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Home My WebLink About1998-03-11 98-140 ORDERCOUNCILACCION__ __.. Item No.98 140 Date: 03/11/1998 Itemnlubjecl: ORDER, Confirming the City of Bangor as a Member of the Municipal Review Committee, Inc. and Approving the Modified Waste Disposal Agreement and Restructuring Transaction Responsible Department: Commentary: This Order would approve the modified Solid Waste Disposal Agreement between the City of Bangor and PERC and would confirm Bangols membership in the Municipal Review Committee, Inc., which will have added oversight responsibilities under the terms of the new agreement involving MRC, PERC, and BBE. For more than two yews, the MRC, Bangor Hydro Electric Company, and PERC have been involved in complex negotiations aimed at providing refiiefto BHE from the high cost of energy Paid in PERC order the BHE controw. These negotiations have cuhninated in a wSdr=Nred agreement, Co nowdY referred to asthe ParityProposal. That proposal contains a namberofnew road modified documents. Ofparicular importance to participating conunuoifies is the Second Amended, Restated and Extended Solid Waste Disposal Agreement between communities and PERC, which will supersede the existing First Ameaded and Restated Solid Waste Disposal Agreement. fVmsc%D✓— �r,�� ""��--.. Department Heed Manager's Comments: mums air"' DPwa'vtar jlunaum 4i10.+� g/I/� .tun City Manager Associated Information: Order, Summary, Tip Free Projections, Related Material (Second Amended Solid Waste Disposal Agreement and all related documents m the transactions on file with the City Cle&s Office) Budget Approval: Finance Dire tur Legal Approved: City Solid Introduced for x Passage First Reading Page—a( Refund Ardpted to Comnctior Parnham March 11, 1998 CITY OF BANGOR (TnL) erg 0217t _. Confirming the City of Bangor as a Member of Ne Municipal Review Committee, Inc. and Approving the Modified Wage Disposal Agreement and Restructuring Transaction By the City Council of W OUM ofBopur. ORDERED, TIIAS WHEREAS, it is in the position of the City of Bangor that the Penobscot Energy Recovery Captivator PERC) Waste to Energy Facility in Chignon aonipues to repreeeat the most viable method of solid waste disposal, taking into aecount economic considermioms, environmental concerns and long chn disposal options; and WHEREAS, the City of Bangor was one of the original chatter communities with the Municipal Review Committee (MRC) and mmendy has a Solid Waste Disposal Agreement with the PERC Facility; and WHEREAS, the Man icipal Review Committee, PERC, and Binfor Hydro Electric Company have negotiated and agreed to amebuctured egeemeaq commonly refined to as the Parity Pmpoml, which includes amodificl solid waste agreement, and WHEREAS, the City of Bangor through its City Council desires to approve themgruenued agreement, formally known as the Second Amended, Restated and Extended Solid Waste Disposal Agreement with PERC; and WHEREAS, the Second Amende4 Restated and Extended Solid Waste Disposal Agreement policies several Provisions such as extending the cunmt waste duposid contract for 15 years, purchasing limited partnership presents in the PERC plant and accepting a common stock warrant agreement with Baugh Hymn Electric Company, among often provisions, which will necessitate oversight by the Munching Review Commitles; and WHEREAS, the City of Bangor also desires to continue its deeper membership Mans in the Municipal Review Committee; NOW, THEREFORE, BE IT ORDERED BY THE BANGOR CITY COUNCIL, THAT the City of Bangor herby approves ammdmwts to iia waste disposal appointment with Penobscot Energy Recovery Company (PERC) and wittnflzes the City Manager to execute and deliver on behalf of the City a Second Amended, Restated and Extended Waste Disposal Agreement with PERC (the Modified Wage Disposal Agreement) sabsmntiany, in the form on file with the City Clerk and presented to this meeting and to cxeeute and deliver such other documents and take such other actions which the City Manager deem s necessary or appropriate to effect he transactions described in such Agreement and in the Restructuring Transaction described in the Term Sheet Baled Daughter 31, 1999, on file with the City Clerk; and BE IT FIIRTHP.R ORDERED, THAT the City Comdl of the City of Bangor authorizes, wtifies, and confirm tiro City as a ehmter member of the Municipal Review Commince, Inc. DORC) organized as a nonprofit r IN CITY COUNCIL March 11, 1998 - Councilor Tyler abstained from discussion and vote Passed ERR` 98-140 ORDER Title, Confirming the City of Bangor as e Member of the Municipal Review Committee, Inc. And Approving the Wdff£ed Wide Vfepdsdi'AgreevWnt**and Restructuring Transaction .........✓'........... .... ........ . .. ............ AsK gnml to N.n� .......... Councilman 98-140 cotpmation and acting a a mgioml as keheta m to manage solid waste disposal pursuant to Title 13-B aed Title 38 of the Maine Revised Statutes, as amended (mrd sperifically Section 1304-6(5-A) of Title 38), maker the terms and provisions of the articles ofmcmporation and bylaws, as amended, on file wi0 the City Clerk and presented this minting, and to authorize MRC to hold, manage, apply or direct the cash distribution to be received from time to time by MRC on behalf of the City and other members of the MRC from pMC, all as prescribed b the bylaws of MRC and the Modified Wake Dispmed Agreement om file with the City Clerk and presented this meemm& and as; p arnmed under Section 1304-(5-A) of Title 38 of the Maine Revised Statutes; and BE IT In1RTIlER OnDERED, ]NAT the City ofBmgor authorizes the pumhaae firm time to time, of limited partnership interests, and options therefor, in PERC and to authorize MRC to e)omikc all such options from time to time in com etion with other members of MRC, all as preseribed it the bylaws of MRC and m the Modified Waste Dispead Agreement, and as permitted Order Section 1304 -B(5 -A) of Title 38 of the Mauve Revised 8tamtee and BE IT PURTIIER ORDER®, THAT the City OfBmger will aonaim and accept Bangor Hydro Electric Company common stock warrants with respect to the Reshuctming Transaction, approves a stock warrant agreement with Bangor Hydro eubstaatially in the form on file with the City Clerk and lmoomed to this meeting and authorizes MRC, ma behalf of the City, to enter arb an aganoy agaemmt with Bangor Savings Bark to hold and mange the stock warrants ofBaugor Hydro in subsiamiaRy the Ran on file with the City Clerk and preaew.ed to this meadia& an as prescribed to the bylaws of MRC and m the Modified Waste Disposal Ageemms, and as permitted under Seamm 13W -B(5 -A) of Title 38 of the Main Revised Smtuw. MEMORANDUM To: Municipal Operations committee From: Robert W. Farrar, Assistant City Manager Subject PERC Contract RUVvrroming Daze: February 2], 1998 to vour weekly Commit package which you received last Friday, I included a series of documents that describes the derails of the proposed transaction stores MRC Municipal Review Committee, BELE (Bmgor Hydro Electric Company), and PERC (Penobscot Energy Recovery Company)]. Although I am not redistributing all of that information, I did want to summarize for the Committee the highlights of the proposed transaction and the process that he parties have been through. • mthe fall/wivterof1995,96, BBE approached PERC and bfRC indicating that dde could not afford to continue to pay 11 cents per Kenn under the existing Power Purchase Agreement when the current market rete for Power was 4 cents per kwh. a BBE stated that the contract with PBRC was in jeopardy due to then difficult financial position and requested the patties attempt to restacnue the courant to provide some relief. • MRC and PERC very concerned wirhthis development as BBE contract with PERC provides 60%($IS milliov) ofPERC's revenue awually. the rem unmg 40%(Sl2 million) is derived Goon tipping fees paid by towns and cities. • MRC hved independent firm specializing in amlyaing electric utilities to review BBE condition. Leviton and Associates of Boston concluded defw'tively that BHE was in seven trouble due to Maine Yankee, arrival of Gas, Deregulation and PERC Power Purchase Agreement. Levison told MRC that BHP would not be able to continue to pay the rates established under the contract. II. Renegotiatio¢Erocess • Once the MRC end PERC accepted BHE's condition as factual, the parties began a lengthy and complex process attempting to restructure the contacts (PERC and BRE: PERC and towns). • The bonom line was trumping to provide necessary relief to BHE, providing reasonable and fav rep fees to towns Wrough long term operation of PERC plant and a reasonable return to PERC owners. • Analysis demonstrated that ifpower contract lost, PERC would have to sell power at 9.6 cents per kwh to keep tip fees at 2345.00/ton. Given that market rase is 4 cents, tip fees could have exceeded SI00/Im to maintain cuirenr revenue stream to operate plant. Parties saw an opportmity to refinance the existing PERC debt 2550 million through FAME (Fureace Authority of whims) by extending the debt repayment schedule by 15 years from 2004 to 2019. This in erasure lowered bond principal and inrerert payments from $9 vullionryear to S3 million/year. • PERC agrees to reF ce the debt -split savings equally among 3 parties. • Communities agree to exercise 15 year contract extorsion through 2019 and waive their right to purchase plant in 2004. • Tip t slowered through 2003, stabilized for life of project at estimated S45-53/ton, after applicable