Montville - The company that purchased AES Thames, the town's top taxpayer, plans to dismantle and decommission it, Mayor Ronald K. McDaniel Jr. said Monday.

The plant, on Depot Road, pays the town more than $1.2 million in taxes.

"It's devastating for the town," McDaniel said prior to a Town Council meeting in which he informed the Town Council and the public of the fate of the plant. "They've been a longtime good neighbor. It's not only the tax revenue, but they've created a lot of jobs."

While the announcement has yet to be made official, McDaniel said the "handwriting is on the wall" after the company was sold last week to a subsidiary of BTU Solutions, a company that specializes in power plant demolition.

AES Thames, previously owned by the Arlington, Va.-based AES Corp., filed for bankruptcy in February and was purchased last week in an auction for a reported $2.35 million. It hasn't been operating since Jan. 26. Before it shut down, it had a total of 43 workers. Management had hoped to restructure the company.

The Uncasville-based plant has notified its employees that they will be laid off as of Jan. 1, McDaniel said. It is possible that some will be re-hired to help with the decommissioning, McDaniel said.

BTU Solutions' subsidiary, a salvage bidder, plans to deconstruct the plant's turbine generator and reconstruct it in South America, McDaniel said. He said the decommissioning is expected to be completed within 16 months.

A closing date on the sale is scheduled for Dec. 28. An AES Thames spokesman on Monday declined to comment on the sale.

AES Thames, which had operated in the town for nearly 22 years, generated 181 megawatts of electricity. A megawatt serves about 1,000 average homes.

The company generated and sold power to Connecticut Light & Power and also previously had a contract to supply unused steam to Smurfit-Stone Container Corp. The contract with Smurfit-Stone was later rejected by a Delaware federal court, and a Georgia firm, RockTenn, acquired Smurfit-Stone.

Town councilors have feared that if the plant ceased to operate, it would place another hardship on future town budgets.

In the next fiscal year, the town will make a $1.35 million payment to Rand-Whitney Containerboard, a paper manufacturer, after a court-ordered settlement that followed years of legal proceedings.

Also, in its next budget, the town will also lose approximately $600,000 in federal stimulus funds earmarked for education.

"It could be make or break for the town," Town Councilor Gary Murphy said recently of the lost tax revenue. "That's a lot of money."

According to court documents, AES Thames filed for bankruptcy because of "unexpected market conditions" and "regulatory uncertainties." The documents also show the company's president said an "uneconomic and onerous" contract with Smurfit-Stone's predecessor was also a factor.

The plant was among the state's biggest polluters. The Environmental Protection Agency's annual toxic release inventory for 2007 showed that AES Thames was the third-largest polluter in the state.

At the time, the power plant reported chemical releases of 298,189 pounds, which ranked it one spot behind the Dow Chemical Co.'s plant at Allyn's Point in Gales Ferry.

jeff.johnson@theday.com