ECONOMIC ANALYSIS
CONTRACT RISK ANALYSIS
AND
TRANSPORTATION ANALYSIS
r1. THE PROPOSED
BAYSIDE-TITAN
N.E.S.W.C.-U.O.P., AND
S.E.S.W.C.-C.E.A. RESOURCE
RECOVERY PROJECTS
U.S. ENVIRONMENTAL PROTECTION AGENCY
REGION 1
JOHN F. KENNEDY FEDERAL BUILDING • BOSTON, MA.02203
-------
ECONOMIC ANALYSIS
CONTRACT RISK ANALYSIS
AND
TRANSPORTATION ANALYSIS
FU THE PROPOSED
BAYSIDE-TITAN
N.E.S.W.C.-u.O.p., AND
S.E.S.W.C.-C.E.A. RESOURCE
RECOVERY PROJECTS
Contract Number: 68—01—4940
Directive of Work #1
Prepared For;
U.S. ENVIRONMENTAL PROTECTION AGENCY
REGION I
J.F.K. Federal Building
Boston, Massachusetts
Prepared By:
GORDIAN ASSOCIATES INCORPORATED
910 Seventeenth Street, N.W.
Suite 917
Washington, D.C. 20006
April 2, 1979
-------
Public Lnw 94—580 — Oct. 21, 1976
RESOURCE RECOV1 J y AND CONSERVATION PANELS
SEC. 2003. The Administr&or shall provide teams of personnel,
including Federal, State, and local employees or contractors (herein-
after referred to as “Resource Conservation and Recovery Panels”) to
provide Federal States and local governments upon request with technical
assistance on solid waste management, resource recovery, and resource
conservation. Such teams shall include technical, marketing, financial,
and institutional specialists, and the services of such teams shall be
provided without charge to States or local governments.
This report has been reviewed by the Region I EPA Technical
Assistance Project Officer, and approved for publication.
approval does not signify that the contents necessarily re-
flect the views and policies of the Environmental Protection
Agency, nor does mention of trade names or commercial pro-
ducts constitute endorsement or recommendation for use.
EPA Region I Project manager: Ira W. Leighton
-------
Table of Contents
Acknowledgements
I. Introduction 1
— Background 1
— Assignment 1
— Report Contents 3
Schedule 3
II. Project Characterizations 4
III. Economic Analysis Description 30
— Methodology and Assumptions 30
— Discussion of Cost Indices 35
— Energy Cost Inflation 36
— Economic Analysis for Bayside-Titan 38
— Economic Analysis for N.E.S.W.C.—TJ.O.p. 65
— Economic Analysis for S.E.S.W.C.—C.E.A. 80
IV. Transportation Cost Analysis 90
V. Project Considerations 103
Which Could Affect Cost and/or Service
— Financeabillty and Financing Arrangements 103
— Financial Stability of the Parent Company 104
— Tonnage Commitment Requirements 105
— Landfill Costs and Developments 108
— Plant Downtime and Outage 110
— Product Marketing and Revenues 112
— Pollution Control Modifications 115
— Leases and Contracts 116
VI. Discussion of Service Contracts and Risks 117
— Overview 117
— Contract Risk Analysis: Bayside Project 118
— Contract Risk Analysis: S.E.S.W.C.—C.E.A. Project 126
— Contract Risk Analysis: N.E.S.W.C.—U.O.p. Project 132
GORDIAN ASSOCIATES INCORPORATED
-------
VII. Landfill Situation inLthe_Bo to±LNorth Shore Area 142
— Status of Solid Waste Management Facilities
in Northeastern Massachusetts 142
— Factors Affecting the Viability of Land Dis-
posal as a Long—Term Solid Waste Management
Situation 143
— Future Impact of Federal/State Regulations
on Land Disposal 145
VIII. Next Steps for Communities 147
GORDIAN ASSOCIATES INCORPORATED
-------
Acknowledgements
The following individuals have contributed information, data, and/or assistance
in this study which are deeply appreciated.
From Combustion Equipment Associates, Inc .
Mr. John Reilly
Mr. Phil Nessral].a
Mr. Kenneth Rodgers
Mr.
Dwight Brown
Mr.
Richard Lewis
Mr.
Dean Tomlinson
Mr.
John Presti
Mr.
Neil Geevers
From Universal Oil Products Co.:
Mr. Lewis Ward
Mr. John Phillips
Mr. Wayne Wright
From Commonwealth of Massachusetts
Bureau of Solid Waste Disposal :
Mr. William Gaughan
Mr. Robert Rauser
From Mitre Corporatjon
Mr. Ahti Autlo
Dr. Robert Zier
Ms. Susan Kinney
From U.S. Environmental Protection Agency (Region I) :
Mr. Ira Leighton
Mr. Conrad Desroajers
Mr. Dennis Huebrier
Mr. Merrill Hohman
Mr. Dennis Gagne
GORDLAN ASSOCLATES INCORPQRAT
-------
From The City of Salem :
Ms. Anne Pelletier
From
The
City of Beverly
:
Mr.
Bud McPherson
Mr.
George Gline
Mr.
Dave Vargas
From
The
Mr.
Town of Danvers
Stephen Delaney
From
The Town of Ipswich
Mr. George Howe
From The Town of Swampscott :
Mr. Kent Murphy
From The Town of Essex :
Mr. John Doyle
From The New England Power Company :
Mr. John Newsham
From The Narragansett Electric Company :
Mr. Thomas Tsai
From The James River Corp. :
Mr. Leo Collette
From Vulcan Materials Co. :
Mr. William Gerinain
GORDIAN ASSOCIATES INCORPORATED
-------
I. INTRODUCTION
• Background
Ten cot imunities (Salem, Danvers, Swampscott, Rockport, Ipswich,
Gloucester, Wenhain, Lynn, Hamilton and Essex) in the North Shore of the
Boston area are faced with choosing one of three different resource
recovery projects, which are proposed to serve the communities for at
least a 20 year period. The nature of and participants in each project are
very different. The communities have asked the Region I office of the
U.S. Environmental Protection Agency for help in understanding the
different aspects of each project and what risks might be incurred in
participating in one versus another.
E.P.A. met with the communities and agreed to provide assistance
from its Solid Waste Program in the Boston Regional Office and through
an independent consultant, Cordian Associates Inc. Gordian is E.P.A.’s
“Technical Assistance Panels Program” consultant. This program was
established under the Resource Conservation and Recovery Act of 1976 and is
designed to provide technical assistance to communities in solid waste
management.
• Assignment
Gordian met with E.P.A. and the communities in October to learn the
nature of the technical assistance requests and the background of the
three projects. It was determined, following that meeting, that Gordian
would develop characterizations of each project to address such areas as
project components, waste volumes handled, project participants, locations,
project landfill needs, projected cash flows, financing methods, service
fee arrangements, risk and reliability features, and other baseline data
which would give the communities a better understanding of each project.
Gordian prepared the characterizations and presented them to the communities
December 21, 1978 at a night meeting in Danvers, Mass.
As a result of that meeting, the communities indicated that there were
certain key issues on which they would like more information. The two
areas receiving the most requests for additional information were project
economics and contract risks.
In view of the requests and interest in these areas on the part of
the communities, the Regional E.P.A. office decided to undertake a second
stage in the technical assistance effort and have Gordian analyze project
economics and risks in greater detail and present the findings to communities.
As part of the economic analysis Gordian agreed to conduct a limited
analysis of packer haul costs for the 10 con nunities.
1
GORDIAN ASSOCIATES INCORPORATED
-------
NORTH SHORE COMMUNITIES
- CONN1JNITIES REQUESTING TECHNICAL ASSISTANCE
— HOST COMMUNITY FOR PROJECT
2
GORDIAN ASSOCIATES INCORPORATED
-------
Gordian and E.P.A. met with the communities in January to discuss the
workscope and stage II schedule. Following that meeting, Gordian proceeded
with the analyses and completed them in March 1979.
• Report Contents
The final report contained herein includes a characterization of each
of the three proposed projects, an analysis of estimated service fee com-
ponents and estimated net cost to contract communities, a discussion of
the risks and legal implications of the “service agreements” which
communities would sign for a project, an analysis of estimated packer
haul costs for the 10 communities to haul solid waste to each of the
proposed plant sites, a discussion of salient project considerations
which communities would want to compare for each project, a discussion
of the landfill situation in the North Shore area (as provided by the
Region I office of the U.S. Environmental Protection Agency), and a brief
discussion of the next steps for community decision makers.
An Executive Suimnary at the front of the report highlights these
areas.
• Schedule
Stage 1 — Project Characterizations
Initiated in November 1978
Completed in December 1978
— Presentation to Communities
December 21, 1978
Stage 2 — Economic and Contract Risk Analyses
Initiated January 1979
Completed I arch 1979
— Presentation to Communities
By April 1979
The schedule has been planned so as to enable community decision
makers to have the benefits of the community presentations and the final
report for spring town meetings.
3
GORDIAN ASSOCIATES INCORPORATED
-------
II. PROJECT CHARACTERIZATIONS
The following materials were presented by Gordian Associates on
December 21, 1978 to conmiunjtjes in the Boston North Shore area. Page 5
depicts an overview of the characterization methodology; page 6 displays
possible service areas and solid waste quantities required; page 7 shows
the transfer station and landfill/residue status. Project participants
appear on pages 8—10, project network designs on pages 11—13, project
approval status on page 14, system reliability on page 15, contractual
relationships, page 16, project tipping fee payment arrangements on
pages 17—19, product market contracts on page 20, simplified cash flow
charts on pages 21—23, project risk allocation on pages 24—26, contractor
selected financial data on page 27, and the suary on page 28.
4
GORDIAN ASSOCIATES INCORPORATED
-------
CHARACTER I ZATI ON METHODOLOGY
• REVIEW AVAILABLE DOCUMENTATION
• OBTAIN SUPPLEMENTAL DATA VIA
TELEPHONE DISCUSSION AND
CORRESPONDENCE
• PREPARE DRAFT CHARACTERIZATIONS
• REVIEW DRAFT CHARACTERIZATIONS
WITH PROJECT VENDORS, COMMUNITY
REPRESENTATIVES, AND E.P.A.
• FINALIZE CHARACTERIZATIONS
WHAT WE HAVE DONE
• TAKEN CRASH COURSE IN THREE SOLID WASTE
MANAGEMENT PROJECTS
• SUMMARIZED FACTS IN A COMPARATIVE AND
OBJECTIVE MANNER
• PROVIDED BASELINE INFORMATION AS AN AID
IN COMMUNITY DECISION-MAKING FOR THE
UPCOMING SPRING TOWN MEETINGS
WHAT WE HAVE NOT DONE
• ASSESSED EACH COMMUNITY’S INDIVIDUAL
NEEDS AND CONSTRAINTS
• PROVIDED DETAILED BUSINESS AND ECONOMIC
ANALYSIS OF THE THREE PROJECTS
• MADE A RECOMMENDATION FOR IMPLEMENTING
ONE OR MORE PROJECT(S).
5
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POSSIBLE SERVICE AREAL BAYSIDE-TITAN-BEVERLY N.E.S.W.C.-U.O.P.—N. ANDOVER S.E.S.W.C.—C.E.A.-PEABODY
MOST COMMUNITIES IN 47 OR MORE COMMUNITIES IN ALL COMMUNITIES IN ESSEX
THE BAYSIDE AREA OF NORTHEASTERN MASS. AND 6 OR MIDDLESEX AND SUFFOLK
NORTHEASTERN MASS. MORE IN NEW HAMPSHIRE. OTHER COUNTIES EXCLUDING BOSTON.
COMMUNITIES HAVE ALSO EX-
PRESSED INTEREST AND MAY
BE SERVED BY THE PROJECT.
SOLID WASTE QUANTITIES
REQUIRED :
0 ’ -
- MINIMUM TO INITIATE 500 TONS PER DAY 1800 TONS PER DAY MINIMUM TO 900 TONS PER DAY’MINIMUM
PROJECT MINIMUM TO INITIATE INITIATE PROJECT TO INITIATE THE PROJECT
THE PROJECT
- EXPECTED AVERAGE 500 TONS PER DAY 3000 TONS PER DAY EXPECTED 2000 TONS PER DAY EXPECTED
PLANT THROUGHPUT EXPECTED AVG. PLANT AVG. PLANT THROUGHPUT AVG. PLANT THROUGHPUT
THROUGHPUT
- PEAK CAPACITY 591 TONS PER DAY PEAK 3450 TONS PER DAY PEAK 2400 TONS PER DAY PEAK
CAPACITY CAPACITY CAPACITY
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-J
TRANSFER STATION NETWORK :
BAYS IDE-TITAN-BEVERLY
DOES NOT APPLY (TITAN
HAS OFFERED ASSISTANCE
IN PLANNING, DEVELOPING
AND OPERATING TRANSFER
FACILITIES IF REQUESTED
TO DO SO FOR ADDITIONAL
FEE )
N.E.S.W.C.-LJ.O.P.-N. ANDOVER
• TRANSFER STATIONS HAVE
BEEN GENERALLY LOCATED
• FULL COST SHARING FORMULA
HAS BEEN DEVELOPED
• FINAL LOCATIONS ARE NOT
TO BE DETERMINED UNTIL
THE FINAL PROJECT
CONFIGURATION IS RESOLVED
S.E.SW.C.-C.E.A.-PEABODY
• TRANSFER FACILITIES
PROVIDED IF REQUESTED
• INCREMENTAL COSTS OF
SUCH FACILITIES WOULD
BE BORNE BY THE
COMMUNITIES DIRECTLY
LANDFILL/RESIDUE DISPOSAL :
A. SITE(S) ACQUISITION
STATUS
B. ACREAGE AVAILABLE
C. TYPE OF SOLID WASTE
ACCEPTED
B. SITE PERMIT STATUS
A. IDENTIFIED &
NEGOTIATING
B. NOT IDENTIFIED
C. RAW REFUSE AND
RESIDUE
D. NOT INITIATED
2 SITES IDENTIFIED AMESBURY/NORTH
ANDOVER. COMMONWEALTH CAN TAKE
150/SO
RAW REFUSE AND RESEDUE/
RESIDUE
NOT INITIATED
PARTIALLY OBTAINED
PURCHASED/TAKE REMAINDER
58/107
RAW REFUSE/NON-
HAZARDOUS
NOT INITIATED
-------
(BOND UNDER1RITER)
(UMiER IRIitRS’ COUNSEL)
GASTON, SNO I
& ELY-BARTt.ETT
SPECIAL
COUNSEL
IVUDGEJ ‘ROSE;
GUTHRIE I llJ
ALEXANDER
I CHOATE, HALL AND
STE14ART
(HOST WIVPJNITY)
(BOND COUNSEL)
I
IISMCORP.
SITE AND P(WR
(WASTE SUPPLIEE )
PAINE, WEBBERJ
JACKSON, AF’ll)
CURTIS - 1 3RSI
ALLEN AND CO.
BAYS IDE-I ITAN-BEVERLY
PFCkJECT PARTICIPANTS
BEWRLY
IDEA
1 ER )
— ——-‘
TITAN GE )UP I
INC. I
AI’NOR J.
I,
I—
USM CORP
ENEE iY
PO ER PLANT
CONTRACT
TEOS I
( P1 )JECT OPERATOR)
r .
NEPCO
PURCHASE
OF
El FCTRICI1Y
1
HOSPITAL
STEPM
PURCHASER
W\TERIAL
PURCHASER
EQUIP &
SYSTEM
SUPPLIEI
BAYS Ill
CONTRACT
C MVIJN IT I ES
& OTIlEF
-------
N,E,S,W,C (J O,P,-N. ANDOVER
PARTICIPANTS
ITh, BARIf ’,
______ r ws PRIVATE
HARRIS, UPHAM — & EQUITY BONDHOLDERS
_______________ GRAY INVESTORS
(BOND UNDEI IIUTERS) (BOND COUNSEL) (1\ [ )DITIONAL SOURCES OF
CJ\PIThI)
I
T(MN OF
I ANDOVER IWA NORTH TRUST
L____._ ______ ______
(FINANCING VEHICLE) ( 1 T ( ALLOCATES f JNIES )
CQIIJNI1Y)
CONTRACT J uo LANDFILL 1 C (WE1\LFH
CC1 T 1iNITIES OPERATING
SUBSIDIARI’ J_OPERATORS J OF
(SUPPLY WASTE) (OPERATOR OF tIASSACHUSETTS
(PROVIDES FACILITY,
P CON, INC. I I J DFI LL, AND TRANSFER
SITES, CONTRACT
SUBSIDIARi’ OF I UoP , INC. T1W1SR)RTATIC1 1
UOP L OPERATORS I CC1 IJNITY F PI SENTATIVE)
(DESIGN AND (GUARANTOR) —
CONSTI JCTION OF
PLANT)
-------
S.E S.W C
PRWEt [ PARtIEI A tS
( SUPPLIER, USER )
( HOST ) c l i v __________ SOUTH ESSEX SOLID PARTICIPATING
(CCXIIJNITY) WASTE DISPOSAL C(]’IIJNITIES
______________ flISftLO
I — CONSTI4JC flON
( SITE WORK, DESIGN ) 11 N Ff fl’ffl ( flPERA1 OR) ( P CESS INPIff )
LOCAL A E cUt.,, INc. ARTHUR U. LI TWE CO.
FIE 1 ________ __________ __________________
CEA P )CESS
DESIGN G JP
(SYSTEM DESIGN)
-------
BAYS I DE J BEVERLY
• SIZE REDUCTION
• MAGNETIC SEPARATION
• INCINERATION
FERROUS
METALS
J
1 TRANSFER STATIONS
1.
RESOURCE RECOVERY PLANT
CONTRACT
COMMUNITIES LI WA TE
LAL
HAULERS
I—
I
I
I
L_.
d
BEVERLY
HOSPITAL
USM
CORPORATION
STEAM
ELECTRICITY
RAW
REFUSE
MASSACHUSETTS
ELECTRIC
VULCAN MATERIALS
OR
OTHER
ASH
RESIDUE
LANDFILL
———---——--
I AL
-------
N.E.S 1 W.C.-U.O.P.-N. ANDOVER
NET AK RK
CONTRACT
COMMUNITIES SOLID WASTE
COMMERCIAL
HAULERS
S
RESOURCE RECOVERY PLANT
• BULKY WASTE SIZE’ DUCTIO1 :
. MASS INCINERATION
. POST INCINERATION METALS
RECOVERY
RAW
REFUSE
S
STEAM WESTERN
ELECTRIC
LECTRIC IT?
METALS
(FERROUS
NO N - F ER ( o US)
ASH
RESIDUE
TRANSFER STATIONS
t )
LANDFILL
NOT INDICATED
POTENTIAL
MARKET
-------
S.E.S.W.C.-C.E.A.-PEABODY
NE [ RK
_ EE RROUS
METALS
SQl I D -
ThI AcTIES
AND OTHER
COMMERC I AL
HAULERS
I—
I . . )
ASTE TRANSFER STATION(S)
j
‘,
RFSOURCE RECOVERY PLANT
• SIZE REDUCTION
• CLASSIFiCATION
• fIATERIJ\LS RECOVERY
ECO-FUEL II
• NARRAGANSETT
ELECIRIC CO,
• JAMES RIVER CURl
O OTHERS
:
LANDFILL
.
TAILINGS
•
RAW
LOCAL SCRAP
PROCESSORS
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AYSIDE-TITAN-BEVERUY
PROJECT APPROVAL STATUS
• DRAFT ENVIRONMENTAL IMPACT R E ORT PPROVED,
FINAL rIN PREPARATION
• FINAL SITE ASSIGNMENT ACQUIRED
• CLEAN AIR PERMIT PROCESS 9NI rIATED
• OTHER PERMITS FOR CONSTRUCTION AND OPERATION
ARE REQUIRED
NESWC-UOP-N. ANDOVER
PROJECT APPROVAL S.TATUS
• DRAFT ENVIRONMENTAL IMPACThREPORT APPROVED,
FINAL UNDERGOING REVIEW
• LOCAL APPROVAL OF PLANT SItE OBTAINED.
DEQE IS INVOLVED IN SIJ .$ELECTION
PROCESS
• ONE CITY (LAWRENCE) AND THREE TOWNS
(N. ANDOVER, BEDFORD, CARLISLE) HAVE
AUTHORIZED CONTRACT SIGNING
• OTHER PERMITS FOR APPROVALS ARE REQUIRED
SESWC-CE -PEABODY
PROJECT APPROVAL STATUS
• AWAITING DISTRICT CERTIF{CATION OF TONNAGE
PRIOR TO PREPARING ENVIRbNMENTAL IMPACT
REPORT AND OBTAINING .OTHER REQUIRED PERMITS
14
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RELIABILITY OF THE PROPOSED PROCESSING SYSTEMS
1. APPROVED ACCEPTANCE TESTiNG PROVIDED
IN CONTRACT
BAYS IDE-TITAN-BEVERLY
1. YES
(REQUIRED BY I.D.F.A.)
H.E.S.14.C.—
U.O.P.
N. ANDOVER
2. YES
S . E. S . W. C
C.E.A.
PEABODY
3. NOT REQUIRED
2. BASIC TECHNOLOGY UTILIZE!) IN OTHER
LOCATIONS PREVIOUSLY
Lfl
3. OPERATOR EXPERIENCED IN OPERATING
SIMILAR FACILITY
3. YES— USM OPERATES BOILER
AND TURBOGENERATOR NO-’
NEITHER TITAN NOR USM
OPERATED FRONT-EN1)
INITIAL OPER-
AT 1ONS ONLY
YES PILOT
SCALE ONLY
4. OPERATOR EXPERIENCED IN OPERATING
SiMILAR FACILITY AT PROPOSED
SCALE
4. SM E AS #3
SANE AS #3
NO (1 PLANT IN
START-UP);
(1 PLANT IN CON-
STRUCT ION)
5. DESiGN AND CONSTRUCTION MANAGEMENT
EXPERIENCE FOR THIS TYPE OF
FACILITY
6. YES
YES YES
YES YES
2. YES YES
YES
5. LTD. DESIGN, YES CONST.
MGMT EXP.
6. PLANT GUARANTEED TO MEET CURRENT
ENVIRONMENTAL LAWS
-------
7. (A) GUARANTEED ELECTRIC GENERATING
EQUIPMENT PERFORMANCE
(B) GUAR.ANTEED PROCESSING EQUIPMENT
PERFORMANCE
(C) GUARANTEED PLANT AVAILABILITY
(D) IMPLIED PLANT AVAILABILITY
8. PARENT COMPANY GUARANTEES OPERATOR
PERFORMANCE
(B) BOILER BY MFGR. FOR
2 YRS, FOR OUTPUT
CERTAIN ELECTRIC CEN.-
ERATING EQUIP. BY USM
(C NO
(D) 90% FOR BOI LER
9. REDUNDANCY OF KEY RECOVERY PROCESSES
9. SINGLE LINE (SPARE PARTS)
MULTIPLE BOILERS DUAL
MULTIPLE OVERHEAD PROCESSING
CRANES THREE DAY LINES
REFUSE STORAGE SPARE PARTS
STEAM CONDENSER
SPARE PARTS
7. (A) YES
I-
0•’
8. YES
YES NOT APPLICABLE
NO NO (PENALTY IM-
POSED FOR LAND—
FILLINC
90% FOR BOILERs 8O% ,
YES YES
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CONTRACTUAL RELATIONSHIPS
• BAYSIDE TITAN-BEVERLy :
— IDEA FINANCED
- MAJOR ENERGY PURCHASER TRANSFERS POWER GENERATING EQUIPMENT
AND STAFF TO TITAN
— COMMUNITIES CONTRACT DIRECTLY WITH TITAN (TEOSI)
• NESWC-UOP-N. ANDOVER :
- IDEA FINANCED WITH APPROX. 30 PERCENT PRIVATE EQUITY
PARTICIPATION IN RESOURCE RECOVERY PLANT
- COMMONWEALTH OWNS ALL SITES, TRANSFER STATIONS, AND
LANDFILLS
- COMMUNITIES CONTRACT WITH UOP OPERATING SUBSIDIARY FOR
AT LEAST RESOURCE RECOVERY
• SESWC CEA _ pEABODY :
- COMMUNITIES CONTRACT WITH DISTRICT. DISTRICT CONTRACTS
WITH CEA FOR RESOURCE RECOVERY AND LANDFILL SERVICES.
- DISTRICT FINANCES CAPITAL COST OF LANDFILL ACQUISITION
AND PREPARATION THROUGH BOND ISSUE.
- RESOURCE RECOVERY PRIVATELY FINANCED WITH CEA CORPORATE
BORROWING
17
-------
BAYSIDE-TITAN-BEVERLY
TIPPING FEE PAYMENT ARRANGEMENT
• CONTRACT COMMUNITIES PAY A NET TIPPING FEE WHICH HAS BEEN REDUCED FROM
THE GROSS AMOUNT BY RECOVER U RESOURCE! REVENUES HELD IN AN INTEREST
BEARING FUND. THE INITIAL YEAR’S FUND IS CAPITALIZED OUT OF BOND
PROCEEDS IN THE AMOUNT OF $2.4 MILLION.
SERVICE FEE STRUCTURE $ PER TON
• BASE FIXED COSTS FOR DEBT SERVICE, OPERATION AND
MAINTENANCE OF PLANT, OPERATION ’AND MAINTENANCE OR
LEASE OF LANDFILL, TAXES AND ASSESSMENTS (EXCLUDES
INCOME TAX) ANY RECOGNIZABLE CAPITAL INFUSION MADE
BY TITAN, ALTERATIONS RESERVE FUND PAYMENT, OTHER
ANNUAL COSTS:
- LESS INTEREST EARNED ON MONIES HELD JN RESERVE FUND
NET. BAS.E COST A
ADD TO THIS :
• INCREMENTAL TRANSPORTATION AND DISPOSAL COSTS FOR EXCESS
TONNAGE BEYOND LEVELS SPECIFIED IN SERVICE AGREEMENT
• HOST COMMUNITY FEE (SUBJECT TO CPI ADJUSTMENT)
• ANY FEES PAYABLE TO A COMMUNITY IN WHICH A LANDFILL IS
LOCATED
SUBTOTAL
— LESS:
- GROSS RECOVERED RESOURCE CREDIT LESS
OIL COST DURING DOWNTIME
NET RECOVERED RESOURCE CREDIT TO COMMUNITIES
- CONSTRUCTIVE TAX OWNERSHIP CREDIT
— INTEREST ON RECOVERED RESOURCE CREDIT FUND
• NET OPERATING COST B
• NET COST TO CONTRACT COMMUNITY - A+B-
18
-------
NESWC-UOP-N. ANDOVER
TIPPING FEE PAYMENT ARRANGEMENT
• CONTRACT COMMUNITIES PAY ESTIMATED NET TIPPING FEE, WHICH IS
ADJUSTED MONTHLY BY REVENUES FROM SALES OF RECOVERED PRODUCTS.
• AT THE END OF EACH YEAR, THE TIPPING FEES PAID ARE TO BE
ADJUSTED.
SERVICE FEE STRUCTURE
COSTS $ PER TON
• BASE COST - PRO RATA LEASE RENTAL, O&M
INSURANCE AND TAXES, BONDS AND FEES (BASED ON
CONTRACT COMMUNITY GUARANTEED WASTE)
• RESIDUE DISPOSAL COST
• HOST COMMUNITY FEE
• TRANSPORTATION COSTS
TOTAL, COSTS
REVENUES
• ENERGY PRODUCT CREDITS (90% OF NET REVENUES) ( -
• FERROUS PRODUCT CREDITS (FIRST $15/TON FOR NET
REVENUES PLUS 50% OF NET REVENUES OVER $30/TON) ( -
• OTHER MATERIALS CREDITS (50% OF NET REVENUES) ( -
• OVERAGE INCOME FROM PRIVATE HAULERS
TOTAL, REVENUES (-)
NET COST TO CONTRACT COMMUNITY
COSTS LESS REVENUES
19
-------
SESWC-CEA-PEABODY
TIPPING FEE PAYMENT ARRANGEMENT
• CONTRACT COMMUNITIES PA GROSS çOs T5 FOR’,PROJECT. INCLUDING COST TO
FINANC,Er ND PREPARE LANDF;I.LL AND 7 GUARAN.TEED CEATIPPING FEE. FOR
RESOURCE RECOVERY SERVICES AND LANDFILL OPERATION.
• QUARTERLY REBATES ARE MADE FOR CERTAIN EGO-FUEL II REVENUES, PART OF
INCOME FROM NON-CONTRACT DELIVERIES, AND LANDFILL PENALTY PAYMENTS DUE.
SERVICE FEE STRUCTURE.
COSTS $ PER JON
• BASE COST FOR RESOURCE RECOVERY ,AND LANDFILL OPERATION
(GUARANTEED WITH CPI, ESCALATOR •$7.’5O/TQN STARTING
NOVEMBER, 1977)
• LANDFILL ACQUISITION AND IMPROVEMENT BOND DEBT SERVICE
• HOST COMMUNITY FEE (SUBJECT TO CPI ADJUSTMENT)
• TRANSPORTATION COST (EXTRA FOR THOSE SERVED) NOT INCLUDED
TOTAL, COSTS _______
REVENUES
• ENERGY PRODUCT CREDITS (35% OF NET -REVENUES F.O.B.
PEABODY FOR ECO-FUEL II SALES OVER $2.50 PER MILLION
BTU’S) C - )
• MATERIALS PRODUCT CREDITS - 0 -
• PART OF INCOME FROM NON-CONTRACT DELIVERIES C -
• LANDFILL PENALTY PAYMENTS (IF ANY) (_ _)
TOTAL, REVENUES
NET COST TO CONTRACT COMMUNITY
COST LESS REVENUES
20
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BAYSI DE-TITAN-PEABODY
MARKET CONTRACTS
PRODUCT MARKET CONTRACT TERM CONTRACT STATUS
ELECTRICITY USM CORP. LONG TERM (ALL NEGOTIATING
REQUIREMENTS)
ELECTRICITY MASS. ELEC. LONG TERM (20+YRS.) NEGOTIATING
TAKE OR PAY
STEAM IJSM CORPO- LONG TERM (ALL NEGOTIATING
RATION REQUIREMENTS)
STEAM BEVERLY HOSPI- LONG TERM (ALL NEGOTIATING
TAL REQUIREMENTS)
FERROUS METAL VULCAN MATERI- LONG TERM, FLOOR NEGOTIATING
ALS PRICE
NESWC-UOP-N. ANDOVER
MARKET CONTRACTS
PRODUCT MARKET CONTRACT TERM CONTRACT STATUS
ELECTRICITY MASS. ELEC. LONG TERM 20 YR., NEGOTIATING
CO. TAKE OR PAY
STEAM (LOW WESTERN ELEC. LONG TERM NEGOTiATING
PRESSURE) CO.
MATERIALS NOT INDICATED 1-5 YEARS NEGOTIATING
(FERROUS,
ALUMINUM,
MIXED
NONFERROUS)
AGGREGATE SEVERAL SPOT NEGOTIATING
SESWC-CEA-PEABODY
MARKET CONTRACTS
PRODUCT MARKET CONTRACT TERM - CONTRACT STATUS
DRY FUEL (ECO NARRAGANSETT 1 YR. EXPERIMENTAL SIGNED
FUEL II) ELEC. 4 YR. CONDITIONAL
JAMES RIVER 6 MONTH EXPERIMENTAL SiGNED
CORP. 10 YRS. BASED ON
SUCCESSFUL EXPERI-
MENTAL TESTING
FERROUS LOCAL SCRAP -SPOT MARKET NOT APPLICABLE
METALS DEALERS
21
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BAYSIDE-TITAN PROJECT
SIMPLIFIED CASH FLOWS
Lease payments ($1/yr )
Site and Power Plant
Con tract
Coii iiunj ties IDFA
Other 1 Servjce _____
— Bond
Proceeds
— _____
_________ Waste Fees
Customers TEOSI
Operator
USM - _____
Trustee ___- on J
Holders
- Service
Hospital 1 — — ___ (lease payine ts)
N [ PCo —.
