Ottawa plan wasn’t ‘economically viable’
Court documents offer insight on Plasco decision to seek creditor protection
Plasco Energy Group decided late last year that it wasn’t yet ready to deliver the waste-to-energy facility it had been promising.
Court documents filed by the company in order to seek protection from its creditors, which it was granted this week, say the Ottawa firm believed it couldn’t yet operate in an “economically viable” way.
The documents pull back the curtain, at least partly, on some of the events leading up to the firm’s decision to seek creditor protection, and also reveal some of the parties that are owed money.
“In late 2014, the Plasco Group began operating the demonstration facility for longer intervals in order to further assess its ability to operate at commercial levels and to convert both wet and dry waste continuously,” reads an affidavit from Randall Benson, a partner and turnaround specialist with KPMG, who has been brought in to help Plasco restructure.
“As a result of these production runs, Plasco Group engineers concluded that certain aspects of the conversion system needed to be redesigned in order to sustain commercial operating performance on an economically viable basis ... The Plasco Group is considering and developing potential solutions to improve the conversion system’s ability to operate at commercial levels, which will require additional time and funding.”
The affidavit also says the company, which had been promoting its technology as a method of greenenergy production, hadn’t reached a deal with the Ontario Power Authority to sell electricity back into Ontario’s electric grid.
“Plasco Ottawa and the OPA have not yet formalized an energy supply contract and Plasco Ottawa has suspended negotiations with the OPA pending further clarity with respect to the development of the commercial facility,” reads Benson’s statement.
The company dealt with technical glitches over the years, forcing numerous tweaks to the technology. Still executives at the firm said the company’s technology would be ready for full-scale commercial production.
In 2010, then Plasco chief executive Rod Bryden said the company was months away from starting construction on a full-sized commercial facility, which it said would be able to turn as much as 400 tonnes of garbage a day into more than 20 megawatts of energy, enough to power 7,200 houses.
In November 2014, Plasco informed the Ministry of Environment that the company planned to reduce the size of the test plant, which included changes to its drying and cooling system, storm-water management, and a reduction in the number of engines that power the conversion system to seven from 10. Plasco did not publicly address why it was making those changes at the time.
In addition to technical challenges, the company’s 120-page court filing contains details about its finances:
The company is facing liabilities totalling $116.6 million. It reports it has assets totalling $80.5 million. There is a caveat. “They are treated as assets of the Plasco Group for accounting purposes but are legally owned by North Shore (Power Group) and CWP (Canadian Water Projects Inc.), respectively,” according to the court filings. In other words, a large portion of the company’s assets aren’t owned by the company. They are already owned by the creditors, which complicates things for the courts.
Since its creation in 2005, Plasco has attracted more than $400 million worth of investment. Attempts to reach some of the company’s larger owners, including Ares Managament LLC of Los Angeles, which has invested more than $100 million in the firm, were unsuccessful;
Included in its liabilities is $68 million worth of “promissory notes,” which gave purchasers the ability to purchase Plasco shares at some point in the future;
In order to secure investment in more recent years, Plasco signed a leasing arrangement with North Shore Power Group, a renewable energy developer that is wholly owned by the tiny municipality of Blind River, Ont., as well as an international water-treatment firm called Canadian Water Projects Inc. for various assets located at the Trail Road facility. Plasco secured an investment from North Shore by signing over ownership for much of the company’s Ottawa demonstration plant, as well as certain rights to the intellectual property and patents that Plasco had created. According to court documents, the principal amount outstanding and owed to North Shore is $17.92 million. A complete list of creditors, including the more than 250 people who own shares in the privately held firm, has been sealed by the courts;
Canadian Water Projects Inc. is listed as having liabilities owing of $17.35 million in total. The amount is split between two different operating divisions within the company; and
Plasco also owes the Ontario Ministry of Research and Innovation $1 million, which marks the remainder of a $4-million loan it received from the government in 2007.
The city of Ottawa, meanwhile, says it actually owes Plasco about $15,000. Hydro Ottawa says it has never invested any money in Plasco.
“From its inception, Plasco has been a pre-revenue, development stage technology company,” said Raymond Floyd, president and CEO, in a statement to the Citizen.
“Over the past 10 years Plasco’s funding has gone towards research and development, developing the Plasco Conversion System at its demonstration facility and associated operating costs, and other business costs including engineering, environmental protection, business and project development, salaries and servicing its debt.”
The CCAA filing has bought the company some time to figure out how what its next move should be.