An open letter to Franklin citizens about SPSA

Published 9:00 am Wednesday, November 25, 2009

Dear fellow citizens of Franklin,

By now, you may have read or heard about the sale of the Waste-to-Energy (WTE) plant by the Southeastern Public Service Authority and the turning down of the offers for complete sale. This is a major decision that affects all of us in the service area, and I believe it is necessary that I provide the details to you regarding why this decision was made and why I, for one, voted in such a manner. This decision was unanimous by all members of the SPSA Board and one with extensive discussion and evaluation.

During this decision-making process, SPSA had two separate and independent financial consultant groups evaluate the offers for complete sale. One of these groups was contracted by SPSA and the other group was contracted by the City/County Administrators Officers (CAO). These same groups also evaluated the offer to sell the WTE plant alone. Interestingly, both groups reached the same conclusions — that the acceptance of the offer for the sale of the WTE plant alone was the most appropriate choice. This was based, in part, on projected financial impact over the next eight years. As I’ve shared previously with the residents of Franklin, this finding matched my own thoughts regarding the sale and factored into how I cast my vote as the Franklin representative on the SPSA Board.

Had our best option been a complete sale, I would have voted for the offer put forth by Wheelabrator. Its primary drawback, however, was that this offer was based on a physical and financial commitment of 20 years. That was a definite downfall since several of the member entities are against a 12-year extension to the current term that would commit us through 2030. The primary benefit of the Wheelabrator complete sale offer was that this company is the world’s largest in the field of refuse management. It has successfully managed many full-service refuse management systems ranging from solid waste disposal (such as landfills) to WTE plants. In addition to the extensive management experience, another benefit is that the Wheelabrator complete sale offer was made entirely in cash, so there was no concern over whether they could obtain bonding in order to make the purchase. The final benefit was that the tipping fee was to have been lowered immediately upon completion of the sale — very attractive to our current household budgets. On the surface, this was not a bad offer, but the service area could not afford to be locked in to this contract for 20 more years.

Re-Energy also proposed an offer for complete sale. This offer, however, had many problems that I simply could not reconcile. Re-Energy was willing to eliminate the 20-year commitment; however, the savings in tipping fees went away as well. In fact, the proposed tipping fees were not much lower than they are right now. If we were to accept this offer, not only would we have continued to pay the same high rates, but we would also have no physical assets to show for it. Additionally, the Re-Energy offer was not a cash-in-hand offer. Their offer required their getting private activity bonding of $100-million during the first year and then requesting a guarantee for another $100 million in bonds during the subsequent year.

In the end, to meet the requirements of the IRS, this would have required about $367-million in bonding (including the amount needed by SPSA to payoff the bonds). Likewise, Re-Energy is a startup business owned by an investment company. While its proposed partner, Waste Industries, is a refuse management company, neither ReEnergy nor Waste Industries operates any waste to energy facilities. The waste-to-energy plant will remain a critical component of for the disposal of waste in the region, and SPSA did not want to entrust the operation of this complex facility to an inexperienced operator. Finally, Re-Energy did not address the issue of not having out-of-state refuse brought in for disposal. Accepting large quantities of refuse from other states has been a problem in Virginia for many years. While there is typically a payment to Virginia municipalities to accept this waste, it causes a multitude of environmental and fiscal problems.

The consultants also made a point about the tipping fees. If the SPSA Board and the entities they represent were really serious about extending contracts to sell to sell all of the assets to Wheelabrator or ReEnergy then it would make more sense to just extend the contracts and keep SPSA as it is and not sell. The tipping fees would be even less than the fees offered by either company.

The purchase of the WTE plant by Wheelabrator has been offered on the terms of $150 million cash-in-hand, thus avoiding the uncertainty of bonding. This offer will reduce our debt almost immediately. As stated before, Wheelabrator brings with it a long history of operating such of a facility. While there is a plan in place to allow certain out-of-state trash, the acceptance of this trash is highly conditional and not an open-door policy. SPSA will not need to change the current use contracts, which expire in 2018. The entities will then be able to re-evaluate their position at a future time rather than being locked into a contract through 2030.

SPSA will also still have a much more marketable asset in the landfill. It is projected that this landfill will now be adequate through 2018 without the $50-million dollars or more necessary to expand it to an additional cell. There will ultimately be a reduction in the tipping fees; however, it is likely that the reduction will not be immediately seen. Early projections by the financial advisors show that the tipping fees will begin to reduce by 2013 and that this downward trend will continue through 2018, at which point the tipping fee is estimated to be $124 per ton — significantly lower than both the current rate and the rate that was forecast had SPSA taken no actions to remedy the existing situation. The delay in the tipping fee reduction is due to the rate having been established to allow for SPSA to pay cash for its capital improvements and to now service the remaining debt. SPSA relied and remained on credit for far too long and is now on the path to paying off all debt.

It is my hope that this information has helped you understand why the WTE sale option was recommended by the consultants and supported by the SPSA board members in its recent vote. The offer for the WTE sale provided the necessary benefits that SPSA requires at this time and also allows for SPSA to revise its organization, business practices and long-term focus without additional burden. SPSA has made great strides this year in recognizing the problem that had been created, defining long-term implications of staying in such a situation and addressing the problem directly so that it can return to being a public service to citizens rather than an expensive burden.

As a result of the SPSA turnover mandated by the General Assembly, I will be replaced on the board in January. Though brief, I have enjoyed my time of service and am proud of the progress made so far in moving SPSA in the right direction. I wish my successor all the best and offer both my support and assistance, if needed.