PUCO to Consider Sale of Youngstown Thermal

YOUNGSTOWN, Ohio – The long-awaited sale of Youngstown Thermal LLC and a related entity could be on track to close soon.

The Public Utilities Commission of Ohio will consider today whether to approve an agreement to sell Youngstown Thermal and Youngstown Thermal Cooling LLC’s assets to SOBE Thermal Energy Systems LLC.

A joint application submitted in January shows that the parties seek authority from the PUCO to transfer the assets and customers of Youngstown Thermal to SOBE for $250,000 per a sales agreement that was negotiated more than two years ago.

According to documents filed Oct. 27, the PUCO staff recommended that the commission approve the sale.

The commission is to consider the matter at its meeting at 1:30 p.m. in Columbus.

“SOBE has the managerial, technical, and financial capabilities to acquire and operate the Youngstown Thermal entities,” the recommendation says.

“[SOBE] has made capital investments to upgrade and improve the utility system while also implementing new operational procedures intending to gain efficiencies and improve the monitoring of the system’s performance,” states the PUCO staff review.

Among these investments are a new package boiler to replace older, less efficient boilers and a new air-cooled chiller unit. SOBE has also made repairs to all known leaks throughout the utility system, the analysis reads.

SOBE, based in Dublin, Ohio, stated that there would be no rate changes to customers once the asset transfer was completed, documents say.

Youngstown Thermal began to experience financial troubles in 2017 after its largest customer, Youngstown State University, opted to build its own boiler units and leave the system.  The company was ordered into receivership by the Mahoning County Court of Common Pleas when it was unable to pay its bills. 

Were the district heating system to fail, it could have seriously disrupted dozens of businesses the utility serves downtown. The companies began searching for a buyer once they were placed in receivership.

Under receivership, Youngstown Thermal was able to erase a deficit of $1.8 million and realize a small profit of $2,500 during 2018, court papers say.  This was accomplished through cutting costs, reducing the workforce, instating an emergency surcharge on customers, and establishing a new rate structure.

Under a deal signed in April 2019, SOBE agreed to purchase the assets of Youngstown Thermal and Youngstown Thermal Cooling LLC for $250,000. 

A management contract between the entities was signed in June of that year, and SOBE has managed the operations at Youngstown Thermal since.

The PUCO staff recommendation is limited to the sale and asset transfer, and rendered no opinion on a financing package that was also part of the proposal.

Instead, the staff recommended that the commission direct SOBE to file a separate application when it’s prepared to issue debt in order to support expansion of the system.

According to a receivers’ report filed Feb. 19, 2021, the project initially proposed financing of $23 million that included the construction of a larger, more efficient co-generational plant that could produce synthetic gas from recycled materials.

However, the PUCO requested that SOBE eliminate the co-generational portion of the project, noting that it could not approve an operation with both public and non-public utility elements, according to the receiver’s latest report filed Oct. 15.

As such, SOBE modified its submission to exclude a shredder operation – initially identified for a site in Lowellville — that would convert solid waste such as rubber tires into synthetic gas, according to documents. The gas would then be used as feedstock in Youngstown Thermal’s burners for process heating.

The amended plan reduced the amount of financing from $23 million to $15 million, documents say.

It is not clear whether the recycling plant would be built at a later date.

Financing would be sourced through revenue bonds underwritten by Stifel, Nicolas & Co. and issued by the Western Reserve Port Authority. The bond issue would be used to finance future expansion of the utility system, documents show.

These include ambitious plans to make upgrades and attract new customers to the district heating and cooling network in or near downtown.

A business plan submitted to the PUCO last year shows that SOBE intends to acquire and install two new boilers at Youngstown Thermal’s plant at 205 North Avenue. It also calls for repairing any system leaks that could undermine the plant’s performance.

Commissioned in 1895, the plant is the oldest district heating and cooling facility in the United States.   

Much of the plan hinges on adding two significant customers to the system: YSU and Mercy Health St. Elizabeth Youngstown Hospital. 

SOBE has entered into non-binding letters of intent from both entities to purchase steam heat, and the plan calls for SOBE to acquire and install new chillers on site at the university and the hospital.

Currently, the utility does not have any chiller customers under contract, documents say.

Also, legal disputes involving past balances from two customers have now been settled, according to the latest receiver’s report.

What is unclear is how the sale and potential expansion will ultimately impact rates for the 34 downtown customers served by the system.

“Everyone hopes there will be more stability,” says Fourth Ward Councilman Mike Ray, who is chairman of City Council’s public utilities committee.  “A stable future and reliability is really important.  District steam makes sense in so many ways, but the biggest think is reliability.”

City Hall and the Youngstown Police Department are major customers on Youngstown Thermal’s line.  So are office buildings owned by Ohio One Corp. and the YMCA – the service’s largest customer.

In May 2018, the PUCO approved a rate structure that assesses customers a fixed monthly surcharge based on their expected annual heating costs. These fees range anywhere between $25 a month for small users and $1,000 monthly for larger consumers.

For example, customers whose expected annual heating expenses fall between $15,001 and $28,000 also pay an additional monthly fee of $200. Those whose heating costs fall between $28,001 and $38,000 would pay an extra $300 per month. On the higher end, customers whose expected annual bill is $80,001 and above would pay another $1,000 per month.

These rates are to remain in place after the sale, court documents say. Officials have said previously that rates could conceivably move lower as more customers join the system.

Calls and emails seeking comments from SOBE executives were not returned.

Reg Martin, who was appointed by the court as the receiver for the utility, says the PUCO’s approval would pave the way for a sale and close out an ordeal that began more than four years ago.

“If they approve, this enables them to sell it,” Martin said.  “I’m out of it after that. We’ll see what happens on Wednesday.”

Copyright 2024 The Business Journal, Youngstown, Ohio.