Several city councilmen and pro-power plant advocates have tried to paint purchase of the park portion of the as some mythically high, unacheivable number—from $400 million to over $1 billion. Numbers obviously picked out of their nether-regions to scare residents from taking action.
I was going to write a blog entry myself addressing this, but I received a letter that does it far better than I could. Here’s a great letter from a former Budget and Finance Commissioner that sets the record straight:
This letter addresses unsupported claims by “city leaders” that the residual value of the AES power plant could be worth as much as $500 million. This is just uninformed and misleading speculation. AES themselves have performed appraisals that are part of public record. The long version of the facts can be found in the city staff report.
A shortened summary version follows:
This plant was purchased by AES from Southern California Edison (SCE) in 1998 for about $250 million. Most of the price paid was allocated to the value of the power generation improvements, which had just enough remaining useful life to support a 20-year power purchase contract to 2018.
The two most modern generators were built in 1967 and will be 51 years old by 2018. The other units are even older and more obsolete.
All that will be left by 2018 is land value. AES appraised the land under the power plant portion for $25,670,000 as of Jan. 1, 2003, assuming a clean site. AES later bought the adjacent 22-acre tank farm land from SCE for about $10.5 million, which included about $6 million as a set aside for environmental clean-up.
This data points to a cleaned-up site value for all 50 acres of about $36 million. Even this value could be high as the AES site is impaired for several reasons including: 1. Industrial uses are incompatible with the surrounding high-density residential uses in the area; 2. Power generation uses are even more incompatible; and 3. Other re-use options are limited by well-documented traffic flow capacity constraints in this area.
Only site value will soon remain as AES will have fully recovered the power generation improvement value from 20 years of power contract profits. An extensive analysis of this can be found in the above link. There is zero evidence supporting the myth of a $500 million dollar value for half-century old, fully depreciated and obsolete, power generation equipment.