Charlotte’s Forsite strikes $62 million deal tackling shuttered coal plants

pier-at-cobb-coal-plant_320xx4276-2400-1213-0Tom McKittrick’s Forsite Development has kicked off a new line of its brownfields redevelopment business with a $62 million deal to take on the environmental liability of two large coal plants in Michigan.

Consumers Energy, the state’s largest electric utility, has paid Forsite to take control of the B.C. Cobb plant in Muskegon, Mich., and the J.R. Whiting plant in Luna Pier, Mich. The deals are “environmental liability risk” contracts in which Fosite gets the property (about 410 acres between the two sites) but also takes on the liability for cleaning up the sites.

“We’re responsible for decommissioning the properties and closing out all the environmental conditions on site,” says McKittrick, whose Charlotte-based development company has been involved in the redevelopment of industrial and environmentally challenged properties for years. “Almost all of our business has evolved (now) into environmental liability risk-transfer deals.”

And most of the focus is on former coal plants, where McKittrick sees enormous opportunity.

“You have all these shuttered coal-fired utility plants coming off line at one time,” he says. “Now we are literally talking to utilities all over the country about this model for them to divest their coal plants and put them in someone’s hands for redevelopment.”

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Economic development
Forsite makes its money off the eventual development of the sites. But McKittrick says the company also sees opportunity to make money in the initial transaction.

“We have to be compensated for the risk we take,” he says. “We’re hoping there is some arbitrage between the decommissioning cost and what we are paid for the project.”

Roger Morgenstern, public information director for Consumers, says his utility closed the two coal plants (and a third not involved in the deal) in 2015. It asked for proposals from companies that would redevelop the land into something that created economic opportunity for the communities where the plants had been important employers.

The company also wanted developers that would take the environmental liability, to protect their customers from potential price shocks. Consumers estimates that ending its liability through the Forsite deal will ultimately save its customers about $31 million over the utility doing the demolition and remediation itself.

Shipping plan
As for economic development, McKittrick proposed a project at Cobb that will make use of a pier capable of serving 1,000-foot container ships. The plant had used the pier for coal deliveries. But Forsite proposes developing it as a port for food processors that need a way to ship product west from Muskegon but want to avoid delays at the crowded Chicago shipping lanes.

Morgenstern says that from the Cobb pier, there is a trip of some 83 miles across Lake Michigan to the port of Milwaukee. McKittrick says that route can cut up to three days out of the logistics run for food processors by going around Chicago.

McKittrick says that pier and shipping channel form the heart of the redevelopment plan for Cobb. He believes the Cobb site and some additional land nearby can be redeveloped as an industrial site for new food-processing companies to move into the region.

Morgenstern says that fits well with the local economy. Agriculture is second only to the auto industry among Michigan’s top businesses, he says.

Plans for the Whiting site are not as fully developed. But McKittrick is looking at the possibility of an inter-modal transportation site there because the plant has facilities to accommodate 360 rail cars on site (Morgenstern says all coal came by rail to that eastern Michigan plant) and is just off Interstate 75. That makes it an excellent site for rail-to-truck shipping.

Risk-transfer deals are new for Forsite, but McKittrick says they are a natural outgrowth of the brownfields business that had become the company’s bread and butter.

In what may be Forsite’s best-known project — the self-styled eco-industrial ReVenture Park near Charlotte — Forsite did not take on the environmental liability. That 2013 project to redevelop the former Clariant Corp. industrial site in Mount Holly into an industrial park focused on environmental sustainability, followed what had been Forsite’s policy. In that deal, Clariant continues to be liable for the environmental remediation.

Dipped its toes
Although Forsite did not assume liability on most of its brownfields projects, McKittrick says, the company became increasingly familiar — and comfortable — with environmental remediation in the course of that work.

Then starting in late 2015, Forsite dipped its toes deeper in the risk-transfer waters with the purchase over the next several months of three small coal plants in eastern North Carolina.

The plants — one 32 megawatts and two 35 megawatts — were former merchant plants previously owned by Charlotte-based Cogentrix.

McKittrick says there was not any significant environmental liability at the plants. He said it was basically a matter of cleaning up the coal yards and dealing with some underground storage tanks.

But he says he saw the potential for more involved deals for large coal plants.

Bigger deals
Consumers had closed the 300-megawatt Cobb plant and 330 megawatt Whiting plant in April 2016. That summer, it advertised for proposals and McKittrick got involved. Consumers chose Forsite in April and the deal closed Oct. 16. McKittrick thinks this is the model for most of Forsite’s deals in the future.

“We are focused almost exclusively on acquiring and developing shuttered coal plants,” he says. “Now that we have been in a deal with a large utility, I think we have an incredible amount of opportunity.”

None of the deals to date have involved taking liability for the coal-ash ponds on the plant sites. McKittrick says he believes Forsite could do such a deal, though it would probably steer clear of high-risk ash ponds near rivers and lakes. Though he did not say, that would make it unlikely he could do a deal with Duke Energy, for instance, in the Carolinas.

But he does believe he could do larger coal sites even than those in the Consumers deal. He says Forsite is slated to go out West shortly to do some initial work on a possible deal involving a 2,400-megawatt plant.

“The bigger the better for us, actually,” he says.

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