Trash-Energy Plant Builder Wants County Concessions

The developer of the proposed trash-burning power plant in San Marcos says the controversial project may be doomed unless the county agrees to accept some of the project’s financial risks.

Proposed changes in the developer’s contract could cost county residents millions of dollars in increased garbage collection fees, and could cost the county millions of dollars in lost royalties that it would otherwise receive.

The county Board of Supervisors will discuss the developer’s request during an executive session this morning, and at least one supervisor says she is not receptive to the contract changes.

If the contract changes are not accepted, the developer, North County Resource Recovery Associates (NCRRA), says private financing for the plant may collapse, killing the project, which has survived numerous public hearings, petition challenges and court debates.

Opponents of the trash plant, focusing on the proposed contract changes as one last chance to thwart it, say the developer is trying to change the rules of the game at the 11th hour by demanding that the county participate in what was supposed to have been a no-risk proposition.

“Now that they’ve been through all the approvals, they want to rewrite the contract. That’s deception on their part,” said Jonathan Wiltshire, spokesman for Citizens for Healthy Air in San Marcos, one of several citizens’ groups opposed to the trash-burning power plant.

“All along, they’ve said this was to be a private venture, at no risk to the county. We’re saying, why change the rules now? They should not be rewritten to put the county at risk.”

Among the major contract changes sought by NCRRA:

- That San Diego County not receive any royalties--a share of the profit of electricity sold to San Diego Gas & Electric Co. and the sale of recyclable material--until the investors first are paid what is due them.

NCRRA says investors want assurances that they will receive payment on their investment before the county receives a profit. Over the 30-year life of the plant, the county could receive more than $85 million in royalties, NCRRA has predicted.

- That the county pay for all increased operating or capital costs--such as retrofitting of machinery or the use of new technology--resulting from a change in law or regulations, such as new environmental guidelines. The current contract calls for the county to pick up 50% of such expenses.

NCRRA proposes that the county absorb the entire cost by increasing the “tipping fee,” the amount charged to private garbage haulers for dumping their customers’ trash at the county landfill. The trash haulers would presumably, in turn, pass that cost on to their customers.

- That the county relinquish its current right to terminate the contract with NCRRA should it not receive any royalties.

NCRRA says investors want assurances that the project will operate at least 22 years--by which time they will be repaid--versus being shut down prematurely by the county if the county does not receive its royalties.

NCRRA’s position was presented to the county in a series of letters by its investment banking firm, Shearson-Lehman Brothers, which compared the county’s contract with NCRRA to the operating contracts of nine other so-called resource recovery projects in the United States that have been financed since 1982.

NCRRA initiated the local project more than two years ago and has spent more than $4 million on it. The project has won the blessing of county, state and federal health and environmental protection agencies, has been granted a special-use permit from the San Marcos City Council, and has survived a handful of lawsuits.

But one still unresolved lawsuit focuses on the original contract between the county and Herzog Contracting Corp., in which Herzog won the right to manage the county’s landfills and the right--for which it paid the county $100--to construct resource recovery facilities on those sites.

Herzog later sold to NCRRA, for nearly $1 million and future royalties that could amount to about $27 million, the right to build the resource recovery operation at the San Marcos landfill, on Questhaven Road near the rural community of Elfin Forest.

It is the original contract between Herzog and the county that NCRRA seeks to have amended.

In its letter to the county, Shearson-Lehman Brothers argued that the contract revisions being sought are the industry norm.

Wiltshire, one of the most vocal opponents of the plant, called NCRRA’s proposed changes “predictable.”

“These investors recognize what we have recognized all along--that it’s an extremely risky business,” Wiltshire said. “You can bet that if these people are going to put up tens of millions of dollars, they’re going to cover themselves very, very carefully--and they’re going to want the county to help carry the ball. It is inconceivable that NCRRA wouldn’t have known that up front, and have negotiated these changes up front.”

County Supervisor Paul Eckert, whose district includes San Marcos and who has supported the plant from its inception, said Tuesday that he would not discuss his position on the contract changes until first reviewing, in this morning’s private session, a report from the county’s consultant, Goldman-Sachs.

“I don’t think there’s any doubt about how I’m leaning on the project. . . . But as to the issue of changes in the contract, I’m not leaning any way until I read that report and see what (the county) staff says we should do,” Eckert said.

“But I’ve been saying all along that financing the project would be difficult, because the private sector is being asked to put up $150 million for a project, and they want security that it is going to work.”

Supervisor Susan Golding, on the other hand, said the requested contract revisions “don’t go over very well with me.”

“Trying to tell the county at this point in the game that they should assume more of the risk is like making a bid on something and saying, six months later, ‘Ooops, we forgot about the overhead.’ I don’t think that is legitimate,” she said.

“The point of the Goldman-Sachs report is to see if the contract is indeed so onerous that they (NCRRA) can’t get financing. If that’s the case, then it is up to the county to decide how bad it wants the plant. If the county wants the plant badly enough, it will have to make the changes in the contract. But I’m not convinced that is the case.”

NCRRA had hoped to begin construction on the plant by the end of the year.