CUC Is On Hold      

By Linda Karn and Jay Thompson
For now, the question whether the Town of Speedway would own a $20 million Central Utilities Complex (CUC) has become a moot point.

On November 20, the Speedway SRC received a study performed by Novi Energy that investigated the possibility of a stand alone energy utility complex for GM Allison plant on Tenth Street.

According to SRC President Scott Harris, GM Worldwide has placed the CUC on hold until it makes a decision whether to keep or sell Allison Transmission. None of the four financing options were even considered since the last conference phone call. Harris expects to have another conference call within a few weeks as he discussed the issue with The Speedway Navigator on January 8. In August, GM announced it was assessing Allison Transmission with the consideration of selling the profit making business.

Harris realizes that there probably needs to be resolution between GM and Allison before moving ahead with the project. "We continue to have dialogue with Allison and are prepared to evaluate any option which will enhance their economic viability and profitability."

It has been over year since Speedway Redevelopment Commission and GM Allison Transmission engaged in discussions about constructing a CUC for the town's largest employer. The central utilities complex would make Allison Transmission more energy efficient with steam, a new wastewater treatment facility, compressed air and chillers. These efficiencies would carry over to the bottom line to make the company even more competitive in the world market.

The proposed site is the parking lot located on the north side of 10th Street. The report states the initial designs had the energy improvements located within the facility, but now the intentions are to move it to the employee parking lot site. "It is envisioned that GM will sell or otherwise provide the property to the Town of Speedway for the development of a CUC." However, on page 10, it states "it is assumed that the Town of Speedway will procure the proposed land from GM at no cost to the project."

With either option, town ownership means a loss of collecting property taxes on the site. However, the town would be able to finance the bond issue through GM utility payments to the town and by selling energy to other businesses.

The proposed CUC should be able to generate enough "utility requirements" to supply energy to surrounding industrial businesses, thus allowing these corporations to end their maintenance and operations expenses on their near obsolescent equipment or future replacement costs.

Novi provides four financing scenarios.
The first option is the town owns the CUC and finances the project by raising the bond money as well as the equity in the 80:20 debt equity ratio.

The second option has GM financing the upfront costs to the town to assist with the equity portion. The report states that GM benefits from the discounts to the annual fixed costs based on the upfront costs. The town will still own and finance the project to help offset the town's paying the entire equity portion.

The third scenario involves a third party developer that will own, finance, and operate and maintain the CUC. The third party developer will provide the 20 percent equity. The third party is expected to have an investment rate of return of 15% . However, the town will seek a bond issue to be available for the third party's debt.

The fourth option requires the town to "buy down" the third party. This was not fully explained how it would be implemented other than the third party will own, finance, operate and maintain the CUC. The third party developer will provide the equity with an expected rate of return of 15% . The town will also provide the debt through a bond financing. The town's buy down will assist GM with fixed costs discounts while maintaining a investment rate of return to the third party. The CUC report recommends this option as the most beneficial to GM.

(InvestorsWord.Com defines a buy down as a cash payment made by any party to reduce a borrower's monthly loan payment. )

"We would need to have some serious dialogue with Allison to determine which option could best suit the town and Allison. Funding could come from Economic Development Bonds, which would be independent of the Speedway Redevelopment Commission," Harris said. The Speedway Economic Development Commission would issue Economic Development Bonds.