By Bill Wolcott
Lockport Union-Sun & Journal
SOMERSET — AES Somerset, the coal-burning power plant on Lake Ontario which is the largest tax-payer in Niagara County, is shut down now, but has potential.
That’s what the taxing jurisdictions learned Wednesday in a meeting at the Niagara County Industrial Development Agency.
Representatives of the Barker School District, Niagara County and Town of Somerset met with representatives of the bondholders who are left with the bankrupt facility and hope to recoup their money.
The bondholders are not an energy company, but investors who are out to cut their losses and make a profit. To do this, AES Somerset has to become a money-maker again.
According to Dan Engert, the Somerset supervisor, RPA Advisers of Paramus, N.J. feel this can happen.
“The guys are confident this coal plant can succeed with its workforce and efficiency,” Engert said. “They are looking at every line and came away with belief this plant can make it.”
RPA advisors talked about fixed costs of the current PILOT and employees.
AES Eastern Energy filed for filed for Chapter 11 in December and group of debt holders agreed to buy the Somerset facility. The plant was put up for auction, but had no buyers last week, leaving the debt holders in position to try to turn it around.
The school district, county and town have a stake in keeping the business alive. There are three years remaining on a payment-in-lieu-of-taxes deal that would provide the jurisdictions $12.8 million in the years 2013, 2014 and 2015. Barker School gets more than half the money.
However, the debt holders need reduction of 40-60 percent, according to Engert. Those are the negotiation parameters now, the supervisor said.
“We have a short window to succeed,” Engert said. “We see this as a one-shot deal to make this work. The investors are trying to recoup their investment. We’re striving to be part of a survival story. We’re all in this.”
James C. Hoffman, a resident Town of Somerset, cautioned about PILOT concessions in a message to Engert.
“As you consider modifications to the current AES PILOT agreement and shift more of the local tax burden to some who can afford it the least, I urge you to include a “Claw Back Phrase,” Hoffman wrote. That is, when AES becomes profitable again, the PILOT pay-out should reflect that increase.
Engert agreed, “The value of the plant should and will drive any payment-in-lieu-of-tax payment,” he responded.
Hoffman is not confident a coal-burning plant can make money and wants to include a clause that allows for conversion to natural gas.
Engert asked the RPA advisers about possibility of conversion to gas and was told that the switch to gas would cost hundreds of millions of dollars. Because the debt holders are not in the energy business, they are not prepared make that long-term investment, he said.
The current PILOT re-negotiation will involve only the investors in the original AES facility, according to Engert. Their re-negotiation mission is to “sleeve” this period until an energy company buys the plant.
“These are really challenging times for the coal plant right now,” Engert said. “I came away with clear understand of what their expectations are. We are all going being to be part of this. We’re all going to be stakeholders in hopefully what will be a survival story for this facility and for the tax payers of Niagara County.”
Engert believes the plant meets emission standards and the coal plant should and will be successful.
Contact reporter Bill Wolcott at 439-9222, ext. 6246.