$5M Price Tag for Thermal’s Turnaround Plan
YOUNGSTOWN, Ohio – Carl E. Avers, the CEO of Youngstown Thermal LLC, was something of a white knight in the 1980s when the downtown steam system was rescued from Ohio Edison, then expanded and updated with a $7 million investment. Installation of a district cooling system followed in 1996 as Avers widened his business horizons to steam plants in Akron, Detroit and elsewhere.
“Youngstown is the smallest system I’ve worked on,” says Avers, 77. “Now I’m of the age that I want to bring to Youngstown what I’ve brought to other cities and that is an enlightened and more advanced energy system.”
But Avers also brings baggage — legal challenges and competitive threats – as he seeks $5 million to fund construction of a natural gas-fired co-generation power plant at the company’s North Avenue headquarters (READ STORY).
He’s embroiled in a two-year personal bankruptcy case pending in U.S. Bankruptcy Court in Erie, Pa., in which he listed personal assets of $5,100 and liabilities of $59 million. Documents filed in the case reveal a tangled string of corporate entities and family trusts that creditors are attempting to unravel in their search for liquidation value. The largest unsecured creditors and the bankruptcy trustee accuse Avers of not fully disclosing his assets. And the judge hearing the case, Thomas P. Agresti, wrote in a July 21 order that he “has had enough [with Avers’] “delay and obfuscation [in refusing] to turn over corporate records and accounting materials.”
Attorney Gary V. Skiba, who represents Avers, challenged these assertions in a letter to the bankruptcy trustee, Richard W. Roeder of Titusville, Pa., posted July 27 on the case docket. Skiba said the records involve “defunct entities [that] have had no value for anyone in quite some time, as even your report concludes; and absolutely no one had any interest in maintaining records that had no useful purpose.”
Foreshadowing all of this is the bankruptcy and eventual closing of Akron Thermal, which Youngstown Thermal began operating in 1995 under a contract with the city of Akron. This city’s district heating system was purchased in 2004 by one of the multitude of evolving corporate entities, filed bankruptcy in 2007 with creditors owed $20 million and ceased operations in 2009.
Today the long-term viability of Youngstown Thermal is threatened by the loss next June of its largest customer, Youngstown State University, which accounts for $3.2 million, or 60%, of Thermal’s annual revenues. And the city of Youngstown, which buys Thermal’s steam to heat five of its buildings, has set an Aug. 6 deadline for companies to submit proposals for construction of a municipal power plant to heat and cool city buildings, or a district utility system that would potentially serve the entire central business district.
The city pays Thermal “approximately $214,392” annually for steam heating at five buildings: City Hall, the Youngstown Police Department, 20 Federal Place, the City Hall Annex and Fire Station No. 1.
Companies responding to the RFP are given two options. First, submit a proposal for “a 20-year heating and cooling rate based on services supplied by existing heating and cooling plants.” Or submit a 20-year rate proposal “based on services supplied by building, operating and maintaining a localized energy plant(s) in City Hall or any other location identified by the proposer as appropriate.”
Johnson Controls, the Milwaukee-based energy management company to whom YSU awarded a $16 million contract in June to build a steam plant on campus, is expected to submit a proposal for the city’s business. So, too, is Youngstown Thermal.
The company will offer a proposal to provide steam heating as well as and cooling and electricity for municipal buildings, Avers says. Youngstown Thermal serves some 50 buildings in the central business district in addition to YSU, and employs 21.
Avers is emphatic that he knows how to save downtown area businesses $30 million a year in combined energy savings. “Most of the customers downtown do not know how to buy energy in this deregulated market – and they are paying twice as much as they should,” he says.
“I really want the city to be a champion of this. It’s going to benefit the entire business community,” he adds.
His vision, the “Youngstown Energy Plan,” has been presented to City Council and to the Downtown Youngstown Economic Action Group. The case study converts downtown businesses from spending 92 cents of every energy dollar on buying electricity from Ohio Edison to just 15 cents, instead using Youngstown Thermal’s steam for heating (30 cents) and cooling (30 cents), and the company’s “progressive purchasing program” whereby Thermal would buy and resell electricity and manage consumption (25 cents).
The plan, essentially Thermal’s turnaround strategy, begins with construction of a $5 million natural-gas fired co-generation system that would produce steam for heating and cooling, as well as 3.5 megawatts of electricity, which Thermal would sell to the power grid. Integral to the $30 million in overall energy cost savings that Avers estimates downtown businesses would enjoy is Thermal becoming a substantial reseller of electricity and implementing “micro-grids,” which he describes as a “small-scale centralized electricity system that relies on the power grid for electricity but manages demand or capacity charges.”
Youngstown Thermal has engaged Pennoni Associates, based in Philadelphia, as its “strategic partner” to engineer and design the co-generation plant, and help secure new electricity customers. The project’s timeline is 18 to 24 months, according to Avers.
“We are working with Youngstown Thermal to move them from coal to natural gas and improve the overall efficiency of their operations,” affirms David Ferro, director of energy manager management services in Pennoni’s Columbus office. “A lot of these customers in Youngstown are overpaying for electricity. The broker fees and the way people are buying energy are adding extraordinary costs to the end users.”
Pennoni employs 1,200 at 29 offices nationwide and recently celebrated 50 years in business. “We buy energy for Fortune 500 companies across the nation and we help them manage it,” Ferro notes.
According to Avers, a division of Youngstown Thermal formed one year ago already sells electricity “indirectly to 18 buildings” including the Realty Tower and Erie Terminal. “The next step in this process is generating electricity. But first I wanted to get some customers under my belt and then move to becoming a load supplier,” he says.
All it takes is money — financing by the company, securing new debt and/or new investors — and here the math gets fuzzy.
“Obviously the financing needs to be there to do what we’re trying to do,” says Pennoni’s Ferro, who cites a confidentiality agreement that precludes him from discussing whether his company – or anyone else—is ready to fund the $5 million co-generation plant.
“They have sources of money if I don’t put up the money,” Avers says of Pennoni.
“We have commitments already for sponsoring this, all of it, but I’d rather not say who. We will get the money. There is no impediment to this project going forward,” he says.
TOMORROW: Why YSU decided to build its own steam plant.
YESTERDAY: Thermal Losing 60% of Revenue; CEO in Bankruptcy
Pictured: Carl Avers, CEO of Youngstown Thermal LLC.
Copyright 2024 The Business Journal, Youngstown, Ohio.