of the plant. If Project Orange succeeds in securing the condemnation, it would look to create a steam utility that is regulated by the New York Public Service Commission. It would provide steam to both SU and other customers at a regulated rate, Victor said. Although the contract prohibits direct business between Project Orange and the institutions that receive the resold steam, Victor said that people at ESF and the hospitals have complained to him privately ‘for years’ about the high rates. Those institutions, however, supported SU at a public hearing in May, as did Syracuse Mayor Matt Driscoll and the Onondaga Nation, according to statements of support filed by the institutions. Morrow said in an e-mail that ‘the customers have audited the price charged, including the delivery charge, and have not objected.’ Victor said the reason that ESF and the hospitals haven’t objected publicly is that ‘they’re more concerned with their own institutions,’ rather than with the state budget as a whole. ‘It’s not their money. They don’t care,’ he said. ‘The customers are just going along like little lambs. I think that’s something they’re going to ask about in Albany.’ Darryl Geddes, a spokesman for Upstate Medical University, said the hospital is conducting a ‘feasibility study’ on expanding its own steam plant to provide more of its own steam, and purchase less from SU.

jdmurp05@syr.edu

Published on September 2, 2009 at 12:00 pm