Montville waits on $2.84 million in back taxes

Montville - Almost nine months after the town learned it would lose its biggest taxpayer, AES Thames, the future of the defunct power plant and the town's hopes of recovering $2.84 million in back taxes remain uncertain.

The court-appointed trustee in the bankruptcy case of AES Thames filed notice last month that he intends to abandon the buildings, machinery, chemicals and other remaining items on the grounds of the former coal-fired power plant.

The notice claims the AES Thames property and its assets are of inconsequential value. The trustee argued a liquidation of the remaining items on the property would result in no profit for the bankruptcy estate.

While the notice was filed because insurance lapsed on the property and is expected to be withdrawn, according to Mayor Ronald K. McDaniel Jr., the state Department of Energy and Environmental Protection has filed an objection to the abandonment.

The DEEP argues that no safety provisions have been made to prevent contamination of the nearby Thames River in the event the property is abandoned.

McDaniel said the court-appointed trustee reached an agreement with RockTenn, the neighboring package and paper manufacturer that owns the land on which AES Thames is located, to provide insurance coverage on the property for an additional 60 days.

It remains unclear what will happen beyond that point. McDaniel said in the meantime the trustee continues to have conversations with buyers interested in the plant.

The town has filed a lien of $2.84 million against the company for unpaid taxes. The plant also owes Connecticut Light & Power in excess of $300 million, court records show.

A sale fell through with a buyer who planned to dismantle the AES Thames plant and sell off its parts. The trustee in the bankruptcy case has listed the value of the property and its assets at $2.35 million, but has been unsuccessful in striking an agreement that satisfies RockTenn and all creditors in the case.

Recent turns in the bankruptcy proceedings have reaffirmed a belief of some that the town is unlikely to receive the unpaid taxes it is due.

"It's up to the bankruptcy court to determine who gets paid. They're another player that needs to sign off on any agreement," McDaniel said. "I forecasted us not getting a dime. Anything we get would be great. Obviously, we're going to continue to fight for anything we can get."

AES has a long partnership with CL&P

AES Thames, previously owned by the Arlington, Va.-based AES Corp., filed for bankruptcy in February 2011 after ceasing operations a month earlier. The Depot Road plant had 43 workers. The bankruptcy later became a Chapter 7 liquidation.

The plant, which had operated in the town since 1990, was at one time the largest independent power producer in the state. It generated 181 megawatts of electricity. A megawatt serves about 1,000 average homes.

Court records show AES Thames had an agreement dating back to 1985 with CL&P to provide electricity to the utility company. The agreement allowed AES Thames to use its assets as collateral as it took advance money from CL&P to help in the construction of its plant.

In 1999 the two parties also entered into an electricity purchase agreement in which CL&P prepaid the company for the future cost of electricity. CL&P received a reduced price as part of the deal.

In 2001 the agreement was amended to allow CL&P, as a creditor, a first-priority lien on all AES Thames property in the event of a bankruptcy. Court records show the utility company is entitled to the AES Thames plant, all equipment and inventory, accounts and insurances policies and more.

CL&P spokesman Mitch Gross said the company is monitoring the bankruptcy case closely and plans to file paperwork with state regulators concerning the abandonment notice.

A lawyer familiar with the bankruptcy case explained it using a probate analogy. In this instance, AES Thames is comparable to a mother who has several children. When she dies, her children are all creditors in the estate.

The court-appointed trustee in a bankruptcy case has the task of making sure every creditor agrees. In this case, that would mean creditors must agree on the potential sale of the AES Thames property and assets. Additionally, the approval of RockTenn, owner of the land, would be needed for a new lease with a buyer.

A spokesman for RockTenn did not respond last week to requests for comment. The court-appointed trustee in the bankruptcy case also did not respond to an email seeking comment and was unavailable Friday by phone.

DEEP worried about plant being abandoned

The notice of abandonment was placed on hold because of the objection filed by the DEEP.

The objection states the bankruptcy trustee had made arrangements during the bankruptcy proceedings for workers to operate various water treatment systems at the plant and to heat the facility and provide security.

The DEEP in its objection said there have been no similar provisions made in the case of the abandonment going through.

It said the plant property includes coal and limestone piles and a sulfuric acid tank, which could contribute to pollution. The DEEP previously allowed AES Thames to treat its wastewater on site and to discharge it into the Thames River.

A bankruptcy court in Delaware will allow responses to the DEEP objection until Sept. 28. A hearing on the objection has been scheduled for Oct. 3 in Delaware.

McDaniel said the town is hopeful the situation will be resolved. If the plant were to be torn down, the town could potentially help market the property to a buyer who could start a new operation and create a new source of tax revenue.

"Obviously, it won't be a viable plant," McDaniel said. "The faster that happens, the faster it can be developed by another entity."

jeff.johnson@theday.com