Metals
Purchaser —
Revenues &
Credits
Project
Beverly E Capital
______________ Costs
______________ In-lieu-of-property Tapes — —
T
Landfill Project 0 & M
Host s Facility
_______________ • Landfill
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N.E.S 1 W.C,—U 1 0.P. PROJECT
SIMPLIFIED CASH FLOWS
Capital
Constructlon Facility 1 Bondholders Lease Payment Stations
I
Transfer
Contractors Site ________________
d — ___________ ____________________
Capital
Opera lions
_________ Lease
Other ________
Maintenance ______________ ionies
Refuse Payments _____________
Site lease a went
Other _____
, Capi tal
Users ___________
_____________ North Trustee
______________ UOP Operating Lease Andover
roduct Payrneni ’ ___________
______________ I Subsidiary Payment IDFA
Payments _____________ — ____
Energy I Product
Purchaser ] Payments — _____________ _____ ______________ Capital )ebt Service
1 Coinnunity Sharing Payments Equity
host Revenue 1 Contract Private _____ ____
Metals
Purchaser Payments Bondholders1
I City of NESWC
Residue North Andover Contract
Purchasers Coii iiun1 t Cs
Flow of Pavni nt.c
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SE.S,C,W.—C.E,A, PROJECT
$IPPU F lED CASH FLC S
Landfill and
Site Lease
Payments
L! ost Corn. Payments
Plant Site and
Landfill Lease Pay—
men ts
Contract
Service
Payments
I
Con t.ract
Coimununi ties
I
Product Pavmnents
I
Tonnage
Overage
Paynien ts
SESWDD
..Capital for Landfill
Improvements
Bond
Payments
Revenue
Sharing
Landff 11
Penalty
Payn men ts
Plant
Capi taV
Bondholders
1
CEA
CEA Operating Subsidiary
Plant Owner/Operator
and Landfill Operator
‘ Ci ty of Peabody
1 ost Con nuni Ly)
(Landfill Owner)
I
Product Payments
Construction
Con trac lors
Opera I i ng
Cost.s
-J
Other
Users
Fuel
Purchaser(s)
Ferrous
Metals
Purchaser(s)
I
Flow of Payments
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PROJECT RISK ALLOCATION N.E.S.W.C.— S.E.S.W.C.-
C.E.A.-
1. RISK AREA ALLOCATION METHOD BAYSIDE-TITAN-BEVERLY N. ANDOVER PEABODY
WASTE SUPPLY COMMUNITIES GUARANTEE DELIVERY YES YES YES
AND DISPOSAL OF MINIMUM ANNUAL TONNAGE
CONTRACTOR GUARANTEES TO ACCEPT YES YES YES
AND PROCESS WASTE (ACCEPTABLE WASTE) (ACCEPTABLE WASTE) (ACCEPTABLE WASTE)
CONTRACTOR GUARANTEES DISPOSAL YE YES YES
OF RESIDUALS AND AVAILABILITY OF (COMMONWEALTH GUAR-
EMERGENCY LANDFILL ANTEES LANDFILL AVAIL-
BILITY; CONTRACTOR
GUARANTEES DISPOSAL
OF RESIDUALS)
2. PLANT CON— CONSTRUCTION GUARANTEES; CONSTRUC-. YES YES YES
STRUCTION TION OF OPERATIONAL PLANT FOR (ADJUSTED BY COST (ADJUSTED BY COST (ADJUSTED BY COST
FIXED PRICE INDEX) INDEX) INDEX)
CONTRACTOR GUARANTEES CONSTRUCTION YES YES MUST GUARANTEE
BY FIXED DATE AND PAYS PENALITIES (REQUIRED TO LAND- (TO BE PROVIDED IN DATE BUT PAYS
THEREAFTER FILL ACCEPTABLE CONSTRUCTION CON— NO PENALITIES
WASTE) TRACT)
CONTRACTOR HAS RIGHT TO TERMINATE NO NO NO
IF CONSTRUCTION COSTS EXCEED CER-
TAIN CONTRACTED AMOUNT
COMMUNITIES DO NOT ACCEPT PLANT YES, I.D.F.A. YES NOT REQUIRED
UNTIL INDEPENDENT TESTS SHOW IT AND USM CORP. REQUIRE
TO MEET OPERATING SPECIFICATIONS APPROVED ACCEPTANCE TEST
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PROJECT RISK ALLOCATION N.E.S.W.C.— S.E.S.W.C.-
U.O.P.— C.E.A.—
RISK AREA ALLOCATION METHOD BAYSIDE—TITAN-BEVERLY N. ANDOVER PEABODY
3. PLANT COMMUNITIES PAY FIXED TIPPING NO NO YES
OPERA- FEE SUBJECT TO INFLATION
HON
COMMUNITIES GUARANTEE PAYMENT OF YES YES YES
FEE WHETHER OR NOT WASTE IS DE-
LIVERED BY THEM
COMMUNITIES’ FEE IS INCREASED YES YES YES
ACCORDING TO ESTABLISHED COST
INDEX
CONTRACTOR SHARES PRODUCT YES YES YES
REVENUES WITH COMMUNITIES (LINIIED & CON-
DITIONAL)
CONTRACTOR GUARANTEES FIXED PER- YES YES YES
CENTACE OF REVENUE TO BE SHARED (2 ECO FUEL SALES
WITH COMMUNITIES ONLY)
CONTRACTOR’S MAXIMUM PROFIT IS NO NO NO
FIXED WITH SURPLUS SHARED WITH
COMMUNITIES
COMMUNITIES’ TIPPING FEE IS RE— YES YES YES
NEGOTIATED IF WASTE COMPOSITION (IN CERTAIN CASES) (IN CERTAIN CASES)
CHANGES
COMMUNiTIES’ LiABILITY FOR OPERATING YES YES YES
OR CAPITAL COST INCREASES FROM FORCES
OUTSIDE CONTROL OF PARTIES IN AGREEMENT
IS LIMITED
CONTRACTOR’S LIABILITY FOR OPERATING OR YES YES YES
CAPITAL COST INCREASES FROM FORCES OUTSIDE
CONTROL OF CONTRACTING PARTIES IS LIMITED
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PROJECT RISK ALLOCATIONS N.E.S.W.C.— S.E.S.C.W.—
U.o.P.- C.E.A.—
RISK AREA ALLOCATION METHOD BAYS IDE —TITAN-BEVERLY N. ANDOVER PEABODY
CONTRACTOR GUARANTEES QUALITY YES YES NOT APPLICABLE
4. PRODUCT (ELECTRICITY &
MARKETING STEAM ONLY)
CONTRACTOR GUARANTEES VOLUME AND YES YES REFLECTED IN
DELIVERY SCHEDULE (ENERGY TO USM) TIPPING FEE
BUYER GUARANTEES PRICE PAID YES YES DOES NOT APPLY
FOR ENERGY IS EQUIVALENT TO PRICE (ELECTRICITY)- .UN-
PER BTU OF DISPLACED FUEL DETERMINED; (STEAM)
BUYER GUARANTEES MINIMUM FLOOR YES NO DOES NOT APPLY
PRICE FOR MATERIALS
CONTRACTOR AGREES TO DISCOUNT DOES NOT APPLY DOES NOT APPLY DOES NOT APPLY
FUEL PRICE FOR VOLUME PURCHASES
OR SIGNIFICANT DISPLACED FUEL
PRICE INCREASES
CONTRACTOR AGREES TO PAY FOR INCRE— DOES NOT APPLY DOES NOT APPLY YES
MENTAL COSTS INCURRED BY ENERGY BUYER (IN SOME CONTRACTS) 1
BUYER AGREES TO BUY RECEIVING FACIL— DOES NOT APPLY DOES NOT APPLY DOES NOT APPLY
ITIES FROM CONTRACTOR AFTER SUCCESS-
FUL TESTING
BUYER AGREES TO ACCEPT AND PAY FOR YES YES NO
MINIMUM QUANTITY (ENERGY) (ENERGY)
PURCHASING AGREEMENT IS ASSIGN— DOES NOT APPLY DOES NOT APPLY DOES NOT APPLY
ABLE SHOULD BUYER SELL OR LOSE
HIS FACILITIES
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BAYSIDE-BEVERL Y
TITAN GROUP INC.
(As OF DEC. 31, 1977)
$92.1 MILLION
(2.4 MILLION)
5.2 MILLION
2.6 MILLION
50 CENTS
17.9 MILLION
CONTRACTOR SELECTED FINANCIAL DATA
N.E.S.W.C.-N. ANDOVER
U.O.P. INC.
(As OF DEC. 31, 1977)
$508.1 MILLION
162.8 MILLION
41.7 MILLION
31.4 MILLION
$2.74
162.8 MILLION
S.E’.S.W C.-PEAB0DY
C.E.A. INC.
(As OF MARCH 31, 1978)
$150.3 MILLION
(3.9 MILLION)
21 7 MITJjIoN
12.3 MILLION
$1.48
55 .02 MILLION
F ’.)
CATEGORY
TOTAL ASSETS
WORKING CAPITAL
INCOME BEFORE TAXES
NET INCOME
EARNINGS PER SHARE
NET WORTH
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PROJECT SUMMARY
BAYSIDE-TITAN-BEVERLY NESWC-U.O.P.-N. ANDOVER SESWC-C.E.A.-PEABODY
• SMALL REGION • LARGE REGION • LARGE DISTRICT TO
BE FORMED
• I.D.F.A. . I.D.F.A. & PRIVATE • PRIVATE FINANCING
FINANCING LEVERAGED FINANCING
ARRANGEMENT
• LIMITED, (IF ANY) • EXTENSIVE TRANSFER • TRANSFER NETWORK
TRANSFER NETWORK NETWORK (FULL COST NOT DEVELOPED BUT
SHARING) USERS WOULD PAY
COSTS IF DEVELOPED
• SINGLE LINE SHRED • MULTIPLE MASS • DUAL LINE SHRED AND
& INCINERATE INCINERATION DRY FUEL PREP.
• LANDFILL(S) YET TO • LANDFILL(S) • AGREEMENT WITH
BE ACQUIRED PARTIALLY ACQUIRED PEABODY ON PART OF
LANDFILL ACQUISITION
• MAJOR PRODUCT • MAJOR PRODUCT BUYER • MAJOR PRODUCT BUYERS
BUYER IS LOCAL IS UTILITY INCLUDE OUT OF
INDUSTRY DISTRICT INDUSTRIES
OR UTILITIES
• MAJOR OUTPUT IS • MAJOR OUTPUT IS • MAJOR OUTPUT IS
ELECTRICITY ELECTRICITY PROPRIETARY POWDER-
LIKE CELLULOSIC FUEL
29
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III. ECONOMIC ANALYSIS DESCRIPTION
• Methodology arid Assumptions
An economic analysis was conducted for .eä h proposed resoi.irce recovery
project to determine a range of possible costs to communities for the years
1982, 1988, 1992, and 2002. The cost range covers two assumed scenarios:
one of high inflation and one of moderate inflation. Inflation impacts
upon all three projects, and to a varying extent, each project uses specific
cost indices in calculating service fees which will change over the years,
due to inflation.
The scenarios do not represent a “best” or “worst” case projection since
it is difficult to say what the best or worst case for a specific project
might be. The costs do represent a reasonable range; therefore, no one
figure should be interpreted as the cost for that year nor should a high or
low end of the range necessarily be assumed.
Many assumptions have been made in the analysis regarding capital and
operating cost inflation, fuel price’ inflation, member and non—member ton-
nage to the plant, landfill costs, waste composition, etc. Since it is
impossible to say with certainty what the quantitative impact of these areas
will actually be in the future, the costs and revenues could be quite dif-
ferent than exhibited, especially in the years beyond 1990.
The analysis involved a review of cost trends, historical cost data on
key cost components, and certain projections (e.g., fuel costs) in order to
obtain data which could be applied to the specific service fee formulas of
the proposed contracts and arrive at estimated ranges of net costs to
communities.
Further, in each project, the method of financing proposed by the proj-
ect developer and the effective interest rate indicated by the proposer were
used to determine the annual fixed cost of debt service to the communities.
The actual cost of capital could prove to be higher or lower, depending upon
the condition of capital markets and the required rate of return for inves-
tors. Thus, the annual debt service payment could be significantly increased
or decreased. In addition, if the tonnage anticipated for each project is
not achieved, these fixed costs will have to be spread over fewer tons,
thereby increasing the cost on a per tori basis. This effect is exhibited
in the specific analysis of each project.
The costs developed in the analysis are based on data supplied by the
vendors for the capital and operating costs of the projects, the method
of financing, and the expected revenues. Each vendor was requested to sup-
ply such cost data as well as contracts for product sale and other pertinent
contracts and cost information. Not all the data requested was received
(some is proprietary and some is not in final form or would not be released
for one reason or another). Thus, the analysis is based on the data supplied,
and certain costs or revenues cannot be confirmed. This was taken into
30
GORDIAN ASSOCTATES TNCORPOR TED
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consideration in the analysis when formulating assumptions. Therefore,
some of the assumptions might be challenged by the vendors, in view of
data they may have on hand but have not released.
Following are the steps, methodology and assumptions Gordian has em-
ployed in the analysis presented here.
31
GORD!AN ASSOCIATES INCORPORATED
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Economic Analysis Methodology
1. Identify preliminary assumptions.
2. Refi e assumptcons.
3. Define cost elements for consideration.
4. Identify data needs from system vendors, equipment vendors, prospec-
tive product buyers, project sponsors, and others; initiate data
acquisition.
5. Conduct first cut economic analysis using existing data, assumptions,
and some cost categories.
6. Meet with system vendors to discuss assumptions, cost elements, and
data needs.
7. Retrieve data from above sources. Note any data absence which pre-
cludes or limits economic analysis.
8. Analyze data acquired from these sources as well as other data avail-
able in published reports now on—hand and relate the data to the ap-
propriate assumptions and cost elements.
9. Further refine assumptions and cost elements as necessary.
10. Conduct economic analysis of each project, varying critical cost and
revenue categories to determine their sensitivity to various levels
of operation and inflation or deflation at key breakpoints (i.e., 1
year, 6 years, 10 years, etc.) over a specified operating period (i.e.,
1982 — 2002) to obtain a range of estimated net costs (income) to con-
tract users. As part of the economic analysis, conduct a limited
transportation analysis for those co=unities requesting technical
assistance to determine packer haul costs from center of conununity
to resource recovery plant. (An alternative method is from community
boundary to recovery site.)
11. Develop draft 2 —forma service fee statements which exhibit estimated
contract user cost ranges for designated levels of operational through-
put under two inflationary scenarios. The scenarios will represent a
moderate inflation expectation as well as a higher inflation expecta-
tion but not necessarily a best and worst case, since it is difficult
to say what a best or worst case for any project might be.
12. Additional data will be provided in graphic form which exhibits trends
in such areas as fuel prices, ferrous metals prices, and consumer
price index which communities can use as supplemental information.
32
GORDIAN ASSOCIATES INCORPORATED
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13. The draft 2 —fol-ma service fee statements will be forwarded to each
vendof for their information and coent. A separate meeting will
then be arranged with each vendor to discuss the analysis. Following
the meetings, Gordian will finalize the analysis and forward it to
each vendor for mail critique. Any mail critique which a vendor may
wish to offer will be attached to the final report prepared by Gordian,
but no changes will be made in the final analysis.
14. Gordian will then present the report with key slides to North Shore
communities. The target date for this presentation is April, 1979.
Concurrent with the economic analysis, Gordian is undertaking an analysis
of the participation risk for North Shore conmunities in signing on with
a particular project. The bulk of this effort is being conducted by in-
dependent legal counsel, and the contract analysis will be included In the
final report to conm unjtjes. A draft narrative of this analysis will be
forwarded to each vendor at or about the same time as the economic and
transportation analyses. Vendors will have an opportunity to comment on
this analysis during the meetings scheduled with Cordian and E.P.A. for
review of the draft documents prior to finalization and presentation of
the report.
The final report will include basic project characterizations, economic
analysis, transportation analysis, and a discussion of exposure to risk
from a counity perspective, as determined from an analysis of the pro-
posed service agreements and other relevant contract documents.
33
GORDL’ j. ASSOCIATES INCORPORATED
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Assumptions InThe Analysis ,I&ich Are Co non To All Projects
1. The Consumer Price Index for the ’Boston Metropo1itan area is a level
eight percent for the 20 year ‘ operating period under Scenario 1 and
six percent under Scenario 2.
2. Contract community tonnage tóthe project increases at one percent
per year.
3. Solid waste to the plant has an average heating value of 4,500 Btus/lb.
4. Each resour e recovery plant has.a 20. year operating period, and the
landfill capacity available- at the outset of the project is not reduced
beyond the level needed for-a 2O year project life.
5. Energy revenues are based on the pricing formulas furnished to Gordian
and/or noted in discussions i-th the proposed energy buyers and/or
the project vendors.
6. All residue resulting from a project is landfilled.
7. The ferrous metal content of the raw refuse to a plant is six percent
and it is recovered at a ninety percent efficiency.
8. The price of oil escalates at a level ten percent per year in Scenario
1 and at a level eight percent per year in Scenario 2.
9. The financing of each project will be completed by July 1979 and con-
struction co iences that month. Coxm iercial startup will begin in
July 1982.
10. Each project is constructed at its stated capacity and operates
successfully over the 20 year period, with no extraordinary outages
or setbacks.
11. 1979 Service Fee Estimates assume plant construction initiated in
1976 at 1976 prices.
34
GORDIAN ASSOCIATES INCORPORATED
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• DisCu gj 0 of Cost Indices
A primary objective of this evaluation was to track the effects of
inflation on the three proposed resource recovery projects. Each project’s
operation and maintenance costs and recovered resource revenues will be
heavily impacted by the cost trends in the economy its project life.
The capital costs of each project have already escalated over 25% as a
result of the delay in the implementation schedule.
The N.E.S.W.C.—U.O.p. project developers and the S.E.S.W.C.—C.E.A. project
developers use the Consumer Price Index (CPI) for the Boston Metropolitan
area to adjust annually certain costs. In the N.E.S.W.C.—U.O.P. contract,
the operations and maintenance (O&M) cost is set at a fixed amount and
annually adjusted by this index.
The S.E.S.W.C.—C.E.A. contract uses this same index for annual adjustment
of the “base fee” which contract communities pay.
The CPI (Boston) has averaged approximately 6.5 percent over the last
decade; however, it has ranged from less than five percent to in excess
of nine percent in certain years during that period. During 1978 it
averaged about seven percent. A CPI range of five to six percent would
be considered a moderate level of inflation.
The CPI is a base year weighted index that does not reflect produc-
tivity gains in the economy. It includes several factors and represents
the general inflation rate in the economy.
The Bayside—Titan contract also specifies an o&1 cost component which
will be adjusted annually by cost indices. The CPI (Boston) is used to
adjust a fraction of this cost. However, the Titan contract includes
three other indices to adjust larger proportions of the O&M costs annually.
The most significant cost component is that which represents labor costs.
This component is weighted the heaviest and is adjusted by the Employment
Cost Index (Ed) (Manufacturing) for the Northeast. The Titan contract
indicates that when a subindex for the Boston area is developed, that
subindex will be used to adjust the labor cost component rather than the
index which includes the Northeast. (It is uncertain when such a subindex
will be established.) The ECI for the Northeast is a relatively new index
which has only been recorded for the last three years. During that period,
it has averaged at least one percentage point above the CPI (Boston).
It was determined at the outset of this study that Gordian would use
the specific indices, as well as service fee formulas, in the proposed
service agreements when evaluationg project economics. Gordian conferred
with such appropriate Federal Government agencies as the Bureau of Labor
Statistics, which publishes the CPI and the Ed, and learned how the indices
35
GORDIAN ASSOCIATES INCORPORATED
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were calculated, charted their performance, and reviewed literature criti-
cal to the indices. In establishing cost scenarios, inflation levels for
the CPI (Boston) of six and eight percent were assumed for the proposed
20 year contract period in each project. While actual cost trends could
be higher or lower than these levels, Gordian concluded that based on
historical cost trends in the Boston area, these levels represent reason-
able moderate and high inflation scenarios.
In the case of the Bayside—Titai project, a level for the ECI (Manu-
facturing) Northeast of one (1) percentage point above the CPI (Boston)
was assumed, in view of the ECI structure and its performance since it
was established. Cordian reviewed its weightings, geographic differences,
extent to which the index reflects quality changes, and whether or not it
included productivity gains.
Based on this review, Cordian has concluded that this index is likely
to remain at least one (1) percentage ‘oint above the CPI (Boston) over
the long—term. The Employment Cost Index measures the actual change in
labor compensation per hour. I o the extent that output per man hour
(productivity) increases less than all this, the labor cost increase
shows up as price increases to consumers. For example, if labor costs
rise by eight percent per year and productivity increases by one percent
per year, consumer prices will increase by seven percent per year. Gor—
dian estimates that labor productivity will, in fact, improve by one
percent per year (this is below its historical rate), leading to the re-
sult described.
Cordian believes that the ECI is a more representative index than
the CPI for the rate at which labor costs will escalate, but feels it
will be higher than the CPI. Since Titan applies the ECI and other indices
in addition to the cP I (Boston) to annually adjust its 024 cost, this
cost component in the service fee could be expected to increase at a some-
what faster rate than the O&M component in the other two projects which
apply the Cpi (Boston) to adjust that component (or the base cost in the
case of S.E.S.W.C.—C.E.A. project).
• Energy Cost Inflation
Fuel and power costs, lik other costs considered in this study, are
difficult to predict twenty years into the future. Based on anticipated
trends and taking into consideration that much of New England’s oil sup-
ply is from foreign import sources, Cordian has estimated oil prices to
inflate two percentage points above the assumed CPI inflation rate. Thus,
in the high inflation scenario, oil prices are inflated at ten percent
per year, and in the low inflation scenario, they inflate at eight per-
cent per year.
36
GORDLAN ASSOCMTES INCORPORATED
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In the case of the Bayside and N.E.S.W.C. projects, electricity will
be sold to New England Power Company. That utility’s “average” fuel costs
(combination of nuclear, fossil fuel and hydropower) varied considerably
in 1978 and averaged under 16 mils/kwh. A price of 16 mils/kwh was assumed
for 1979. This figure was escalated at ten percent until 1989 and nine
percent thereafter on the high inflation scenario and eight percent until
1989 and seven percent thereafter in the low inflation case. The lower
rates assume Increased nuclear power and coal utilization by the late 1980s
and a slower rate of inflation in average fuel cost. The analysis was
made before the recent price increases in imported oil.
Until these increases, which are certainly not considered to be the
expected rate of inflation of fuel prices each year, oil costs had been
‘ rather “soft” over the last few years. Fuel prices characteristically run
farily level for a few years then rise markedly and level off, and the
effects of two or three years’ inflation are felt in that one period.
The recent oil price increases, while elevating certain operating
costs, have significantly increased the energy revenue projections for
each project as well. These price increases are not reflected in revenue
streams calculated by Gordian, since the cost analysis was based on data
and conditions existing before the dramatic price changes. The cost in-
creases (estimated increases in the case of New England Power Company) for
fuel or electricity at the various energy markets are exhibited below:
Bayside—Tjtan
Old Price of Oil New Price of Oil
Energy Markets or Average Power or Average Power
U.S.M. Corp. $12.70/BBL $15.50/BBL
NEPCO $ 0.158/kwh $ 0.18—. 19/kwh
(Projected late 1979)
N.E.S.W.C.—U.O.P .
NEPCO $ 0.158/kwh $ 0.18—.]9/kwh
(Projected late 1979)
S . E. S . W. C . — c . E . A .
Naragansett Electric Co. $14.60/BBL $17.50/BBL
In addition, the multipliers, reflecting incremental fuel costs, which
NEPCO will apply to average fuel costs when pricing electricity received
from Bayside—Tjtan and N.E.S.W.C.—TJ.O.p. have increased as of March 1979
from 1.45 to 1.58 for on—peak power and 1.25 to 1.29 for off—peak power.
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GORDIAN ASSOCIATES INCORPORp TED
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The combined effect of increased multipliers and increased average
fuel costs has a substantial positive effect on the price these projects
would receive for electricity. It should be pointed out that these multi-
pliers are adjusted annually and could change up or down by the time the
projects commence operation and each year thereafter.
• Economic Analysis for Bayside—Titan
This project includes the following service fee components:
Debt Service . This cost is a fixed annual payment based on the final
investment costs and the cost of capital to make the investment. The pro-
ject is proposed to be financed through the issue of industrial revenue
bonds by an Industrial Development Financing Authority. The asswned inter-
est rate on the investment has been seven and one—half percent; however,
the final rate could be higher or lower than this figure.
Recently, Titan has explored a private leveraged financing arrange-
ment similar to the N.E.S.W.C.—U.O.P. project. If such a financing arrange-
ment could be secured, it could lower the effective annual interest rate
for the investment.
The annual debt service fee will be spread over the contract co=unity
tonnage. Therefore, it is important to maximize this tonnage, within the
capacity limits of the project, to minimize the “net cost per ton” to con-
tract communities.
Annual Operating Maintenance Cost (O&M) . At the time of this analy-
sis, this cost category included “variable” and “fixed” components. It
is our understanding that, although the O&M cost obviously includes fixed
and variable elements, a fixed O&M cost will be provided in the final con-
tract negotiated with the contract communities. An amount will be set,
and this figure will be adjusted by the specific indices which Titan will
apply to determine the new annual cost.
This arrangement is similar to the N.E.S.W.C.—U.O.P. and S.E.S.W.C.—
C.E.A. projects; however, they use the Consumer Price Index for the Boston
Metropolitan Area and the Bayside—Titan contract specifies four separate
indices. An adjustment factor will also be applied to take into considera-
tion the fraction of the O&M costs which are labor dependent, maintenance
dependent, vehicle owning and operating dependent, and an “other” category
for the remainder of the costs. The adjustment factors will be reviewed
by independent certified public accountants within eighteen months after
the effective date of commercial operation and every three years there-
after to determine their vaildity of need for revision.
Inflation would have a marked impact an O&N costs. These costs, like
debt service costs, will be spread over the contract community tonnage;
therefore, again, it is important to maximize this tonnage in order to
minimize the “net cost per ton.”
38
GORDIAN ASSOCIATES INCORPORATED
-------
Trustee Payment . This is the cost to the bank which serves as the
trustee for the monies to be paid from the various funds and accounts.
This cost is expected to be on the order of $1O,000—$20,000 per year and
represents a minor cost ($.05—$.1O per ton) to coi iunities when spread
over all tonnage.
Taxes and Assessments . This would be the cost for any taxes, special
fees, or assessments which might be levied on the plant. The project
developers have indicated that they are not aware of any costs in this
category at this time; however, there could be future levies, which, if
charged to the project, would be spread over contract coim unity tonnage.
For purposes of this analysis, we have not assumed costs in this category.
yment to Reserves . This cost would accrue if the project developers
were required to draw down reserve funds (i.e., the O&M reserve for the
USM power plant or the debt service reserve) to cover costs of required
payments or maintenance to keep the project viable, in the event revenues
were not sufficient.
The reserves represent protection for the bondholders and the co=un—
ity. It is not anticipated that a cost will develop in this category, and
for purposes of this analysis no cost is assumed.
Amortization of TEOSI Capital Infusion . This is payment which could
be required of contract co nunitjes to cover any costs and expenses which
the Titan operator (Titan Environmental Operating Services, Inc.) might
incur in the plant or landfill or for permits, licenses, training and
testing costs, insurance for plant or landfill, legal costs, engineering
or contractors fees, and certain other costs and expenses incurred on and
after the date that the Trustee receives the proceeds of the intia]. issue
of the bonds, insurance or other funds available for such purpose under
the trust agreement. However, “Capital Infusion” does not include any of
the costs noted which are incurred in connection with the performance of
work for which TEOSI has quoted a fixed or guaranteed price as long as
TEOSI has been paid the price quoted.
The project developers have indicated that this cost category is
expected to be zero, and for purposes of this analysis, we have not exiai—
bited a cost for this element.
Counjtjes should be cognizant, however, that this category includes
a broad range of potential costs or expenses, some of which could accrue
beyond the limits of the bond proceeds or guaranteed prices. Therefore,
a cost could develop in this category and be reflected in the service fee
once the plant coences operation.
Alteration Reserve Payment . The alteration reserve payment is a fixed
fee of 5O per ton of solid waste delivered to the project. It will be
39
GORDIAN ASSQCLo TEs INCORPORATED
-------
retained in an interest bearing fund for application to any costs and ex-
penses which might be incurred for alteration or modification of the pro-
ject in the future. This fund could be used for elective alterations as
well as necessary alterations, due to damage or destruction. If the fund
is never used or if only part of it is used, and there are no monies owed
to TEOSI, the contract communities will share all the funds remaining in
this account at the expiration of the contract.
Host Community Fee . This is a “payment in lieu of taxes” to the
community in which the plant is sited. The cost category is similar to
the other two projects. In this case, the host community is the City of
Beverly. The payment is set at $1.25 in the start—up year and is adjusted
annually by the Consumer Price Index for the Boston Metropolitan area.
The fee in this project is assessed only on the tonnage which is processed
through the plant, but the payment is spread over all contract community
tonnage delivered. Therefore, the fee, as a cost per ton, could be some-
what less than the set amount.
For example, assume 182,500 tons/yr. of contract community tonnage
delivered, but only 164,250 tons/yr. actually processed through the plant
in 1982, with the Host Community Fee set at $i.25/ton. The cost per ton
to communities is then:
164,250 tons/year
$1.25/ton x = $l.13/ton
182,500 tons/year
Landfill Location Levies . These fees represent the costs the plant
operator, TEOSI, might have to pay for the right to landfill residue and
raw refuse in a particular community. The fees would be paid to the com-
munity. Titan anticipates levies of $1.00/ton for each ton of raw refuse
landfifled and $.50/tori for each ton of residue landfilled.
The actual fees could be higher or lower or, perhaps, no levies would
be imposed. For the purposes of this analysis, we have applied the fees
which Titan anticipates.
Excess Tonnage Landfill Cost . This is the incremental cost of accept-
able tonnage delivered to the resource recovery plant or landfill during
a month when the aggregate tonnage of acceptable waste from all customers
exceeds the processing capacity of the resource recovery plant. The actual
cost represents the cost which TEOSI incurs in transporting and disposing
of the excess tonnage at a landfill.
The excess tonnage cost is applied as follows: When the aggregate
tonnage of acceptable waste from all long—term customers is greater than
1750 tons for any three day period, Monday—Wednesday or Thursday—Saturday,
whichever is the case, the excess is noted and at the end of the month,
the incremental costs of transporting and landfilling such excesses are
applied to the excesses and spread over the aggregate tonnage from all
long—term customers. In this manner, a contract community pays for a
40
GORDL j. ASSOCIATES INCORPOr ATED
-------
portion of all excess tonnage delivered regardless of whether it was de-
livered by that community or not. On the other hand, a community benefits
from a share of the recovered resource revenues from all sources.
Oil Cost During Downtime . This cost accrues when TEOSI must burn fuel
oil to supply steam and electricity to the USM Corp. during periods of down-
time when the plant cannot burn processed solid waste to generate steam and
electricity. Revenues are received during this period, thus there is an
offset on the oil cost. Titan estimates burning about 10,715 barrels of
oil per year during its estimated ten percent downtime period.
Recovered Resource Credits . The recovered resource credits stream
includes credits for electricity and steam sold to the USM Corporation,
electricity sold to the New England Power Company, and ferrous metals sold
to the detinning industry (Vulcan Materials Company).
The first year’s (1982) resource recovery credits will be provided
from a special fund as part of the capitalized proceeds from the bond issue.
The amount of this fund is expected to be about $2.4 million. This amount
would be shared among contract communities in the first year. In subse-
quent years, the communities share eighty—five percent of the actual reve-
nues from the previous year and receive a double payment covering the
revenues from the last two years in the final project year. This has been
arranged for conmiunity budgeting purposes.
It is important to point out that the project will receive a minimum
energy payment from USM based on the price of displaced fuel oil. The
pricing arrangement for electricity sales to NEPCO is discussed in the
“Other Considerations” section of this report.
