Analysis: Why Bion Is The Force Behind SB 724- It's Subsidiary Can’t Pay Back A $7.7M PennVEST Loan
Many people have asked why Bion Environmental Technologies, the company who wrote and is heavily promoting Senate Bill 724 (Vogel-R-Beaver) as a solution to reducing pollution to meet Pennsylvania’s commitments to the Chesapeake Bay cleanup, has been pushing so hard for the last three years to have the General Assembly pass Senate Bill 724.
The answer is simple-- it has no revenue stream to pay back a 2010 $7.7 million PennVEST loan for its only facility in Pennsylvania, a manure treatment facility in Lancaster County.
In fact, PennVEST said it has not made a payment since January 2013. Coincidentally, Senate Bill 724’s predecessor-- Senate Bill 994-- was introduced in June of that year.
Bion told PennVEST in writing the state has to change its rules to allow it to have the money to pay back the loan, and it has been trying to do just that by writing Senate Bill 724 and pushing the bill relentlessly for two legislative sessions.
Bion has been working with PennVEST to identify a revenue stream to pay back the loan, but so far the only idea it has is for the General Assembly to enact Senate Bill 724 and have taxpayers foot the bill.
Here’s the background.
>> Senate Bill 724 Creates A Distorted Market In Favor Of Bion-Like Technology
In Senate Bill 724, Bion created a flawed RFP process that favors big, capital-intensive technologies to deliver nutrient reduction “credits” that it says will solve the Bay’s problems.
Coincidentally, Bion’s business is developing capital-intensive, expensive manure treatment facilities.
When compared to other capital-intensive pollution reduction projects, this option certainly does look cheaper.
Dressed-up as a market-based solution, the process appeals to many legislators as the Holy Grail, the silver bullet, they are looking for.
Once you look beyond the heavy promotion by Bion, the facts tell a much different story.
The process outlined in the bill actually squeezes out small farmers who want to put much more cost-effective conservation practices on the ground.
Would thousands of individual farmers, with much less expensive options, put in a bid in response to this RFP? No. They don’t have the time or money to do it.
The U.S. Environmental Protection Agency says manure accounts for about 16 percent of the nitrogen pollution in Pennsylvania waterways, but just over 20 percent is attributable to sediment carrying chemical fertilizers not addressed by manure treatment technology.
That means 86 percent of the nitrogen problem and 328 million pounds of sediment Pennsylvania must eliminate to meet the 2017 milestones are not addressed by manure treatment technology.
A stakeholder group convened in 2013 in response to last year’s version of Senate Bill 724 representing the agriculture community, Lycoming and York counties (who have their own innovative nutrient reduction plans), conservation districts, municipalities, Bion and Rep. Ron Miller (R-York), at the time Majority Chair of the House Environmental Resources and Energy Committee, discussed the issue of meeting Chesapeake Bay cleanup milestones, the legislation and the role of manure treatment technology.
The consensus of the group was Senate Bill 724 added complexity to the already very complex Chesapeake Bay cleanup program, MS4 stormwater management program and TMDL watershed cleanup requirements.
They did not see it as a useful tool and at worst it diverted resources away from practices we know work at less cost.
The consensus was that manure technology only dealt with part of the nitrogen problem Pennsylvania faces and that other, more cost-effective methods existed to deal with the pollution issues in the timeframe Pennsylvania is required to act.
Manure treatment technology and Bion’s technology is also not a practice that is now approved by the U.S. EPA as part of the Chesapeake Bay Program and there is no timeline for approval.
As a result, any nitrogen reductions achieved by this technology would not count toward meeting Pennsylvania’s cleanup commitments for 2017 and beyond.
That could change in the future, of course, if one or more manure treatment systems is approved or even Bion’s, but Pennsylvania needs certainty given our deadlines, not a fuzzy future.
Pennsylvania has 607 days (as of April 27) to put practices on the ground to meet EPA’s 2017 Chesapeake Bay cleanup milestones.
