SPSA spent $3.4 million for advice on how to save money

CHESAPEAKE

Not everyone is suffering from the financial meltdown at SPSA, the troubled garbage authority serving much of South Hampton Roads.

While residents of six local cities and counties are paying the highest trash-disposal rates in the nation - $170 per ton of garbage - the Southeastern Public Service Authority has spent more than $3.4 million in the past year on an array of consultants and attorneys who have advised the agency on two major deals to sell key assets and restructure old debts.

According to records and officials, SPSA paid more than $2 million for outside experts who helped to refinance state-backed loans, a move that kept the agency afloat during the peak of the crisis earlier this year.

An additional $1.4 million has gone to six consulting groups, engineering companies and law firms to analyze bids and negotiate a possible sale of SPSA's most worthwhile assets: a trash-burning power plant and adjoining garbage-sorting center in Portsmouth.

That spending will continue until the facilities are sold to private suitors - either Wheelabrator Technologies, based in New Hampshire, or ReEnergy Holdings LLC, based in New York.

If a deal is made this year or early next year, as expected, the winning bidder would reimburse SPSA for much of the professional services.

Still, the consultants will have made a pretty penny from the mess, and the advisory costs will be factored into trash-disposal rates charged to localities and residents.

Reaction to the outside billing among several observers, local officials and SPSA board members ranged from unknowing shock to mild concern to an unhappy realization that such is the price for untangling the deep and complex problems of SPSA.

"That's a whole heap of money," said Chesapeake Councilman Bryan Collins, who represents the city on SPSA's eight-member board of directors. "Certainly, I didn't expect it would cost this amount of money."

John Daniel, a Richmond-based attorney who advised Covanta Energy Corp. during its unsuccessful bid for the power plant, said he also was surprised by the costs and number of consultants involved.

"I've never seen a deal that should have been straightforward turn into such a convoluted situation," Daniel said. "This was not rocket science. But every time we turned around, there was another delay, and it was mostly driven by another consultant becoming involved."

Before the financial crisis, SPSA for years was criticized for the number of consultants it hired. Critics even joked about the practices, which included contracts for a company to help run meetings and another for a public-relations firm to write news releases when SPSA already had a fully staffed PR department.

But that was years ago and during a different time, said SPSA's executive director, Rowland "Bucky" Taylor. He took over the agency in August 2008 and has since trimmed costs, privatized services and overseen a change in agency leadership.

Taylor acknowledged this week that the possible sale of the power plant has been "one of the most reviewed deals" in the agency's history. And the debt-restructuring, he said, also was looked at by numerous consultants - partly because the eight member localities hired their own financial advisers and attorneys to look over the proceedings.

SPSA now is covering more than $438,000 worth of expenses incurred by the eight members: Virginia Beach, Norfolk, Chesapeake, Suffolk, Portsmouth, Franklin, Isle of Wight County and Southampton County.

Overall, Taylor said, the advisory costs have not been excessive, given the tasks at hand.

"It's the amount of money that's necessary to get the job done - period," he said. "When you're doing these complex deals, it's not just like selling a house. It's an extremely complex issue that takes time, effort and energy. And you can see, it takes money also."

Since SPSA started accepting bids for the power plant last year, a handful of big-money firms, including some connected to Waste Management and The Carlyle Group, have expressed interest.

Each has shown up with its own entourage of local consultants, including the Norfolk law firm Kaufman & Canoles and its partner Vince Mastracco, as well as public-relations pros Joel Rubin and Dean S. Goldman.

The restructuring deal brought more consultants, mostly financial experts that the Virginia Resources Authority, a state creditor, summoned to help wade through the crisis. Board meetings during these tense times often were closed to the public, but inside, the seats were filled with professionals in business suits with bulging briefcases.

By far, SPSA has spent the most money on the services of Williams Mullen, a law firm hired to oversee the sale of the Portsmouth power plant.

"We're a known player in the waste-to-energy industry," said Warren Nowlin, a partner with Williams Mullen. "SPSA didn't by any means hire an unknown."

The firm, with offices throughout the mid-Atlantic, has billed SPSA more than $1.28 million to review proposals for the plant, negotiate with Wheelabrator Technologies and Covanta and perform other services.

Wheelabrator and Covanta also have paid SPSA more than $400,000 for review costs.

In September, some 16 months after the process began, SPSA chose Wheelabrator, a subsidiary of Waste Management, as its preferred candidate. The company offered $150 million for the plant and other concessions.

But SPSA and its consultants are reviewing another, larger proposal from ReEnergy Holdings. The company, with ties to The Carlyle Group, wants to buy SPSA outright and says it would pay $331 million in cash and borrowed money to take over.

The review, approved in late September, is expected to last 45 days.

Mike Saewitz, (757) 222-5207, mike.saewitz@pilotonline.com

Scott Harper, (757) 446-2340, scott.harper@pilotonline.com