The project developers have indicated that the ferrous metal purchase
contract will contain a guaranteed “floor” or minimum price of $25.00/
long ton (2240 lbs.) and a long—term selling arrangement; however, that
proposed contract was not made available for this analysis. This product
is proposed for marketing to detinning plants. The nearest locations of
these plants are in Delaware, Maryland, and Pennsylvania; thus, a substan-
tial transportation expense will be incurred. Therefore, the minimum net
(F.O.B. plant) credit per ton and duration of contract are uncertain.
This credit represents only about five percent of the total credit stream.
The energy credits, in particular, will be very sensitive to inflation,
the price of oil and NEPCO power, and the amount of solid waste that is
burned. If oil costs increase markedly over the next 20 years and the
plant operates successfully with minimum downtime, revexiues from steam and
power could reduce the gross service fee substantially.
Constructive Tax Ownership Credit . This is a credit which is realized
by TEOSI being able to claim tax ownership of the plant. Under this arrang-
ement, TEOSI is able to shield part of its income by claiming a “depreciation
expense” on the plant in its income statement. The project’s depreciable
41
GORDIAN ASSOCIATES INCORPORATED
-------
assets, plant capital and construction financing will be treated as an
expense by TEOSI, and fifty percent of the tax savings will be shared
with contract éonnnunities. An example of how this credit is applied
follows:
Assumptions :
Annual Contract Community Tonnage — 185,000
Depreciable Assets — $20,000,000
Straight Line Depreciation for 20 years — $20,000,000
No salvage value 20 years
Depreciation per year — $1,000,000
TEOSI Annual Income — $400,000 -
TEOSI “Taxable” Income After Depreciation — 0
TEOSI Income Bracket — 48%
TEOSI Tax Savings — .48 x 400,000 — $192,000
Contract Community Share (50%) — $96,000 or $96,000 = $ 52/ton
185,000 tons
Interest on Reserves . A credit accrues from interest earned on the
various reserve fund accounts which are established as part of the trust
agreement. These funds include the debt service reserve, the operations
and maintenance reserve, and the service fee credit fund. There will be
a restriction on the kinds of securities these funds can be invested in;
and thus, there is uncertainty as to the interest rates that will be
realized from these investments. An interest rate of-seven percent has
been assumed in this analysis.
42
GORDIAN ASSOCIATES INCORPORATED
-------
$ 9.36/ton
$ ll.22/tori
$ O.O8/ton
0
$ 0.50/ton
$ 1.13/ton
$ 0.20/ton
0
$ 2 2.49/ton
($ l2.08/ton)
$ 0.82/ton
($ 9.57/ton)
0
0
$ 12.92/ton
$ 9.36/ton
$ 11.22/ton
$ 0.08/ton
0
$ 0.50/ton
$ 1.13/ton
$ 0.20/ton
0
$ 2 2.49/ton
($ l2.81/ton)
$ 0.82/ton
($ 10.19/ton)
0
$ 9.36/ton
$ 11.22/ton,
$ 0.08/ton
0
$ 0.50/ton
$ 1.13/ton
$ 0.20/ton
0
$ 22.49/ton
($11.96/ton)
$ 0.81/ton
($ 9.48/ton)
0
0
S 9.36/ton
$11.22/ton
$ 0.08/ton
0
0
0
$ 0.50/ton
$ 1.13/ton
$ 0.20/ton
0
$ 22.49/ton
($ 12.70/ton)
$ 0.81/ton
(5 10.11/ton)
0
Revised Formula
1979
TITAFI
Estimated Service Fee Ranaes
Scenario I (High
Case A
( Low To )
Cost Inflation )
Case B
(High Tonnage)
Meiiiber
Tonnage
(TPY)
182,500
182,500
Private
Tonnage
(TPY)
0
17,500
182,500
182,500
Total Annual Tonnage (TPY)
182,500
200,000
182,500
17,500
200,000
Scenario II (Moderate Cost Inflation )
Case A Case B
(Low Tonnage) (High Tonnaue)
0
0
0
0
Net Annual Debt Service
Annual 0&M Cost
Payment to Trustee
Taxes and Assessment
Payment to Reserves
Amortization of TEOSI
Capital Infusion
Alteration Reserve Payment
Host Comunity Fee
Landfill Location Levies
Excess Tonnage Landfill Cost
Gross Service Fee
Less:
Gross Recovered Resource Credit
Less Oil Cost During Downtime
Net Recovered Resource Credit
to Coninunity
Constructive Tax Ownership Credit
Interest on Recovered Resource
Credit lund
Net Cost to Contract Coninunity
0
0
0
$ l 2 .30/ton
0
$ 13.01/ton $ l2.38/ton
-------
TITAN
Gross Recovered Resource Credit
Less Oil Cost During Downtime
Net Recovered Resource Credit
to Conmuni ty
Constructive Tax Ownership Credit
Interest on Recovered Resource
Credit Fund
Nd Cost to Contract Colilmrnity
$ 13.50/ton
$ 15.14/ton
$ 0.08/ton
0
0-’
0
$ 0.50/ton
$ 1.13/ton
$ 0.20/ton
0
$ 30.55/ton
($13.15/ton)
0
(513.15/ton)
0
($ 3.51/ton)
$ 13.89/ton
$ 13.50/ton
$ 15.14/ton
$ 0.08/ton
0
0
0
$ 0.50/ton
$ 1.13/ton
$ 0.20/ton
0
$ 30.55/ton
($13.15/ton)
0
$ 13.15/ton
0
3.51/ton)
$ 13.89/ton
$ 13.50/ton
$ l 4 .22/ton
$ 0.08/ton
0
0
$ 0.50/ton
$ 1.13/ton
$ 0.20/ton
0
$ 29.63/ten
($ 13.15/ton)
0
(5 13.15/ton)
0
(5 3.51/ton)
$ 12.97/ton
$ 13.50/ton
$ 14.22/ton
$ 0.08/ton
0
$ 0.50/ton
$ 1.13/ton
$ 0.20/ton
0
$ 29 . 63 fton
(5 13.15/ton)
0
($ 13.15/ton)
0
($ 3.51/ton)
$ l?.97/ton
Revised Formula
1982
Estimated Service Fee Ranaes
Scenario I (High
Case A
(Low Tonnage)
Cost Inflation)
Case B
(j-Iigh Tonnage)
Member
Tonnage
(TPY)
182,500
182,500
182,500
182,500
Private
Tonnage
(TPY)
0
17,500
0
17,500
Total Annual Tonnage (TPY)
182,500
200,000
182,500
200,000
Scenario II (Moderate Cost Inflation )
Case A Case B
( Low Tonnage ) (High Tonnage)
Net Annual Debt Service
Annual 0&M Cost
Payment to Trustee
Taxes and Assessment
Payment to Reserves
Amortization of TEOSI
CainLal InFusion
Alteration Reserve Payment
Host Con nunity Fee
Landfill Location Levies
Excess Tonnage Landfill Cost
Gross Service Fee
Less:
-------
$ 12.72/ton
$ 23.26/ton
$ 0.08/ton
0
0
0
$ 0.50/ton
$ 1.78/ton
$ 0.20/ton
$ 0.03/ton
$ 38.57/ton
($ 21.09/ton)
$ 1.66/ton
(5 l6.52/ton)
($ .70/ton)
( 5 1.16/ton)
$ 2 0.82/ton
$ 12.72/ton
$ 23.26/ton
$ 0.08/ton
0
0
0
$ 0.50/ton
$ 1.78/ton
$ 0.20/ton
$ 0.03/ton
$ 38.57/ton
($ 21.73/ton)
$ 1.66/ton
(5 17.06/ton)
($ .72/ton)
($ 1.19/ton)
$ l9.60/ton
$ 12.72/ton
$ 19.53/ton
$ 0.08/ton
0
0
0
$ 0.50/ton
$ 1.59/ton
$ 0.20/ton
$ 0.02/ton
$ 34.64/ton
($ 18.51/ton)
$ 1.40/ton
(5 14.54/ton)
($ .62/ton)
($ 1.02/ton)
$ 18.46/ton
$ 12.72/ton
$ 19.53/ton
$ 0.08/ton
0
0
0
$ 0.50/ton
$ 1.59/ton
$ 0.20/ton
$ 0.02/ton
$ 34.64/ton
($ 19.07/ton)
$ 1.40/ton
(5 15.02/ton)
(5 .64/ton)
(5 1.05/ton)
$ 17.93/ton
Revised Formula
1988
TITAN
Estimated Service Fee Ranues
Scenario I (High Cost Inflation )
Case A Case B
( Low Tonnage ) (Hiqh Tonnage)
Member
Tonnage
(TPY)
193,700
193,700
193,700
193,700
Private
Tonnage
(TPY)
0
6,300
0
6,300
Total Annual Tonnage (TPY)
193,700
200,000
193,700
200,000
Scenario 11 (Moderate Cost Inf1ation
Case A Case B
(Low Tonnage) (High Tonnage)
Net Annual Debt Service
Annual 0&M Cost
Payment to Trustee
Taxes and Assessment
Payment to Reserves
j Amortization of TEOSI
Capital Infusion
Alteration Reserve Payment
Host Comunity Fee
Landfill Location Levies
Excess Tonnage Landfill Cost
Gross Service Fee
Less:
Gross Recovered Resource Credit
Less Oil Cost During Downtime
Net Recovered Resource Credit
to Conmunity
Constructive Tax Ownership Credit
Interest on Recovered Resource
Credit Fund
Net Cost to Contract Conrnunity
-------
Debt Service
Cost
$ 12.22/ton
$ 31.16/ton
$ 0.07/ton
0
0
$ 0.50/ton
$ 2.40/ton
$ 0.21/ton
$ 0.15/ton
46.71/ton
($ 27.45/ton)
$ 2.33/ton
($ 21.35/ton)
(5 .90/ton)
(5 1.49/ton)
$ 22.97/ton
$ 12.22/ton
$ 31.16/ton
$ 0.07/ton
0
0
$ 0.50/ton
$ 2.40/ton
$ 0.21/ton
$ 0.15/ton
$ 46.71/ton
($ 27.45/ton)
$ 2.33/ton
(5 21.35/ton)
(5 .90/ton)
(5 1.49/ton)
$ 22.97/ton
$ 12.22/ton
$ 24.36/ton
$ 0.07/ton
0
0
$ 0.05/ton
$ 1.99/ton
$ 0.21/ton
$ 0.12/ton
$ 39.47/ton
($ 22.59/ton)
$ 1.84/ton
(5 17.64/ton)
(5 .75/ton)
(5 1.23/ton)
$ 19.85/ton
$ 12.22/ton
$ 24.36/ton
$ 0.07/ton
0
$ 0.05/ton
$ 1.99/ton
$ 0.21/ton
$ 0.12/ton
$ 39.47/ton
(5 22.59/ton)
$ 1.84/ton
(5 17.64/ton)
($ .75/ton)
(5 1.23/ton)
$ 19.85/ton
TITAN
Revised Formula
Estimated Service Fee Ranoes
Scenario I (High
Case A
1992
(Low Tonnage)
Cost Inflation)
Case B
(High Tonnage)
Member
Tonnage
(TPY)
201,600
201,600
201,600
201,600
Private
Tonnage
(TPY)
0
0
0
0
Total Annual Tonnage (TPY)
201,600
201,600
201,600
201,600
Scenario II (Moderate Cost Inflation )
Case A Case B
(Low Tonnage) (High Tonnage)
0
Net Annual
I\nnual O&M
Payment to Trustee
Taxes and Assessment
Payment to Reserves
Amortization of TEOSI
0• ’
C I)ital Infusion
Alteration Reserve Payment
Host Coim unity Fee
Landfill location Levies
Excess Tonnage Landfill Cost
Gross Service Fee
Less:
Gross Recovered Resource Credit
Less Oil Cost During Downtime
Net Recovered Resource Credit
to Coimiunity
Constructive Tax Ownership Credit
Interest on Recovered Resource
Credit Fund
Net Cost to Contract Cornunity
0
0
-------
Revised Formula
TITAN
Estimated Service Fee Ranges
Case A
(Low Tonnage)
$ 11.06/ton
$ 64.55/ton
$ 0.07/ton
0
0
0
$ 0.50/ton
$ 4.84/ton
$ 0.26/ton
$ 2.46/ton
$ 83.74/ton
$ 11.06/ton
$ 64.55/ton
$ 0.07/ton
0
0
0
$ 0.50/ton
$ 4.84/ton
$ 0.26/ton
$ 2.46/ton
$ 83.74/ton
11.06/ton
42.17/ton
0.07/ton
0
0
0
$ 0.50/ton
$ 3.32/ton
$ 0.26/ton
$ 1.71/ton
$ 59.09/ton
$ 11.06/ton
42.17/ton
$ 0.07/ton
0
0
0
$ 0.50/ton
$ 3.32/ton
$ 0.26/ton
$ 1.71/ton
$ 59.09/ton
Gross Recovered Resource Credit
less Oil Cost During Downtime
Net Recovered Resource Credit
to Coninlunity*
Constructive Tax Ownership Credit
Interest on Recovered Resource
Credit Fund
Net Cost to Contract Conulunlty**
($ 54.02/ton)
$ 5.47/ton
($ 41.27/ton)
($ 1.08/ton)
($ 2.89/ton)
$ 38.50/ton
($54.02/ton)
$ 5.47/ton
($ 41.27/ton)
($ 1.08/ton)
($ 2.89/ton)
$ 38.50/ton
( 5 37.10/ton)
$ 3.59/ton
(5 28.18/ton)
($ 1.08/ton)
(5 1.99/ton)
$ 27.54/ton
($ 37.10/ton)
$ 3.59/ton
($ 28.48/ton)
($ 1.08/ton)
(5 1.99/ton)
$ 27.54/ton
* Additional credits accrue in 2002 due to lagged payment arrangement for comunity budgeting purpose
($ 47.16/ton)
C$ 47.16/ton)
($ 31.93/ton)
($ 31.93/ton)
2002
Scenario I (High Cost Inflation )
Case B
(High Tonnage)
Member Tonnage (TPY)
Private Tonnage (TPY)
Total Annual Tonnage (TPY)
222,700
0
222,700
222,700
0
222,700
222,700
0
222,700
222,700
0
222,700
Scenario II (Moderate Cost Inflatior
Case A
(Low Tonnage)
Case B
(High Tonnage)
Net Annual Debt Service
Annual 0&M Cost
Payment to Trustee
Taxes and Assessment
Payment to Reserves
Amortization of TEOSI
Capital Infusion
Alteration Reserve Payment
f host Comunity Fee
L uuI1i11 Location Levies
Excess Tonnage Landfill Cost
Gross Service Fee
Less:
$
** Other credits will also be realized in 2002 from the distribution of reserve funds to contract coniTiunities.
-------
TABLES REFLECTING O&M COSTS INFLATED BY TITAN’S
OLD FORNULA PRIOR .10 NARCH REVISION ,
A recent change in the escalation formula for Titan’s O&M costs has
resulted in a slower projected inflation rate for the O&M costs. The
following tables are provided using the original escalation fori iula. As
this method of escalation will not beapplied, these tables should only
be used for the sake of coxnparisčn and in no way represent the projected
O&N costs.
4 8
GORDIAN ASSOCIATES INCORFORATEL )
-------
Net Annual Debt Service
Annual 0&M Cost
Payitient to Trustee
Taxes and Assessment
Payment to Reserves
Amortization of TEOSI
Capital Infusion
Alteration Reserve Payment
1-lost Comunity Fee
Landfill Location Levies
Excess Tonnage Landfill Cost
Gross Service Fee
Less:
Gross Recovered Resource Credit
Less Oil Cost During Downtime
Net Recovered Resource Credit
to Cornunity
Constructive Tax Ownership Credit
Interest on Recovered Resource
Credit Fund
Net Cost to Contract Conununity
Old Formula
1979
TITAN
Estimated Service Fee Ranues
Scenario I (High Cost Inflation )
Case A Case B
(Low Tonnage) (Hiqh Tonnaqe)
Member
Tonnage
(TPY)
182,500
182,500
182,500
182,500
Private
Tonnage
(TPY)
0
17,500
0
17,500
Total Annual Tonnage (TPY)
182,500
200,000
182,500
200,000
Scenario II (Moderate Cost Inflation
Case A Case B
(Low Tonnage) (High Tonnage)
$
11.22/ton
$
11.22/ton
$
11.22/ton
$
11.22/ton
$
0.08/ton
$
0.08/ton
$
0.08/ton
$
0.08/ton
0
0
0
0
O 0
O 0
0 0
0 0
$
$
$
$
0.50/ton
1.13/ton
0.20/ton
0
22.49/ton
12.08/ton)
0.82/ton
5
5
$
$
($
$
0.50/ton
1.13/ton
0.20/ton
0
22.49/ton
12.81/ton)
0.82/ton
5
S
$
$
0.50/ton
1.13/ton
0.20/ton
0
22.49/ton
11.96/ton)
0.81/ton
5
$
$
$
0.50/ton
1.13/ton
0.20/ton
0
22.49/ton
(5
5
12.70/ton)
0.81/ton
(S
$
($
$
(5
9.57/ton)
(5
10.19/ton)
($
9.48/ton)
($
10.11/ton)
0 0
0 0
0 0
0 0
12.92/ton $ 12.30/ton
$ 13.01/ton $ 12.38/ton
-------
TITAN
Old Formula Estimated Service Fee Ranoes
Scenario I (High Cost Inflation) Scenario II (Moderate Cost Inflation
Case A Case B Case A Case B
198? ( Low Tonnage) j jgh Tonnaq ( Low Tonnage ) (fflg Tonnage)
Member Tonnage (TPY) 182,500 182,500 182,500 182,500
Private Tonnage (TPY) 0 17,500 0 17,500
Total Annual Tonnage (TPY) 182,500 200,000 182,500 200,000
Net Annual Debt Service $ 13.50/ton $ 13.50/ton $ 13,50/ton $l3.50/ton
Annual 0&M Cost $ 15.27/ton $ 15.27/ton $ l4.30/ton $ l 4 .30/ton
Payment to Frustee $ 0.08/ton $ 0.08/ton $ 0.08/ton $ 0.08/ton
Taxes and Assessment 0 0 0 Ô
Payment to Reserves 0 t’l 0 0
Amortization of TEOSI
Capital Infusion 0 0 0
Alteration Reserve Payment $ 0.50/ton $ 0.50/ton $ 05O/ton $ 0.50/ton
Host Conniunity Fee $ 1.13/ton $ 1.13/ton $ 1.13/ton $ l.13/ton
Landfill Location Levies $ 0.20/ton $ 0.20/ton $ 0.20/ton $ O.?0/ton
Excess Tonnage Landfill Cost 0 0 0 0
Gross Service Fee $ 30.68/ton $ 30.68/ton $ 2 9.71/ton $ 29 .71/ton
Less:
Gross Recovered Resource Credit ($ 13.15/ton) ($ 13.15/ton) ($ l3.15/ton) ($ 13.15/ton)
Less Oil Cost During Downtime 0 0 0 0
Net Recovered Resource Credit
to Coniiiunity ($ 13.15/ton) ($ 13.15/ton) ($ 13.15/ton) ( 5 13.15/ton)
Constructive Tax Ownership Credit 0 0 0 0
Interest on Recovered Resource
Credit Fund ($ 3.51/ton) (5 3.51/ton) ($ 3.51/ton) ($ 3.51/ton)
Net Cost to Contract Corwnunity $ 14.02/ton $14.02/ton $ l3.O /ton $13.05/ton
-------
Net Annual Debt Service
Annual 0&M Cost
$ 12.72/ton
$ 24.20/ton
$ 0.08/ton
0
0
0
$ 0.50/ton
$ 1.78/ton
$ 0.20/ton
$ 0.03/ton
$ 39.51/ton
($ 21.09/ton)
$ 1.66/ton
($ 16.53/ton)
($ .70/ton)
($ 1.16/ton)
$ 21.13/ton
$ 12.72/ton
$ 24.20/ton
$ 0.08/ton
0
0
0
$ 0.50/ton
$ 1.78/ton
$ 0.20/ton
$ 0.03/ton
$ 39.51/ton
($ 21.73/ton)
$ 1.66/ton
($ 17.06/ton)
($ .72/ton)
($ 1.19/ton)
$ 20.54/ton
$ 12.72/ton
$ 19.96/ton
$ 0.08/ton
0
0
0
$ 0.50/ton
$ 1.59/ton
$ 0.20/ton
$ 0.02/ton
$ 35.07/ton
($ 18.51/ton)
$ 1.66/ton
($ 14.54/ton)
($ .62/ton)
($ 1.02/ton)
$ 18.89/ton
$ 12.72/ton
$ 19.96/ton
$ 0.08/ton
0
0
0
$ 0.50/ton
$ 1.59/ton
$ 0.20/ton
$ 0.02/ton
$ 35.07/ton
($ 19.07/ton)
$ 1.40/ton
($ 15.02/ton)
($ .64/ton)
($ 1.05/ton)
$ 18.36/ton
O d Formula
1988
Estimated Service Fee
Scenario I (High Cost
Ranoes
Inflation)
Scenario
II
(Moderate
Cost
Inflation
Case A Case B
(Low Tonnage) (High Tonnage)
Case A Case B
(Low Tonnage) (High Tonnage)
Member
Tonnage
(TPY)
193,700
193,700
193,700
193,700
Private
Tonnage
(TPY)
0
6,300
0
6,300
Total Annual Tonnage (TPY)
193,700
200,000
193,700
200,000
Payment to Trustee
Taxes and Assessment
Payment to Reserves
Amortization of TEOSI
Capital Infusion
Alteration Reserve Payment
Host Coninunity Fee
Landfill Location Levies
Excess Tonnage Landfill Cost
Gross Service Fee
Less:
Gross Recovered Resource Credit
Less Oil Cost During Downtime
Net Recovered Resource Credit
to Comiunity
Constructive Tax Ownership Credit
Interest on Recovered Resource
Credit Fund
Net Cost to Contract Con nunity
-------
$ 12.22/ton
$ 33.44/ton
$ 0.07/ton
0
0
0
$ 0.50/ton
$ 2.40/ton
$ 0.21/ton
$ 0.15/ton
$ 48.99/ton
($ 27.45/ton)
$ 2.33/ton
($ 21.35/ton)
(5 .90/ton)
(5 1.49/ton)
$ 25.25/ton
$ 12.22/ton
$ 33.44/ton
$ 0.07/ton
0
0
0
$ 0.50/ton
$ 2.40/ton
$ 0.21/ton
$ 0.15/ton
$ 48.99/ton
($ 27.45/ton)
$ 2.33/ton
($ 21.35/ton)
($ .90/ton)
(5 1.49/ton)
t 25.25/ton
$ ;12.22/ton
$ 25.33/ton
$ 0.07/ton
9
a
$ 0.50/ton
$ 1.99/ton
$ 0.21/ton
$ 0.12/ton
$ 40.44/ton
($ 22.59/ton)
$ 1.84/ton
(5 17.64/ton)
(5 .75/ton)
(5 1.23/ton)
$ 20.82/ton
$ 12.22/ton
$ 25.33/ton
$ 0.Q7/ton
0
0
0
$ 0.50/ton
4 1.99/ton
$ 0.21/ton
$ 0.12/ton
$ 40.44/ton
($ 22.59/ton)
$ 1.84/ton
($ 17.64/ton)
(5 .75/ton)
(5 1.23/ton)
$ 20.82/ton
Old Formula
1992
TITAN
Estimated Service Fee Rancies
Scenario I (High
Case A
( Low Tonnage )
Cost Inflation)
Case B
(High Tonnage)
Member
Tonnage
(WY)
201,600
-
201,600
201,600
201,600
Private
Tonnage
(TPY)
0
0
0
0
Total Annual Tonnage (TPY)
201,600
201,600
201,600
201,600
Scenario II (Moderate Cost Inflation
Case A Case B
(Low Tonnage) (High Tonnage)
Net Annual Debt Service
Annual 0&M Cost
Payment to Trustee
Taxes and Assessment
Payment to Reserves
Amortization of TEOSI
Capital Infusion
Alteration Reserve Payment
Host Con.iiunity Fee
Landfill Location Levies
Excess Tonnage Landfill Cost
Gross Service Fee
Less:
Gross Recovered Resource Credit
Less Oil Cost During Downtime
Net Recovered Resource Credit
to Coninunity
Constructive Tax Ownership Credit
Interest on Recovered Resource
Credit Fund
Net Cost to Contract Comunity
0
-------
Old Formula
TITAN
Estimated Service Fee Ranges
$ ll.06/ton
$ 78.27/ton
$ 0.07/ton
0
0
0
$ 0.50/ton
$ 4.84/ton
$ 0.26/ton
$ 2 .46/ton
$ 97.46/ton
$ ll.06/ton
$ 78 .27/ton
$ 0.07/ton
0
0
0
$ 0.50/ton
$ 4.84/ton
$ 0.26/ton
$ 2.46/ton
$ 97.46/ton
$ 11.06/ton
$ 46.43/ton
$ 0.07/ton
0
0
0
$ 0.50/ton
$ 3.32/ton
$ 0.26/ton
$ 1.71/ton
$ 63.35/ton
$ 11.06/ton
$ 46.43/ton
$ 0.07/ton
0
0
0
S 0.50/ton
$ 3.32/ton
$ 0.26/ton
$ 1.71/ton
$ 63.55/ton
Gross Recovered Resource Credit
Less Oil Cost During Downtime
i’let Recovered Resource Credit
to Community*
Constructive Tax Ownership Credit
Interest on Recovered Resource
Credit Fund
Net Cost to Contract Coniuunlty
($ 54.02/ton)
$ 5.47/ton
($ 41.27/ton)
($ 1.08/ton)
(5 2.89/ton)
$ 52.22/ton
($ 54.02/ton)
$ 5.47/ton
($ 41.27/ton)
($ 1.08/ton)
($ 2.89/ton)
$ 52.22/ton
($ 37,10/ton)
$ 3.59/ton
(5 28.48/ton)
($ 1.08/ton)
($ 1.99/ton)
$ 31.80/ton
(5 37.10/ton)
$ 3.59/ton
($ 28.48/ton)
($ 1.08/ton)
($ 1.99/ton)
$ 31.80/ton
* Additional credits accrue in 2002 due to lagged payment arrangement for Community budgeting purpose.
(5 47.16/ton) ($ 4 7.16/ton)
** Other credits will also be realized in 2002 from the distribution of reserve funds to contract communities.
2002
Scenario I (High Cost Inflation )
Case A Case B
( Low Tonnage ) (High Tonnage)
Member Tonnage (TPY)
Private Tonnage (TPY)
Total Annual Tonnage (1PY)
222,700
0
222,700
222,700
0
222,700
222,700
0
222,700
222,700
0
222,700
Scenarin IT (Moderate Cost Inflatjcj
Case A Case B
( Low Tonnage ) (High Tonnage)
Ilet Annual Debt Service
Annual O&M Cost
Payment to Trustee
Taxes and Assessment
Payment to Reserves
Amortization of TEOSI
Capital Infusion
Alteration Reserve Payment
Host Community Fee
L ndfi1l Location Levies
Excess Tonnage Landfill Cost
Gross Service Fee
Less:
($ 31.93/ton)
(S 31.93/ton)
-------
TitarI
1. Annual Debt Service
Total bond issue in July 1979 is assumed to be $27,608,000.
For a July startup date, 1976 bond issue of $19,254,400 is assumed.
Debt service: 20 year bond at 7— l/2% interest, semi—annual payments.
Gross Annual Debt service: (.091318)
for 1979 startup: $1,873,800/year
for 1982 startup: $2,686,800/year
Less:
Interest on Debt Service and 0&N Reserve Fund
In 1979 interest (1,873,800 + 500,000) x .07 = $166,166.
In 1982 interest = (2,686,800 + 500,000) x .07 = $223,076.
For all years after 1982 interest = $223,076.
Net Annual Debt Service:
In 1979 $1,873,800 —$166,166 = $1,707,634 1,707,634 — 182,500 = $9.36/ton
In 1982 $2,686,800 —$223,076 = $2,463,724 2,463,724 ÷ 182,500 $13.50/ton
1976 capital cost estimate:
Total Cost: $14,746,511 (Titan data)
Landfill 1,599,000 (2,000,000 ÷ 1.2508) EPA Sewer Construction
Cost Index
Beverly USM
Implementation 75,000 (Titan)
Legal Fee: 75,000 (Titan)
Maintenance
Reserve: 500,000 (Titan)
16,995,511
Debt Service
Reserve: 1,873,800 (.097318 x bond issue)
Underwriting
Cost: 385,088 (.02 x bond issue)
Total Bond
Issue: $19,254,400
54
-------
2. Annual O&M Cost
Cost Inflator Estimates High Inflation Moderate Inflation
CPI 8% 6%
ECI 9% 7%
Vehicle costs 9% 7.5%
M&S (steam power) 8.5% 6.5%
For July 1979:
Labor $1,010,800
Standby Power 15,000
Vehicle lease 81,700
Operating supplies 28,400
Vehicle fuel 8,700
Water 6,000
Insurance and bonding 150,000
Power plant maintenance 58,000
Facility upkeep 20,700
Office supplies 5,200
Miscellaneous 12,400
Overhead 150,000
Reserve 75,000
$1,621,900
Processing Plant Maintenance Fee $ 175,200
Fee 136,900
i 621,90o
$ 1,934,000
Landfill:
Compactor $ 38,900
Fuel 20,600
Truck lease 12,500
Fuel 10,300
Cover 20,800
Miscellaneous 10,300 $1,934,000
$113,400 113,400
TOTAL O&M $2,047,400
Per Ton Cost $ll.22/ton
55
-------
For 1982:
Fractio of 0&M that is .J .ab6r related (w): .49
Fraction of 0&N that is maintenance related (in): .12
Fraction of 0&M that is vehicle related (v): .08
Fraction of 0&M that is other related (u): .31
(0&M) (0&M)i x x
(0&M) — 2,047,400
L M V
n n n
YwL 1 +mM 1 +vV + T
Q = ( Yn ) 1/2
n
(Yn-1)
1982 Scenario I
= (i.0:) = 1.3 = (1:O85) = 1.28 = (1.09)
n = ( 1.08 ) 1 26
1.30 Ui 1 - .
Y .64 + .15 + .11 + .39 = 1.29
n
= ( : )“ = 1.046
0&M 1982 = $2,047,400 x 1.29 x 1.046 = $2,762,600
1982 Scenario II
N V U
L n n n
— = 1.23 N = 1.21 V = 1.24 U = 1.19. Y = .6 + .15 + .1 +
L i i I n
.37 = 1.22
56
-------
= ( )1/2 1.039
0&M 1982 = $2,047,400 x 1.22 x 1.039 = $2,595,200
Original equation for Q (no longer being used):
Qn = 1 ÷ 1/2
An Example using this original equation is as follows:
1982 Scenario II
= .6 + .15 + .1 + .37 = 1.22
1.13
Q = 1 + 1/2 (1.22—1.13) = 1.045
1982 0&}i = $2,047,400 x 1.22 x 1.045 = $2,610,230
57
-------
Year
Scenario I
Scenario 11
1981
1982
1987
1988
1991
1992
2001
2002
1.18
1 .29
1 .94
2.11
2.70
2.94
6.21
6.74
1.13
1.22
1.68
1.79
2.17
2.32
4.16
4.44
Ui
L /L 1
M /M
Vn/V 1
U /tJ 1
L /L
M /M
V/V.
U /u 1
1981
1.19
1.18
1.19
1.17
1.14
1.13
1.16
1.12
1982
1.30
1.28
1.30
1.26
1.23
1.21
1.24
1.19
1987
1.99
1.92
1.99
•
1.85
1.72
1.65
1.78
.
1.59
1988
2.17
2.08
2.17
2.00
1.84
1.76
1.92
1.69
1991
2.81
2.66
2.81
2.52
2.25
2.13
2.38
2.01
1992
3.07
2.89
3.07
2.72
2.41
2.27
2.56
2.13
2001
6.66
6.02
6.66
5.44
L43
4.00
4.91
3.60
2002
7.26
6.53 7.26
Y
n
5.87
4.74
4.26
•
V
n
5.28
3.82
-------
3. Payment to Trustee:
Payment to trustee is assumed to be $15,000/year and remains fixed
throughout the project.