If these milestones are not met, the U.S. EPA is prepared to step in and implement backstop measures that would impose a variety of direct measures like requiring more farm permits, reducing discharge limits on wastewater plants and others to meet the milestones.
The other glaring omission from Senate Bill 724 is funding. There is no funding for DEP to set up the complex program and no funding to buy any of the “credits” created by the bill.
>> Do Taxpayers Need To Fund More White Elephants That Can’t Pay For Themselves?
Bion Environmental Technologies Inc.'s subsidiary Bion PA1 LLC was notified on September 25, 2014 that it would be “an Event of Default” if it did not pay off its 2010 $7.7 million loan from PennVEST for its Lancaster manure treatment facility by October 24, 2014.
Bion PA1 LLC made no payments on the taxpayer-funded loan since January 1, 2013, PennVEST said, and added, “...Bion abandoned the project in the Commonwealth.”
In Bion PA1 LLC's response to PennVEST on October 23, 2014, officials told PennVEST, “The problem remains that the source of repayment is and has always been nutrient credit sales and a credit market for verified credits in Pennsylvania is not adequately developed to produce the needed credit sales (based on both volume and price) to support such loan repayment.”
In other words, Bion had no income from the facility to pay its publicly-funded PennVEST loan. Bion also said in the letter it had to borrow money from its parent company to pay maintenance costs on the facility.
“The total cost of maintenance is between $175K and $200K annually, and that does not include any allocation for G&A (General and Administrative Expense), including senior management time, administrative and SEC accounting and reporting costs associates with the project, etc.”
The letter complained, “The default notice from PennVEST and related loan acceleration is an impediment to Bion’s continuing to provide financial support to PA1 (the Lancaster facility) for asset preservation and enhancements.”
Bion blamed state government for a second time for not making the right policy decisions to support its repayment of its loan of taxpayer money.
“It serves neither of our interests to be required to defend why this loan is in default. The reason resides with state government’s failure to act in implementing the policy changes and initiatives that would have supported the use of these low cost reductions.”
The “policy changes” Bion is referring to, of course, is Senate Bill 724 and Senate Bill 994 before it. The bill sets up an RFP process that favors capital-intensive, high-cost nutrient reduction technologies, like the manure treatment facility Bion now cannot pay for because it has no income.
The close relationship between Bion’s survival and Senate Bill 724 is clear. Senate Bill 994, last session’s Senate Bill 724, was introduced on June 5, 2013, six months after Bion stopped paying back PennVEST.
As of this writing, Bion is still trying to identify a source of revenue to pay back taxpayers for the PennVEST loan.
In its 10-K report to the federal Securities and Exchange Administration (page 37), Bion said, “The Company is not currently generating any significant revenues. Further, the Company’s anticipated revenues from existing projects and proposed projects will not be sufficient to meet the Company’s anticipated operational and capital expenditure needs for many years. …(T)here is no guarantee that we will be able to raise sufficient funds or further capital for the operations planned in the near future.”
So what went “wrong”?
The simple answer is Bion guessed wrong about the market for nutrient credits and now wants to change the rules in its favor and let taxpayers pay the bill.
Bion and a December 2012 report by the Legislative Budget and Finance Committee estimated the sustainable price per credit needed to support its technology is in the neighborhood of $11 per credit.
In most the recent market auction for nutrient credits by PennVEST in June 2014, nitrogen credits were sold for $2.27 per credit.
As anyone can see, $2.27 is less than $11 per credit. The math just doesn’t work.
In addition, the “TMDL parameter credit” process outlined in Senate Bill 724 does not stipulate that credits must come from U.S. EPA-approved practices or meet existing regulatory standards under 25 Pa. Code § 96.8 for a marketable nutrient credit and be consistent with U.S. EPA nutrient trading guidance.
So not only would Senate Bill 724 credits not count in meeting Pennsylvania’s Chesapeake Bay milestones, the “credits” have no market value in Pennsylvania because they cannot be traded or sold to meet water quality requirements by other facilities, like wastewater treatment plants, one justification Bion uses for the bill.
