The Math on SPSA and ReEnergy

14 04 2009

I keep reading about and talking to people who feel that ReEnergy is one step away from the Hand of God and we should accept their bid without question (see Interestingly enough, that very site was created by ReEnergy, LLC to promote themselves. For some reason, numerous civic groups have taken the bait and are now supporting this bid without hearing the other side of the story.

As the story goes, SPSA is in financial trouble. According to Virginian-Pilot reports, SPSA owes $240 million and is basically going to run out of money and collapse unless something is done for them. In an effort to raise money, SPSA put out a bid to sell it waste-to-energy plant in Portsmouth. ReEnergy, LLC., a company that is less than a year old, submitted a bid to buy not just the plant, but the entirety of SPSA for $205 million. SPSA, of course, rejected this unsolicited bid both times that it was submitted. The Pilot’s editorial board was quick to say that the bid was worth looking into and that SPSA should have held public comment on the bid before it was rejected.

The rest of the story, however, adds a few more details than they would like you to know. First, SPSA rejected the offer because it was unsolicited and SPSA therefore did not have enough information to push the bid to the next level (public comment). In fact, according to Norfolk Mayor Paul Fraim at Tuesday’s City Council meeting, the are a number of SPSA properties that have not been properly assessed, meaning that any bid would be improper. Also, if you look at the numbers above, you should see that they don’t add up. According to the Virginian-Pilot, SPSA owes $240 million. According to ReEnergy’s own website, their bid was $205 million. That leaves a gap of $35 million. Additionally, ReEnergy’s website states that their tipping fees would be 40% lower than the projected fees SPSA would charge. At the time that was written, the projected fees would have been $245/ton, meaning ReEnergy would have charged approximately $150/ton. That would save us only $20/ton when compared to the current rate now being approved as part of a bailout package ($170/ton). Once you factor in that they will not pick up our garbage and recycling, you should wonder what we area really saving.

ReEnergy’s proposal looks great in the short-run, but not so much for the long-run. Mayor Fraim also mentioned that the City Council is not opposed to the sale of SPSA. He just thinks that proper channels should be followed before it is considered. ReEnergy has spent a lot of money to make the cities look like the bad guys in this case when, in actuality, the member cities have come up with a completely viable plan. Finally, keep in mind that SPSA is in talks with both Covanta Energy and Wheelabrator Technologies for the sale of the waste-to-energy plant. SPSA hopes to get $200 million for the plant alone. Why should we take $5 million more for the whole thing? My biggest question: If ReEnergy, LLC can take over and turn a profit, why can’t we.




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