.4. Alteration Reserve Payment:
Alteration reser ’e payment is set at S.50/t n for the life of the
project.
5. Host Community Fee:
The host community fee is set at $1.25/ton in 1932 for each ton that
is processed.
Host community fee in 1979 and 1982, Case A:
(1.25 x 164,250) + 182,500 = S1.13/ton
The fee is escalated by the CPI.
Host Community Fee (S/ton)
1982
1988
1992
2002
Scenario I
$1.25
$1. 98
$2.69
$5.81
Scenario 11
$1.25
$1.77
$2.23
S3.99
Tonnage Processed (TPY)
Year
Member
Case A
Private
Total
Member
Case B
Private
Total
[ 979
164,250
0
164,250
164,250
14,250
1982
164,250
0
164,250
164,250
14,250
178,500
1988
173,850
0
173,850
173,850
4,650
178,500
1992
179,500
0
179,500
179,500
0
178,500
2002
185,500
0
185,000
185 .5OO
0
179,500
185,500
59
-------
6. Landfill Location Levies
This cost is levied ata rate of $0.50/ton of incinerator residue
and $1.00/ton of raw refuse.
Incinerator residue is assumed tobe .22’4 of raW refuse.
10% downtime for the rojéát is aiso assumed.
Excess Member tonnage that is bypassed is landfilled .
Excess Member Tonnage
Year ( TPY) -
1979 0
1982 0
1988 480
1992 1,940
2002 14,930
For 1988:
Downtime tonnage - 19,370 tons/year
Excess member tonnage - 480 tons/year
Member residue - 38,942 tons/year
Landfill location levy:
(19,370 + 480) x $1.00/ton + 38,942 x $0.50/ton $39,321
$39,321 — 193,700.= $0.20/ton
7. Excess Tonnage Landfill cost:
Cost/ton = x Zn x
$5.00/ton in JulyL1979
L V U
1 fl fl
Zn wI tT +v’ =u
w’ .25
v’ = .60
= .15
60
-------
Recovered Resource Credit :
Recovered resource credit = (energy credit - Oil Cost During Downtime +
Ferrous metal credit) x .85
a. Energy Revenues
Comunjties receive 85% of the recovered resource credit generated by the
facility for every year except 1982, when they receive 100% of the re-
source credit fund of $2,400,000 and 2002, when they receive 85% of the
revenues for both 2001 and 2002. For all other years credits represent
85% of the previous year’s revenues. Energy to New England Power Company
(NEPc0) is valued at $0.015/Kwh In 1979. It is escalated in Scenario I
at 9% per year through 1988 and 8% per year thereafter. In Scenario II
it escalates at 7% through 1988 and 6% after that.
Titan’s multiplier is assumed to be 1.32.
For 1988 Case
$0. 421/Kwh
A Scenario I:
x 44,000,000 Kwh
$1,852,400 from NEPCO
Minimum LJSM Payment
1979
1987
1991
2001
2002
Scenario I
$1 ,l59,510
$2,014,400
$2,590,800
$5,490,900
$5,962,700
Scenario II
$1,138,760
$1,770,800
$2,150,500
$3,811,800
$3,935,400
Assumed Energy to NEPCO
(Kwh x 106)
Assumed Revenue/Kwh to Titan
($/Kwh)
Case A
41.1
44.0
46.75
50.0
50.0
1979
1987
1991
2001
2002
Case B
46.75
46.75
46.75
50.0
50.0
Scenario I
$ .0211
$ .0421
$ .0577
$ .1246
$ .1345
Scenario II
$ .0211
$ .0363
$ .0462
$ .0828
$ .0878
61
-------
USM payment is escalated at 10% per year for Scenar io I and 8% per year in
Scenario II. Energy credit for 1988 Scenario I Case A:
$1,852,400 + $2,014,400 = $3,866,800
b. Oil Cost During Downtime :
It is assumed that 10,715 barreisof ’oil ’ŕre required during downtime. Oil
costs are escalated at-8% and lO% rye’a from $12.70/barrel in 1978.
In 1988 Scenario I:
10,715 x $29.95/barrel $320 .9i4-
The values for L V , and n are phe same as those used to calculate
L V U.
the O&M costs.
(z\˝
R
Zn
Year
Scenarib I
Scenario II
1981
1.19
1.15
1982
1.29
1.23
1987
1.97
1.74
1988
2.14
1.87
1991
2.77
2.29
1992
3.02
2.46
2001
6.48
4.59
2002
7.O
4.93
For 1978 Scenario I:
Z 2.14
z 1.97
Ti—i
R 1.042
n
62
-------
Excess tonnage cost = $5.00 x 2.14 x 1.042 = $11.55/ton
$11.15/ton x 480 tons/year = $5,352/year.
$5,352/year ÷ 193,700 = $0.03/ton
c. Ferrous Metal Credit :
Six percent of the processed tonnage is assumed to be ferrous metal.
System efficiency 90%.
Revenues from recovered ferrous = $20.00/ton in 1979.
Revenues escalate at 2% per year.
Comunitjes receive 85% of ferrous revenues.
For 1988 Case A:
172,100 tons/yr. x .06 x .9 x $23.43 = $217,744
d. Net Recovered Resource Credit to Cortviiunity for 1988 Case A Scenario I :
Energy Credit = $3,866,800
Oil Cost = $320,914
Ferrous Credit = $217,744
$3,866,800 + $217,744 - $320,914 = $3,763,630
Comunity Credit:
.85 x $3,763,630 = $3,199,086 193,700 = $16.52/ton
Constructive Tax Ownership Credit :
Assume $20,000,000 in depreciable assets, straight line depreciated over
20 years = $l,000, 0 00/yr.
For tax purposes this is an expense against Titan’s income. Fifty percent
of tax savings is shared with communities. Assumed tax bracket - 48%.
For 1988 Case A Scenario I:
Titan’s Income = 15% of net recovered resource credit ($3,763,000 x .15 = $564,000)
Tax without Depreciation expense .48 x $564,000 = $270,700
Depreciation expense $1,000,000
Tax is therefore: so
Tax Savings = $270,700
63
-------
Community Credit = . 5 x tax savings
Men1b rJQnnage
$270,700 x .5 = $0.70/ton
193,700 tons
Interest on Recovered Resource Credit Fund :
Assumed interest r te 7%.
Interest on the credit fund is based on the net recovered resource credit
minus Titan’s share 15%) . ‘Intč’rest on ch fund accrues for ‘one year and
is paid out in monthly Installments.
No interest is assumed for 1979 and 1982 as they represent the first years
of operation. For all other years, interest is based on the previous year’s
revenues.
For 1988 Case A, Scenario 1:
Recovered Resource Credit into fund in 1987 = $3,199,924
Interest on fund = .07 x $3,199,924 = $224,000
$224,000 ÷ 193,700 = $1.16/ton.
64
-------
• Economic Analysis for N.E.S.W.C.—TJ.O.P .
This project includes the following service fee components:
Annual Debt Service . This project is proposed to be financed under
a private leveraged financing arrangement whereby nart (60—80%) of the
capital cost is funded with industrial revenue bonds and part (20—40%)
with private equity. This combined financing is a method applied to reduce
the effective interest rate for the capital acquired. An effective interest
rate of 3.4% has been assumed for this project, although the actual rate
could be higher or lower.
The debt service cost will be fixed for the 20 year contract period,
and the cost will be spread over the contract community tonnage received.
Since the tonnage could vary considerable, the per ton costs will not
necessarily remain the same each year. The greater the member tonnage,
the lower the per ton cost to contract communities. For example, one can
see how this changes if we assume two annual contract community tonnages,
say 558,000 tons/yr. (1800 tons/day) versus 775,000 tons/yr. (2500 tons/day),
and an assumed annual debt service fee of $9,818,000.
(a) $ 9 , 8 18,000/yr .
558,000 tons/yr. $17.59/ton
(b) $ 9 , 8 1 8 ,000/yr .
775,000 tons/yr. = $12.67/ton
It Is important that contract community totmage be maximized in order
to minimize the per ton costs of debt service to communities.
The project will require an Internal Revenue Service Ruling before actual
construction, to determine the tax treatment on the private ownership compo-
nents of the plant. The IRS could adjust, during the construction period,
the tax treatment of the private investors. Any ruling considered adverse
to the private investor(s) would necessitate higher payments to him to main-
tain his required rate of return on investment. This would increase the
fixed cost to communities,
However, this financing method, as mentioned above, does have the
advantage of lowering the effective de r cr rice cost to communities, as
compared to a straight revenue Lond Too, a recent change in the
tax laws has increased the invcstr iit x credit an additional five percent
which will be an advantage both to private investors and the communities.
Annual Operation and Maintenance Cost. (0&N) . This cost is guaranteed
at $3,700,510 plus adjustment by the Consumer Price Index annually for the
Boston area since March 1975. The CPI has averaged about 6.5 percent per
year; thus, the figure has escalated approximately 26% over the last four
65
GORDIAN ASSOCIATES INCORPORATED
-------
years. This guarantee does not include the costs for nan—fe rous metals
recovery and would be adjusted for that addition.
Since this cost is a guarantee adjusted by the CPI, it :s essentially
fixed each year and spread over the contract community tonnaLe in a manner
similar to the debt service. An an alysis similar to that prcsented in the
previous section exhibits the importance of maximizing member tonnage so
as to reduce the net costs per ton (assume 558,000 tons/yr. ‘s. 713,000 tons/yr.
and the guaranteed $3,700,510 escalated 26%).
(a) $4,662,643
558,000 tons/yr. = $8.36/ton
(b) $4,662,643 = $6 54/ton
713,000 tons/yr.
The effects of inflation will weigh heavily on this cost. over the years
of plant operation. This cost will continue to escalate, as iming an infla-
tionary trend in the economy, and by the startup year (1982), it could have
increased over 45% at the present rate of inflation in the Bc3ton area. The
effects of inflation are important in each project as is demc strated in
the moderate and high inflation scenarios.
Bonds and Insurance . This category includes the aggregate cost of
insurance, bonds, fees, and Federal, State, and local taxes € cept for
employee wage benefit taxes and income taxes. The amount will vary each
year in view of insurance cost increases or decreases, variot.; fees or levies,
and perhaps, certain taxes. Inflation will affect this cost, as inflationary
trends in the economy would, most likely, cause increases in ;hese areas.
This cost, however, Is estimated at only two to three percent of the total
gross cost to communities.
The above cost categories; debt service, operating and w.iintenance,
and bond fees and insurance are considered the “Base Fee” and are placed
In a single base fee fund established for that purpose. The ase fee is
adjusted at the end of each year to determine a revised base 2ee per ton
cost. Any excess In the base fee fund is distributed to the . ontract
communities on a rata basis in accordance with their guartnteed tonnages.
Host Community Fee . This project includes a host commun.ty fee (payment
in lieu of taxes)which is passed through to North Andover in manner similar
to the other two projects. Unlike the other two projects, ho ‘ever, this
project’s host cotnmnity fee is fixed at $1.00/ton and does no. increase with
the CPI each year.
Residue Disposal Fee . This fee is the cost to transport and landfill
residue and any raw refuse that might have to bypass the plan. or be landfilled.
U.0.P. feels that no acceptable raw refuse will have to bypas the plant. There
could be times, however, when some acceptable waste would hay to bypass the
plant and be landfilled.
66
GORDIAN ASSOCIATES INCORPORATED
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The residue and raw refuse disposal sites will be owned by the Common-
Wealth of Massachusetts, which has proposed an experimental residue utiliza-
tion program that could benefit any project generating an incinerator
residue. U.O.P. will incur transportation costs to get any residue or raw
refuse to the landfill and pay a tipping fee to the Commonwealth for the
handling and disposal of these wastes. It is projected that the costs of
residue disposal will increase significantly over the next few years as
the costs of approved sanitary landfills increase and the effects of the
Federal Resource Conservation and Recovery Act are felt. Much of the ul-
timate disposal cost will depend upon the site(s) that are finally used
for landfill and the modification needed to render them environmentally
sound, the transportation costs, and the experimental residue utilization
program and proposed residue marketing.
The Commonwealth’s Department of Environmental Quality Engineering
reviews residue disposal sites on a case by case basis and considers the
quality of the residue when determining the need for daily cover and cer-
tain other requirements. If daily cover of residue can be avoided, then
residue disposal costs will be further lowered. The effects of residue
disposal costs can be exhibited as follows. Assume 930,000 tons per year
of contract community solid waste processed and 18% residue for disposal.
Assume no marketing and costs of transportation and disposal to be $5.00/ton
versus $8.0Q/to . The estimated cost to communities for the residue disposal
component would be as follows:
930,000 x .18 = 167,400 167,400 tons/yr. x $5.00/ton . 930,000 tons = $ .90/ton
167,400 tons/yr. x $ 8 .00/ton 930,000 tons = $1.44/ton
Credits . The sum of all the above elements represents the gross service
fee or gross cost to communities before credits. The credit stream is comprised
of an energy credit or electricity credit, a ferrous metals credit, a non-
ferrous metals credit, and a private hauler tonnage credit. The project
developers also propose to market incinerator residue. This analysis does
not assume the marketing of residue or non—ferrous metals; therefore, credits
are not reflected for these materials.
Electricity Credit . The electricity revenue will accrue for all electricity
sold. Contract communities will share 90% of this figure. tJ.0,P. guarantees
a minimum electricity credit of $7.50 per ton of solid waste delivered. This
figure will be lower if the average annual heating value of the raw refuse
is less than 4200 Btus/lb. On the other hand, if the average annual heating
value of the refuse is higher than this figure, the co=unities would receive
a higher revenue, part of which would be in the form of a non—guaranteed
energy credit.
The negative impact of high inflationary periods on project costs
may be offset considerably if energy values increase with the rate of inflation.
This project is sensitive to the price of energy, as it will generate elec-
tricity for sale to a utility. Increases in the cost of fule to energy markets
will engender a positive effect on the net costs to contract communities.
67
GORDIAN ASSOCL TES INCORPORAT
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Ferrous Credit . Ferrous metals will be recovered after Lncineration
if the contract community representative feel it is desirable to do so.
They are proposed for marketingtb Boston area scrap dealers for export.
The project developers propose to upgrade the ferrous recovery system,
including sizing and cleaning steps. T hey feel that this processing will
enhance the marketability of the metals. Some’incineration p’ojects have
experienced problems in “consistently” marketing post—incinerition
recovered ferrous metals. While it is possible that the ferrius metals
will bring higher prices than expected for Incinerated ferrou , local
scrap dealers are usually not prone to signing long—term cont acts for
this product.
Therefore, neither a steady price nor an outlet is assur id. Contract
communities receive 100% of the first $15.00 per ton received from ferrous
metals sales and 50% of the revenues from their sales in excess of $30.00
per ton.
Other Product Revenues . The proposed service agreement requires U.O.P.
to recover the aluminum if the contract community representative feel
it is desirable to do so. The costs of aluminum recovery and other non-
ferrous recovery have not been included in the operating costs shown in
the service contract, and these products are not considered fr recovered
product revenues as part of this analysis. A residue marketing program
Is also proposed, but revenues from this product are not con tdered as
part of this analysis.
Private Hauler Credits . Private tonnage received by the plant which
is not considered contract community tonnage yields a credit to the con-
tract communities. While base costs are not spread over private tonnage
directly, the gross costs to contract communities are reducer - indirectly
through a formularized credit from private tonnage.
Communities receive the private hauler tipping fees net after subtract-
ing the host community fee, residue disposal costs, and certain cost and
incentive payments to U.O.P.
This formula is applied as follows:
Net Private Fee Charged = fee charged private hauler tonnage minus:
(1) the host community fee ($1.00/ton), (2) the residue dispc’sal cost per
ton, (3) $1.00/ton for the first 3000 private tons received per calendar
week, and (4) 25% of the full capacity premium for all private tons.
The “full capacity premium” is the difference between the weighted
average price per ton paid by private haulers and the service fee per
ton which would be due if the plant were processing the guar .nteed plant
capacity per year of contract community guaranteed tonnage w thout excess
tonnage premiums or shortfall payments, but not less than zeo.
68
CORDIAN ASSOCIATES INCORPORATED
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Taking a hypothetical example to demonstrate how the credit is derived,
we assume:
(1) Net Tipping Fee to Communities at 3000 tons/day
(without private tonnage) $ 6.00/ton
(2) Credits from electricity and ferrous metals $10.00/ton
(3) Residue transport and disposal costs $ 1.00/ton
(4) Host Community Fee $ 1.00/ton
(5) Full. Capacity Premium $ 2.50/ton
(6) Net Tipping Fee with only 2000 Tons/day of
community tonnage $14.00/ton
Private Fee = $6.00 + 2.50 = $ 8 .S0fton
Net Private Fee = $8.50 — $1.00 — $1.00 —25%
(2.50) on 1st 3000 tons/wk. of private hauler tonnage
Net Private Fee = $4.87
Community Credit from each ton of private tonnage is then:
$ 4.87 + $10.00 = $14.87 .
If 2000 tons/day of contract community tonnage is guaranteed when 500
tons/day of private tonnage is delivered, then each community ton is credited:
$14.87 x 500
2000 $3.72
Therefore: 2000 tons/day community tonnage plus 500 tons/day private
tonnage yields:
$ 14 .OO/tort — $3.72/ton = $10.28/ton.
If 500 additional private tons/day were received bringing the plant up
to capacity at 3000 tons/day, the additional credit would be as follows:
$3.72+1.00x5 00 3 7
2000
So at full capacity, the net tipping fee is $10.28 — $3.97 = $6.31 .
This is a hypothetical analysis which is based on assumptions; however,
it is presented to exhibit the methodology and effect of the “private hauler
credit.” Actual credits from private hauler tonnage could be much different
than reflected above.
69
GORDL j’j ASSOCIATES INCORPORATED
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N.E.S.W.C. - U.0.P.
Estimated Service Fee Ranges
Member Tonnage (TPY)
Private Tonnage (TPY)
Total I nnua1 Tonnage (TrY)
Less:
Recovered Resource Credit*
Private Hauler Credit
Net Service Fee
558,000
155,000
713,000
$13.90/ton
$ 8.66/ton
$ 0.52/ton
$ 1.00/Ion
$ 1.31/ton
$25. 39/ton
($9.84/ton)
($4.09/ton)
$11.46/ton’
558,000
310,000
868,000
$13. 90/ton
$ 8.66/ton
$ 0.52/ton
$ 1.00/ton
$ 1.31/ton
$25. 39/ton
($ 9.84/ton)
($ 8.46/ton)
$ 7.09/ton
558,000
155,000
713,000
$13.90/ton
$ 8.66/ton
$ 0.52/I.on
$ 1.00/Ion
$ 1.31/ton
$25.39/ ton
($ 9.84/ton)
($ 4.09/ton)
$11.46/ton
558.000
310,001)
868,000
$13. 90/ton
$ B.66/ ton
$ fl.5?/ton
$ 1 . (JO, I_f l)
$ 1.3i/ton
$25. 39/ion
($ 9.84/ton)
($ 8.46/ton)
$ 7.09/ton
1979
Scenario I
(High Cost/Inflation)
Case A Case B
( low Tonna 1 ( High Tonnag 1
Scenario 1!
(Moderate Cost/Inhlaljon)
Case A Case B
( Low Tonnage ) (Hijjh_Tonnacje)
Annual Debt Service
Annual 0&M Cost
Bonds & Insurance
lbs I Couununi ty Fee
Residue Disposal Fee
Gross Service Ice
* Includes estimated revenues from electricity and ferrous metals.
-------
N.E.S.W.C. - lJ.0.P.
Estimated Service lee Ranges
Member Tonnage (TPY)
Private Tonnage (TPY)
Total Annual Tonnage (TPY)
Less:
Recovered Resource Credil*
Private Hauler Credit
Net Service Fee
( Low Tonnag )
558,000
155,000
713,000
$17.59/ton
$10. 91/ton
$ 0.66/ton
$ 1.00/ton
$ 1.65/ton
131 o
($12.51/ton)
(5 5.10/ton)
$14.20/ton
j gh_Toni J
558,000
310,000
868,000
$17. 59/ton
$10.91/ton
S 0.66/ton
$ 1.00/ton
$ 1.65/ton
$31. 8 1J ton
($12.51/ton)
($10.48/ton)
$ 8.82/ton
(Low_Tonna ej
558.000
155,000
713,000
517.59/ Ion
$10. 32/ton
S 0.61/Ion
S 1.00/ton
$ 1.57/Ion
Q9Ltos
C $11. 92/ ton)
($ 4.99/ton)
$14.18/ton
(Iliyh_Tonna jc)
558,000
310,000
868,000
$17.59/ton
$10. 3./Inn
S 0.(iI/Ion
1. I . 00/I on
1 1.57/ton
$3 1.on/Ioii
($11.92/ton)
($10.26/ton)
$ 8.91/ton
1982
Scenario I
(High Cost/Inflation)
Case A Case 13
Scenario 11
(Moderate Cost/Itillalion)
Case A Cace II
Annual Debt Service
Annual 0&M Cost
flonds & Insurance
host Community Fee
Residue Disposal Fee
Gross Service Fee
* Includes estimated revenues from electricity and ferrous metals.
-------
N.E.S.W.C. — U.0.P.
Estimated Service Fee Ranges
Member Tonnage (TPY)
Private Tonnage (TPY)
Total Annual Tonnage (TPY)
Annual Debt Service
Annual 0&M Cost
Bonds & Insurance
host Community lee
Residue Disposal Fee
Gross Serv,ice Fee
Less:
Recovered Resource Credit*
Private hauler Credit
Net Service Fee
592,300
155,000
747,300
$16. 58/ton
$16. 32/ton
$ 0.98/ton
$ 1.00/ton
$ 2.62/ton
$37. 50/ton
($20.46/ton)
($ 5.87/ton)
$11. 17/ton
592 ,300
310,000
902,300
$16. 58/ton
$16.32/ton
$ 0.98/ton
$ 1.00/ton
$ 2.62/ton
$37. 50/ton
($20.46/ton)
($12.02/ton)
$ 5.02/ton
592 ,300
155,000
747,300
$16. 58/ton
$13.79/ton:
$ 0.82/ton
$ 1.00/t .on
$ 2.22/ton
$34.41/ton
($ 17.46/ton)
($ 5.41/ton)
$11.54/ton
592,300
3 10,000
902,300
$16!58/ ton
$13 79/tôh
$ 0.82/ton
$ 1 .00/i’oii
$ 2.22/ton
$34. 41/ton
($17.46/ton)
($11.10/ton)
$ 5.85/ton
1988
Scenario I
(High Cost/Inflation)
Case A Case 13
( Low Tonnag ( High Tonnag )
Scenario 11
(Moderate Cost/Inllntjon)
Case A Case B
ILow TonnagçJ (hIi h_Tonnag
- .1
* Includes estimated revenues from electricity and ferrous metals.
-------
N.E.S.W.C. - U.O.P.
Estimated Service Fee Ranges
Member Tonnage (TPY)
Private Tonnage (TPY)
Total Annual Tonnage (TPY)
Annual Debt Service
Annual O&M Cost
Bonds & Insurance
Host Coirniunity Ice
Residue Disposal Fee
Gross Service Fee
Recovered Resource Creclit*
Private Hauler Credit
Net Service Fee
616,300
155,000
771,300
$15.93/ton
$21.34/ton
$ 1.28/ton
$ 1.00/ton
$ 3.57/ton
$43. 12/ton
($27:08/ton)
($ 6.64/ton)
$ 9.40/ton
616,300
310,000
926,300
$15. 93/ton
$ 2 1.34/ton
$ 1.28/ton
$ l.00/ton
$ 3.57/ton
$43. 12/ton
($27.08/ton)
($13.56/ton)
$ 2.48/ton
616,300
155,000
771 ,300
$15.93/ton
$16.73/ton
$ 0.99/ton
$ 1.00/ton
$ 2.80/ton
$37.45/ton
($21.81/ton)
($• 5.82/ton)
$ 9.82/ton
616,300
310,000
926,300
$15.93/ton
116. 73/ton
$ 0.99/ton
¶ 1.0(1/Ion
$ 2 . 80/ ion
$37. 45/ton
($21 .81/ton)
($11.92/ton)
$ 3.72/ton
1992
Scenario I
(High Cost/Inflation)
Case A Case B
( Low Tonnag j ( High Tonnag 2 j
Scenario II
(Moderate Cosi/Inilaijon)
Case A Case B
( Low Tonnag QL [ iTh_Tonnag
Less:
* Includes estimated revenues from electricity and ferrous metals.
-------
N.E.S.W.C. - U.0.P.
Estimated Service Fee Ranges
Member Tonnage (TPY)
Private Tonnage (TPY)
Total Annual Tonnage (TPY)
Less:
Recovered Resource Credit*
Private Hauler Credit
Net Service Fee
680,800
155,000
835,800
$14.42/ton
$41.70/ton
$ 2.50/ton
$ 1.00/ton
$ 7.70/ton
$67.32/ton
($58.57/ton)
($ 9.97/ton)
( 1.22/ton)
680,800
249,200
930,000
$14.42/ton
$41.70/ton
$ 2.50/ton
$ 1.00/ton
$ 7.70/ton
$6 7 .32/ton
($58. 57/ton)
($16.15/ton)
($ 7.40/ton)
680,800
155,000
835,800
$14.42/ton
$27. 13/ton
$ 1.61/ton
$ 1.00/ton
$ 5.01/ton
$49.17/toi i
($38.52/ton)
($ 7.37/ton)
$ 3.28/ton
680,800
249,200
930,000 —
$14 .42/ton
$27.13/ton
:51.61/ton
$ 1.00/ion
F 5 .01/ton
$49. 17/ton
($38.52/ton)
($11.98/ton)
($ 1 1 33/ton)
Scenario
I
(High
Cost/Inflation)
(Moderate Cost/Inflation)
Case
A
Case
B
Case A
(Low Tonnage)
Case
B
2002 (Low
Tonnage)
j jgh
Tonnag!1
(High
Tonnag
Annual Debt Service
Annual 0&M Cost
Bonds & Insurance
Host Community Fee
Residue Disposal Fee
Gross Service Fee
* Includes estimated revenues from electricity and ferrous metals.
-------
u.0.P.
Costs for 1979 :
Labor Inflator: ECI
Materials Inflator:
0&M Inflators: Ed,
Bonds and Insurance:
Residue Disposal: CPI
ç pital Costs :
35% Labor, 65% Materials
In March, 1975: $85,700,000
In January 1976: $85,700,000 x .35 =
$85,700,000 x .65 =
= 5.4%
= 7.7%. $29,995,000
$55,705,000
Interest during construction = 13.5%
Debt service (3.4%) = .06973
Total Bond Issue (1976)
Annual Cost for 1979 startup
Labor
Materials
Total Construction Cost
Interest During Construction (16.5%)
Total Investment Cost
Annual Aniortization (.06973)
Total Bond Issue
$29,995,000
$55,705,000
$39,506,000
73,474,000
$112,980,000
$18,642,000
131,622,000
9,178,000
$140,800,000
$ 9,818,000/yr.
CE Plant Cost Index
CP I
CPI
ECI = 7.2%
CE = 10.3%
x .75
x .75
x 1.054 =
x 1.077 =
$31,615,000
+ 59,994,000
$91,609,000
+ 12,367,000
$103,976,000
+ 7,250,000
$111,226,000
Construction Cost escalation to July 1979:
Cost as of January 1979 = $109,215,000
35% labor, 65% materials (ECI — 3.35%, CE Plant Cost Index — 3.5%)
$ 7,756,000/yr.
Annual Cost for 1982 Startup i$140 ,800,000 x ,06973)
75
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1J.0.P. (cont.,)
0&M Costs as of January 1979 : $4,694,000
CPI: 3%
Total 0&M (July 1979): $4,835,0c 0
Bonds and insurance (January 1979): $279,000
High Inflation Moderate Inflation
CPI 4% 3%
Bonds & Insurance (July 1979) $290,200 $287,400
Host Community Fee : Fixed at $1.00/ton
Transportation
Assume a 20 ton load
Assume vehicle capital cost in 1979 of $88,400 amortized over 5 years
at 7˝% interest rate (.2472).
Hourly capital cost (88,400 x .2472) 2288 hours/year $9.55/hour.
Labor costs for one driver $20,500/year
Hourly labor cost: $20,500 - 2288 hr./yr. = $8.96/hour
Insurance cost is assumed to be $3,000/year
Hourly insurance cost: 3,000 - - 2288 = $1.31/hour
Assumed 0&M cost (excluding labor and insurance) = $.5133/mile
Assume a productivity factor of .75
Assume a turnaround time of 45 minutes
Total haul cost = cost(one way)/ton minute x one-way time + turnaround
cost. Cost/one-way ton minute = (.5133 + (9.55 + 8.96 + 1.31) ÷ 30
.75) ÷ 20 $0.07/ton minute
45
Turnaround cost = ($19.82/hour x ö ) ÷ 20 = $0.74/ton
Time = 22 minutes
Total haul cost = .07 x 22 + $ .74 = $2.28/ton
Residue Disposal Fee
Cost for residue = $4.00/ton + transportation
Cost for bypassed refuse = $8.00/ton ÷ transportation
76
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U.0.P. (cont.)
cost for residue = $4.00/ton + $2.28/ton = $6.28/ton in 1979
cost for bypassed refuse = $8.00/ton + $2.28/ton $10.28/ton in 1979
Residue = 18% of tonna9e burned
Bypassed refuse 2% of total tonnage (this represents assumed bypassed
raw refuse for the N.E.S.W.C. project).
Residue Disposal Fee in 1979
Scenario 1: Total member tonnage = 558,000 tons/yr.
Member tonnage burned = 558,000 x .98 = 546,840 tons/yr.
Bypassed refuse: 588,000 x .02 11,160 tons/yr.
Residue: 546,840 x .18 = 98,430 tons/yr.
11,160 tons/yr. x $10.28/ton = $114,620/year -- 558,000 = $D.206/ton
98,430 tons/yr. x $6.28/ton = $618,140/year + 558,000 = $1.107/t n
$1.31/ton
The residue disposal fee is escalated by the CPI.
77
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(J.0.p.
0&M Costs (CPI Adjusted)
,High, Inflation (8%1 Moderate Inflation (6%1
1979 4,882,000 4,835,000
1982 6,150,000 5,759,000
1988 9,759,000 8,169,000
1992 13,277,000 10,313,000
2002 28,644,000 18,469,000
Bonds and Insurance (CPI Adjusted)
Hi gh Inflation (8%1 Moderate Inflation (6% )
1979 290,200 287,400
1982 365,600 342,300
1988 580,200 485,600
1992 789,300 613,100
2002. 1,704,000 1,098,000
Residue Disposal Fee (CPI Adjusted)
High Inflation (8%) Moderate Inflation (6% )
1979 6.28 6.28
1982 7.91 7.48
1988 12.55 10.61
1992 17.07 13.39
2002 36.85 23.98
Bypassed Refuse Disposal Fee (CPI Adjusted)
1979 10.28 10.28
1982 12.95 12.24
1988 20.55 17.37
1992 27.96 21.93
2002 60.36 39.27
78
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Power Revenues
Assumed average 423 Kwh/ton delivered is sold to NEPCO at a price
1.34 x NEPCO’s average fuel cost. Communities show revenues from
all tonnage delivered. NEPCO’s “average fuel cost” is assumed to
be .016 $/Kwh in 1979. Under Scenario I, this figure escalates at
9% until 1989 and 8% thereafter. Under Scenario II, this figure
escalates at 7% until 1989 and 6% thereafter.
Ferrous Revenues
Assumed average 1979 price received of $20.00 per short ton F.0.B.
resource recovery plant. Price escalates at 2% per year over the
20 year period.
Private Hauler Credits
A “fixed full capacity premium” of $2.48 is assumed over the 20 year
operating period.
79
GORDJAN ASSOCIATES INCORPORATED
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• Economic Analysis for S.E.S.W.C.—C.E.A .
