Thermal Losing 60% of Revenue; CEO in Bankruptcy
YOUNGSTOWN, Ohio — The financial stability of Youngstown Thermal, the utility that heats and cools 50 downtown buildings, is threatened by the loss next June of its biggest customer, Youngstown State University, which accounts for $3.2 million of the company’s $5 million in annual revenues.
At the same time, the city of Youngstown has set an Aug. 6 deadline for alternative proposals to heat five municipal buildings served by Youngstown Thermal, possibly three more including the Covelli Centre and potentially any Thermal customer that wants to tie into whatever system the city might build.
Mayor John McNally says the city is being prudent.
“After becoming aware that Youngstown State University was seeking an alternative source for campuswide heating and cooling services, the city began to consider what the potential ramifications would be,” McNally explained in a statement emailed to The Business Journal. “Because of the potential negative financial ramifications [for Youngstown Thermal], the city decided to issue its own request for proposal for heating and cooling services to see what alternatives existed to best serve and protect city-owned buildings and potentially the entire central business district.”
McNally explained the potential for litigation restricts him from saying more and referred The Business Journal to the city’s request for proposals, issued June 9.
The CEO of Youngstown Thermal Co., Carl E. Avers, says his company will submit a proposal. If the city’s RFP bidders list is any indication, so too will Johnson Controls Inc., the global company YSU contracted with in June to oversee a $16 million project to install a heating and cooling steam system on campus.
Avers says Youngstown Thermal can weather the loss of YSU and city buildings. The Vindicator Printing Co. recently signed on as a cooling customer, he points out, and the Wick Tower, which is being converted into apartments, is a new heating customer.
“We are a public utility and we will be in business until the last customer gets off the system,” Avers vows.
But his resolve comes amid his two-year, contentious personal bankruptcy liquidation in which he lists $59.7 million worth of liabilities and just $5,100 in assets. Among the largest unsecured creditors named on documents filed June 14, 2013, in U.S. Bankruptcy Court in Erie, Pa., are East Fairfield Coal Co. of North Lima, owed $1.5 million, McBarscott Co. of Poland, owed $300,000 and Sigma Capital Group Inc. of Raleigh, N.C., owed $55 million in a claim Avers marked as disputed.
On June 26, Sigma’s CEO wrote Youngstown Thermal customers to notify them of his company’s claims against Avers, Thermal Ventures Inc. and Youngstown Trust 2007, two of the many tangled corporate and legal entities in which he has, or had, financial interests.
Sigma is attempting to collect a $763,191.20 judgment – part of a settlement reached in a lawsuit the company filed in U.S. District Court in North Carolina — against Avers and companies he and his wife might own other than Youngstown Thermal. Wrote Sigma CEO Bruce Woodry, “Information regarding fraudulent transfers or hiding of assets of Carl Avers, by Carl Avers or those acting on behalf, should be brought to the attention of the U.S. Bankruptcy Court in Erie” and the Chapter 7 trustee.
On July 21, the presiding judge hearing the case, Thomas P. Agresti, stated in an order that he “has had enough [with Avers’] “delay and obfuscation [in refusing] to turn over corporate records and accounting materials.” At issue is the “reasonable value” of Thermal Ventures Inc., which operated Youngstown Thermal until it was sold in June 2011 to YT Holdings Corp.
The bankruptcy trustee, Richard W. Roeder, is disputing Avers’ contention that Thermal Ventures Inc. has no value for liquidation purposes. In a July 15 report to Judge Agresti, Roeder attached a letter sent him from an attorney representing Camco International Group Inc. of Lone Tree, Colo., which Avers listed in his initial filing as owed $878,000, a claim he disputes.
The letter from Jessica W. Rhea refers to “the Youngstown entities. There is documentation to support the conclusion that they were purchased in 2011 by a newly formed entity (Youngstown Thermal Holdings) out of TV II [Thermal Venture II] for $3 million. The money came from a loan procured by Youngstown Thermal Holdings from an outside lender in exchange for a security interest in the soon-to-be-acquired Youngstown entities. … Since Avers will not supply the records for TVI, we have no way of knowing if Avers saw any income out of the $3 million purchase price in payment for TVI’s interest.”
Avers says his personal bankruptcy, filed in July 2013 as Chapter 11 and converted to Chapter 7 in January 2014, has no bearing on the financial stability of Youngstown Thermal. “It’s embarrassing but irrelevant,” he insists.
Instead, he outlines his company’s $5 million turnaround plan – financing yet to be secured — to build a co-generation plant on its property at 205 North Ave. downtown. The natural-gas fueled plant would produce steam, more efficiently that Thermal currently does for heating and cooling buildings. It would also produce electricity, which would generate new revenue streams to overcome the loss of YSU, Avers says.
The co-generation project is being engineered and designed by Pennoni Associates, a Philadelphia-based engineering and design consulting firm.
“It’s a viable project, for sure,” says David Ferro, director of energy management services at Pennoni’s office in Columbus. “The feasibility has been analyized. Now we’re in the process of crossing the I’s and dotting the T’s – that being environmental and air permitting and trying into the electrical grid.”
Ferro says the goal of the $5 million project is to “expand services being provided by Thermal, explore new chilled water, steam and power demand, and offer cost reductions to its clients in the form of electricity.”
In addition to selling electricity, it would generate to the power grid, Youngstown Thermal plans to resell power at a lower rate than most companies currently pay.
According to Avers, operations in “the downtown area buy $70 million worth of energy every year. Our plan going forward is to bring $30 million per year in savings to the collective group of buildings.”
TOMORROW: Show Us the Money
Pictured: Youngstown Thermal’s steam plant downtown.
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