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Study Finds Trash-Energy Plant Feasible : Environment: Financial analysis says agreement between county and builder is fair, but warns of pitfalls involving time and money.

May 03, 1991|NANCY RAY | TIMES STAFF WRITER

The long-debated trash-to-energy plant proposed for San Marcos faces some financial hurdles and a year-end deadline, but seems to be fiscally feasible, an independent financial report indicates.

The analysis by Public Financial Management Inc. was released for public review Thursday by San Diego County. It reviews the terms of agreement between Boston-based Thermo Electron and the county and concludes that the risks of the private-public venture are equitable and up to industry standards.

"If considered as a whole, we believe that the risk allocation (between the county and Thermo Electron) is generally reflective of the industry standard risk allocation between private vendors and the public sector," the county-funded study found.

The cost of the proposed plant, designed to handle about two-thirds of the trash from growing North County, is estimated at $235 million, including a recycling plant and a refuse-burning facility that would generate electricity. The power sales would offset some of the cost of the operation.

The financial picture contains a number of question marks, PFM said. Especially critical is the county's contract with San Diego Gas & Electric Co. to sell the electrical output of the trash-burning facility. The contract, which contains above-market purchase rates for the plant's electricity, is being contested by SDG&E before the state Public Utilities Commission. A petition by SDG&E seeking to abrogate the contract is expected to be decided by the PUC before year's end.

According to the PFM analysis, repudiation of the energy purchase agreement, which is beneficial to the county, could "substantially diminish" the value of the plant, a facility that is opposed by several North County communities and a number of environmental groups. Opposition arises both from the fear of air pollution in neighboring cities and from the virtual monopoly that the public-private operation would have on trash disposal in North County.

A number of legal challenges filed by the surrounding cities of Escondido, Carlsbad and Encinitas against construction of the trash-to-energy plant also pose a problem for attracting financing for the project, the report says.

"Financing of the project is feasible but will be complex and require significant effort soon in order to complete the break of escrow before the end of 1991," the report concludes.

The recession in the banking industry and the economy as a whole also were cited in the financial analysis as negative factors to the success of the project.

Most of the project's financing depends on $185 million in state bonds, with the remainder coming from private money markets. Authorization for the bonds expires at year's end unless the financing agreement is extended, as it has been since 1985.

Neither opponents nor backers of the project had received the PFM report as of late Thursday.

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