The only thing Senate Bill 724 credits are good for are paying the winners of the RFP process, like Bion hopes to be. It’s a clever funding mechanism, which would benefit neither taxpayers (who have to pay), nor other facilities that could not actually use the credits for anything.
The only benefit of Senate Bill 274 would be to Bion or similar companies in an RFP process that favors them. Unfortunately, Senate Bill 274 would leave taxpayers, who would have to pay for the credits, with worthless paper credits they cannot sell or trade.
>> Bion Makes The Link Between Passing SB 724 And Repaying Its PennVEST Loan
If it wasn’t clear before it is now. Bion Environmental Technologies, the company who wrote and is heavily promoting Senate Bill 724 (Vogel-R-Beaver) as a solution to reducing pollution to meet Pennsylvania’s commitments to the Chesapeake Bay cleanup, is really pushing the bill to help it pay back its PennVEST loans.
The link between passage of Senate Bill 724 and repayment of the 2010 $7.7 million PennVEST loan by Bion was made clear in an email exchange between PennVEST and a representative of Bion in February of this year.
Still pressing PennVEST to avoid a formal declaration of default on the PennVEST loan, Bion was pushing for a modification of its loan agreement to stretch out the repayment schedule to allow time for the bill to pass.
The Bion representative said in a February 17, 2015 email, “Our client has been willing to enter into a (loan) modification since 2013 to allow it time to pass legislation and find a way to repay you. Our client has also offered to continue (to) push legislation and to maintain the asset.”
Paul Marchetti, Executive Director of PennVEST, said in an email of the same date, “I do have a responsibility to do whatever I think is necessary and reasonable to effect repayment of our loans. While legislation may offer one way to accomplish that, I have to look to Bion for repayment. In that context, I feel that it is my responsibility to take any action that could encourage repayment on their part, and this is simply one such action (placing Bion on the state’s debarment list).”
The debarment list Marchetti was referring to is a list the state maintains of companies that fail to pay the state money they owe. Listing Bion would limit the ability of the company to enter into contracts with the Commonwealth, and coincidentally responding to the RFP process under Senate Bill 724.
The potential of the debarment list action was included in the PennVEST letter to Bion on September 25, 2014 as one step PennVEST could take to bring pressure on the company to repay the loan.
Interestingly, there is nothing in Senate Bill 724 that would prohibit Bion from paying back its 2010 $7.7 million PennVEST loan with new money it received for winning an RFP under the bill administered by PennVEST. So Bion could be in the position of paying PennVEST back with PennVEST’s own money.
PennVEST is sticking to its guns and wants the taxpayer’s money back.
A copy of the email exchange is available online.
>> Senate Bill 724 So Critical To Bion’s Survival It Notified The SEC April 22
The passage of Senate Bill 724 (Vogel-R-Beaver) is so important to the financial survival of Bion Environmental Technologies the company filed an 8-K with the Securities and Exchange Commission on April 22 noting the bill had been introduced.
>> So Are There Alternatives? Sure, And Much Cheaper Than Bion Technology
Interestingly, changing the way livestock are fed can have significant impacts on the nitrogen and phosphorus in the resulting manure.
Penn State’s College of Agricultural Sciences estimates a 40 to 60 percent reduction in nitrogen and a 30 to 50 percent reduction in phosphorus are achievable by precision feeding programs for poultry, dairy cattle and swine.
Perhaps treating the nitrogen pollution problem from the front-end rather than the back-end is the most cost-effective option, rather than building a costly manure treatment operation to treat the manure after it’s produced.
Stroud Water Research Center and the U.S. EPA Chesapeake Bay Program estimated that forested stream buffers remove 19-65 percent of nitrogen, 30-45 percent of phosphorus and 40-60 percent of sediment that would otherwise enter a stream.
Pennsylvania, the federal government and a variety of non-profit organizations, like the Chesapeake Bay Foundation-PA, now provide landowners with financial assistance in installing buffers and even annual payments for taking farmland out of production through the Conservation Reserve Enhancement Program.
