BANGOR — After two years of negotiations, a three-way deal designed to stabilize trash disposal costs for 130 towns in eastern and central Maine and to keep the state’s second-largest utility financially solvent is complete, officials announced Wednesday.
Nearly $45 million in tax-exempt bonds, backed by the Finance Authority of Maine, were issued June 26 to refinance the Penobscot Energy Recovery Co.’s debt. The deal also assures the continued sale of electricity produced from burning trash at the Orrington waste-to-energy plant to Bangor Hydro-Electric Co.
“This is a model for the rest of the country to follow in terms of public-private partnerships,” said Gerald S. Kempen, Orono’s town manager and president of the Municipal Review Committee Inc. — an association formed in 1991 to act as a liaison between its member towns and PERC.
“Every person within our service area will feel the benefit of it through stable electric rates and stable property taxes,” said Kempen. “A utility, a private corporation and 130 municipalities are all coming together and sharing equally the burden and the benefits of this arrangement.”
Carroll Lee, Bangor Hydro’s senior vice president, said the deal is an important accomplishment for the utility’s investors and its customers.
“It is the fourth in a series of aggressive contract restructurings with nonutility power suppliers that have allowed us to improve our financial condition without significant reliance on revenue increases,” said Lee.
Martin J. Sergi, president of KTI Inc. — one of two partners that own PERC — said the deal was extremely important and a valuable transaction for all parties.
Before the bonds could be issued, FAME and the Public Utilities Commission required that towns ratify new 20-year contracts with PERC to provide at least 101,000 tons of trash. So far, 71 towns and cities have ratified new contracts, which will provide 133,399 tons of trash to PERC annually.
PERC’s member towns that have not approved new agreements have until Sept. 30 to do so. Those that fail to ratify new agreements with PERC by the deadline will continue to operate under the current agreements and will not get the increased performance credits or other benefits.
Greg Lounder, MRC’s administrator, said he is looking forward to working with the remaining 19 towns. MRC has 90 members, which represent 130 communities.
The centerpiece of the deal is the refinancing of PERC’s $45 million debt which adds 15 years to the payoff period, which was scheduled to end in 2003. The debt now will be paid off in 2018.
Adding 15 years to PERC’s mortgage reduced the annual payment of about $9 million to about $3.6 million a year. That saving will be split equally among PERC, Bangor Hydro and the towns, which will reduce the overall trash disposal costs and the cost of electricity to the utility. Towns could see first proceeds of the increased profit sharing in November.
Kempen said the deal means a long-term stabilization of trash costs. “Tipping fees are going to rise every year throughout the life of the contract, but the performance credits will also rise,” he said. “We are predicting costs to the towns will virtually remain fixed throughout the life of the contract at between $45 and $50 a ton,” said the MRC president.
The deal saves Bangor Hydro between $30 million and $40 million in the form of overall lower power rates. The saving will improve the financial condition of the Bangor utility in the face of competition resulting from deregulation of the electric industry in 2000.
Bangor Hydro paid PERC $6 million, which was not kept by the owners but was put into a trust account. Lee said Bangor Hydro borrowed the $6 million and expects to pay it off quickly with the annual rebates from PERC. Lee said electric customers already were seeing the benefit of the deal in the new rates approved by the PUC in February. “Those savings are already in the rates,” said the senior vice president.
In addition to the one-time $6 million payment, Bangor Hydro will pay $4 million to a trust account in the form of quarterly payments of $250,000 for the next four years. When the refinanced debt is paid off in 2018, the $10 million in the trust account will be split equally among the towns, PERC and Bangor Hydro.
Under the new deal, the preset compensation paid to PERC owners will be eliminated. Any excess cash after expenses will be shared equally among the towns, Bangor Hydro and PERC’s owners. Officials estimate rebates will be between $3 million and $4 million for each of the three parties next year.
Also, Bangor Hydro has given PERC and the towns the right to purchase 1 million shares each of its common stock at $7 a share, which could be exercised during a 10-year period. The stock was trading at $9 a share Wednesday.
Negotiations for a new deal were prompted by Bangor Hydro’s concerns about the high rate it pays PERC for electricity generated by burning trash. PERC officials said cuts in the rates would reduce revenues and would mean higher disposal costs for the towns.