This project includes the following service fee components:
Base Cost . This fee was set by C.E.A. at $7.50/ton in November 1977
and escalates only by the CPI for the Boston Metropolitan area. It is
adjusted annually and at this time, it is approximately $7.91/ton. This
is essentially a guaranteed fee adjusted only by the CPI and represents
the cost and cost adjustment method under which C.E.A. feels it can operate.
Historically, the CPI for the Boston area has stayed between 5%—6.5%
with a marked increase during the 1974—76 period. Recent CPI growth is
closer to seven percent; however, it could fluctuate considerably from
year to year. C.E.A. will adjust this base fee annually.
Landfill Acquisition and Improvement . The landfill acquisition and
improvement costs were estimated in 1976 by an independent consultant to
be $3 million. C.E.A. proposes to use part of the existing Peabody land-
fill and some adjoining private land, part of which was previously used for
landfilling. Much of the cost will be for landfill improvements and for
meeting the requirements of the Massachusetts Department of Environmental
Quality Engineering and the Federal Resource Conservation and Recovery Act.
Any adverse site conditions on these parcels will require appropriate modi-
fication. There is considerable uncertainty regarding the final costs
and requirements to modify the proposed site(s) to meet state requirements.
The additional acreage adjoining the extant landfill must still be purchased.
Inflation has certainly escalated the $3 million estimate, and the ultimate
costs could be much higher if the site requires a liner and other water
pollution control provisions. The land and improvements are to be financed
by a General Obligation Bond Issue of the District to be formed, and the
debt service will be a fixed cost to be spread over member tonnage .
Assuming a 7Ľ%—20 year G.O. Bond Issue in 1979 with annual payment
provisions and 275,000 member tons, one can see how the cost per ton
changes under three landfill capital cost estimates:
$10,000,000 $6,000,000 $3,000,000
Bond Issue Bond Issue Bond Issue
Annual Payment $962,348 $577,408 $288,704
Cost to Community $3.50/ton $2.10/ton $1.05/ton
Host Community Fee . This fee is set at $1.25/ton and escalates with
the Consumer Price Index for the Boston Metropolitan area. The fee is simi-
lar to the other two projects in that it is a payment in lieu of taxes for
the resource recovery plant. In this case, the fee is a “pass through” on
the service fee which goes to the City of Peabody. It is adjusted annually
and is levied on each ton of waste delivered to the recovery facility.
80
GORDIAN ASSOCIATES INCORPORATED
-------
The sum of the above three components represents the gross service
fee a coumiunity would pay before consideration of any credits.
Energy Credit . This is perhaps the most significant of the components
in the service fee, other than the base cost. This credit represents fuel
revenues to the District from the sale of Eco Fuel TI. Under the terms of
the proposed service agreement, this credit could be non—existent until,
perhaps, the 1990s.
Unless C.E.A. is able to develop close—in markets to reduce transpor-
tation costs, secure contracts for the long term sale of Eco Fuel II, and
realize a high value for the product (as compared to displaced fossil fuel),
the revenues from Eco Fuel II might not exceed $2.50 per million Btus —
the point where revenue sharing with coirifflunities commences — for many years.
Under existing conditional contracts C.E.A. has with fuel users target—
ted for outputs from a plant in Peabody, Eco Fuel II would have to test out
satisfactorily in extended burns before they would commit to purchase over
a long—term. In other words, the contracts are not “take or pay.” On the
other hand, if oil prices inflate markedly and the product tests out well,
revenues could accrue at a higher and faster rate.
C.E.A. does not share revenues from other products recovered or reve-
nues from private tonnage, other than the credit which is discussed next.
Also, under terms of the proposed agreement, the plant must operate at 70%
of capacity or greater for the District to share in Eco Fuel II revenues.
Income from Non—District Tonnage . The District receives $1.00/ton of
municipal (Class I) waste received and $3.00/ton of large bulky waste (Class
II) received, from non—District customers. Since Class II waste cannot be
processed in the plant, C.E.A. must receive District approval to accept it.
Other Costs and Revenues . A cost not reflected is the administrative
cost to run the District. This cost is uncertain at this time; however,
contract communities would be assessed a fee for this as District members.
A revenue not shown is the penalty payment C.E.A. must make to the
District for landfilling more than 40% by weight of the plant’s throughput
at certain times and under certain conditions. Although a revenue could
accrue, such a situation should not be looked on as desirable, since any
excess tonnage going to a landfill, regardless of a penalty payment of
$1.O0—$2.O0 per ton, is reducing the life of the landfill and minimizing
resource recovery. Obviously, the cost of developing new landfill capacity
in the future could be quite high should the site reach capacity prematurely.
81
GORDIAN ASSOCIATES INCORPORATED
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S.E.S.W.C. - C.E.A.
Estimated Service Fee Ranges
1979
Member Tonnage (TPY)
Private Tonnage (TPY)
Total Annual Tonnage (TPY)
Scenario I
(High Cost/Inflation)
Case A Case B
( Low Tonnag J ( High Tonnage) _
275,000 275,000
148,200 296,400
423,200 571,400
Scenario II
(Moderate Cost/Inflation)
Case A Case 8
( Low Tonnage ) ftgh_Tonnage)
275,000 275,000
148,200 296,400
123,200 571,400
Energy Credit
Income from Non-District
Tonnage
Net Cost to Comniunity
$ 8.49/ton
$ 2.10/ton
$ 1.39/ton
$11.98/ton
($ 0.65/ton)
$11.33/ton
$ 8.49/ton
$ 2.10/ton
$ 1.39/ton
$11.98/ton
( $ 1.29/ton)
$10.69/ton
$ 8.49/ton
$ 2.10/ton
$ 1.39/ton
$11.98/ton
($ 0.65/ton)
$11.33/ton
$ 8 49/ ton
$ 2.10/ton
$ 1.39/ton
$11.98/ton
($ 1.29/ton)
I ’ . )
Base Cost
Landfill Acquisition
and Improvement
Host Comurmity Fee
Gross Service Fee
less:
0
0
0
0
-------
S.E.S.W.C. - C.E.A.
Estimated Service Fee Ranges
1 91J2
Member Tonnage (TPY)
Private Tonnage (TPY)
Total Annual Tonnage (TPY)
Scenario I
(High Cost/Inflation)
Case A Case B
jj c i Tonnag j ( Hiqh Tonnage )
215,000 275,000
148,200 296,400
423,200 571,400
Scenario 11
(Moderate Cost/Inflation)
Case A Case B
ILOW Tot g (Hjgh_Tonnage)
275,000 275,000
148,200 296,401)
423,200 571,100
Base Cost
Landfill Acquisition
and Improvement
host Community Fee
Gross Service Fee
1.ess:
Energy Credit
Income from Non-District
Tonnage
Net Cost to Conmiunity
$10.69/ton
$ 2.57/ton
$ 1.75/ton
$15. 01 / ton
0
($ 0.65/ton)
$14.36/ton
$10.69/ton
$ 2.57/to”
$ 1.75/ton
$15.01/ton
( $ 1.29/ton)
$13.72/ton
$10.1 1/ton
$ 2.57/tori
$ 1.66/ton
$14 . 34/ton
(S 0.65/ton)
111.69/Lnn
$10.1 i/ton
$ 2.57/ton
S 1.66/ton
$14 .34/ton
( 5 .2)/ton)
II; I •l . 11’; / I (ni
U)
0
0
0
-------
S.E.S.W.C. - C.E.A.
Estimated Service Fee Ranges
1988
Member Tonnage (TPY)
Private Tonnage (TPY)
Total Annual Tonnage (TPY)
Scenario I
(High Cost/Inflation)
Case 1 Case B
( Low Tonnage) ( High Tonna )
291,900 291,900
148,200 296,400
440,100 588,300
Scenario I I
(Moderate Cost/Inflation)
Case 1\ Case B
( Low Tonnag J _ ( High Tonna çj
291,900 291,900
148,200 296,400
440 , 100 58H ,3(J0
Base Cost
Landfill Acquisition
and Iniprovernent
host Con nun1ty Fee
Gross Service Fee
Less:
$16. 96/ton
$ 2.43/ton
$ 1.78/ton
$22. 17/ton
($ 0.29/ton )
($ 0.61/ton )
$21_.27/ton
$16.96/ton
$ 2.43/ton
$ 2.78/ton
$22. 17/ton
( $ 0.29/ton)
($ 1.22/ton)
$20. 66/ton
$ 111.311/ton
$ 2.43/ton
$ 2.35/ton
$19._12/ton
0
( $ 0.61/ton)
$18.5 1/ ton
$1/i .34/ton
$ 2.43/ton
$ 2.35/toii
$19: 12/toii
($ 1.22/tori)
$ 17.90/I
Energy Credit
Income from Non-District
Tonnage
Net Cost to Community
0
-------
S.ES.W.C. - C.E.A.
Estimated Service Fee Ranges
Scenario I Scenario II
(High Cost/Inflation) (Moderate Cost/Inflation)
Case A Case 8 Case A Case B
1992 ( Low Tonnag j ( High To j ( Low Tonnag j (High_Tonna9e)
Member Tonnage (TPy) 303,800 303,800 303,000 303,800
Private Tonnage (TPY) 148,200 296,400 148,200 296,400
Tota1 Annual Tonnage (TPY) 452,000 600,200 452,000 600,200
Base Cost $23.07/ton $23.07/ton $18.10/ton 1 1FL 10/too
Landfill ftcquisitlon
and Improvement $ 2.33/ton $ 2.33/ton $ 2.33/ton $
Host Coninunlty Fee $ 3.78/ton $ 3.78/ton $ 2.97/ton 1 2.97/ton
Gross Service Fee $29.18/tori $29.10/ton $23.10/ton $?3.i10/ ton
less:
Energy Credit ($ 2.17/ton) ($ 2.17/ton) C $ 0.81/ton) ( 0iH/Io i)
Income from Non-District
Tonnage (.$ 0.59/ton) ($ 1.17/ton) C $ 0.59/ton) C $ 1.17/Lou)
Net Cost to Conununity $26.42ftoii 2 . 4fto $?2.00/ton 1.?L4?/t ui
-------
S.E.S.W.C. - C.E.A.
Estimated Service Fee Ranges
2002
Member Tonnage (TPY)
Private Tonnage (TPY)
Total Annual Tonnage (TPY)
Scenario I
(High Cost/Inflation)
Case A Case B
( Low Tonnaq ) ( High Tonnage )
335,600 335,600
148,200 288,400
483,800 624,000
Scenario II
(Moderate Cost/Inflation)
Case A Case B
j i Tohnaft ) ( jIi_Tonn je)
335,600 335,600
148,200 288,400
483,800 624,000
Base Cost
Landfill Acquisition
and Improvement
host Community Fee
Gross Service Fee
$49. 80/ton
$ 2.11/ton
$ 8.16/ton
$60.07/ton
$49.80/ton
$ 2.11/ton
$ 8.16/ton
$60.07/ton
$32.41/ton
$ 2.11/ton
$ 5.32/ton
$39.84/ton
$32.4 1/ ton
$ 2.11/ton
$ 5.32/tn,i
$39.84/ton
Energy Credit
Income from Non-District
Tonnage
Net Cost to Community
($12.16/ton )
( $ 0.53/ton)
$47.38/ton
($12.16/ton)
( $ 1.06/ton)
$46.85/ton
($ 6.29/ton)
($ 0.53/ton)
$33.02/ton
($ 6.29/ton)
($ 1.06/ton)
$32.4 /Ion
C’
Less:
-------
Analysis Methodology
Base Cost :
$7.50/ton as of November 1977
escalated by the CPI for the Boston metropolitan area:
November 1977 (for 1978) - 5.8%
November 1978 (for 1979) - 6%. November 1979 and beyond - 6% and 8%.
Landfill Acquisition and Improvement :
$6,000,000 in 1976 (for 1979 estimates)
escalated to 1979 (for 1982 estimates and beyond) by EPA Construction
Cost Index for Sewers. 20 year bond, 7˝% interest (.09623485):
1976 (for 1977) - 6.2%
1977 (for 1978) - 6.3% 6,000,000 x 1.062 x 1.063 x 1.086 =
1978 (for 1979) - 8.6% 7,356,000 x .09623485 = 707,900
Landfill Cost = $707,900 + member tonnage
Host Community Fee
$1.25/ton as of November 1977 escalated by the CPI for the Boston metro-
politan area
Tonnages
member: 2 75,000/year in both scenarios
private: 475 TPD in low tonnage case (148,200 tons/year)
950 TPD in high tonnage case (296,400 tons/year)
Member tonnage increases at a rate of 1% per year starting in 1982.
When total tonnage (member and private) reaches average capacity,* the
amount of private tonnage accepted declines so that the average capacity
is not exceeded until the member tonnage alone exceeds the capacity.
Private tonnage is 90% Class I (communities receive $1.00/ton)
10% Class II (communities receive $3.00/ton).
* Average capacity for CEA is 2000 TPD (624,000 TPY).
87
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Analysis Methodology (cont.)
Energy Credit :
Assume: Value of buyer’s displaced oil in 1979 = $2.39/mBtu
C.E.A. is able to secure contracts to sell Eco Fuel II output through
2002 as per current pricing formula.
The value of fossil fuel escalates at 10% per year in the high inflation
scenario and 8% in the moderate inflation scenario.
Sample: Energy Credit 1992, Scenario I
Price of fossil fuel = Po = $8.67/mBtu
Transportation cost = T = $0.95/nlnlBtu*
0&M cost = OM = $0.56/mBtu
CEA’s pricing is confidential; therefore, it is not exhibited.
Energy Credit: E (value of Eco Fuel II) - 2.50 x .35 = $/rnrnBtu
of Eco Fuel II. (3.575 - 2.50) x .35 = $.376/mmBtu
of Eco Fuel II.
Assumptions: 7.2 rnmBtu/ton of raw refuse is recovered as Eco Fuel II.
20% downtime, so plant availability is .8.
($/mmBtu of Eco Fuel II) x (7.2 mBtu/ton of raw refuse) x .8
Energy Credit ($/ton of refuse)
.376 x 7.2 x .8 = $2.17/ton of refuse.
Income from Non-District Tonnage
The district receives $1.00/ton for Class I private waste
$3.00/ton for Class II private waste
Private tonnage is assumed to contain 90% Class I waste, 10% Class II
waste.
Case A (148,200 x .9) + (148,200 x .1 x 3) = $177,840
Case B (296,400 x .9) + (296,400 x .1 x 3) = $355,680
Income from Non-District tonnage = (177,840 or 355,680) ÷ member tonnage
* Transportation cost to Narragansett Electric is set at $.30/mmBtu of
Eco Fuel II in 1979. If closer users can be found, much of this cost
can be reduced, which would result in higher revenue from Eco Fuel II
sales.
88
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Cost of Fuel Oil ($/mmBtu)
High Cost (10%) Moderate Cost (8% )
January 1979 2.39 2.39
July 1979 2.51 2.49
1982 3.34 3.13
1988 5.91 4.98
1992 8.67 6.77
2002 22.48 14.62
Transportation Costs ($/rnmBtu)
High Cost (9%) Moderate Cost (7.5% )
January 1979 .30 .30
July 1979 .31 .31
1982 .40 .39
1988 .67 .60
1992 .95 .80
2002 2.25 1.65
O&M Costs ($/nvnBtu)
High Cost (8%) Moderate Cost (6% )
January 1979 .20 .20
July 1979 .21 .21
1982 .26 .25
1988 .41 .35
1992 .56 .44
2002 1.21 .79
89
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IV. TRANSPORTATION COST ANALYSIS
Because of the number of communities involved and the large distances
between them, the transportation costs associated with the proposed S.E.S.W.C.,
Bayside, and N.E.S.W.C. resource recovery projects are important factors in
any comparisons of the projects. These costs represent the cost to packer
haul from the center of each community to the entrance point of the facility.
S.E.S.W.C. and Bayside rely entirely on packer hauling to bring in the wastes,
while N.E.S.W.C. proposes to utilize a combination of packer haul, transfer
stations, and mini—transfer stations. N.E.S.W.C. also differs from the
others in that the costs of transportation are shared equally by all parti-
cipating communities, while in the S.E.S.W.C. and Bayside projects, each
municipality pays its own way.
The analysis of the transportation costs is based on data gathered from
several sources. The communities have provided data on their tonnages, and
these tonnages are projected to grow at a rate of one percent per year
through 2002. Cost data for transfer stations, transfer haul, and packer
haul have been collected from numerous sources and updated to represent
1979 costs. Travel times have been derived from a MITRE transportation
analysis.
Given the constraints of time and level of effort, the MITRE transpor-
tation analysis was used to provide the information relative to travel time
among the communities. All MITRE data concerning costs, however, have been
revised and validated independently. Costs have been inflated to 1979 us-
ing either the Chemical Engineering Plant Cost Index, Employment Cost Index,
or a general transportation inflator of eight percent.
Because of the cost sharing arrangement and the use of transfer stations
in the N.E.S.W.C. project, the transportation costs have been calculated in
a different manner from the other projects. Two cases, A and B, are given
to represent the two levels of tonnage assumed in the processing cost anal-
ysis. Since the transportation costs are to be shared equally by all the
communities, the average cost will vary as the refuse tonnage changes. In
neither of the other proposed projects are the transportation costs linked
to the delivered tonnage. The N.E.S.V.C. project also differs in that it
incorporates transfer stations and transfer hauling into its transportation
network. Five transfer stations and eighteen mini—transfer stations are
proposed and the cost of each is calculated separately. Transfer haul
costs and turnaround time costs are also estimated and factored into the
total cost.
Rebates to the communities for the cost of packer hauling to either
the N.E.S.W.C. facility or to one of the transfer stations are also inte-
grated into the transportation costs for the N.E.S.W.C. project. It is
90
GORDIA N ASSOCIATES INCORPORATED
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proposed that the co imnunities be refunded the cost for them to haul their
refuse to the project, resulting in an equal cost per ton for transportation
to all communities.
Finally, it should be noted that no packer haul turnaround time costs
are included in this study. This transportation analysis estimates the
“additional” costs to the communities over what they currently pay to dis-
pose of their solid wastes. Since packer haul turnaround time costs are
already incurred at the disposal sites now being used, no additional costs
are projected for turnaround times at any of the proposed facilities.
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GORDIAN ASSOCIATES INCORPORATED
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Additlonal* Transportation Costs** for Eleven Communities to the S.E.S.W.C., Bayside, and N.E.S.W.C.
Projects, 1979
Annual
Community Tonnage
Transportation Cost To:
S.E.S.W.C. Bayside NE.S.W.C.
$/Ton $/Yr.
$/Ton $/Yr.
Case A Case B
$/Ton*** $fYr. $/Ton*** $/Yr.
Beverly 32,000
Danvers 20,300
Essex 1,600
Gloucester 36,000
Hamilton 3,400
Tpsw1cl 8,100
Lynn 39,000
Rockport 4,100
Salem 20,000
Swampscott 9,400
Wenham 2,200
$ 5.76 $184,200
$ 3.32 $ 67,500
$ 9.57 $ 15,300
$ 9.71 $349,600
$ 6.19 $ 21,000
$13.16 $106,600
$ 6.12 $238,700
$11.81 $ 48,400
$ 5.00 $100,000
$ 7.27 $ 68,300
$ 8.23 $ 18,100
$ 0 $ 0
$ 4.67 $ 94,800
$ 8.26 $ 13,200
$ 8,36 $301,000
$ 5.40 $ 18,300
$ 8.92 $ 72,200
$ 7.50 $292,500
$10.46 $ 42,900
$ 2.30 $ 46,000
$ 6.35 $ 59,700
$ 4.70 $ 10,400
$8.80 $281,600 $7.83 $250,600
$8.80 $178,600 $7.83 $158,900
$8.80 $ 14,100 $7.83 $ 12,500
$8.80 $316,800 $7.83, $281,900
$8.80 $ 29,900 $7.83 $ 26,600
$8.80 $ 71,300 $7.83 $ 63,1 ,00
$8.80 $343,200 $7.83 $305,400
$8.80 $ 36,100+ $7.83 $ 32,100+
$8.80 $176,000 $7.83 $156,600
$8.80 $ 82,700 $7.83 $ 73,600
$8.80 $ 19,400 $7.83 $ 17,200
* These costs represent costs in excess of present expenditures and therefore exclude packer turnaround
time costs.
** This assumes a packer haul cost of $0.329/ton minute.
*** This includes the packer haul costs, transfer station costs, transfer haul costs, and rebates.
+ This does not include the cost of a mini—transfer station which would act as the community collection
center.
-------
Additional* Transportation Costs** for Eleven Communities to the S.E.S.W.c.,, Bayside, and N.E.S.W.C.
Projects, 1982
Transportation Cost To:
S.E.SWC. Bayside N.E.S.W.C.
Annual Case A Case B
Community Tonnage S/Ton S/Yr. 5/Ton 5/Yr. $/Ton*** $IYr. $/Ton ** S/Yr.
Beverly 33,000
Danvers 20.900
Essex 1,650
Gloucester 37,100
Hamilton 3,500
Ipswich 8,350
Lynn 40,200
Rockport 4,200
Salem 20.600
Swampscott 9.700
Wenham 2,250
$ 7.25 $239,100
$ 4.18 $ 87,400
$12.05 $ 19,900
$12.21 $435,000
$ 7.79 $ 27,200
$16.56 $138,300
$ 7.70 $309,500
$14.86 $ 62,400
$ 6.29 $129,600
$ 9.15 $ 88,700
$10.35 $ 23,300
$ 0 $ 0
$ 5.88 $122,900
$10.39 $ 17,100
$10.52 $390,300
$ 6.79 $ 23,800
$11.22 $ 93,700
$ 9.44 $379,500
$13.17 $ 55,300
$ 2.90 $ 59,700
$ 7.99 $ 77,500
$ 5.92 $ 13,300
$11.03 $364,400 $9.81 $323,700
$11.03 $230,500 $9.81 $205,000
$11.03 $ 18,200 $9.81 $ 16,200
$11.03 $409,200 $9.81 $364,000
$11.03 $ 38,600 $9.81 $ 34,300
$11.03 $ 92,100 $9.81 $ 81,900
$11.03 $443,400 $9.81 $394,400
$11.03 $ 46,300+ $9.81 $ 41,200+
$11.03 $227,200 $9.81 $202,100
$11.03 $107,000 $9.81 $ 95,200
$11.03 $ 24,800
* These costs represent costs in excess of present expenditures and therefore exclude packer turn-
around time costs.
** This assumes a packer haul cost of $O. 4 14/ton minute.
This includes the packer haul costs, transfer station costs, transfer haul costs, and rebates.
+ This does not include the cost of a mini-transfer station which would act as the community
Collection center.
U)
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Assumptions and Calculations for Transportation Analysis
1979
Tonnages :
Data from telephone conversations:
Beverly 32,000 tons/year
Danvers 20,300 tons/year
Essex 1,600 tons/year
Gloucester 36,000 tbns/year
Hamilton 3,400 tons/year
Lynn 39,000 tons/year
Rockport 4,100 tons/year
Salem 20,000 tons/year
Tonnages for the remaining communities are based on .66 of the esti-
mated populations.
Ipswich 8,100 tons/year
Swampscott 9,400 tons/year
Wenham 2,200 tons/year
All tonnages are assumed to grow at one percent per year.
Travel
Times :
One—way travel times are in minutes from the center of town to the
entrance point of the proposed facilities or from the transfer station
location to the facilities, and are taken from a MITRE transportation
study entitled Transportation Analysis for the Northeastern Massachu-
setts Resource Recovery Project , June 1978.
94
GORDIAN ASSOCIATES INCORPORATED
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Estimated Titne* (In Minutes) from the Center of Eleven Communities
to the Entrance Point of the S.E.S.W.C., Bayside, and N.E.S.W.C. Projects
Coimnunity S.E.S.W.C. Bayside N.E.S.W.C.
Beverly 17.5 0 7.6
Danvers 10.1 14.2 8.1
Essex 29.1 25.1 17.9
Gloucester 29.5 25.4 20.1
Hamilton 18.8 16.4 9.0
Ipswich 40.0 27.1 19.5
Lynn 18.6 22.8 11.4
Rockport 35.9 31.8 0
Salem 15.2 7.0 5.4
Swampscott 22.1 19.3 6.9
Wenham 25.0 14.3 6.6
*Estimates derived from MITRE transportation analysis of the three
projects.
95
GORDIAN ASSOCIATES INCORPORATED
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Estimated Tonnages* and Travel Time* (In Minutes) from Five
Transfer Stations t the N.E.S.W.C. Project
- - Estimated Tonnage
Handled at Station Time to Ton
Transfer Station Location (Tons/Year) N.E.S.W.C. Minutes
Beverly 90,500 53 mm. 4,796,500
Lowell 142,000 32.1 mm. 4,588,200
Portsmouth 30,100 43.6 mitt. 1,312,400
Reading 108,400 37.5 mitt. 4,065,000
Salem 163,000 58.5 mitt. 9,584,400
* Estimated derived from MITRE transportation analysis.
96
GORDIAN ASSOCIATES INCORPORATED
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Estimated Tonnages* and Travel Times* (In Minutes) from Eighteen
Eighteen Mini—Transfer Stations to the N.E.S.W.C. Project
Estimated Tonnage
Mini—Transfer Handled at Station Time to Ton
Station Location** (Tons/Year) N.E.S.W.C. Minutes
Atkinson, NH 3,100 19.7 61,070
Billerica 25,000 34.7 867,500
Boxford 3,300 20.6 67,980
Carlisle 1,900 39.5 75,050
Derry, NH 19,600 33.0 646,800
Georgetown 3,700 15,8 58,460
Merrimac 4,200 20.2 84,840
Middleton 4,500 25.1 112,950
Newbury 2,500 35.4 88,500
Pelham, NH 4,900 32.3 158,270
Plaistow, NH 8,000 18.2 145,600
Rockport 4,100 68.8 282,080
Rowley 2,000 34.3 68,600
Salem, NH 17,500 21.3 372,750
Tyngsborough 4,600 46.1 212,060
9estford 12,500 36.8 460,000
Windham, NH 2,700 29.1 78,570
W. Newbury 1,600 22.1 35,360
* Estimates derived from MITRE transportation analysis.
** Capital costs of Mini—Transfer Stations are not included in N.E.S.W.C.
transportation costs. Communities served by these stations would be
responsible to provide them.
97
GORDIAN ASSOCIATES INCORPORATED
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Assumptions and Calculations for. Transportation Analysis (cont.)
Packer Haul Costs :
Packer haul costs are estimated assuming 20 yd 3 rear loading vehicles,
3—man crews, and 2,288 hrs./yr. of operation (8 hr./day, 5.5 days/week,
52 weeks per year).
Capital costs are assumed to be $43,520 per truck in 1979. Costs
are amortized over 5 years at 7˝%, leaving an annual capital cost of
$10, 60 (43,520 x .2472). $10,760 ÷ 2,288 $4.70/hour .
0&N Costs:
Labor costs are assumed to be $54,960 in 1979.
$54,960 ÷ 2,288 = $2 4 .02/hour
Assumed fuel cost: $O.70/gallon, 5 miles/gallon
Assumed oil cost: $ 2 .00/gallon, 3000 miles/gallon
Assumed tire cost: 6 @ $200.00, 100,000 miles
Assumed maintenance and repairs:
Total
$0.014/mile
$0. 0007/mile
$0. 012/mile
= $0.10/mile
$0. 2527/mile
=
Total Packer Haul Cost:
$4.70 + $24.02 + $7.58 + $0.66 = $36.96/hour.
1 hour 1 truck 1
$36.96 x x x — x 2 = $0.329/one—way ton mm.
60 minutes 5 tons .75
1982 costs represent 1979 costs escalated at 8% per year for 3 years.
1982 packer haul costs:
.329 x (1.08) = $0.414/one—way ton minute
Costs for later years escalate at 8% per year.
at 30 m.p.h. average speed
Insurance: $l,500/year ÷
Assume productivity factor
(.2527 x 30) = $7.58/hour .
2,288 = $0.66/hour .
of .75.
98
GORDIAN ASSOCIATES INCORPORATED
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N.E.S.W.C. Costs:
. 329
1979 average packer haul cost: $3.36/ton ($2.77 x .277 ) *
1979 average transfer station/transfer haul cost:
Transfer station costs are based on the average of estimates from two
computer models, PLANIT and WRAP. PLANIT includes turnaround time
costs, while WRAP does not.
Transfer Station Cost Functions
WRAP Transfer Station Capacity
$/Year = 1.36 (tons/year) + 101,000 TPY 51,800
$/Year = .55 (tons/year) + 143,000 51,800< TPY 142,900
$/Year = .34 (tons/year) + 173,000 TPY>142,900
(Turnaround time cost not included)
PLANIT
$/year = 2483 (tons/year) .406
(Turnaround time cost included)
These equations are based on 1977 costs. Costs are inflated at the
Chemical Engineering Plant Cost Index (7.8% for 1978, 7.3% for 1979).
Turnaround time costs are based on a cost of $0.85/ton.
Capital Cost Estimates by Computer Models
Transfer Station Turnaround
Location PLANIT WRAP Time Cost**
Beverly $295,500 $223,000 + $ 76,900
Lowell $354,800 $255,700 + $120,700
Portsmouth $189,000 $164,200 + $ 25,600
Reading $318,000 $234,200 + $ 92,100
Salem $375,300 $264,200 + $138,600
* Based on data from MITRE’s 1978 transportation analysis.
** Turnaround time is assumed to be 45 minutes.
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Estimated annual capital cost of ctransfer stations:
Beverly $ 297,700
Lowell $ 365,600.
Portsmouth $ 189,400
Reading $ 322,300k
Salem $ 389,100
Total $1,564,100
Mini—transfer station turnaround time costs are based on a 25 minute time
and $0.47/ton cost.
Mini—transfer station turnaround cost: $.47 x 125,700 tons $59,080
Total capital cost plus turnaround time cost for N.E.S.W.C.:
$1,564,100 + $59,080 $1,623,180
Case A: 713,000 TPY, Case B: 868,000 TPY
Case A: 1,623,180 ÷ 713,000 $2.28/ton
Case B: 1,623,180 ÷ 868,000 = $1.87/ton
Transfer Haul and Mini—Transfer Haul Costs
Transfer Haul Costs:
Hours/year of operation:
Transfer trailer size:
Payload:
1979 Capital Costs:
Truck & Trailer:
Amortization over 5
Annual Capital Cost
Hourly Capital Cost _________
Operating Costs:
Labor, one driver (including 25% fringe benefits) $20,530
Hourly labor cost $20,530 ÷ 2,288 $ 8.99
Fuel $.70/gallon, 4 miles/gallon
Oil $2.00/gallon, 3000 miles/gallon
2288
65 Cu. yd.
35,000 lbs.
$88,430
years at 7˝%
$88,430 x
$21,860 ÷
interest
.2472 =
2,288 =
rate — (.247)
$21,860
$ 9.55/hr .
$. 175/mile
$ .0007/mile
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Tires:
Tractor: 8x $200 20,000 miles $.08/mile
2x $200 30,000 miles $.0133/tnile
Trailer: 8x $200 20,000 mIles $.08/mile
Maintenance
and Repairs: $.l65/mile
Total mileage based costs: $.514/mile
Hourly insurance Costs:
$ 3 ,000/year ÷ 2,288 hours/year $1.31/hour
A. Total Time Based Costs:
Capital $9.55
Labor $8.97
Insurance $1.31
$19.83/hour
B. Total mileage—based costs: $.514
C. Total Haul Cost Equation:
(assumed average speed, 30 M.P.H.)
(assumed productivity factor: .75)
$.514 x .5 miles + $19.82 óomin./hr . x 2
= $0.08/ton
17.5 tons inins.
Transfer Hual Cost:
Case A: 24,316,460 ton minutes x $0.08 $1,945,317 ÷ 713,000
= $ 2 .73/ton
Case B: 24,316,460 x .08 $1,945,317 ÷ 868,000 $2.24/ton
Mini—Transfer Haul Cost:
Case A: 3,876,440 ton minutes x $0.08 $310,115 ÷ 713,000
$Q. 4 3/ton
Case B: 3,876, 440 x .08 310,115 4- 868,000 $O.36/ton
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Total Transfer Cost :
Case A: $2.28 + $2.73 + $0.43. = $5.44/ton
Case B: $1.87 + $2.24 + $P.36, =-$4.47/ton
Total Average Transportation Cost :
Case A: $3.36 + $5.44 = $8.80/ton
Case B: $3.36 + $4.47 = $7.83/ton
Packer haul costs.escalate at 8% per yeartandLtransfer costs escalate at
7.3% (CE Plant Cost Index average).
