Tuesday, April 21, 2015

Analysis: SB 724- Do Taxpayers Really Need To Fund More White Elephants?

Bion Environmental Technologies, the company who wrote and is heavily promoting Senate Bill 724 (Vogel-R-Beaver) as the solution to meeting Pennsylvania’s Chesapeake Bay cleanup milestones, was notified on September 25, 2014 that it would be “an Event of Default” if it did not pay off its 2010 $7.7 million loan from PennVEST for its Lancaster manure treatment facility by October 24, 2014.
Bion made no payments on the taxpayer-funded loan since January 1, 2013, PennVEST said, and added, “...Bion abandoned the project in the Commonwealth.”
In Bion’s response to PennVEST on October 23, 2014, officials told PennVEST, “The problem remains that the source of repayment is and has always been nutrient credit sales and a credit market for verified credits in Pennsylvania is not adequately developed to produce the needed credit sales (based on both volume and price) to support such loan repayment.”
In other words, Bion had no income from the facility to pay its publicly-funded PennVEST loan.  Bion also said in the letter it had to borrow money from its parent company to pay maintenance costs on the facility.
“The total cost of maintenance is between $175K and $200K annually, and that does not include any allocation for G&A (General and Administrative Expense), including senior management time, administrative and SEC accounting and reporting costs associates with the project, etc.”
The letter complained, “The default notice from PennVEST and related loan acceleration is an impediment to Bion’s continuing to provide financial support to PA1 (the Lancaster facility) for asset preservation and enhancements.”
Bion blamed state government for a second time for not making the right policy decisions to support its repayment of its loan of taxpayer money.
“It serves neither of our interests to be required to defend why this loan is in default.  The reason resides with state government’s failure to act in implementing the policy changes and initiatives that would have supported the use of these low cost reductions.”
The “policy changes” Bion is referring to, of course, is Senate Bill 724 and Senate Bill 994 before it.  The bill sets up an RFP process that favors capital-intensive, high-cost nutrient reduction technologies, like the manure treatment facility Bion now cannot pay for because it has no income.
As of this writing, Bion is still trying to identify a source of revenue to pay back taxpayers for the PennVEST loan.
In its 10-K report to the federal Securities and Exchange Administration (page 37), Bion said, “The Company is not currently generating any significant revenues. Further, the Company’s anticipated revenues from existing projects and proposed projects will not be sufficient to meet the Company’s anticipated operational and capital expenditure needs for many years. …(T)here is no guarantee that we will be able to raise sufficient funds or further capital for the operations planned in the near future.”
So what went “wrong”?  
The simple answer is Bion guessed wrong about the market for nutrient credits and now wants to change the rules in its favor and let taxpayers pay the bill.
Bion and a December 2012 report by the Legislative Budget and Finance Committee estimated the sustainable price per credit needed to support its technology is in the neighborhood of $11 per credit.
In most the recent market auction for nutrient credits by PennVEST in June 2014, nitrogen credits were sold for $2.27 per credit.
As anyone can see, $2.27 is less than $11 per credit.  The math just doesn’t work.
In addition, the “TMDL parameter credit” process outlined in Senate Bill 724 does not stipulate that credits must come from U.S. EPA-approved practices or meet existing regulatory standards under 25 Pa. Code § 96.8 for a marketable nutrient credit and be consistent with U.S. EPA nutrient trading guidance.
So not only would Senate Bill 724 credits not count in meeting Pennsylvania’s Chesapeake Bay milestones, the “credits” have no market value in Pennsylvania because they cannot be traded or sold to meet water quality requirements by other facilities, like wastewater treatment plants, one justification Bion uses for the bill.
The only thing Senate Bill 724 credits are good for are paying the winners of the RFP process, like Bion hopes to be.  It’s a clever funding mechanism, which would benefit neither taxpayers (who have to pay), nor other facilities that could not actually use the credits for anything.
It does raise an interesting question.  PennVEST would run the RFP process under Senate Bill 724.  Does that mean Bion could pay back its $7.7 million loan with PennVEST money?  There’s nothing in the bill to prohibit it.
The only benefit of Senate Bill 274 would be to Bion or similar companies in an RFP process that favors them.  Unfortunately, Senate Bill 274 would leave taxpayers, who would have to pay for the credits, with worthless paper credits they cannot sell or trade.
Let’s summarize—
1. Bion Didn’t Pay Its PennVEST Loan: Bion Environmental Technologies was notified by PennVEST in September 2014 it would be an event of default of its $7.7 million loan if it did not pay the entire amount by October 24, 2014. It didn’t pay.
2. Bion Told The SEC It Has No Income: Bion told the SEC in 2014 the company was not generating any significant revenues, in fact, “(T)here is no guarantee that we will be able to raise sufficient funds or further capital for the operations planned in the near future.”
3. Bion Blames State Government For Its Failures: Bion blamed state government for it predicament by saying state government failed to make the policy changes— Senate Bill 724— needed to so it could generate revenue.
4. Bion Guessed Wrong About Nutrient Credit Market: Bion guessed wrong about the nutrient credit market in Pennsylvania and now wants taxpayers to pay the bill.  It needed $11 per credit to operate the plant.  PennVEST’s market auction sold credits for $2.27.  The math does not work.
5. SB 274 Is A Funding Mechanism For Bion, Not A Cleanup Tool: Senate Bill 274 is simply a funding mechanism so Bion. and similar companies, can pay off its debts because the credits created in the bill do not meet state or federal requirements, nor can they be traded or sold.  The only thing they are good for is making Pennsylvania taxpayers pay companies like Bion.
Yes, meeting Chesapeake Bay cleanup milestones are difficult, and manure treatment technology may have a limited, niche role in that effort, but does it justify creating more white elephants that can’t pay for themselves?
There will be more…..
Related Articles:
Company Promoting SB 724 As THE Solution To Bay Cleanup Creates Reality Distortion Field

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