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Refuse-Energy Plant Runs Up 2-Year Deficit

April 30, 1989|RICK HOLGUIN | Times Staff Writer

COMMERCE — The refuse-to-energy plant that has failed to meet emissions standards also has fallen short of its revenue goals primarily because of equipment failure, a plant official said.

Developed and operated by the county Sanitation Districts and Commerce, the plant here has finished the last two fiscal years with a combined deficit of about $2.6 million, according to financial records. The facility was fired up in December, 1986.

Plant officials attribute the shortfalls to problems associated with start-up and the failure of boiler tubes. Some tubes in the high-tech incinerator corroded and leaked, requiring the plant to shut down and stop generating revenue-producing electricity during repairs. Some of the tubes were replaced with stronger parts in late 1987, while others were replaced in late 1988. The tubes carry water that is eventually turned to steam to drive a generator.

The plant was still under warranty and the manufacturer, Foster Wheeler Energy Corp., made the repairs at no cost to the facility, Project Director Michael Selna said.

"Those are past us now," Selna said. "If we don't have those outages, we expect to meet (revenue targets)."

After about six months of operation, the plant finished the 1986-1987 fiscal year by spending $253,300 more on operations and financing costs than it received in income, according to financial statements. The plant's fiscal year runs from July 1 to June 30.

The next fiscal year, which ended June 30, 1988, the plant ran up a $2.35-million deficit, the statements showed.

The plant has received about $7.5 million in loans to cover operating losses and other expenses since start-up, according to Selna and financial records. The facility has begun paying back some of that amount, while it must begin paying on other loans in several years. The facility has more than $6 million in reserves and can still draw up to $3.5 million from existing lines of credit, according to financial reports and Selna.

Plant officials budgeted $11.5 million to run the plant and to service debts during the current fiscal year. They projected income of about $2 million in fees paid by trash haulers to dump at the facility and about $6.7 million from the sale of electricity to Southern California Edison Co. That will be buttressed with loans, which are expected to total about $2.6 million for the year.

As a result of the two boiler tube outages, the plant also failed to meet the income requirements of a $44-million bond issue that provided most of the funds for construction. Commerce and the Sanitation Districts provided an additional $2 million each for the project, and the state furnished a $1-million loan.

The refuse-to-energy plant is required to generate net income equal to 125% of the annual $5.1-million debt service for the bonds.

The facility's net income equaled 106% of its debt service during its first bond year, which ran from Nov. 1, 1987, to Oct. 31, 1988, according to an independent engineer's report. Both of the boiler tube repairs took place during that year.

The engineer's report indicates that during the current bond year, the plant with its new boiler tubes should be able to generate net income equal to 142% of the debt service.

But in order to do that, the plant must receive 115,000 tons of refuse compared to the 92,000 tons it received last year--a 25% increase. It also must generate about 25% more electricity for sale than it did last year.

This year's income projection assumes the plant will run at 85% capacity, allowing down time for routine servicing. So far, the plant is meeting that goal, Selna said. During the first bond year, the plant ran at 67% capacity, according to the report.

A bond covenant requires the plant to raise fees or make other changes to enable it to meet the income requirement, said bond trustee Annette Soderholm.

Louis Shepard, Commerce city administrator and a member of the board of directors of the Commerce Refuse-to-Energy Authority, said he now anticipates smooth going. The authority governs plant operations for Commerce and the Sanitation Districts.

"We are in the early years and this is a program that is going to take a period of time to stabilize," Shepard said. "We expect that the plant will operate on a continuing basis now."

The Commerce plant, the county's first refuse-to-energy facility, has been touted as a possible solution to the growing urban trash problem. It is capable of burning daily up to 420 tons of non-hazardous municipal garbage. It generates enough electricity to power 20,000 homes.

But the plant has drawn strong public criticism recently.

It was cited last January by the South Coast Air Quality Management District for excessive hourly emissions of nitrogen oxides and sulfur dioxide. Later that month, the AQMD denied the plant a permanent operating permit. The plant was running on an emergency variance until it obtained a regular variance on April 19.

Last Thursday, the AQMD Hearing Board set the conditions of the variance, giving the plant until Nov. 1 to try to meet district emissions standards. A progress hearing has been scheduled for Oct. 25.

Plant officials have agreed to spend about $500,000 in improvements to the facility's air pollution control equipment. The Sanitation Districts will pay for the majority of the improvements out of its energy development fund, Selna said. The remainder, about $100,000, will be borne by the plant.

Selna said it probably will take until March, 1990, to make all the improvements.

Under the variance, the plant is still required to meet daily emissions requirements for nitrogen oxides, sulfur dioxide and carbon monoxide. But it is permitted to exceed hourly limits for those pollutants a small percentage of the time.

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