Tonnage estimates for Cases A and B are the same as those used to calculate
the N.E.S.W.C. project processing fee.
Sample Calculations
1. 1979 transportation cost for Beverly to the S.E.S.W.C. project:
tonnage: 32,000 tons/year
cost: $0.329/ton minute
time: 17.5 minutes
Cost: 17.5 x .329 = $5.7575/ton. $5.7575 x 32,000 $184,200/year
2. 1979 transportation cost for Gloucester to N.E.S.W.C., Case A:
tonnage: 36,000 tons/year
packer haul cost: $0.329/ton minute
time: 15.1 minutes
Average transportation cost for N.E.S.W.C.: = $8.80/ton
Packer haul cost: 15.1 x .329 $4.97/ton
Gross conununity payment: $4.97 + $8.80 = $13.77/ton
Rebate: $4.97/ton
Net Cost to Community:
$13.77 — $4.97 = $8.80/ton. $8.80 x 36,000 = $316,800/year
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V. PROJECT CONSIDERATIONS WHICH COULD AFFECT COST AND/OR SERVICE
Following is a general discussion of certain project considerations
which represent areas of potential risk to a community signing on with one
of the three proposed projects. The discussion of potential risks or legal
implications of the specific “service agreements” for each of the three
proposed projects is held in the next section of this report.
Some of the considerations discussed in this section may impinge on
one project more than another, in view of its particular nature. It by no
means addresses all potential risks to a community. Rather, the focus is
on those areas which appear to be salient and which should be given consid-
eration by conm unitjes, in order to better understand their exposure under
certain projects.
• Financeability and Financing Arrangements
Each project is proposed to be financed under a different arrangement.
The proposed financing for the Bayside—Titan project is with industrial
revenue bonds issued by an industrial development financing authority. An
interest rate of 7˝ percent had been anticipated, but that rate could be
higher or lower depending upon the final financing arrangements developed.
Recently, the project developers have indicated that a private leveraged
leasing financing is being considered, and they are having discussions
with private equity investors. If such a financing is arranged in conjunc-
tion with the proposed industrial revenue bond issue, it could serve to
lower the effective interest rate (cost of capital) for the project. If
a leveraged lease arrangement is secured, it would require an Internal Rev-
enue Service ruling to determine the extent allowed and the project compo-
nents to which it would apply. It is uncertain at this time what the bond
sale prospectus and final financing arrangements will be for this project.
The N.E.S.W.C.—U.O.P. project is proposed to be financed through a
“private leveraged financing arrangement.” This arrangement involves the
use of private equity for part (20—40 percent of the project) and industrial
revenue bonds for the larger part (60—80 percent). This form of financing
reduces the effective interest rate for the capital. It will require an
Internal Revenue Service ruling to determine the extent of private equity
financing allowed end the components to which it will apply. The effective
interest rate anticipated under this arrangement is 3.4 percent; however,
a rate higher or lower than this figure could apply. A recent change in
the law which raises the investment tax credit an additional five percent
would enhance the financing for this project and the Bayside—Titan project,
if it is financed through a similar arrangement.
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GORDIAN ASSOCIATES INCORPORATED
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The State of Massachusetts has an important role in the financing of
the N.E.S.W.C.—U.O.P. project si nce it will be financing the sites for the
plant, residue and rawrefuse landfills, and transfer stations. These
sites would be financed by General Obligation Bond issues and the debt
service would be provided through user fees and rent or lease arrangements.
The final Interest rates for these bond issues are uncertain; however,
the backing and taxing power of the Commonwealth would be important con-
siderations In the sale of such bonds.
The S.E.S.W.C.—C.E.A. project is proposed to be financed entirely
with private equity, with the exception of the project’s landfill which
would be financed by a Ceneral Obligation Bond issue of the district
(S.E.S.w.D.) to be formed. C.E.A. anticipates corporate borrowing for the
financing and the application of some company equity. The General Obli-
gation Bond Issue by the District had an assumed interest rate of 7Ľ per-
cent; however, this rate couldbe higher or lover, depending on the final
method of financing chosen.
C.E.A. is currently developing other projects in Connecticut, New
Jersey, and Massachusetts. A review of those projects and C.E.A.’s finan-
cial position, will, most likely, be necessary by its outside lenders in
order to determine their required rate of return on investment and the
overall financeability. Since C.E.A. has fixed a base fee subject to
escalation for the project, the final borrowing rates it can secure should
not affect that fee. However, the financing decisions by the outside
lenders could ultimately affect C.E.A.’s decision when and if to initiate
the project and also its ability to initiate the project.
• Financial Stability of the Parent Company
Somewhat aligned to the financing and bond sale prospect Is the finan-
cial position of the project operator’s parent company or guarantor. Each
project will be operated by some subsidiary or division or special opera-
ting entity backed by the performance guarantee of the parent company. In
the case of the N.E.S.W.C. project, the Commonwealth of Massachusetts’
Bureau of Sc.iid Waste Disposal will also be overseeing the land for the
plant, landfill sites, and transfer station sites, thus monitoring the
performance or proper use of those areas.
In the case of the Titan project, the company has stated publicly
that it must have and is seeking a substantial partner in order to finance
the project. Without such a partner, the firm could not finance the
project.
In order for the guarantees to be meaningful, one must explore the
financial position and/or staffing of that parent or guarantor and its
ability to back up that guarantee with the necessary resources should
problems develop early on or in the future. You are referred to the “Project
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GORDIAN AS SOCIATES INCOR PORATED
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Characterizations” section of this report for selected financial data on
the three system vendors.
In addition, you are urged to inquire about each company’s most re-
cent Annual Report or Form 10—K filed with the Securities and Exchange
Commission (these are public documents), since the financial positions of
the companies could have changed considerably since the last publication
of their 10-K data.
• Tonnage Commitment Requirements
Each project requires the communities to guarantee a minimum tonnage
of acceptable waste which they will deliver. If such minimums are not
delivered, the communities must pay for that quantity as if it had been de-
livered. The service agreements thus have “put or pay” requirements. Each con-
tract differs, however, in the manner in which this requirement is applied
to shortfalls and overages as they differ from the minimum tonnage guar-
anteed.
In the case of the Bayside—Titan project, a cotunity Bets its own
guarantee of minimum tonnage for the first year of operation. In subse-
quent years, the community must deliver 85 percent of the prior year’s
actual delivered tonnage without penalty. Any shortfall from the guar-
antee requires payment as if it were delivered. In addition to regular
service charges, any overages are charged incremental landfill costs
whenever the plant capacity is exceeded, and that overage must be land—
filled. However, overages or excess are based on aggregate overage from
all customers. The charge is the aggregate monthly total of excess ton-
nage times the incremental landfill cost, divided by the total tonnage
from all customers. There are no “put or pay” requirements if TEOSI does
not provide service.
In the N.E.S.W.C.—1.J.O.P. project, a community guarantees a minimum
tonnage of acceptable waste for the first year of operation. In subse-
quent years a community may “increase or decrease” the guaranteed annual
tonnage from the prior year by not more than five percent as long as the
aggregate guaranteed acceptable tonnage from all contract communities does
not “decrease” by more than two percent in any twelve—month period, or by
more than five percent in any ten—year period, or by more than ten per-
cent over the 2 0—year term of the service agreement. A community may
also assign all or part of its guaranteed annual tonnage to another con-
tract community as long as the assigned co nunity assumes in writing the
assignor’s obligation with respect to that tonnage.
This project requires a “minimum” weekly tonnage guarantee of 80
percent of the annual guaranteed tonnage divided by 52. The company will
assess a $ 2 .00/ton premium or surcharge for tonnage delivered by a com-
munity in excess of 110 percent of the annual tonnage guarantee or for
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GORDIAN ASSOCIATES INCORPORATED
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weekly tonnage in excess of 120 percent of the annual aggregate tonnage
divided by 52 from all contract counities.
The premium for weekly excess’ wili be prorated among those communi-
ties delivering excess tonnage in accordance with each conm unity’s quan-
tity of excess weekly tons. However, the excess tonnage premium on an-
nual tonnage will be waived the first two years of the contract, and the
premium on weekly tonnage excesses will be waived the first three years
of the contract.
Also, a shortfall tonnage payment Is assessed to communities which
deliver less than 80 percent of their annual guaranteed tonnage divided
by 52 in any week, or less than 90 percent of their guaranteed annual
tonnage for the contract year. The weekly tonnage shortfall payment is
valved if the plant has received aggregate tonnage of acceptable waste
from all sources equal to or greater than 95 percent of the guaranteed
plant capacity during the week the shortfall occurred. However, the
weekly tonnage shortfall payment is waived for the first three contract
years.
Thus, for this project, a community can have weekly swings in ac-
ceptable tonnage delivery of 80—120 percent without incurring a penalty
payment and annual swings of 90—110 percent without a similar penalty.
The shortfall penalty, however, is not a $2.00/ton charge as is the ex-
cess tonnage premium, but is based on a formula taking into consideration
lost revenues to the company from recovered electricity and metals.
In the S.E.S.W.C.—C.E.A. project, a conmiunity determines Its guar-
anteed annual tonnage, provided that if a co=unity bases its first
year’s tonnage on a rate less than .‘5 ton per capita per year, then it
cannot deliver more than 110 percent of that tonnage in that year or in
subsequent years without Incurring a $2.00 per ton surcharge.
If a community uses a figure greater than .5 ton per capita per
year in determining the guaranteed annual tonnage, then there is not up-
per limit on delivery in subsequent years except for excess charges for
landfilling any waste the plant cannot handle. The District, which is
the aggregate of member communities, may deliver municipal waste from
sources other than members if necessary to meet minimum commitments.
While each project requires a guaranteed minimum annual tonnage,
one can see that the methodology in dealing with that tonnage is quite
different from project to project. It is very important that a coiimminity
provide an accurate estimate of its annual tonnage and consider its
seasonal tonnage fluctuations to avoid greatly overstating or understating
its acceptable waste quantities. It is also important that each community
recognize that there could be additional costs in each project for deliver-
ing certain types of waste that are not considered “acceptable” for pur-
poses of the contract. All projects exclude auto hulks, hazardous wastes
and sewage sludge, and there are certain waste categories where some of
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Minimum Tonnage Requirements and Penalties
Minimum
Guarantee :
Bayside—Titan
Tonnage set by community and
Is considered guaranteed mm—
imum. In subsequent years,
85% of previous year’s ton—
age is required (less unusu-
al, non—recurring tonnages).
Shortfall tonnage charged
for amount which was to be
delivered. Excess tonnage
charges are based on plant
capacity and amount of
aggregate tonnage delivered
by all long—term customers
over 3 day periods which
exceed 1750 tons. If this
amount is exceeded, charge
is aggregate monthly total
of excess tonnage times in-
cremental landfill cost,
divided by total tonnage
from all long—term customers.
There is no upper limit on
tonnage.
N.E . S . W . C . — U. 0. P .
Tonnage set by community and is
considered guaranteed minimum
for first year. In subsequent
years, 100% of previous year’s
tonnage is required; however,
this can be decreased 5% if
annual aggregate tonnage does
not decrease more than 2% in
any year, 5% in 10 years, or
10% in 20 years.
Tonnage can vary from 80% to
120% weekly, and 90%—110Z
annually without premium pen-
alty payment. Excess weekly
or annual tonnage is charged
a $2.00/ton premium. Short-
fall tonnage is charged a
premium based on formula for
lost revenues to U.0.P. from
electricity and metals. The
upper limit on tonnage is
restricted only by plant ca-
pacity. Premium on weekly
excess or shortfall waived
first 3 years of contract.
Premium on annual excess is
waived first 2 years.
S.E.S.W.C.—C.E.A .
Tonnage set by comniun—
ity and is considered
the guaranteed minimum
for first year. In
subsequent years, 100%
of previous year’s
tonnage is required.
If first year tonnage
estimate was based on
less than .5 ton per
capita per year, then
community cannot deliv-
er more than 110% of
guarantee in first
year or subsequent
years without a $2.00
per ton surcharge. If
community bases tonnage
guarantee on greater
than .5 ton per capita
per year, there is no
upper limit in subse-
quent years.
Penalty
for
Fluctuation :
I-
0
0
0
(p
U)
0
( 1
‘ -I
tTJ
(p
z
0
0
0
F l
-------
the wastes might be acceptable’ and o ther waste components might not be.
For example, in the construc-tion a,na 4 molition waste category, a load
of bricks and rock would not oe ran’ a ceptable waste for the Bayside—Titan
or N.E.S.W .C.—U.O.p. project. This si:tuation is uncertain for the S.E.S.—
W.C.—C.E.A. plant. On the oth r: hand, the same general category may in-
clude a load of largely used 1uznber with some rock and brick frictions,
which would be considered acceptable at all three projects.
Each project will accept private acceptable waste or non—guaranteed
waste from other than contract communities. For the most part, this
waste helps make up the difference between the expected community guar-
anteed tonnage and the operating capacity of the plant. While it is
possible that contract community tonnage will make up the largest share
of raw refuse throughput to each, project, it is likely that seasonal
fluctuations, shortfall delivezies, etc., will necessitate the acquisi-
tion of short term—contract,’non-’contract tonnage, or even long—term
private contracts for a signifi’cant share of plant capacity, particularly
during the early years of operation. In the Bayside—Titan project, pri-
vate tonnage may be acquired on a spot basis or other basis to ensure
boiler capacity and energy output. Communities will share in product
revenues derived from private tonnage. However, Titan will retain all
tipping fees minus expenses received from private or short—term tonnage.
In the N.E.S.W.C.—U.O.P. project, the operator will secure long—term
and spot commitments from private haulers. The contract communities will
share in the revenues derived from the private tonnage. The contract
communities will also receive their 2. rata share of the private hauler
tipping fees net after deducting the host community fee, residue disposal
costs and the cost and incentive payments to the U.O.P. operating entity.
In the S.E.S.W.C.—C.E.A. project, the operator will secure private
tonnage similar to the other two projects. The contract communities
(District) will receive $1.00/ton for private haulers’ waste considered
to be Class I (acceptable municipal waste) and $3.00/ton for waste from
private haulers considered to be Class II (large, bulky waste which can-
not be processed through the plant). However, the District must approve
of C.E.A.’s acceptance of Class II waste since it could have an adverse
effect on future landfill capacity.
• Landfill Costs and Development
Each project will require ap approved sanitary landfill for the dis-
posal of plant residues, certain 1 unprocessed raw refuse or excess tonnage
which the plant cannot handle, certain unprocessable wastes, and any waste
resulting from downtime or outage that cannot be stored until it can be
processed.
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Each project faces some uncertainty in the ability to have landfill
sites developed, permitted, or co nitted within the cost scheme proposed.
However, the projects differ considerably in the sites, acquisition ap-
proach, and methodology employed in landfill development.
The Bayside—Titan project proposes to acquire and develop one or more
sites for landfill. In lieu of this, the project developers would con-
tract with a private site or community site for deposition of residue and
raw refuse. The developers are considering specific site locations and
would like to acquire a site as close to Beverly (the proposed plant lo-
cation) as possible, to minimize transportation costs. No specific site
has been acquired, however, and the final costs for landfill are uncertain
at this time. If landfill sites are purchased, the capital costs would
be included in the revenue bond issue. Capital and operating costs for
the landfill(s) will be included in the service fee.
In the N.E.S.W.C.—U.O.P. project, the Commonwealth of Massachusetts
will provide the landfill sites for residue and raw refuse through a Gen-
eral Obligation Bond Issue. The cost for landfilling residue and any raw
refuse that might have to be bypassed would be reflected in the service
fee.
The Commonwealth has identified the sites and has the power of “emi-
nent domain” to acquire them. The proposed residue disposal site is in
North Andover, and the Commonwealth intends to initiate an experimental
incinerator residue utilization and testing program at this facility. The
results of this program could benefit other projects generating an incin-
erator residue, including perhaps the Bayside—Titan project and the ex-
tant R.E.S.C.O. project near Boston.
The proposed raw refuse landfill is in Amesbury. The Counnonwealth
has not yet acquired these sites or initiated the permit procedure, and
final landfill acquisition and development costs are uncertain. As men-
tioned earlier, landfill financing will be via Commonwealth General Obli-
gation Bonds, although the Commonwealth now owns part of the proposed
residue disposal site in North Andover.
Th S.E.S.W.C.—C.E.A. project would utilize a landfill in the City
of Peabody, which would be adjacent to the proposed resource recovery
plant. The existing landfill used by Peabody would be leased to the
District to be formed and C.E.A. would lease the site for disposing
plant residuals and waste that could not be processed. Part of the total
area proposed for landfill is owned by Peabody; however, additional acre-
age (approximately 107 acres) adjoining the site would have to be pur-
chased. Some of this acreage is owned by private parties and the final
costs of acquisition are uncertain. Too, this acreage, as well as the
existing Peabody site, will require development and modification to
provide the required landfill facilities, access roads, and obtain a per-
mit from the Commonwealth of Massachusetts for sanitary landfill operation.
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There is some uncertainty regarding the types and extent of waste that
has been deposited in this area over the years, and concommitant uncer-
tainty regarding the specific development needs and costs to place the
operation in compliance with state laws and secure a permit.
As mentioned earlier, the proposed landfill acquisition and develop-
ment financing is through General Obligation Bond issue of the District
to be formed. The District would have the power of eminent domain. The
cost of landfill acquisition and development would be reflected in the
service fee charged to District communities.
It is important to highlight some considerations in landfill develop-
ment which could affect all three projects. Most likely, some waste
types generated in a community will require direct landfilling. Thus,
the availability of an environmentally sound, approved sanitary landfill
is very important to each community and each project. Too, no one can say
for sure at what times and to what extent a resource recovery project
might be unable to accept waste during a 20—year operating period; there-
fore, the need for backup capacity is reinforced.
The physical characteristics of the land that is used in each proj-
ect’s landfill will weigh heavily on the capital and operating costs.
The availability of suitable cover material, difficulty of excavation,
degree of upgrading and landscaping, control and monitoring of gas and
leachate, and the requirements for revegetating completed portions of
the site(s) will all affect costs.
Any sites with excavation or grading problems will require more
specialized equipment and higher capital and operating costs. Any sites
selected with existing or potential water pollution problems could re-
quire extensive and costly liners and/or water pollution control systems.
Sites that have been previously used for landfill may require re—excavation
of certain wastes or areas of the site which may be causing, or could
cause, water pollution, air pollution, or gas migration.
Sites used for incinerator residue disposal may not require as much
soil cover and acreage. However, special considerations for water pollu-
tion control may be necessary.
• Plant Downtime and Outage
Each project can be expected to have some downtime. Downtime can
be scheduled or unscheduled. Most scheduled downtime is during periods
of low refuse throughput or at times when the impact on operations and
revenues is minimal. Unscheduled downtime can occur at any time and for
various reasons. Should a plant experience operating problems which
cause long periods of downtime, the impact on revenues to communities,
reliable service, landfill site life, transport costs, etc., could be
severe.
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It is therefore important to assess what provisions each project has
made for excessive downtime, the expected level of plant availability, and
the impact on costs and revenues to communities.
The Bayside—Titan project will have a single—line processing system
(one shredder, classifier, and boiler), a dump condenser, multiple tur-
bines at USM Corp., and a one and one—half to two day storage capacity
for raw refuse and two to three days storage of shredded refuse. The
boiler design capacity is 591 tons per day of 4,500 Btu/lb. solid waste,
while the expected average throughput is about 500 tons per day of solid
waste. When any of these units is down for an extended period of time,
the plant will be unable to process refuse and it will have to be land—
filled. Titan intends to store processed refuse in movable containers
which will allow it to accept waste during short—term (one to two day)
outages.
The project developers anticipate ten percent annual downtime during
which waste would have to bypass the plant. During downtime periods,
revenues from steam and power sales would continue since Titan would burn
oil to fire the existing boilers in USM’s generating plant. Ferrous
metal revenues would be foregone, however, and costs for the oil use
would be incurred and deducted from the gross recovered resource revenues.
In the N.E.S.W.C.—U.0.P. project, the mass burning plant includes
three parallel process lines, and a two and one—half to three day refuse
storage capacity in the pit. The boiler design capacity is 3,450 tons!
day of 5,000 Btu/lb. solid waste, while the average boiler throughput is
expected to be about 3,000 tons/day. The system includes a dump conden—
sor that permits the plant to fire refuse during periods of turbine down-
time. The project developers anticipate 15 percent scheduled annual
plant downtime and feel that it will occur in periods of a few hours or
more at different times throughout the year and will not necessitate
bypassing any acceptable waste to the landfill.
During periods of scheduled turbine maintenance (two weeks the first
year and four weeks over every three calendar years thereafter), electri-
city revenues will not accrue to the contract con unities.
The S.E.S.W.C.—C.E.A. project includes a dual—line processing sys-
tem, and a two—day refuse storage capacity. The plant capacity is 2,400
tons per day, while the average throughput is expected to be about 2,000
tons per day.
The project developers anticipate a 15—20 percent downtime period
annually when acceptable waste will have to bypass the recovery plant.
During periods of downtime, Eco Fuel II revenues, if any would not accrue
to the contract communities.
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During outages caused by the plant operating entity, that firm pays
any excess landfill costs in all three projects until the facility can
accept waste again. If the outage is caused by a natural disaster or
other cause which cannot be traced to a particular party, then a differ-
ent set of mechanisms apply in each project.
In the Bayside—Titan project, the company would apply insurance pro-
ceeds and the alterations reserve fund. The alterations reserve fund
can only be used with the concurrence of the Bayside Council. Any costs
to restore the facility over insurance proceeds and the alterntionS re-
serve could be secured by a borrowing or by capital infusion by Titan.
In the N.E.S.W.C.—U.O.P. project, the company would first apply In-
surance proceeds and issue bonds or otherwise raise revenues to restore
the project. In the S.E.S.W.C.—C.E.A. project, the company would apply
insurance proceeds. If insurance proceeds did not cover the costs, the
company has the right to terminate the agreement or pay the restoration
costs. All projects would try to minimize operational costs during
outage.
• Product Marketing and Revenues
Each project, as a minimum, proposes to market an energy product
(dry fuel, steam and/or electricity) and a ferrous product. Each proj-
ect provides for some level of revenue sharing of all products sold, with
the exception of the SE.S.W.C.—C.E.A. project, which only shares reve-
nues from Eco Fuel II sales when the value exceeds a certain level.
In the Bayside—Titan project, steam, electricity and ferrous metals
are proposed for sale. The company would share all revenues from these
products on an 85% — 15% basis. That is, contract coimuunities would re-
ceive 85 percent of the revenues and the company the remaining 15 percent.
Titan is negotiating an “all requirements” contract with the USM Corp.
In essence, this contract would include a guaranteed minimum payment by
that company for steam and electricity which will escalate with the
price of oil. Steam may also be sold to Beverly Hospital. Too, Titan
is negotiating a long—term contract for electricity sales to the New
England Power Company. Ferrous metals are proposed to be marketed to
the detinning industry (Vulcan Materials) under a long—term contract.
Ferrous metal revenues could be offset by high freight costs to reach
detinning markets; thus, ferrous revenues could be low when metals prices
remain low. Ferrous revenues represent about five percent of the reve-
nue stream.
It should be pointed out that although the USM contract is an “all
requirements” document with a sound pricing structure, there is no
guarantee that USM will remain in its present facilities over the 20
year contract period that communities agree to. There are other tenants
with steam and/or power demands to which Titan would continue to sell
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energy in the USM building complex and possibly another tenant would
locate in USM’s place should it leave. If sufficient demand for power
and/or steam were not available in the situation of USM vacating its pre—
zuises, Titan would market additional electricity to NEPCO, but, most
likely, at a lover price than received from USM. It is important to note
that Titan’s first year recovered product revenues are capitalized as
part of the bond issue, and thus, are guaranteed for that year. Reve-
nues accruing each year are paid the next until the 20th year, when com-
munities receive a double payment.
In the N.E.S.W.C.—U.O.P. project, electricity, ferrous metals and
aluminum are proposed for sale. Other materials may be recovered for
sale, as is possible for the other two projects, but for purposes of
this analysis, only electricity and ferrous metals are considered in
evaluating the product revenue stream.
U.O.P. is negotiating a long—term (20—year) “take or pay” contract
for the electricity it would have available for sale. The electricity
would be sold to New England Power Company. U.O.P. will share all of
the electricity revenues on a 90% — 10% basis, with communities receiving
90 percent; however, U.O.P. guarantees a minimum electricity credit of
$7.50 per ton of waste delivered to the plant, as long as the average
annual heating value of the waste remains above 4,200 Btus/lb. and the
plant is constructed at a 3,000 tons/day capacity. U.O.P. may also sell
steam to the Western Electric plant adjacent to the proposed resource
recovery plant site. A final decision to sell steam to this potential
customer has not been made.
Ferrous metals are proposed to be sold to scrap dealers in the Bos-
ton area. Contract lengths for this market are uncertain and the prices
fluctuate markedly. Ferrous metals revenues represent five to seven per-
cent of the total revenue stream from this project. Contract communities
would receive 100 percent of the first $15.00 per ton received from the
sale of ferrous metals and 50 percent of the revenues received from sales
of ferrous at prices in excess of $30.00 per ton. Cotuniunities would re-
ceive 50 percent of the revenues received from any other materials and/or
metals which might be sold.
It is important to provide a discussion of the pricing structure
which New England Power Company would use for purchasing electricity from
either the Bayside—Tjtan project or the N.E.S.W.C.—U.O.P. project.
NEPCO is proposing contracts with N.E.W.S.C.—U.O.P. and Bayside—
Titan, both of which will, specify dispatchable capacity (Ky) to NEPCO and
available energy (Kwh) per year. The dispatchable capacity and availa-
ble energy will be negotiated on the basis of plant design capacity and
expected output, less internal loads and energy to be applied to others
(e.g., Bayside—Titan will be supplying steam and electricity to the USM
Corporation in addition to electricity to NEPCO).
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During the term of the agreement, NEPCO will conduct a twice—yearly
audit or test to determine the actual capacity dispatchable or deliverable
to NEPCO. If the test reveals a capacity less than the contracted dis—
patchable capacity, then for the next six months NEPCO will only purchase
a fraction of the contractual electricity at its higher “incremental cost
of fuel.” This fraction is equal to the ratio of audit capacity to con-
tract capacity. The remainder of power delivered will be purchased at
NEPCO’s average fuel cost, which is lower than incremental fuel cost.
Incremental cost is expressed as a multiplier which is applied to
NEPCO’s published monthly average fuel cost. At the present time, NEPCO’s
average fuel cost is about 16 tnils/kilowatt hour. During on—peak periods
a multiplier of 1.45 is applied to that average fuel cost (1.45 x 16 must
Kwh) and during off—peak power demand periods a multiplier of 1.25 is
applied (1.25 x 16 mils/Kwh) to arrive at the price NEPCO will pay for
dispatchable power. The multipliers are adjusted annually and may go up
or down.
Since the Bayside—Titan project is supplying energy to USM during
part of NEPCO’s on—peak period, it has calculated that its average multi-
plier will be 1.32. However, the proposed contract for energy sales to
USM includes a higher pricing structure. Thus, any increased power sales
to USM that would affect its dispatchable capacity to NEPCO should more
than offset any price reduction from NEPCO.
The N.E.S.W.C.—U.0.P. project may have a slightly higher average
multiplier of 1.34 based on a production schedule of 80 hours on—peak and
88 hours off—peak each week. Both projects will attempt to maximize
power sales during on—peak demand periods.
NEPCO predicts both an increase in the multiplier (which is affected
by several variables such as load growth, nuclear power development, etc.)
and its average fuel costs; however, the exact amount of increase and time
when it will level off are uncertain. Electricity costs tend to fluctuate
and specific trends are not always observable.
The S.E.S.W.C.—C.E.A. project proposes to recover Eco Fuel II, a pro-
prietary dry—fuel product made from processed solid waste, and ferrous
metals. It may also recover other materials; however, Eco Fuel II reve-
nues are the only product revenues that will be shared with the contract
communities. C.E.A. has short—term contracts conditioned on successful
Eco Fuel II testing with a private company and a utility. These would be
the potential markets for Eco Fuel produced by the project; however, they
could not consume all the Eco Fuel produced if the plant operates at a
2000 tons per day level. C.E.A. would have to develop other markets for
the product. The company has indicated that it is discussing fuel sales
with other markets. Too, the two contracted markets are a considerable
distance from the proposed project and higher transportation costs will
be incurred than from close—in markets. Since C.E.A. will share net
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revenues F.O.B. the Peabody plant, transport costs impact significantly
on Eco Fuel revenues.
C.E.A. would share 35 percent of the net revenues F.0.B. Peabody
from Eco Fuel II sales over $2.50 per million Btus with contract Communi-
ties (District). For example, if Eco Fuel II is sold for $2.60 per mil-
lion Btus, the contract coimnunjtjes would receive 35 percent of 10 per
million Btus of fuel sold. Under the present pricing structure with the
two identified markets, the value of Eco Fuel is tied to the price of
displaced fuel oil used to generate power. The fuel price is discounted
by the incremental costs incurred by the buyers in handling and firing
the Eco Fuel and disposing of its ash residue. Since long—term test
burns at these sites have not been completed, the ultimate incremental
costs are uncertain. Too, the fuel product is not looked on as electri-
city or oil or steam, which are well known and consistent in quality.
Experience with Eco Fuel is limited, and it will be some time before its
value can be predicted with more certainty and markets will commit to its
long—term purchase as a supplemental, or perhaps, base fuel. Under the
recent National Energy Act, which will permit certain oil burning gene-
rators in New England to go to coal, additional markets for this product
could be created, although C.E.A. will use this product in oil and/or
coal—fired boilers.
If the price of oil inflates markedly and the fuel product is suc-
cessfully burned at buyer facilities, then revenues could accrue to com-
munities within a few years after the plant is constructed. Otherwise,
it could be several years before any revenues are realized by the commun-
ities from Eco Fuel II sales.
For all three projects it is important to mention that, historically,
prices paid for energy or commodities such as ferrous metals have fluc-
tuated, and the level of inflation or deflation of prices cannot be pre-
dicted with certainty. Contracts for product purchase for a time period
less than the project life provide no assurance that revenues will be
available from that product over the project life.
• Pollution Control Modifications
Each project guarantees to meet all current pollution control laws.
Any costs in meeting current laws will be covered by the project develop-
ers. There is always the possibility of legislative changes which could
increase the requirements for pollution control, particularly emissions
control in each project. If such laws are enacted in the future, project
costs could increase. Each project has a methodology for dealing with
any changes or modifications required as a result of new legislation.
In the Bayside—Titan project, an alterations reserve fund is maintained
via each contract community paying 5O per ton of waste delivered. If
the fund is never used, the cou nunities receive a P!2. rata share back
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in the twentieth year. If needed, however, the fund is first used to pay
for legislated or government required plant modifications. Costs over
the amount in the reserve fund would be covered by increased tipping fees
to the contract communities.
In the N.E.S.W.C.—U.o.p. project, any legislated alterations which
increase costs would be covered by an increased service fee to the con-
tract communities.
In the S.E.S.W.C.—C.E.A. project, required alterations would be fi-
nanced by C.E.A., and the costs recovered over the operating period through
an increase in the service fee.
• Leases and Contracts
Each project involves certain leases or contracts for such facilities
as residue disposal site, plant site, power plant facilities, etc. It
is important to understand the terms of these agreements. Since all pro—
jec s are proposed for at least 20 years, the supporting agreements should
cover that time schedule. If they do not, it is important to know what
the project developers have planned to ensure that the necessary facili-
ties or services are retained to maintain project viability.
