$205M offered for SPSA
Published 7:59 am Friday, January 2, 2009
CHESAPEAKE—A New York company is making a second attempt at purchasing the beleaguered Southeastern Public Service Authority, offering $205 million for the authority’s assets, wiping out its debt and handling the region’s trash for at least the next 20 years.
ReEnergy Holdings LLC, based in Latham, N.Y., is working in tandem with Waste Industries USA Inc., Kaufman & Canoles, and Edwards Angell Palmer & Dodge in the effort to purchase SPSA.
All eight of the communities served by SPSA — Isle of Wight and Southampton counties, and the cities of Franklin, Portsmouth, Chesapeake, Norfolk, Suffolk and Virginia Beach — must agree to the proposal for the sale to occur.
Rowland L. “Bucky” Taylor, SPSA’s executive director, said ReEnergy sent letters with details of their proposal to all eight communities earlier this month. It was a different strategy than what the company followed in August, when it made a similar proposal to buy SPSA for an unspecified amount. That proposal was ultimately rejected.
In its latest proposal, which was sent to the eight communities on Dec. 11, ReEnergy said $205 million “will be sufficient to allow SPSA to retire 100 percent of its existing debt.”
SPSA currently has $234 million in outstanding debt; with interest payments, the authority is projected to pay $314 million in debt service by 2018, the year its agreements with all eight communities end.
The company said that it believes it can pay off SPSA’s debt by operating its facilities “more efficiently, with fewer people, and with less equipment than is currently being accomplished.” It plans to make more money in the long term by investing in new technologies and equipment for the waste-to-energy incinerator in Portsmouth.
It was unclear how many SPSA employees, if any, would lose their jobs after privatization. “ReEnergy expects that a significant percentage of the current positions will be retained,” the company’s statement said.
ReEnergy said it wanted all eight communities to sign 20-year “waste services agreements,” that would include a fixed tipping fee. The company statement did not specify what the new tipping fees would be, but it envisioned them being “approximately 40 percent less than SPSA’s projected tipping fee.”
The company said it also hopes to resolve the issue of disparity in tipping fees among the eight communities.
“ReEnergy’s ultimate objective is to bring parity to the tipping fee structure for all member communities,” the company said. “Based on ReEnergy’s experience in restructuring other projects where similar disparities existed among contract communities, we propose a transition period that moves communities from their current financial positions to a parity level over a period of two to three years.”
The company added, “discussions will be undertaken separately with the cities of Suffolk and Virginia Beach to ensure that their unique circumstances are addressed to their satisfaction.”
Suffolk currently does not pay a tipping fee for municipal solid waste, in exchange for hosting the regional landfill. The tipping fee for Virginia Beach is capped at $53.88 through 2015. By contrast, the other six localities pay a tipping fee of $104.
When asked if he thought ReEnergy would have to negotiate separately with Suffolk and Virginia Beach for the deal to be approved, Taylor said, “you would certainly think so.” He said that he was not aware of any specific negotiations taking place between the company and the two cities.
But although the company plans to equalize tipping fees, it also plans to offer “meaningful benefits” in the form of “host community agreements” to both Suffolk and Portsmouth for hosting the regional landfill and the waste-to-energy incinerator, respectively.
The host community agreement would reportedly include “the payment of a fee per ton of waste accepted at the facility located in the community. ReEnergy will be entitled to a credit against the annual amount of host fees, however, in the amount of annual property taxes that are paid with respect to the facility,” according to the company statement.
The amount of a fee associated with the host community agreements wasn’t specified.
On the issue of importing waste, the company said it “does not see any need at the present time to attract out-of-state waste,” and added that certain waste streams “take up a disproportionate amount of space in the regional landfill which ReEnergy may attempt to divert to other regional disposal or processing sites.”
The company said it “views the remaining capacity at the regional landfill site to be a precious commodity that should be rigorously managed to preserve its value to the region.”
The statement did not specify what waste streams could be diverted.
Barry Cheatham, a Franklin city councilman who is also on the Board of Directors at SPSA, said the number one issue for the city would be financial stability.
The city would want to see “that everyone is whole, and everyone is in good shape,” Cheatham said.
But another issue for the city is to decide whether or not to sign a 20-year contract with ReEnergy, essentially committing Franklin to the company until possibly 2029.
“Do we want to tie ourselves (to ReEnergy) for the next 20 years? That’s something we need to discuss,” Cheatham said.
Franklin Mayor Jim Councill said the city would be looking at the proposal carefully.
“Everyone who is involved has inherited a problem they didn’t create,” Councill said. “There are so many details to be ironed out. I’m confident that in the very near future it will not be ‘business as usual.’ And by very near future, I mean in the next 18 to 24 months.”
Councill added that the proposal, “strikes me as something very important to consider. There are so many pieces to this puzzle.”
ReEnergy reportedly isn’t the only company courting SPSA.
According to Taylor, “there are other companies out there that have already expressed an interest” in purchasing the authority. He said the board would consider “any and all proposals.”
Meanwhile, other talks were continuing, Taylor said.
“We are not slowing down the continuing negotiations on selling the waste-to-energy facility,” Taylor said. Two companies are reportedly interested in purchasing the Portsmouth incinerator.
ReEnergy Holdings LLC was formed in mid-2008 by Riverstone/Carlyle Renewable and Alternative Energy Fund II LP, which is an investment fund managed by Riverstone Holdings LLC, a private equity firm. Riverstone reportedly manages $15.9 billion.
Among ReEnergy’s partners, Waste Industries USA Inc. is a private waste services company that operates in six states, including Virginia and North Carolina. Kaufman & Canoles and Edwards Angell Palmer & Dodge LLP are two law firms with experience in regional and solid waste issues, respectively.