Q & A CIE General Manager Mike Smith

Mike Smith is the general manager of Central Illinois Energy (CIE), a 30-mmgy ethanol plant under construction in Buckheart, Illinois. As site preparation is being completed this month, the project is entering full gear and is scheduled to be completed late next summer.
By Tom Bryan | September 01, 2003
EPM: The CIE facility is being called a Lurgi/ICM
project, with Lurgi building the plant using an ICM process design. Is that an accurate description of the roles of these two companies?

Smith: This is an accurate description of the roles of Lurgi and ICM for the ethanol plant. It is similar to the structure used at Adkins Energy in Lena, Ill.

EPM:
What other major contractors are playing a
significant role in building and/or designing the facility, from grain handling to electrical work?

Smith: The grain handling facilities will be constructed by Grain Flo, Inc. of Heyworth, Ill. The co-generation facility will be constructed by a team of Central Illinois contractors led by Diversified Buildings, Inc. of Morton, Ill., using proven technology provided by Energy Products of Idaho and Industrial Technology Group of Champaign, Ill. Lurgi will select the sub-contractors for its scope of work. They have relationships with many contractors known in the ethanol industry. CIE's strategy has been to bring together contractors and engineers that are specialists in their fields as opposed to one turnkey firm.

EPM: What lender(s) are financing the project's debt? Briefly explain the process of choosing, or finding, these lenders.

Smith: We are currently still negotiating with several creditors. Finding a right fit has proven to be one of the more challenging aspects of this project. Lurgi recognized this hurdle early and has been helpful in connecting CIE with viable sources and has been involved in assisting with the negotiation. Lurgi has gone far beyond the normal role of a design/builder especially in the area of finance.

EPM: Is there still a plan in place to use waste coal to generate electricity at the plant? And what would the actual economic benefits of this plan be? What are the challenges of using waste coal? How about emissions concerns?

Smith: This area of the country was extensively surface mined for coal since the mid-1900s. There are several deposits of waste coal (coal fines) within just a few miles of the CIE site. One is within three miles, has a thirty-year supply and is accessible without ever leaving the coal mine's property. CIE intends to use this waste coal to generate both its steam and electric needs. By doing this, CIE will significantly reduce the overall cost of energy, protect against the fluctuations in natural gas prices and eliminate a potential future environmental hazardous area. It is a win-win-win. There are challenges associated with the strategy. It has significantly increased the capital cost of the facility as well as the complexity. The waste coal has high SOX and NOX emissions that must be controlled. Overall, however, including the additional cost burden, CIE can generate steam and electricity less expensively with waste coal than it can by using natural gas and electricity from the grid.

EPM: According to your web site, the plant will be capturing and processing CO2, using a nationally known company. Is that plan still in place? Please explain.

Smith: To date, CIE has not entered into a contract for the sale of its CO2. We have discussed the possibility with a number of CO2 vendors. We are permitted by the EPA to discharge to atmosphere if needed. We expect that as we come closer to actual production, more solid opportunities will arise. Being able to provide less expensive power will help attract these vendors.

EPM: Your cooperative's common stock increased this year from $1,000 to $1,113 before ethanol production was even a factor. What does that tell you about the vitality of your
cooperative?

Smith: To an extent, the increase in book value of it stock is a quirk in generally accepted accounting practices. It is largely due to some grant opportunities that have added to the equity of the co-op. CIE, however, has worked diligently in adding value to its shareholders and this increase demonstrates that our co-op is committed to "paying its way," even during development and construction.

EPM:
The current
schedule calls for the plant to be operational by the fall of 2004? Is that a
conservative start-up
estimation?

Smith: Fall 2004 is a realistic estimation based on where we are and what still needs to be done. It is important to the shareholders to get started as soon as possible and begin generating income.

EPM: When will hiring
decisions be made? When do you expect to have a full staff on board?

Smith: CIE would like to see the management team in place relatively early in construction. It will likely begin hiring in the first half of 2004 to provide time for training and to involve the employees in the final phases of construction. CIE wants its employees to feel the same type of ownership of the plant as the shareholders have. We have not solicited any employment to date. Yet we have over 300 rsums on file for fifty jobs. Many of these represent people with manufacturing and ethanol production experience. We are fortunate to have a strong employee pool in this area.

EPM: Lurgi PSI recently agreed to increase its production warranty from 30 million
gallons per year to 33 million gallons per year, without added construction costs. Why? And at whose request was that new
commitment made? Please explain the
significance of this agreement.

Smith: Lurgi's previous experience led them to a higher comfort level in the guarantees they are willing to provide. With the possibility of the SEP tax credit increasing the production level, CIE's interest in more production capacity increased. It was basically a mutual decision to further enhance the profitability of the project and a further indication of Lurgi's desire to work with its clients for a financially strong project.

EPM: Are there already plans to expand the CIE plant, assuming the markets continue to improve? How large could this plant eventually become? Is it being built with expansion in mind?

Smith: We would like to get this plant built and running smooth before we plan an expansion. However, that does not mean we are not looking long term. The footprint of the plant is designed to accommodate at least a doubling in capacity should that become attractive in the future. CIE also has over 280 acres at its site, all of which has been designated as an enterprise zone. We think there is opportunity for complimentary businesses, either owned by CIE or others. There is already an organized effort outside of CIE looking at other such projects.

EPM: How about emissions control? Has that been an issue? What steps have you had to take in that area?

Smith: The emission concerns of the cogeneration facility greatly dwarf the emission concerns of the ethanol facility. Yet, since we are primarily an ethanol producer, we are being held to the stricter guidelines used for ethanol plants. CIE will use thermal oxidation to control VOC emissions. Emission controls on the cogeneration facility will effectively control the other emission concerns. The permits required for construction are completed and approved. We have developed a positive relationship with the IEPA and are committed to maintaining that relationship in the future. The same is true for our neighbors in the area.

EPM: So many producers today are working toward finding a niche for their distillers grains. Some are trying to standardize the product, others are extracting the germ, adding varying amounts of solubles, etc. Any cutting-edge plans for CIE's distillers grains? How much you will sell dry, wet or modified?

Smith: Unlike many plants west of the Mississippi, CIE has less opportunity to sale wet distillers to feedlots and dairies even though this area has the largest cattle population in Illinois. We will have capacity to dry 100 percent of our distillers grain, if necessary. There does appear opportunity to capture non-traditional markets (swine, poultry and fish) to the east and south. We also are told our close proximity to river transportation and to rail headed south and southwest is advantageous.

EPM: You just held your first annual meeting of the CIE cooperative shareholders with over 300 in attendance. What kind of comments (concerns, hopes, etc.) are you hearing from your members, and what issues are on their minds right now?

Smith: Prior to the meeting there were concerns that the construction and financing were not as far along as we had initially planned. Despite a strong commitment to keep shareholders informed, there is always misinformation floating around small, rural communities. At the meeting, we addressed these concerns in a straight forward, honest manner. We also reported on areas of the project that were going better than expected. The feedback afterward was overwhelmingly positive. It was recognized at that meeting that we have only one opportunity to "get it right the first time." This has been our approach since the beginning: frequent and honest communication to the shareholders. As a result, we have maintained shareholder confidence, support and enthusiasm for the project despite the occasional problem a project this size is bound to have. The main issues on their minds right now are getting the opportunity to deliver their corn to the plant in the fall of 2004 and to continue a strategy of being a least cost ethanol producer rather than increasing the price of the corn feedstock. EP