The Bayside—Titan project will lease a plant site and a power plant
from the USM Corp., and sell energy to the company during the time per-
iod the company remains at that site. The lease operating agreement,
which was not made available to Gordian, provides for the power plant
facilities and the resource recovery plant site to be available to Titan
for at least 20 years. The company, as mentioned earlier, will not com-
mit to buying energy for 20 years since it might vacate its facilities
before that time.
A landfill site or sites may be leased; however, at this time Titan
is proposing to develop one, or more new landfills or modify and operate
an existing site.
In the N.E.S.W.C.—U.0.P. project, a plant site would be leased or
rented from the Commonwealth of Massachusetts for at least 20 years.
Sites for residue and raw refuse disposal and transfer station sites
would also be guaranteed to be available over the life of the project.
In the S.E.S.W.C.—C.E.A. project, the plant site would be leased from
the City of Peabody for 20 years. The landfill site is leased by the Dis-
trict from the City of Peabody. The District then leases the landfill
to C.E.A. for the life of the project.
It is important to note that in all projects, specific landfill
site lives may not be for 20 years, even though leased for that time
period or proposed for operation over that time period. Other sites
may have to be acquired in the future.
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VI. DISCUSSION OF SERVICE CONTRACTS AND RISKS
• Overview
As part of a Technical Assistance Program, analyses of the proposed
service Agreements between the “conanunities” and the vendors have been
provided. The Agreements analyzed here are:
— Bayside—Titan
— N.E.S.W.C.—U.o.p.
— S.E.S.W.C.—C.E.A.
The rationale of the analyses was to examine the proposed Agreements
primarily from the viewpoint of the potential risk to the communities, so
that they may better understand the risks involved. It should be borne
in mind that the vendors were selected under a competitive bid process,
and the Agreements analyzed under this Technical Assistance Program re-
flect the end result of lengthy negotiations. Hence, comments relative
to each proposed Agreement generally do not offer any reconunendations as
to possible revisions of the Agreements.
The analyses were generally concerned with “risks,” and in no event
should they be viewed as an evaluation of all legal consequences involved.
No opinion is offered as to the legal soundness of the Agreements. This
would require the opinion of competent counsel admitted to practice in
the Coonwealth of Massachusetts.
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• Contract Risk Analysis:
Bayside—Titan Project
The proposed Service Agreement between Titan’Environmental Operating
Services, Inc. (TEOSI) and various communities of Massachusetts reflects
a negotiated apportiotiment of risk,- b etween the parties.
The Agreement provides that TEOSI be indemnified for willful or
negligent acts of the customer, its agents or employees, and also for any
failure of customer, its agents or representatives to perform any obli-
gation imposed on It under the Service Agreement. A similar indemnification
is provided to the customer by TEOSI.
Where TEOSI requires a customer to, deliver acceptable waste to a
landfill rather than thefaci].ity,the marginal expense for taking the
waste to the landfill, if any, is.borne by the customer except where
TEOSI is clearly at fault.
The fixed and variable maintena ce costs (0 & M) 1s to be a negotiated
figure agreed upon prior td any approva l’ of the Agreement by the customer.
The Agreement also provides for the establishment of a reserve fund of
$2.4 million, withheld from the proce ds of bonds to be applied as a credit
against the service fees payable by th customers for the months included
in the first year. This provision-provides a method of “leveling out” the
net costs to the comniunities, and may compensate for the cost Incurred in
the additional borrowing.
The Agreement provides for continuing payment of the service fees by
the customer even where there is a default by TEOSI, until six months had
elapsed. However, where TEOSI fails to accept waste both at the facility
and at the landfill, the customer may terminate the agreement upon giving
written notice. The Agreement also provides for automatic abandonment of
any action taken by either TEOSI or the customer in connection with an
event of default by the other where a 90—day period passed during which
the party initiating the action shall have failed to take any further
action available to it to effectively prosecute the proceeding. The time
period provided within which further action would have to be taken in
order to prevent automatic abandonment may encourage expedient resolution
to claims of default.
The Agreement also requires TEOSI to submit industrial disturbances
to arbitration, but without a requirement that TEOSI accept the arbi-
trators ‘ decision.
TEOSI, under this Agreement, can contract to accept “acceptable waste”
under short—term contracts with any such arrangement going at the sole
discretion of TEOSI. It is possible that under this arrangement, the
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short—term contract customers may pay a lower tipping fee than long—term
contract customers, although the long—term contract customers will share
in the receipts from the sale of recovered resources. Tipping fees from
the short—term customers, if any, would be retained by the Company.
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ANALYSIS OF THE SERVICE AGRE 1ENT BY AND BETWEEN
A CITY OR TOWN IN MASSACHUSETTS AND TITAN ENVIRON-
MENTAL OPERATING SERVICES, INC. FOR THE RESOURCE
RECOVERY PROJECT AT BEVERLY, MASSACHUSETTS
Overview
The proposed Service Agreement between communities in Massachusetts
and Titan Environmental Operating Services, Inc. (TEOSI) is a lengthy
document. From the communities viewpoint certain factors of the proposed
Agreement are noted here with a more complete analysis following.
• The Agreement provides that TEOSI be indemnified for
willful or negligent acts of the customer, its agents
or employees, and also for any failure of customer, its
agents or representatives to perform any obligation im-
posed on it under the Service Agreement.
• Where TEOSI requires a customer to deliver acceptable
waste to a landfill rather than the facility, the marginal
expense is borne by the customer, except where TEOSI is
clearly at fault.
• Any action taken by either TEOSI or the customer in con-
nection with an event of default by the other shall be
automatically abandoned if the party initiating the action
fails to take any further action available to it within 90
days to effectively prosecute the proceeding.
• The Agreement requires TEOSI submit industrial disturbances
to arbitration, but without a requirement that TEOSI accept
the arbitrator’s decision.
• TEOSI can contract to accept “acceptable” waste under short—
term contracts with any such arrangement being at the sole
discretion of TEOSI. It is possible that under this
arrangement, the short—term contract customers may pay a
lower tipping fee than long—term contract customers, although
the long—term contract customers will share in the receipts
from the sale of recovered resources.
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ANALYSIS OF PROPOSED SERVICE AGR.E NT BETWEEN TITAN ENVIRONMENTAL
OPERATING SERVICES, INC., AND CONTRACT CO? WNITIES IN MASSACHUSETTS
DRAFT AGREEMENT DATED 2/5/79
The following are coum ents on selected sections of the proposed
service agreement between Titan Environxnental Operating Services, Inc.,
(TEOSI) and various communities of Massachusetts for the purpose of con-
struction and operation of a solid waste and energy recovery facility in
Beverly, Massachusetts.
ARTICLE I DEFINITIONS
Section 1.1
Excluded Waste
Waste that would be otherwise acceptable waste can be classified as
excluded waste by a community, or thus the community would not be
responsible for payment of service fees to TEOSI for deliveries of such
excluded waste. Any source may by agreement between TEOSI and the
customer be excluded including single family dwellings, multiple family
dwellings, commercial, institutional, and/or industrial waste. Each
community shall identify before hand the sources of acceptable waste the
coiunity will be responsible for, and these sources shall be incorporated
into the Agreement with TEOSI. (To be added to each agreement as Exhibit
A)
Recognizable Capital Infusion
This section provides that a recognizable capital infusion by TEOSI
shall include all costs and expenses incurred by TEOSI, after the initial
sale of bonds by the trustee, arising out of the construction of the
facility or of any addition or alteration or acquisition and placing in
operation of the landfill that was not paid out of the proceeds of the
bonds or insurance or other funds available under the trust agreement.
Subparagraph 4 of this section provides for reimbursement to TEOSI for
all costs and expenses arising out of damage to the facility or project
property unless due to TEOSI’s gross negligence or willful misconduct,
subject to offset by net insurance proceeds under section 4.10 of this
agreement.
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ARTICLE II EFFECTIVE DATE, TERN AND EXTENSIONS
Section 2.2
The term of this Agreement can be as long as thirty five (35) years.
However, the customer can only be held to a twenty year (20) length
pursuant to Article XIV of this Agreement.
ARTICLE III UNDERTAKINGS OF CUSTOMER
Section 3.1 Delivery of and Title to Waste
Subsection 3.1.1 requires that acceptable waste of the sorts and from
the sources (as set forth in a separate Agreement between each community
and TEOSI to be annexed to each service Agreement as Exhibit A) be delivered
to the facility or to landfill. The information contained in Exhibit A will
be used to define the basis for tonnage to be credited against a customer’s
guaranteed minimum tonnage and for purposes of billing.
Section 3.7 Prohibition Against By—laws or Ordinances Diminishing Quantity
of Recoverable Materials to be Delivered .
This section requires that anti—scavenging provisions be rigorously
enforced. If a community institutes a structured source separation program,
the ability of a community to rigorously enforce an anti—scavenging law
without incurring an unnecessary burden could be open to question.
Section 3.8 Indemnification
This section provides the customer shall indemnify TEOSI not only for
wilful or negligent acts of the customer, its agents or employees, but
also for any failure of customer, its agents or representatives to perform
any obligation imposed on it under the Service Agreement. A similar
indemnification is provided by TEOSI to the customer under Section 4.11.
ARTICLE IV UNDERTAKINGS OF TEOSI
Section 4.3 Landfill
Where TEOSI requires a customer to deliver acceptable waste to a
landfill rather than the facility, the marginal expense is borne by the
customer except where TEOSI is clearly at fault.
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Section 4.5 Energy and Material Recovery
In Subsection 4.5.1 minimum standards of performance for TEOSI with
respect to conversion of waste to energy and materials recovery is not
provided. Of course, effective minimum standards could be difficult to
set, given the variability of municipal solid waste.
ARTICLE V GUARANTEED MINDIUN TONNAGE OF WASTE
Section 5.1 Guaranteed Minimum Tonn
Subsection 5.1.2 provides that unusual and nonrecurring waste
tonnages delivered in any year, agreed upon in writing by the customer
and TEOSI, shall be excluded from the basis upon which the guaranteed
minimum tonnage requirement is established for the customer in the
subsequent years. This exclusion clause should not be overlooked by the
communities during the test year.
ARTICLE VI SERVICE FEE
Section 6.1 Calculation of Service Fee
In subsection 6.1.1 (components of service fee), the fixed and
variable maintenance costs (TEOSI’ 5 O&M) Is given as a single element
O which is to be a negotiated figure agreed upon prior to any approval
of the Agreement by the customer.
Section62 Service Fee Credit Account
This section provides for the establishment of a reserve maintained
by the trustee under this Agreement whereby a fund of 2.4 million dollars
shall be withheld from the proceeds of the bonds to be applied as a credit
against the service fees payable by the customers for the months included
in the first year. This provision provides a method of “leveling out”
net costs to the communities, and may compensate for the costs incurred
in the additional borrowing.
Section 6.3 Recovered Resource Revenue Revolving Fund
Subsection 6.3.1 (Estab1is ent with Trustee Availability.)
The apportio e between the revolving fund and TEOSI of the
remainder of receipts after TEOSI has been reimbursed for oil or fuel
costs will be agreed upon prior to approval of the Agreement.
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Section 6.4 Depreciation Credit
This section contains a clause to the effect that if an unfavorable
ruling on depreciation of the facility is obtained from Internal Revenue
Service, the percentage apportionment for the trust funds in Section 6.3.1
and 6.3.2 shall be altered. The amount of the percentage apportionment
referred to in this section will be identified and agreed upon prior to
approval of execution of the Agreement.
ARTICLE VII SERVICE ADJUSTMENTS
This section contains various selected indexes which can be applied
to adjust the service fee amounts. The referred to selected indices will
be identified and agreed upon prior to approval of execution of the
Agreement.
ARTICLE XII DEFAULTS
Section 12.2 Remedies of Customer Upon Default of TEOSI
This section provides that the customer may terminate the agreement
after six months default by TEOSI; however, no termination shall take
place until a party able to assume all of TEOSI’s obligations under this
agreement shall have undertaken the same by entry into an agreement with
the customer. Under subsection 12.2.2, where TEOSI fails to accept waste
both at the facility and at the landfill, the customer may terminate the
agreement upon giving written notice. A similar provision in Section 12.3
provides TEOSI’s remedies upon default by the customer.
Section 12.4 Abandonment of Agreement, No Waiver
This section provides for automatic. abandonment of any action taken
by either TEOSI or the customer in connection with an event of default
by the other where a ninety (90) day period passed during which the party
initiating the action shall have failed to take any further action available
to it to effectively prosecute the proceeding. The relatively short ninety
(90) day period within which further action would have to be taken in order
to prevent automatic abandonment should encourage expedient resolution to
claims of default.
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ARTICLE XVI MISCELLANEOUS
Section 16.1 Excuse from Performance
Subsection 16.1.1 requires TEOSI submit industrial disturbances to
arbitration, but without necessarily any commitment on the part of TEOSI
to accept the arbitrator’s decision. While it is likely that a reasonable
arbitrator’s award would be accepted by TEOSI, it is not mandatory.
Section 16.2 Other Long—Term Contracts
Subsection 16.2.3 permits TEOSI to contract to accept “acceptable
waste” under short—term contracts with any such arrangement being at the
sole discretion of TEOSI, and with only the receipts from the sale of
recovered resources included in the proceeds for customer benefit. While
it is possible that under this arrangement, the short—term contract
customers may pay a lower tipping fee than long—term contract customers,
the long—term contract customers will share in the receipts from the sale
of recovered resources.
ARTICLE XVII GUARANTEE BY TITAN GROUP INC .
This Article provides that Titan Group Inc., will assume all of the
obligations and duties of TEOSI as contained in this Agreement. The form
of the guarantee when approved, will be incorporated into the Agreement
as Exhibit C. If TEOSI fails to perform its obligations under the
Service Agreement, then Titan Group would agree to assume the performance
of the TEOSI obligations.
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• Contract Risk Analysis:
S.E.S.W.C—C.E.A. Project
The proposed Service Agreement between the Southern Essex Solid Waste
Disposal District and Combustion Equipment Associates, Inc., reflects a
negotiated apportionment of risk between the parties. Under the proposed
Service Agreement, the District has the responsibility for providing an
approved landfill site and for constructing the access road to the landfijl
at the District’s own expense. If a site is not provided, the Company may
obtain an alternate site and add the incremental cost to the tipping fee.
The Agreement also provides that the Company can landfill up to 40% of
the solid waste without penalty. Penalties are provided if the Company
landfills more than 40% of all solid waste delivered where specified
periods are exceeded.
The Company may contract for quantities of solid waste from private
sources above its con irment to the District. No time limitation is
provided for the duration of Company contracts with outside parties. The
District is given first option to provide Class One waste to fill any
available capacity above that which the Company is otherwise committed to
receive; however, it is possible that the Company could contract for waste
from outside parties, such that no spare capacity would be available to
the District.
The Agreement also provides for a waiver by the District of any claim
for special or consequential damages as a result of acts of the Company.
The District may recover only direct losses from the Company as a result
of the Company’s acts.
In addition, the Agreement provides for renegotiation after five years
if either party deems the Agreement to be grossly inequitable to it. This
renegotiation clause is available, of course, to both the District and the
Company. Binding arbitration is provided for if the parties cannot agree
to a new Agreement. Excluded from consideration as gross inequity would
be any adjustments to the Agreement as a result of a misestimate, errors
in calculation or changes in price levels of recovered products or the
development of alternative systems for processing solid waste.
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ANALYSIS OF THE SERVICE CONTRACT FOR
RESOURCE RECOVERY/SOLID WASTE MANAGEMENT
BETWEEN THE SOUTHERN ESSEX SOLID WASTE
DISPOSAL DISTRICT AND COMBUSTION EQUIP-
MENT ASSOCIATES, INC. ( DATED MARCH 1977)
Overview
This report presents a risk analysis of the proposed Service Contract
for Resource Recovery/Solid Waste Management between the Southern Essex
Solid Waste Disposal District (SESWDD) and Combustion Equipment Associates,
Inc. (CEA) dated March 1977. There are, in addition to this document,
other instruments including (1) the Memorandum of Understanding dated
March 22, 1977 between the Southern Essex Solid Waste Council and CEA;
(2) the Agreement between the City of Peabody and SESWDD for the site of
the landfill and the “facility”; and (3) the Act (as amended) of the
Commonwealth of Massachusetts (Chapter 770, Acts of 1975; and Chapter 420,
Acts of 1977), which established the SESWDD. The analysis presented here
consists solely of the Service Contract document between SESWDD and CEA.
Given below are certain selected factors whi h may impact the District,
with a more expanded analysis given in the following section of this
report.
• The District has responsibility for providing an
approved landfill site and for constructing the access
road to the landfill at its own cost.
• The Company may contract for quantities of solid
waste from private sources above its commitment
to the District. No time limitation is provided
for the duration of Company contracts with outside
parties.
• The District may recover only direct losses from the
Company as a result of the Company’s acts.
• The Agreement provides for renegotiation after five
years if either party deems the Agreement to be
grossly inequitable to it.
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ANALYSIS OF SERVICE CONTRACT
The following are comments on selected sections of the proposed
service contract for resource recovery/solid waste management between
the Southern Essex Solid Waste Disposal District and Combustion Equipment
Associates, Incorporated, dated March 1977.
ARTICLE 1
Section 101 Specific Definitions
“Consumer Price Index Adjustment” is a factor determined by the amount
that the consumer price index for Boston Metropolitan Area for the month
of November of each contract year, exceeds or is less than the consumer
price index for the month of November, 1977. This factor is used to adjust
the basic service fee to reflect changes In inflation for the Boston
Metropolitan area. Of course, the actual annual change may be greater or
less than the 5.5 percent per annum increase estimated by the Company.
ARTICLE II
Section 201 Responsibilities of Company and District
A.(l) Failure by the Company to complete the facility in thirty—six
months Is given to be a default, and the District shall have the option in
such an event of default to terminate the agreement. While delay in plant
availability could result in some additional expense to the District, the
alternative option available to the District to terminate the agreement
may be precluded by the time default becomes evident.
C. This subsection provides that street sweepings shall not be
mingled with other forms of municipal waste. Although the District has
the burden for segregation of Street sweepings, no penalties are provided
for failure to segregate the street sweepings. Under the Section 101
definition for “solid waste,” Street sweepings would be classified as a
Class I solid waste.
Section 202 Acceptance of Solid Waste
A. This subsection (and subsection 201 C) provide for minimum and
maximum quantities of municipal solid waste (MSW) to be guaranteed by
the District, and for the District to pay for the minimum, whether or
not delivered for processing. However, the District may deliver Class I
solid waste from sources other than member municipalities if necessary
to meet the minimum commitment.
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Section 206 Disposal Responsibility
B. Subsection B obligates the District for disposition of MSW in
excess of the maximum guaranteed quantity. In addition, this section
provides that Class II solid waste in excess of the twenty percent (20%)
limitation for inclusion in municipal solid waste classification, will
not be included in the credit against the minimum co nitment of the
District.
ARTICLE III DISPOSAL AND FACILITY SITES
Section 302 Scheduled Availability and Condition of Disposal
This section requires the District have a disposal site available and
approved as a sanitary landfill, or, the company may obtain an alternate
site and add the incremental costs to the tipping fee. Alternatively,
the Company has no obligation to build the facility if a disposal site
is not leased to the Company. Failure of the District to provide an
approved landfill could result in extra costs or possible cancellation of
the project.
Section 306 Limited Rights of the Company to Use the Disposal Site
Subsection 306 E provides for the District having the right to obtain
title to the solid waste if the company landfills more than forty percent
(40%) of all MSW delivered for specified periods. Care should be exercised
to ensure that the landfill site provided by the District will be adequate
for the life of the project. Landfilling large quantities of unconverted
municipal solid waste, besides being ecologically regressive, could pose
a threat of exhaustion of the landfill’s capacity.
Section 307 Restoration of the Disposal Site by the Company
The landfill restoration plan referred to as Exhibit E was not included
in the document analyzed.
Section 310 Responsibility of the District to Lease the Facility Site
The attachment F referenced to this section was not included in the
document analyzed. This section also makes the District responsible for
constructing the access roads to the landfill at the District’s expense.
ARTICLE V PAYMENTS
Section 501 Payments to the Company
This section provides for payment, for each billing period, of the
“total tipping fee.” The tipping fee is calculated subject to Section 202A,
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which provides for quarterly averages of MSW deliveries to be used. The
quarterly averages may be somewhat greater or lesser than actual quantities
of MSW delivered.
ARTICLE VI COVENANTS BY THE COMPANY
Section 602 Scale and Tests
This section provides for the company to determine the composition of
solid waste and the residue from the facility on at least an annual basis.
More frequent composition testing on a seasonal basis would presumably be
conducted when necessary.
ARTLCLE VII OTHER USERS, SEPARATION PROGRAMS AND OTHER MATTERS
Section 701 Other Users
This section permits the company to contract for solid waste quantities
above its commitment to the district. The district is given first option to
provide Class I waste to fill any available capacity above that which the
Company is otherwise committed to receive, although it is possible that the
Company could contract for waste such that no spare capacity would be
available to the District. No time limitation is provided for the duration
of Company contracts with outside parties.
Section 702 Competitive Facilities
This section requires the District to dispose of solid waste which
the Company has indicated it will not accept under this agreement. This
section also provides that acceptance by the company of solid waste from
the District which is municipal solid waste in one or more instances or
under one or more circumstances shall not constitute a waiver of such limit
or restriction and shall not in any way obligate the Company thereafter to
accept the solid waste which it otherwise would not accept.
ARTICLE IX INDEMNITY, WARRANTY AND DEFAULT
Section 901 Indemnification
Subsection A (ii) provides for a waiver by the District of any claim
for special or consequential damages. Under this section the District may
recover only direct losses from the Company as a result of its acts.
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ARTICLE X GROSS INEQUITIES
Section 1001 Gross Inequities
A. This subsection provides for renegotiation of the agreement after
five years if either party deems the agreement to be grossly inequitable
to it. This renegotiation clause is available, of course, to both the
District and the Company. The term “gross inequity” is not further defined
in this subsection.
B. This subsection provides for binding arbitration if the parties
cannot agree to a new Agreement pursuant to Subsection 1001A.
C. This subsection removes from consideration as a gross inequity, ad-
justments to the agreement as a result of misestimate, errors in calculation
or changes in price levels of recovered products or the development of
alternative systems for processing solid waste.
ARTICLE XII
Section 1202 Form of Consent
This section requires that all consents of any kind shall be in writing,
and when the District’s consent is required, such consent may be given by
the authorized representative of the District. The Agreement does not
indicate the input of the District members to the District Representative
prior to his acting in behalf of the District.
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• Contract Risk Analysis
N.E,S.W.C.—U,o.p. Project
The proposed Agreement between the Owner Trustee (acting for and on
behalf of the equity owners) and the contract communities, reflects a
negotiated apportionment of risk between the parties.
Under the proposed Agreement, the communities will have an unconditional
obligation to pay the base fee for the guaranteed annual tonnage quantity.
The requirement that the contract communities must pay the base fee
regardless of the circumstances is imposed to provide maximum security
primarily to the bondholders and, to a lesser extent, to the Owner Trustee.
Where shutdown can be determined to be the fault of a particular contract
conmiunity, that community would be required to pay the shortfall tonnage
payment for all guaranteed annual tonnage for all contract communities pro-
rated for the period of the shutdown, subject to offset by net proceeds of
business interruption insurance. The effect of the shortfall tonnage
payment falling upon one community could be substantial. Another offset to
the unconditional obligation of the communities to pay the base fee is that
the Owner Trustee has an obligation, in most cases, to pay the energy
guarantee sum to the communities.
The facility need only process acceptable waste (generally any
household discard), but the Owner Trustee has fairly broad powers to refuse
waste deemed by it to be unacceptable. The burden of proof on wrongful
refusal is on the customer, but if it is eventually determined that the
Owner Trustee is wrong in its refusal of the waste, then the Owner Trustee
will be required to reimburce the customer for all direct costs and expenses
incurred by the customer in hauling away and disposing of such wrongfully
refused acceptable waste.
The operating and maintenance cost component of the service fee is
based on a guaranteed value (O&M cost estimate as of March 1, 1975) subject
to adjustment for changes in the Boston Metropolitan Area consumer price
index. The O&M cost thus derived from adjustment of the 1975 value may be
greater or lesser than actual O&M costs for the plant operation.
The landfill for disposal of residue and for solid waste during shut-
down of the plant will be owned and operated by the state and not by the
Owner Trustee. The actual costs for landfill are passed on to the community
and may be higher or lower than the cost included in the operating and
maintenance charge.
The Agreement contains a disclaimer by the Owner Trustee and the
operator for special, consequential or indirect damages regardless of the
Owner Trustee’s actions. Recovery of damages by the contract communities
is limited to direct losses incurred by the communities themselves.
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The Agreement provides that an action approved by two—thirds majority
of the contract communities is binding on all contract communities.
One other aspect of the Agreement is that the contr ct community
representative is empowered to make administrative decisions which are
binding upon the contract communities. The contract communities have the
right in most cases to provide counsel and advice to the representative,
but it remains incumbent upon the contract communities to avail themselves
of this opportunity.
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ANALYSIS OF THE SOLID WASTE DISPOSAL AND RESOURCE
RECOVERY AGREEMENT FOR THE NORTHEASTERN MASSACHUSETTS
RESOURCE RECOVERY PROJECT AT NORTH ANDOVER, MASSACHUSETTS
Overview
The proposed Solid Waste Disposal and Resource Recovery Agreement to
be executed by the communities and by the Owner Trustee acting for and on
behalf of the equity owners is a lengthy document, reflecting to some extent
the large number of communities involved. From the communities’ viewpoint
certain facets of the proposed agreement merit special attention because
of their potential impact on the communities.
• The communities will have an unconditional obligation
to pay the base fee for the guaranteed annual tonnage
quantity. In most cases, however, the Owner Trustee
would have an obligation to pay the energy guarantee
sum to the communities.
• The Owner Trustee only has an obligation to accept
“acceptable waste” and has the right to refuse to
accept delivery of waste that it deems to be
unacceptable waste with the burden of proof on the
communities that the waste delivered was not acceptable
waste.
• The operating and maintenance charge is based on a
guaranteed figure subject to adjustment for changes
in the Boston Metropolitan Area consumer price index.
• The landfill for disposal of residue or solid waste
during shutdown of the plant will be owned and operated
by the State, and not by the Owner Trustee.
• Liability of the Owner Trustee is limited to direct
losses incurred by the communities themselves.
• All contract communities are bound by an action
approved by two—thirds majority of the contract
communities.
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ANALYSIS OF PROPOSED N.E.S. .C.-u.o.p. AGREEMENT
The following are comments on selected sections of the proposed Solid
Waste Disposal and Resource Recovery Agreement between the certain
communities of Northeastern Massachusetts and Southeastern New Hampshire
and the Owner Trustee (who will have an agreement with U.O.P. for construction
and operation of the facility) dated December 29, 1978.
Recitals
The first recital provides for source separation programs which have
been previously described to and approved by the Owner—Trustee as now in
being, or as may be developed in the future co—operatively with the Owner
Trustee. This is further clarified in Exhibit B (Source Separation) which
is part of this Agreement, and which provides that citizens of any contract
community can practice source separation without restriction for the
recovery and recycling of waste materials for the benefit of the contract
community or any charitable purpose.
The ninth recital indicates that tJ.O.P. (the contractor) provides the
guarantee which flows directly to all communities that are parties to the
Agreement, for the performance of the operator (pursuant to the operating
agreement between the Owner Trustee and the operator), of all the provisions
of the Agreement considered in this analysis. The complete guarantee is
given in Exhibit D, “Guarantee.”
SECTION I
Definitions
B. Types of Waste
1) Acceptable Waste. This subsection provides that all
household waste disposed of by the individual customer
shall be covered under the definition of Acceptable
Waste, including oil, paint, and other items that
would otherwise be proscribed, as long as their dis-
posal was by the individual customer. This subsection
also provides for branch and tree trunk sections to
be limited to specified lengths and diameters.
SECTION II Capacity and Operation and Maintenance of the Facility
13) Residue Disposal. The landfill will not be owned or
operated by the Owner Trustee. Under the Agreement
the landfill is to be made available to the Owner
Trustee by the contract communities or by the Common-
wealth of Massachusetts who are believed to be better
able to obtain the necessary approvals for a landfill.
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The actual costs for landfill are passed on to the
community and may be higher or lower than the costs
included in the operating and maintenance charge.
15) iii.Wrongfu]. Refusal. The Owner Trustee can refuse
acceptance of waste under four specific circumstances,
but the burden of proof on wrongful refusal is on
the customer. If it is eventually determined that the
Owner Trustee was wrong in its refusal of the waste,
then the Owner Trustee will be required to reimburse
the customer for all direct costs and expenses incurred
by the customer in hauling away and disposing of such
wrongfully refused acceptable waste.
12) Transfer Stations. Although the transfer stations are
not owned or operated by the Owner Trustee, the Owner
Trustee through the Agreement, has management
responsibilities and may require changes as to the
operation of the transfer stations.
SECTION III Resource Recovery
This Section provides for sale of electricity and for the recovery
and sale of ferrous metal and aluminum. A separate electric power purchase
agreement, to be approved by the communities also provides for the sale of
certain quantities of steam.
SECTION V Shutdowns
2) Payment on Shutdown.
a) Communities must pay the base fee where the shut-
down has been caused by some act of a private
hauler. The higher costs to the communities may
be offset by the net proceeds from business
interruption insurance. Also, in most cases, the
Owner Trustee has an obligation to pay the energy
guarantee sum to the communities and to proceed
against the private hauler for damages.
b) If the plant is shut down through customer fault,
that community would be required to pay the base
fee for the period of outage based on the
guaranteed annual tonnage prorated for the period
of shutdown plus the shortfall tonnage payment for
all guaranteed annual tonnage of all contract
communities prorated for the period of the shutdown;
subject to offset by net proceeds of business
interruption insurance. The effect of the shortfall
tonnage payment falling upon one community could be
substantial.
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c) This section provides that the base fee in the
shortfall tonnage payment is due from each
community unless it can show that it was not
responsible for the act or omission causing
the shutdown; said payments are subject to
offset by net business interruption insurance
proceeds.
d) Where the shutdown results from the fault of the
Operator or the Owner Trustee, the Owner Trustee
may, at its option and expense, require that the
contract communities landfill their waste. Under
these circumstances, the Owner Trustee can pass
the burden of waste disposal back onto the contract
conmiunities while requiring that the communities
continue to pay to the Owner Trustee the base fee
calculated as though the waste tonnage had been
delivered and accepted at the facility; subject
to liquidated damages to reimburse the conmiunities
that would, in turn, be subject to any offset from
net business interruption insurance proceeds.
SECTION VI Compensation and Revenue Sharing
The compensation methodology consists of a series of interrelated
equations, which provide maximum security primarily to the bond holder
and to a lesser extent to the Owner Trustee, since the contract communities
must pay the base fee regardless of the circumstances.
3) Adjusted Operating and Maintenance Costs. The
annual operating and maintenance cost component
of the service fee is based on a guaranteed value
of $3,700,510 as of March 1, 1975, adjusted by
the consumer price ratio of the current period
for the Boston Metropolitan Area divided by the
consumer price index for the Boston Metropolitan
Area as of March 1975. The O&M costs are based
on a predetermined value, and the actual O&M
costs may, in fact, be greater or lesser than
the adjusted value employed.
4) Guaranteed Tonnage. Subsection 4 iii (a), (b),
and (c) provides for liquidated damages where
the customer can prove that the Owner Trustee
did not act in good faith in maintenance of the
facility so that it could receive and process
acceptable waste. The burden in proving bad
faith under this subsection is on the communities.
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5) Change in Composition or Laws or Unforeseen
Circumstances. (i) The reference composition
given in Exhibit E “Waste Composition” may not,
in fact, be representative of the present waste
stream, because of the variability of waste
streams on a seasonal basis. The Exhibit E
reference Composition Is for use in estimating
potential energy and materials recovery. However,
it is possible that failure to meet the reference
composition, for acceptable waste as presented
in the Agreement, may not be as a result of
conditions arising from this section, but may be
inherent in the wide variation that can occur in
the composition of the solid waste as generated.
