Trash Plant Contract Offer Draws Foes’ Fire
The developer of a proposed trash-to-energy plant in San Marcos has put forward a tentative contract calling for San Diego County to assume major financial risks associated with the plant’s operation.
The draft contract calls for the county to absorb any and all costs of retrofitting equipment at the plant to meet new environmental standards, should they be imposed during the 24-year life of the pact.
The contract provisions proposed by the company are the first step toward the third contract renegotiation between the county and Thermo Electron Corp.--the first was in 1982, and it was amended in 1985. The current one attempts to pass on to the county more financial risks than the previous ones.
After a period of negotiation between the county staff and the company, the San Diego County Board of Supervisors will consider a final draft. County staffers had no immediate reaction to the contract proposal Monday.
The manager of the $250-million project says the contract reflects “industry standards” implemented at similar projects around the country. But critics blasted it as a bum deal for the county.
‘A One-Way Street
“When this whole process started, it was supposed to be lots of money and no risk to the county. Now it’s very little money and greater risks,” said Michael Hogan, an attorney representing Christward Ministries, one of several parties--including the cities of Escondido, Encinitas and Carlsbad--that have filed lawsuits trying to block the plant’s construction.
“These renegotiations are a one-way street. NCRRA (North County Resource Recovery Associates, Thermo Electron’s local company) is trying to shift risks,” Hogan said. “If you’re the county, and you struck a deal, and it’s suddenly not such a good deal for the other guy, why renegotiate just because it’s not such a good contract for them anymore?”
Thermo Electron officials say the new terms reflect the costly delays, including protracted litigation, that have burdened the project and delayed its construction. They also argue that contracts similar to the one before the county are standards in the business of converting municipal waste to fuel by burning it.
“But what ‘industry standard’ means is, that’s what industry can impose on government when the industry is holding all the cards,” Hogan complained. “But NCRRA is only holding one card--saying it’s the best bet to solve the county’s waste disposal problem,” especially since the county has no new landfills selected to replace the San Marcos landfill, which is expected to reach capacity in 1991.
The contract lays out a general formula in determine how much money Thermo Electron will charge the county, called a tipping fee, to dispose of much of North County’s trash. The plant is designed to process about 560,000 tons of rubbish annually, by recycling as much as 20% of it by hand, magnets and other devices, burning most of the balance, and landfilling the residual ash as well as the garbage that can be neither recycled nor burned.
Electric Sales Revenues
The tipping fee will be based on Thermo Electron’s annualized capital cost of the facility, which has not yet been determined and will itself be a matter of some negotiation, plus the company’s cost of operating and maintaining the facility, as well as such “pass-through costs” of landfilling the ash and the garbage that cannot be burned or recycled.
To be deducted from that total gross cost to the county will be 90% of the revenue of selling electricity to San Diego Gas & Electric Co. and 50% of the revenue from the sale of recyclable material. The bottom line will be the total cost to the county for Thermo Electron to dispose of the trash, refined as a cost-per-ton tipping fee.
Estimates on that tipping fee vary in the proposed contract, based on how much material Thermo Electron will set out to recycle from the incoming trash stream and estimates on the the amount of electricity to be generated and sold to SDG&E.;
In the “maximum recycling” scenario--in which Thermo Electron would set out to recycle 90% of the ferrous material, 40% of the incoming aluminum, 15% of the plastics and 20% of the corrugated paper products--the estimated tipping fee would be $42.17 a ton in December, 1992, the first year of the plant’s operation, and would increase to $95.61 a ton by the year 2015.
The current tipping fee at the San Marcos landfill is $10.50 a ton, but county officials note that the fee will rise no matter what, whether the trash-to-energy plant is built or a new landfill site is purchased, developed and operated.
In the proposal Thermo Electron noted that the tipping fees at similar refuse-derived fuel plants around the country are expected, by the year 1991, to range from $27.61 in Detroit to $55 in Palm Beach, Fla.
Barry Welch, project manager for NCRRA, justified the proposal that the county pay for any required retrofitting of the plant with the prospect of future environmental requirements.
“If, five years from now, someone wants to retroactively affect the operation of a facility like this (by requiring new emission control equipment, for instance), none of us now can anticipate that. Is that something NCRRA should be responsible for? So the question is, where does that (new cost) fit into the allocation of risks? They tend to go to the municipality or, in this case, the county, involved.
“We are taking care of the financing and the service, but it’s not appropriate for us to be responsible for downstream changes in the law,” Welch said.
The contract also calls for the county to pay for “uncontrollables,” which Welch said are “not terribly, clearly defined in this stage of the negotiations.”
For its part, NCRRA would promise to build the plant at the cost agreed to by both parties, would operate and maintain the plant, would generate electricity, guarantee compliance with existing environmental laws and guarantee to process a certain amount of trash.
Thermo Electron and county officials were ordered last week by the county Board of Supervisors to complete their negotiations within 60 days. Supervisor John MacDonald, whose district includes San Marcos, has long been wary of the cost of county involvement in the private project.
The project already has won the approval of the San Marcos City Council and narrowly won the endorsement of voters at a special election. The project also has won the approval of the major environmental and health agencies, although argument has been made by critics that a new review of the facility is required because of changes in environmental law and standards.
Thermo Electron successfully renegotiated its contract with the county in 1985, but sought new amendments a year later. At about the same time, a San Diego Superior Court judge ruled the 1985 contract invalid, the result of one of a handful of lawsuits attacking the plant on environmental and procedural grounds.