Since 2000, Pennsylvania has required certain farms with livestock operations to have manure management and nutrient management plans. These plans require farmers to develop a plan for managing on-farm manure to avoid over-application and provide for safe storage, barnyard improves and use. The plan also has to account for applications of chemical fertilizers.
Good farm management practices like controlling livestock access to streams and using stabilized stream crossing are also good tools to limit nutrient and sediment pollution. There are many more.
Oh, and all these practices count toward our commitments-- now.
None of these options are now being implemented like they should be to meet Chesapeake Bay milestones, but they could be if given the right attention.
>> Summary-- Senate Bill 724 Creates Distorted Market, Bion Can’t Pay Back Its Loan
So let’s summarize. Senate Bill 724 would--
1. Squeeze Out Small Farmers With Much Cheaper Solutions: Designs an RFP process favoring capital-intensive, high-cost technology to deliver pollution reductions, while squeezing out small farmers who want to install conservation practices.
2. Not Address A Huge Part Of The Problem: Manure treatment technology leaves 86 percent of the nitrogen problem and none of the 328 million pounds of sediment reduction problem needs solved to meet the 2017 milestone.
3. Manure Technology Doesn’t Count: Manure treatment technology is not a U.S. EPA approved practice and there is no timeline for approval, as a result it does not count toward Pennsylvania’s Chesapeake Bay cleanup milestones.
4. Stakeholders Found The Bill Was Not A Useful Tool: The consensus of a broadly representative stakeholders group found the legislation added complexity to all already complex Chesapeake Bay cleanup program and manure technology only dealt with a portion of the problem Pennsylvania faces and not in the timeframe we need to face it.
5. Much Cheaper Alternatives Count Now: Other, much cheaper, accepted practices are available and are being implement at some level that deal effectively with the manure issue.
6. Unfunded Mandate: There is no funding provided. Does Pennsylvania really need another unfunded mandate?
7. Bion PA1 LLC Didn’t Pay Its PennVEST Loan: Bion Environmental Technologies, Inc.'s subsidiary Bion PA1 LLC was notified by PennVEST in September 2014 it would be an event of default of its $7.7 million loan if it did not pay the entire amount by October 24, 2014. It didn’t pay.
8. Bion Told The SEC It Has No Income: Bion told the SEC in 2014 the company was not generating any significant revenues, in fact, “(T)here is no guarantee that we will be able to raise sufficient funds or further capital for the operations planned in the near future.”
9. Bion Blames State Government For Its Failures: Bion blamed state government for it predicament by saying state government failed to make the policy changes— Senate Bill 724— needed to so it could generate revenue.
10. Bion Guessed Wrong About Nutrient Credit Market: Bion guessed wrong about the nutrient credit market in Pennsylvania and now wants taxpayers to pay the bill. It needed $11 per credit to operate the plant. PennVEST’s market auction sold credits for $2.27. The math does not work.
11. SB 274 Is A Funding Mechanism For Bion, Not A Cleanup Tool: Senate Bill 274 is simply a funding mechanism so Bion. and similar companies, can pay off its debts because the credits created in the bill do not meet state or federal requirements, nor can they be traded or sold. The only thing they are good for is making Pennsylvania taxpayers pay companies like Bion.
Yes, meeting Chesapeake Bay cleanup milestones are difficult, and manure treatment technology may have a limited, niche role in that effort, but does it justify creating more white elephants that can’t pay for themselves?
There isn’t a silver bullet as Auditor General Eugene DePasquale reported April 10.
Let’s see, low-tech, low-cost solutions that work and count now toward our Chesapeake Bay cleanup milestones, or building a complex manure treatment system that requires trucking manure to a central facility, people to operate, maintenance and upkeep and has a limited lifespan?
An old Pennsylvania Dutch saying has it you can milk a neighbor’s cow through a fence, but would you really want to?
Passing Senate Bill 724 to bail out one company-- Bion? It’s been known to happen in the General Assembly.
But would you want to?
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