rebate. • Towns gain legal smndine in contract between PERC and BHE, han a tight to buy into plant ownership and will receive rights to 1 million BHE stock warrants at S7/share. • PERC partners give up current net compensation schedule for lona term stability though agreement with BHE to honor contracthroush 2019. • FAME ttfivancmg increases distributable cash pool by S6 million (for a total of S9 million) to be split annually among the parties. • BHE receives th share(�S3 million)effectively reducing their power price firm l l cents per kwh to _±s centa/lrwh. Savings to BHE in current dollars over life of deal is ±S27 million. • If BHE defaults on new ameement, PERC could break even selling power at 65 cents with tipping fm remaining as S4511im. Or, tip fees theoretically would only have to moraine to 960-65tton instead of 3100 or more if power could body be sold at 4 cents/kwh. • IndMdualcommuhities are now being asked to ratify renegotlited proposal. Communities do have the option of commuting under their existing Solid Waste Disposal Agreements, which expire m2004. At that however, them would be no guarantee concerning tipping fees, sharing in savings generated by the refinancing, nor the opportunity to participate in the stock wazmnt program or the option of buying into the plant. • The renegotiated deal has been approved by Public Utilities Commission, FAME, NIRC Board of Directors, BHE Board of Directors, and PERC owners. Additionally, the Maine Legislature has assisted the parties through the passage of legislation that embied the parties to use the Electric Rate Stabilization Act to our advantage is this process. • The action extends Waste Disposal contracts through 2019, refwaaces debt to lower content costs and provides BILE with relief from overly high energy cost rates. This lengthy process has culminated into a parity proposal that fairly bmefltu all three parties. Communities are now being asked to ratify the modified Waste Disposal Agreement and resYrvcmrwg transaction. The closing on the re! arcing is scheduled for April, and FAME is requiring that 60% of the guaranteed tonnage (101,000 tons) be committed pnort0 closing. Bangor at 27,000 guaranteed tons is 16% of the total guaranteed loomage (172,000 tons) making us the largest single contributor. As I have been deeply Involved withthis process both as a Director and i%sguortuthe MRCaswellas emberofWe MRCCore Group Negotiation Commitee,Iamstroasiyrecum =m ngthisproposalto the Mnnidpal Operations Committee and the City Comcil for approval. Should say Commitee member or Comcilor desire further information or copies of any of the documm[s previously distributed, please feel free to contact we at your convenieace. RWFIj AtachmentS cc. Ciry Council(miuding Councilor Tyler) City Manager, city solicitor. Ciry Engneer Municipal Review Committee, Inc. We Are Consenting To: ♦ Confirmation of MRC Membership and Bylaws Amendments To: Delegate to MRC Responsibilities of Stock Warrants and Bond Prepayment for Limited Partnership Interest ♦ Amended, Restated and Extended Waste Disposal Agreement Representing Municipal Interests in NERC 98-190 Municipal Review Committee rp B 2579 D 8 .. Mane (402-15]9 •007)941-6389 • Fa: co )942.3548 Overview of PERC Contract Restructuring MRC MISSION: Maintain a long-term, environmentally safe solid waste disposal option at a reasonable, stable and affordable cost. CURRENT PROBLEM/ISSUE:. BHE power contract is over 60% of PERC revenue BHE is financially troubled Current risk of revenue loss is high Tipping fees to make up revenue lass could be as high as $90-5100 per ton SOLUTION: Reorganize contracts to lower risk, lower casts through 2003 and stabilize overall costs over the life of the project at $4553 per ton by: Towns exercise 15 year contract extension option now ♦ Towns waive 2004 plant purchase option. ♦ SHE issues 1 million stock warrants to MRC in the name of the towns($7/share) ♦ Towns win right prepay bonds to buy limited partnership interest and receive corresponding share of PERC rebate PERC partners give up some current benefits (net compensation) - FAME refinancing increases distributable cash pool (6 million annually) SHE gets 113 distributable cash reducing effective power rate to 9-9.5 cents kwh Towns gain standing with BHE power contract 4 SHE loses benefits if obligations not met ♦ Added security with PUC approval headed into utilities deregulation ♦ PERC brought closer to market- can break even selling power at 6.5 cents kwh v. current 10 cent range SUMMARY: Action to ratify contract change avoids high probability of significant tipping fee increases ($90-100 per ton), and stabilizes overall disposal costs at around ($45 per ton) below current levels. 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