PORT ANGELES — Nippon Paper Industries USA and a Louisiana company have filed competing, multimillion-dollar lawsuits over Nippon’s stalled biomass cogeneration plant.
Factory Sales & Engineering Inc., now doing business as FSE Energy, filed its $6.2 million breach-of-contract lawsuit against Nippon Nov. 10 in U.S. District Court.
Nippon’s Dec. 8 answer was a three-pronged, $10.85 million claim against FSE alleging breach of contract, negligence and negligent misrepresentation.
Since both companies are also seeking attorney fees, a final award could exceed the stated amount each is seeking.
The issue: Who is responsible for a leaky, cracked boiler at Nippon’s upgraded, costlier-than-expected, $85 million biomass cogeneration plant?
The plant burns biomass — or wood waste — to create steam that generates electricity that the company can sell to others.
The companies have until Jan. 28 to hold a telephone conference with Western U.S. District Court Judge Robert J. Bryan of Tacoma to discuss the basis of their claims and a possible settlement, according to court documents.
A case schedule will be set at a Feb. 11 status conference.
Most civil cases are ready for trial within a year of the status conference, according to a Nov. 13 court order that scheduled dates in the case.
“I don’t believe there’s any discussion on settling,” Nippon mill Manager Steve Johnson said Thursday.
“At this point, there’s no reason to believe otherwise.”
An FSE company official who identified himself as the chief operating officer but would not give his full name would not comment on the case Thursday.
“You don’t even need to do a story on this,” he said.
FSE’s website at www.fseenergy.com identifies Chris Pulver as the company COO.
Seattle lawyer Miles Stanislaw, representing FSE, did not return calls for comment Wednesday and Thursday.
Seattle lawyer Blake Marks Diaz, representing Nippon, would not comment on the case Thursday.
The plant was dedicated in November 2013 but has been plagued by delays in operating at full capacity.
A mud-drum — a key component of the boiler that was built by Covington, La.-based FSE Energy — has since been replaced and is now creating steam for the factory and electricity for sale, Johnson said Thursday.
The 30-foot, 25 ton pressurized mud drum holds water and traps mud and sediment to prevent it from circulating.
The dispute about who should pay for what to remedy the situation entered the legal arena a year after the cogeneration plant was dedicated by officials from Nippon’s Tokyo-based parent company, Nippon Paper Industries Co. Ltd.
According to the FSE’s lawsuit, the company had sent Nippon an invoice for $43.7 million for the cogeneration project under an original contract estimated at $38.9 million.
FSE is seeking a jury trial to address its allegation that Nippon breached its contract by still owing the company $3.7 million of invoiced charges and retention fees, $1.6 million for change orders and for extra work performed by FSE, more than $900,000 in 18-percent-interest charges for overdue payments by Nippon and an unspecified amount in delay damages.
FSE blamed Nippon for incorrectly operating the boiler under a contract the companies signed Nov. 3, 2010.
For example, FES said that Nippon repeatedly hosed down the empty, hot mud drum — the one that was eventually replaced — with cold water, “causing stress fractures in it due to thermal shock,” according to the lawsuit.
FSE also alleges Nippon repeatedly burned fuel that was not in compliance with contract specifications and that the factory experienced outages “which tripped the boiler system constructed by FSE,” according to the lawsuit.
“Similar problems were continuously cause by [Nippon Paper Industries] throughout FSE’s efforts to commission the boiler,” the lawsuit said.
“NPI’s wrongful actions and inactions prevented the necessary flow of heat and water for the boiler to operate properly.
“Any damage to the boiler or damage to its component parts and pieces was proximately caused by NPI or third parties, who NPI had control over and responsibility for.”
In its countersuit, Nippon denied responsibility for the boiler problems and said FSE was at fault.
FSE began construction of the boiler in June 2012 and was to complete construction by July 28, 2013, or four months before the cogeneration plant’s dedication, according to the lawsuit.
Holes and cracks in the mud drum tube joints that were leaking and weeping water were discovered from January 2014 through at least March 2014, Nippon said.
“FSE procured and supplied the mud drum for the boiler,” the suit said.
“The mud drum installed in the boiler was defective.
“Because the tubes were not properly rolled into the mud drum, the entire mud drum had to be replaced.
In addition, a mud drum and adjacent steam drum “were installed out of alignment by more than an inch,” the suit said.
“The undersized steam drum adversely affected the steam quality and caused carryover of water droplets and contaminants that damaged the turbine blades.”
FSE’s breaches-of-contract include failing to ensure equipment was new and of good quality, failing to complete its work on time, providing defective work, and “failing to provide a new, working boiler as promised,” according to Nippon’s lawsuit.
Nippon is seeking damages that include more than $6 million for replacing the mud drum and generating tube bank, $2 million to complete unfinished work and correct other defective work, more than $1 million to correct steam-drum level-control issues and at least $300,000 for delay in delivery.
The old boiler, which created steam but not electricity, is now fully off-line, Johnson said.
The new boiler has been creating steam for the plant and producing “for the most part” about 14-15 megawatts for sale since mid-December but not the full 20 megawatts it was intended to generate, Johnson said.
“The reliability has been good. It’s been up,”he said.
“Before you know it, we’ll be there.”
Johnson said air-quality testing on the new plant will begin later this winter and predicted the new boiler will be fully operational by mid-March.
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Senior Staff Writer Paul Gottlieb can be reached at 360-452-2345, ext. 5060, or at pgottlieb@peninsuladailynews.com.
