NEW BUSINESS AND ASSET MANAGEMENT (Notes)

12 Months Ended

Dec. 31, 2019

Notes To Financial Statements [Abstract]

New Business and Asset Management

quisitions discussed in the section below are not material to our consolidated financial statements individually or in the aggregate and therefore, disclosures of pro forma financial information have not been presented. The results of operations reflect the period of ownership of the acquired businesses, business development projects and dispositions.

Green Investment Group Limited (“GIG”) Joint Ventures

Dublin EfW

During 2017, we completed construction of the Dublin EfW facility ("Dublin EfW"), a 600,000 metric ton-per-year, 58 megawatt facility in Dublin, Ireland. Operational commencement began in October 2017.

In December 2017, we entered into a strategic partnership with GIG, a subsidiary of Macquarie Group Limited, to develop EfW projects in the UK and Ireland. Our first investment with GIG, Covanta Europe Assets, Ltd ("CEAL"), is structured as a 50/50 joint venture between Covanta and GIG. As an initial step, we contributed 100% of Dublin EfW into CEAL, and GIG acquired a 50% ownership in CEAL for €136 million ($167 million). We retained a 50% equity interest in CEAL and retained our role as operations and maintenance ("O&M") service provider for the Dublin EfW.

On February 12, 2018, GIG's investment in CEAL closed and we received gross proceeds of $167 million ($98 million, net of existing restricted cash), which we used to repay borrowings under our revolving credit facility. The sale resulted in our loss of a controlling interest in Dublin EfW, which required the entity to be deconsolidated from our financial statements as of the sale date. For the year ended December 31, 2018, we recorded a gain on the loss of a controlling interest of the business of $204 million which is included in Net gain (loss) on sale of business and investments on our consolidated statement of operations. The gain resulted from the excess of proceeds received plus the fair value of our non-controlling interest in Dublin EfW over our carrying value.

Our 50% equity interest in CEAL is accounted for under the equity method of accounting. As of December 31, 2019 and 2018, our equity investment of $143 million and $149 million, respectively is included in Other assets on our consolidated balance sheet. The fair value of our investment was determined by the fair value of the consideration received for the 50% acquired by GIG. There were no basis differences between the fair value of the acquired investment in CEAL and the carrying amounts of the underlying net assets as they were fair valued contemporaneously as of the sale date. For further information, see Note 11. Equity Method Investments.

Earls Gate Energy Centre

In December of 2018, financial close was reached on our second project with GIG, the Earls Gate Energy Centre project ("Earls Gate"), a 650 metric ton-per-day, 21.5 megawatt equivalent generation capacity EfW facility to be built in Grangemouth, Scotland. GIG and Covanta together will hold a 50% equity ownership in the project company, through a 50/50 joint venture, Covanta Jersey Assets Ltd., with co-investor and developer Brockwell Energy owning the remaining 50% stake. The Earls Gate facility is expected to commence operations in early 2022. We will account for our 50% ownership of the joint venture, which gives us a 25% indirect ownership of the project company, under the equity method of accounting. As of December 31, 2019 and 2018, an equity investment of $9 million and $10 million, respectively, and a shareholder loan of $15 million and $6 million, respectively, related to this project are included in Other assets on our consolidated balance sheet. For further information, see Note 11. Equity Method Investments.

Rookery EfW

In March 2019, we reached financial close on the Rookery South Energy Recovery Facility (“Rookery”), a 1,600 metric ton-per-day, 60 megawatt EfW facility under construction in Bedfordshire, England. Rookery is our second investment in the UK with our strategic partner, Green Investment Group Limited (“GIG”). Through a 50/50 jointly-owned and governed entity (“Covanta Green”), we and GIG own an 80% interest in the project. We co-developed the project with Veolia ES (UK) Limited (“Veolia”), who owns the remaining 20%. We provide technical oversight during construction and will provide operations and maintenance (“O&M”) services for the facility, and Veolia will be responsible for supplying at least 70% of the waste processing capacity. The facility is expected to commence commercial operations in 2022.

In connection with the transaction, we received $44 million (£34 million) of total consideration for the value of our development costs incurred to date and related fees, and for GIG’s right to invest 40% in the project (50% investment in Covanta Green). For the year ended December 31, 2019, as a result of this consideration and a step-up in the fair value of our retained equity investment, we recorded a gain of $56 million in Net gain on sale of business and investments in our condensed consolidated statement of operations. As of December 31, 2019, $22 million of the consideration received remains in Covanta Green (to be used by us or distributed to us, at our discretion) and as such this amount is included in Prepaid expenses and other current assets and our $9 million equity method investment is included in Other assets on our condensed consolidated balance sheet. The fair value of our retained equity investment in Covanta Green was determined by the fair value of the consideration received from GIG for the right to invest 40% in the project.

Zhao County, China Venture

In December 2019, we made an equity investment in a venture that signed a concession agreement with Zhao County, China that supports the construction of a new 1,200 ton-per-day EfW facility located approximately 200 miles from Beijing ("Zhao County"). The project is being developed jointly by Covanta and strategic local partner, Longking Energy Development Co. Ltd. Construction is expected to begin in early 2020 with completion in less than two years.

As of December 31, 2019, our equity investment in the venture totaled RMB 35 million ($5 million) which amounted to a 26% ownership interest. This investment is accounted for under the equity method of accounting and is included in Other assets on our consolidated balance sheet. Pursuant to the agreement, we are required to contribute an additional RMB 61 million ($9 million) by the end of 2021 and our eventual ownership interest in the venture is expected to be 49%. For additional information see Note 19. Subsequent Events.

Environmental Services Acquisitions

During 2018, we acquired one environmental services business located in Toronto, Canada, for approximately $4 million. During 2017, we acquired three environmental services businesses (one of which was accounted for as an asset purchase), in separate transactions, for approximately $17 million.

These acquisitions expanded our Covanta Environmental Solutions capabilities and client service offerings, and allow us to direct additional non-hazardous profiled waste volumes into our EfW facilities, and therefore are highly synergistic with our existing business.

Palm Beach Resource Recovery Acquisition

In September 2018, we acquired the Palm Beach Resource Recovery Corporation ("PBRRC") for $46 million. PBRRC holds long-term contracts for the operation and maintenance of two EfW facilities located in Palm Beach County, Florida.