Subsection ii provides that the Owner Trustee
may increase the service fee if there are any
material increases in costs as a result of any
change in Federal, State, or local laws, rules
or regulations. No definition of what would be
a “material” cost increase is provided in this
section.
Subsection iii provides that the service fee
can be adjusted for any unforeseen circumstances
which would have a major effect in altering the
financial conditions upon which the Agreement was
based. An unforeseen circumstance shall not
include the consequences of errors of design,
construction or operation on the part of the
Owner Trustee (or UOP).
Subsection iv provides that the contract community
representative can agree to the adjustments sought
under Subsections 1, ii, and iii of Section 5, and
such agreement would be binding upon the contract
communities. This subsection also provides for
arbitration in the event that the contract community
representative and the Owner Trustee cannot agree
on the amount of adjustment, but in no event can
the base fee values A and B be reduced because the
fees they represent are required for the bond holder.
6) Time of Payment and/or Credit. Subsection 6(i),
service fee, provides that the Owner Trustee invoice
the customer in the middle of each month for the
services to be rendered for the full month. This
invoice is based on an estimate made by the Owner
Trustee of the services provided during the month of
billing.
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Subsection ii (adjusted operating and maintenance
cost billing) provides that at the end of each
fiscal year, the Owner Trustee will adjust the
operating and maintenance cost for the actual
consumer price index for the year of operation
from the March 1975 base.
7) Unconditional Obligation to Pay. This section
provides that the obligation of the customer to
pay the base fee is absolute and unconditional,
regardless of whether the facility is shutdown
or otherwise does not accept and process acceptable
waste. This section requires the contract
communities continue to pay the base fees, and,
if there is any dispute or counterclaim, recovery
of any overpayment would be a separate issue.
8) Recovery of Owner Trustee Costs. This section
provides that if the Owner Trustee makes any
alteration or addition at its own expense, which
increases the amount of recovered metals or
materials which were not previously recovered, the
marginal revenues obtained from the marginally
recovered materials or metals would be reserved
to the Owner Trustee until they had recovered
an amount equal to 120% of the cost to the Owner
Trustee of such alteration or addition. The
excess over 100% of cost recovery represents a
financing charge imposed by the Owner Trustee.
After the Owner—Trustee has recovered the 120% of
cost, the communities would share in the marginal
revenues received from such addition or alteration
on a 50—50 basis.
9) Independen: Audit. This section provides for an
audit of certain selected records and tickets of
the facilities operations. The communities have
the right to see all records in which they have an
interest, but all the books and records of the
Owner Trustee are not available for audit without
reserve. The communities may have the audit con-
ducted by a public accountant of their choice, at
the communities’ expense.
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SECTION VIII Indemnification
3) Limitation of Liability. This section contains
a disclaimer by the Owner Trustee and the
operator for special, consequential or indirect
damages regardless of the Owner Trustee’s actions.
Recovery of damages is limited to direct losses
incurred by the communities themselves.
SECTION X Insurance
1) Types of Insurance for the Owner Trustee.
Subparagraph iv, (property damage insurance)
provides that the proceeds of property damage
insurance shall be applied toward the repair
and rebuilding of the facility if the Owner
Trustee so elects, unless the contract cormnunities
and all interested parties shall otherwise
agree in writing.
4) Settlement of Claims. The settlement of claims
under an insurance policy by a customer or the
contract community representative is subject to
the Owner Trustee’s written consent to a proposed
settlement, which consent is not to be unreasonably
withheld.
SECTION XI Default and Termination
2) Events of Default by Owner Trustee. Subsection i(b)
provides that an event of default on the part of
the Owner Trustee shall abate if appropriate steps
to correct such default are taken within 60 days of
the date of written notice provided by the contract
communities to the Owner Trustee. Arbitration is
not provided in this subsection if there is any
dispute over whether or not the steps taken by the
Owner Trustee are reasonable in attempting to correct
such default matters.
SECTION XIV Miscellaneous
6) Action of Contract Communities. This section provides
that where action be taken by the contract communities,
that an action will be binding if approved by two—
thirds of the non—defaulting contract communities
which also represent two—thirds of the total guaran-
teed tonnage of all non—defaulting contract communi-
ties. Although a provision such as this may be
necessary in order to prevent one or two contract
communities from tying up the total project by their
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refusal to Support some action wanted by at
least two—thirds of the non—defaulting contract
communities it Should be recognized by each
contract community that they could be in the
minority and would, in effect, have to accept
decisions imposed upon them by a two—thirds
majority of the contract communities.
15) Condition Precedent. This Section provides that
if the guarante annual tonnage from all contract
Communities does not exceed 560,000 tons, the
Agreement shall be void and of no further effect.
As provided for in Subsection xiv (la), this
Agreement is also contingent upon the contract
Community representative ? 5 approval of the terms
of the financing, the terms of the resource recovery
Construction agreement, the terms of the operating
agreement, the terms of the electric generating
construction agreement, and the terms of the
performance trial agreement.
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VII. LANDFILL SITUATION IN THE BOSTON NORTHSHORE AREA
The primary purpose of EPA’s technical assistance effort has been to
define the risks and potential costs associated with three proposed re-
source recovery projects. In order to properly evaluate the acceptability
of these risks and costs, it is important that local communities also
analyze the risks and costs associated with the existing and future re-
liance on land disposal as a primary solid waste management option.
All resource recovery projects will require the land disposal of
some wastes and residues; therefore, the decision with respect to resource
recovery versus landfilllng is not a decision of whether or not to use
the land for disposal, but rather a decision as to the extent to which
it will be utilized.
• Status of Solid Waste Management
Facilities in Northeastern Massachusetts
The risks and potential costs of the continued operation of existing
facilities are a function of the location of the sites and the resultant
potential for adverse environmental impacts and the regulatory status of
the sites. The following status report on existing sites in Northeastern
Massachusetts is based on discussions with the Massachusetts Department
of Environmental Quality Engineering (DEQE) held during March of 1979.
A total of 47 towns, including the ten client communities which re-
quested technical assistance from EPA, have been considered in this re-
view. Thirty—one of these towns dispose of their solid wastes within
their borders, while the rest send their wastes out of town for disposal.
There are also 31 land disposal facilities in the region, 87 percent of
which are publicly owned. As of March, 1979, only four (13 percent) of
the land disposal facilities in the region are in compliance with the
State’s solid waste disposal regulations.
Twelve non—complying land disposal facilities in the Northeastern
Massachusetts area have been referred to the Attorney General’s office
for court action to require upgrading or closure. Twenty—seven of the
31 (87 percent) land disposal facilities may pose threats to surface
water quality by virtue of being located in or adjacent to wetlands.
Four sites may be adversely affecting current water supplies, while an-
other site has contaminated and forced the closure of several private
water supply wells in one city. In the past year, three court decisions
have resulted in fines of $30,000 for the Town of Manchester and $25,000
each for the cities of Lowell and Peabody.
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GORDIAN ASSOCIATES INCORPORATED
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Methane gas generation and build—up problems have been encountered
at four landfills in Northeastern Massachusetts. A closed land disposal
facility in this region is generating significant amounts of methane, and
gas control measures costing over two million dollars have been employed
to protect nearby residences. it is probable that methane gas generation
problems exist at other landfills in this region.
In the ten client cotxmiunitjes, four are transferring their wastes
out of town for disposal while the remaining six are disposing of their
waste at landfills in town. None of the six in—town landfills are satis-
fying current state solid waste regulations. Specifically, five of the
six are located in or adjacent to wetlands and one poses a threat to a
current water supply. One of the six facilities is known to have a
methane gas generation problem.
• Factors Affecting the Viability of Land Disposal
as a Long—Term Solid Waste Management Solution
The potential costs and risks associated with the continued use of
existing sites or the establishment of new sites are a function of tech-
nical constraints (e.g., soils, hydrogeo].ogy), political and social con-
siderations (e.g., site assignment provisions), and regulatory require-
ments (e.g., site design and operational parameters).
Northeastern Massachusetts is an area of poorly drained lowlands,
many underlain by glacial deposits of sand and gravel, and hills of bed-
rock and glacial till. Large supplies of groundwater may be obtained
from the sand and gravel deposits which are usually less than 50 feet
thick, but may be as much as 200 feet thick. Relatively small supplies
of groundwater are obtained from the bedrock and till deposits found in
this area.
Precipitation in this region averages nearly 43 inches per year.
This precipitation is distributed fairly evenly throughout the year and
is the primary source of the region’s water. Of the total precipitation,
about 21 inches is transpired by plants or lost to evaporation. The re-
maining 22 inches runs off to surface streams and/or infiltrates to the
groundwater and eventually discharges to surface waters. This excess
precipitation virtually guarantees the production of leachate at land-
fills located in Massachusetts. Leachate is produced when water perco-
lates through solid wastes, carrying away with it dissolved and suspended
contaminants. Leachate mixing with groundwater may render it useless for
drinking water purposes.
Unlike surface water, where velocities are measured in feet per min-
ute, groundwater moves extremely slowly. The movement Is usually measured
in feet or tens of feet per year. Therefore, once contaminated, it may
take a hundred years or more for aquifers (groundwater reservoirs) to
purge themselves of contaminants.
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GORDIA ASSOCIATES INCORPORATED
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Landfills located over sand and gravel deposits pose the greatest
threat of groundwater contamination. Leachate, when produced, can move
over relatively long distances in these materials. These deposits, as
previously stated, are capable of producing significant amounts of ground-
water for water supplies. If landfills are located in these deposits,
expensive precautions such as the installation of liners, leachate col-
lection systems, etc. may be required.
The tills of Northeastern Massachusetts are relatively impermeable
(do not allow groundwater or gas to move through very easily) and are
generally suitable for landfilling if they are of sufficient thickness
and do not have high water tables. The impermeability of the tills
usually requires the use of gas control measures (venting, etc.) to pre-
vent the buildup of decomposition gases (methane) to explosive limits in
the soil or nearby structures.
Wetlands make up a significant portion of this region’s surface area,
particularly in the coastal regions. Federal and State regulations pro-
hibit the disposal of solid waste into these areas.
In addition to the hydro eologic constraints discussed above, there
are political and social constraints to the siting of land disposal facil-
ities. Massachusetts is unique in that Chapter III, Section 150A of the
Massachusetts General Law requires that land disposal sites be assigned
by the local Board of Health. This subjects the landfill siting process
to strong local political and social pressure. In effect, local oppo-
sition can halt the location of even the most environmentally acceptable
land disposal facility. In this particular area, many conunities nave
experienced serious problems in the location of new landfill sites as
their existing facilities reach capacity. In the last five years, only
one new land disposal facility has been located in this region. Only
four new facilities have been located here in the past ten years.
Once a site has been assigned by the local Board of Health, a site
investigation must be undertaken. The data generated by this investiga-
tion, along with plans and specifications for landfill design and opera-
tion, must be submitted to the Massachusetts DEQE for review and approval.
If the facility exceeds 25 acres or will receive 250 acre feet of solid
waste, an environmental impact report is also required. In addition,
before any solid waste can be received at the facility, all preliminary
engineering and site preparation must be completed. It can take from
two to five years (including budget appropriation at town meetings) to
complete the above process; three years is co on if an environmental
impact report is not required. It is estimated that it costs from $50,000
to more than $200,000 to do this work, depending on site size, data re-
quirements, and existing conditions.
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C.ORDIAN ASSOCIATES INCORPORATED
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• Future Impact of Federal/State
Regulations on Land Disposal
In the near future, the Resource Conservation and Recovery Act will
begin to have an impact on the costs and legal risks associated with op-
erating land disposal sites. The Resource Conservation and Recovery Act
of 1976 (PL 94—580) required the Environmental Protection Agency to develop
criteria for sanitary landfills. These criteria were to provide minimum
standards for determining which disposal facilities pose no reasonable
probability of adverse effect on health or the environment. On February
6, 1978 the Criteria for the Classification of Solid Waste Disposal Facil-
ities were proposed in the Federal Register . It is expected that these
criteria will be finalized and promulgated by the end of July 1979.
Although the “Criteria” are not Federally enforceable, states will
be required to upgrade their solid waste regulations to satisfy the re-
quirements of the Criteria. The Federal law also requires EPA to conduct
an “Open Dump Inventory.” During this inventory, all solid waste disposal
facilities will be evaluated with the Criteria. Those not satisfying the
minimum standards will be classified as “Open Dumps” and required to up-
grade or close within a five year period. The inventory will be based on
state solid waste regulations if they are compatible with the Federal
Criteria.
Section 7002 of the Federal Law allows citizens to bring suit in
Federal Court against any person, company or agency which violates any
standard or regulation promulgated under the Act. This provision may in-
crease the legal liability which non—complying sites may face in the
future.
The Massachusetts Department of Environmental Quality Engineering has
estimated that it currently costs between $8 to $10 per ton to landfill
solid waste in Northeastern Massachusetts in accordance with existing
state standards. The proposed Federal Criteria for the land disposal of
solid waste contain several provisions which may increase the costs asso—
cisted with operating existing sites.
EPA Region I has attempted to develop an estimate of the potential
economic impacts of the proposed Federal Criteria on the cost of operating
existing landfills in Northeastern Massachusetts by examining available
site data and upgrading cost factors. EPA met with the staff of the DEQE
to obtain a general overview of existing sites. The following generalized
information was obtained from the DEQE and available data in environmental
impact statements and engineering reports: regulatory status of sites,
physical makeup of sites (e.g., soils, size of sites, tonnage received)
and the locations with respect to surface water, groundwater, wetlands,
and water supplies.
145
GORDIAN ASSOCIATES INCORPORATED
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An estimate of the average landfill costs for continued operation of
existing sites in accordance with the proposed Federal Criteria was pre-
pared by applying the potentially applicable upgrading technology cost
factors to existing site conditions. The costs included in this analysis
generally reflect the additional costs associated with diking to control
surface discharges, gas monitoring arid control, leachate treatment and
collection, and groundwater monitoring.
The upgrading technology cost factors utilized in the analysis were
taken from a report developed by Fred C.Hart Associates Inc., for EPA
Washington, entitled “Vol. II Analysis of Technology, Prevalance, and
Economics of Landfill Disposal of Solid Waste in the U.S., February,
1979.”
The results of the analysis suggest that Federal Criteria may cause
the average cost of landfilling at existing sites in Northeastern Massa-
chusetts to increase an average of 60 percent above the costs associated
with meeting existing state standards. Based on an assumed average cost
of complying with state standards of $8 to $10 per ton, the costs of
meeting the Federal Criteria at existing sites in Northeastern Massachu-
setts may be on the order of $14 to $16 per ton.
146
GORDIAN ASSOCIATES INCORPORATED
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v ii i. NEXT STEPS FOR COMMU1 ITIES
Reliance on the private sector for the design, construction, and
operation of resource recovery facilities by necessity involves the de—
velopment of relatively complex, long—term contractual arrangements.
Local communities cannot expect to become familiar with the projects and
confident in the contractual arrangements without expending a reasonable
amount of time and effort in analyzing each contract. EPA believes that
time and effort involved in the development of these unique public/pri-
vate partnerships yields significant benefits in terms of the efficiency
of project design and operation.
The ultimate usefulness of EPA’s technical assistance efforts depends
directly on the willingness of the local communities to utilize the infor-
mation presented as a tool in the decision making process. EPA’s tech-
nical assistance panels program represents the first time that Congress
has mandated that a Federal regulatory agency spend a fixed percentage of
its budget (20 percent) on assisting state and local governments in im-
plementing solutions to environmental problems as opposed to only focusing
on the regulatory process.
The North Shore Technical Assistance effort represents a unique test
of the viability of the Panels Program. It is an attempt to assist local
communities in developing solutions to an environmental problem prior to
implementation of the regulatory program which will ultimately increase
the costs associated with the improper land disposal of solid waste. It
is, therefore, extremely important that the North Shore communities now
take the following steps:
— Review information in the report and analyze contracts
carefully to develop a good understanding of each pro-
ject. Request further information or clarification
from project vendors regarding project development,
status, or other project areas which you find unclear
or unresolved at this time.
— Carefully consider the impact of your decisions on the
ability of a project to “go ahead,” and how the deci-
sion will affect your community and other communities.
— Assess the waste types and waste quantities (include
seasonal) generated in your community and consider
future community growth or changes which may affect
this waste. Understand as best as possible the waste
sources and quantities you would be offering as a min-
imum guarantee.
147
GORDLAd.J ASSOCIATES INCQRPORj TED
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— D0rztt be swayed in decision making by a particular conmiunity
or other party, but objectively evaluate each project on its
merits and whether it serves your particular needs and addres-
ses local circumstances, Be certain to consider your future
needs and conditions.
— Make a sound, objective decision at the h1979tt Spring Town
Meetings! Remember that delay is expensive. Delay can only
escalate project costs or force projects out of existence,
sacrificing the significant resource recovery benefits and
the ultimate cost savings which accrue to you and the other
North Shore communities.
148
GORDL u .J ASSOCIATES INCORPOI ATED
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CRITIQUE OF EPA - GORDIAN FINAL REPORT
TITAN COMMENTS
The Report contains omissions, misleading statements and errors which
result in significant distortion of the real facts and issues. Whether
such distortion was intentional or not is unimportant, although a re-
view of the record will reflect at almost every step of the exercise
that Titan officials brought these matters to the attention of EPA and
Cordian. Titan considered this exercise a very serious undertaking
from the outset and has spent much time cooperating with EPA and
Gordian in the assimilation and delivery of Bayside information and
reviewing and evaluating all EPA/Gordian material. It would be diffi-
cult to conclude that this Report should be used as a “tool” by local
decision makers for the benefit of each community. Even the format of
the Report has fallen short — much significant information has been
buried and could only be discovered by a thorough reading and study of
the Report and the source data (Contracts, etc.) upon which it was based.
A commitment by any community to a long—term solid waste disposal
program is a very serious matter. The programs offered should be
studied in depth and decisions carefully weighed. Speculation, partic-
ularly on matters having potentially serious economic consequences,
should be avoided if at all possible and, in any event, kept to a bare
minimum. Titan has frequently emphasized the serious nature of these
undertakings and has urged each community to study thoroughly all docu-
ments and weigh carefully all decisions.
As a company seriously committed to resource recovery and desirous of
assisting communities in aleviating the solid waste problem on a sound
economical and environmental basis, it is surprising and discomforting
to find the federal government and its technical experts presenting to
the public a Report specifically labelled as a decision—making “tool,”
which is so deficient and misleading and then urging this same public
audience (those who will have to foot all the bills for the next twenty
odd years or so) to make a quick decision — i.e. act at the 1979 spring
town meetings (some of which have already been held). There is no way,
in the next four to six weeks, that community representatives can study
in depth the documents associated with all alternatives and evaluate
seriously all issues and the adverse consequences of the election of
each option available unless there is a dedicated full—time effort of
qualified personnel.
Failure to mention the grant program to the Commonwealth of Massachusetts
is a serious omission. Money has gone both directly and indirectly to
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
TITAN CO il,fENTS
NESWC, and EPA has supported by public statements the proposed project.
The Executive Summary , which should have In capsular fashion addressed
or high—lighted the most significant topics or issues, reviewed an
inmaterial and irrelavent history and otherwise treated superficially
rather unimportant issues. The Executive Summary should have boldly
set forth, right up—front, EPA’s financial and public support for the
NESWC Project and that an application for significant further funding
is currently pending with the likelihood such funding will be made
available. This sort of information should have been brought out —
at EPA’s Initiative — to all when communities and vendors first be-
came involved with this undertaking. Titan, In fact, had to resort
to demand under the Freedom of Information Act to truly understand
the nature and extent of EPA’s involveme it in the State’s solid waste
planning efforts.
The Executive Summary should have included much of what was said, in
highlight fashion, in the final section of the Report , with one signi-
ficant difference. EPA should have recognized (as EPA knows) the In-
consistency and incompatibility of its recommendations, to on the one
hand study and weigh carefully all input information and decisions
while on the other hand making a project decision at the 1979 spring
town meetings — all of which will be conducted prior to the end of
May or about one month following the presentation of this Report on
April 17, 1979. In fact, more than one—half of the client communities
will have concluded regular town meeting business prior to or at about
the same time as the presentation of this Report ! What sort of sound
advice is this? Communities want sincere and honest assistance and
guidance. A stampede Is not warranted and probably such a suggestion
by EPA won’t be appreciated.
The Executive Summary and the Report should have addressed and emphasized
the nature of the differences In the contractural relationships between
the communities and project alternatives.
Bayside
• Direct community relationship with Project operator.
• Limited group decision exposure (C.486 of Acts 1978 —
Bayside Council — each community has one vote)
• No limit as to amount of Acceptable Waste which operator
must accept.
• Minimum tonnage subscription to initiate project set at
88% of Facility capacity (160,000/182,500).
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA - CORDIAN FINAL REPORT
TITAN COMMENTS
• Special legislation and Council operate to maximize
utility of Facility capacity.
• A number of situations where communities may terminate
Agreement.
• Communities pay no Service Fees if operator fails to
accept and dispose of Acceptable Waste.
NESWC
• Community/Facility operator contract.
• Community/Facility operator relationship subject to
Actions of State re site and landfills
Actions of Community Representative (State) —
may make binding decisions.
Actions of two—thirds majority of participating
communities (tonnage weighted basis)
• Amount of waste which Facility operator must accept
limited (Facility capacity).
• Minimum tonnage subscription to initiate project set at
60% of Facility capacity (1800/300).
• Facility operator under no obligation to subscribe
additional tonnage (private or municipal).
• Termination by community of its obligation prohibited.
Can terminate UOP but only with substitute operator.
• Payment of Service Fees absolute and unconditional
regardless of circumstances.
SESWC
• No direct community/Facility operator contracts.
• Community’s costs and risk exposure governed by actions
of District (tonnage weighted basis).
District responsible for landfill and facility
site.
District to finance by General Obligation Bond.
• Amount of waste which Facility operator must accept is
limited.
• Minimum tonnage subscription to initiate project set at
69% of Facility capacity (275,000/400,000).
• Facility operator under no obligation to subscribe addi-
tional tonnage.
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA - GORDIAN FINAL REPORT
TITAN COMMENTS
• Community cannot terminate, “locked” into District and
payment of General Obligation Bond debt service —
District termination limited to failure of Facility
operator to build plant.
• Community’s obligation to pay District absolute and un-
conditional — District escapes payment to Facility
operator if operator fails to accept waste but District
must dispose of waste.
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
SUMMARY CRITIQUE
Titan’s conunents on the draft report (and on the final report) have
resulted in correction of many of the errors and some of the more
obvious bias, but this final report is, in our view, by both omission
and conunission, grossly misleading. The basis for this assertion is
highlighted below and supported in detail in our critique.
• Presentation of NESWC economics are misleading.
1. NESWC economics are heavily transportation dependent.
While other costs and credits for all projects have
some level of contractor commitment, transportation costs
are nothing more than estimates, and when projected to
2002, they have no validity whatsoever.
Actual transportation costs will be known only in the
future after a community has made a commitment to join
the project and, whatever those costs are, shared or
otherwise, they will be borne by member communities.
Nowhere does the report alert the decision—maker to
this crucial fact.
2. NESWC economics are based on 1800 T/D of contract tonnage
plus two levels of private haul tonnage, for which there
are no commitments. Nowhere does the report make this
clear nor does it state the service fee exposure of member
communities if this private haul tonnage does not materialize
to the degree herein assumed. On page 108, the report states
that the NESWC operator “ will secure long—term and spot com-
mitments from private haulers.” The NESWC Service Agree-
ment (Section II, paragraph 17), however, says only “The
Company enter into any arrangement or agreement with
Private Haulers “ This is cavalier, If not mislead-
ing treatment of a crucial point, especially since Gordian
claims to have gone to some length to qualify and/or verify
all other credits claimed by all three projects. The im-
pact of this private tonnage credit on the NESWC economics
ranges from $4 to $16/ton.
• There are two basic flaws in Gordian’s calculation of NESWC’s shared
transportation costs. The first is an error in the calculations
which Includes private haul tonnage in calculation of shared costs.
The resulting Cases A and B for share transport costs do not, in
fact, exist. The second flaw is the assumption that transportation
costs, calculated on the basis of full capacity participation at
922,000 tons per year, are applicable to only 558,000 member tons/yr
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
SUMMARY CRITIQUE
which is the tonnage Gordian assumed. The transportation costs
for each community, calculated in Titan’s detailed transportation
report, range from $3.05 to $20.54. The actual shared cost per
ton at 558,000 T/Y will depend on which communities supply that
tonnage. This actual shared cost per ton could be somewhat lower
than the $8.80 calculated by Cordian or it could be prohibitively
higher.
o Gordian’s transportation analysis of BAYSIDE also has one basic
fault. It assumes that all deliveries will be by 3—man packer—
haul when, in fact, all communities are, or are planning to, de-
liver waste by private hauler with 1—man crew. This reduces haul
cost from $0.329/ton—minute to $0.17/ton—minute and cuts weighted
average delivery costs from $5.00/ton (excluding Lynn) to $2.93/ton.
o Beyond the 1982—1988 period, Gordian’s economic comparison has
no validity whatsoever, if for no other reason than its inconsis—
tant treatment of escalation of transportation costs. Only one
escalation Scenario was used, that being at a rate of 8%/year. For
other costs a moderate and a high escalation rate were considered
and Gordian determined that Titan’s Vehicle Cost Index (reflecting
transportation related costs) would escalate at 7.5% (vs 6% for
the CPI) and 9% (vs 8% for the CPI). Gordian should, therefore,
have used 7.5% and 9% in their transport analysis. Had this been
done NESWC’s cost projection for the year 2000 would have been at
least $15/ton higher. The BAYSIDE cost increase would have been
considerably less, more so if the cost estimates had been correct
and had reflected one—man crews for packer hauls.
o Titan believes that assumptions made by Gordian concerning the
projection of relative trends of the Consumer Price Index and
the Employment Cost Index are invalid. These assumptions have a
negative impact on the Bayside Economics and furthermore, if
Gordian’s assumptions are correct, it is highly likely that the
contractors for the other projects will, at sometime in the future,
be forced to request renegotiations of their agreements, as they
are entitled to under a “Change of Circumstances” provision or
“Gross Inequities” clause.
o A careful study of the Cost Summary reveals that the cost ranges
from 1979 through 1982 and on to 1988 do not reflect a significant
difference in service fees between the three projects. The Report
should have clearly warned the reader that projected cost differ-
ences in the years beyond 1988 have no real meaning and that cost
projections beyond 1988, or even 1982, should be discounted heavily
in any decision—making process.
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
SUMMARY CRITIQUE
o Cordjan chose not to accept changes in text suggested by Titan,
which changes would have provided clarification or minimized
misunderstanding. This is disturbing since most of the suggested
changes reflect fact not opinion and were supplied before March
15.
o The section by section analyses of Sach of the Service Agreements
contained in Section VI of the Repo t are objective and factual.
Decision—makers are urged to study them . By contrast, the over-
views of these analyses and much of the discussion and comparison
elsewhere in the report and in this summary tend to be super-
ficial and fail, in many instances, to focus on the critical issues.
Certain aspects of the Bayside Project or its Service Agreement are
focused upon in a negative vein when almost identical aspects of
the NESWC Project or its Service Agreement are ignored. A number
of extremely important risk aspects are reflected in the detailed
analysis but are not commented upon or compared elsewhere in the
report. Our critique contains such a detailed comparison which
may be summarized as follows:
BAYS IDE
Direct community relationship with Project operator.
Limited group decision exposure (C. 486 of Acts 1978
Bayside Council — each community has one vote)
No limit as to amount of Acceptable Waste which operator
must accept.
A number of situations where communities may terminate
Agreement
Communities pay no Service Fees if operator fails to
accept and dispose of Acceptable Waste
Approved capital investment by Titan recovered
through increased service fee (Capital Infusion).
NESWC
.. Community/Facility operator contract
Community/Facility operator relationship subject to
— Actions of State re site and landfills
TITAN ENVIRONMENTAL SERVICES —
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
SU1 1ARY CRITIQUE
NESWC (cont’d)
— Actions of Community Representative (State) —
may make binding decisions
— Actions of two—thirds majority of participating
communities (tonnage weighted basis)
Amount of waste which Facility operator must accept
limited (Facility capacity)
Facility operator under no obligation to subscribe
additional tonnage (private or municipal)
Termination of communities’ obligations prohibited — can
terminate UOP, but must have substitute operator
Payment of Service Fees absolute and unconditional re-
gardless of circumstances.
Capital investment by UOP recovered through increased
service fee.
SESWC
No direct Community/Facility operator contracts
Community’s costs and risk exposure governed by actions
of District (tonnage weighted basis)
— District responsible for landfill and facility
site
— District to finance by General Obligation Bond
Amount of waste which Facility operator must accept
is limited
Community cannot terminate, “locked” into District and pay-
ment of General Obligation Bond debt service — District term-
ination limited to failure of Facility operator to build plant.
Community’s obligation to pay District absolute and uncondi-
tional. District escapes payment to Facility operator if
operator fails to accept waste but District must dispose of
waste.
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA - CORDIAN FINAL REPORT
II — PROJECT CHARACTERIZATION
This section of the report is the material presented as Phase I of the
study. Its inclusion, without any updating or revision, as the intro-
duction to the Final Report, will lead to considerable confusion. In
light of the results of the Phase II work, it is obvious that some of this
material is superficial or, even worse, inaccurate, and some of it is in-
consistent with the Phase II work product. The average reader will not
recognize the difference and will be mislead.
We have asked that some of the more glaring inaccuracies be corrected be-
fore the Report is issued. These are:
1. Page 18
a) Fuel costs are not added to gross disposal costs, they are
deducted from revenues.
b) The description of excess tonnage is inaccurate.
2. Page 21
NESWC’s contract with Massachusetts Electric has no “floor” price
provision and its status is the same as Bayside’s contract with
Massachusetts Electric — “negotiating — awaiting new draft from
Massachusetts Electric.”
3. Page 25
The Bayside Service Agreement with the communities only becomes
effective when the facility passes a performance test. The “NO”
answer to the question of conmiunities acceptance of the plant prior
to successful performance test is wrong.
4. Page 29
NESWC has not yet acquired any landfiLl site.
5. Page 16
a) Item 9 . — We have pointed out that the missuse of the word
‘redundancy.” In this context it means “spare facilities”
or, “installed equipment not normally needed.” While the
NESWC and SESWC projects may have more than one line, they
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CRITIQUE OF EPA — CORDIAN FINAL REPORT
II — PROJECT CHARACTERIZATION
5. Page 16
a) Item 9 . (cont’d)
do not have redundant lines. And NESWC plans to use all of
its capacity to work off downtime tonnage and to maximize
peaking in power production.
b) Item 7(c ) — IJOP is not guara iteeing plant availability.
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
III. ECONOMIC ANALYSIS
1. Cost Indexes
Unlike the NESWC and SESWC projects, Titan’s Service Agreement provides
for annual adjustment of O&M cost on the basis of a weighted mix of
four indexes, only one of which is the CPI (Consumer Price Index).
Labor represents 50% of our estimated costs and we propose to adjust
the labor fraction of O&M by means of the ECI (Employment Cost Index).
The other two are indexes which will apply to vehicle owning and
operating costs, and to maintenance costs (principally parts and equip-
ment).
While we conceed that the vehicle and maintenance indexes may be higher
than the CPI by one to two percentage points, we cannot accept Gordian’s
contention that the Employment Cost Index will, over the long term, be
consistently higher than the CPI.
The result of these assumptions and particularly that relating to the
Ed, is that Gordian’s economic comparison of the three projects re-
flects a higher rate of increase in 06CM costs for Bayside than for
the 06CM cost of NESWC and for the Service Fee of SESWC. These aggre-
gate increases, from 1979 through 2002, for the three projects are as
follows:
Aggregate Increase 1979—2002
NESWC SESWC BAYSIDE
Moderate Inflation Scenario 382% 382% 444%
High Inflation Scenario 587% 587% 678%
This reflects adversely and significantly on projected Bayside Disposal
Fees particularly in later years. Much of this difference relates to
Gordian’s assumption relative to the increase in the ECI vs. CPI.
The ECI is an index that was first published by the Bureau of Labor
Statistics in September 1975. The geographic, labor and industry
category sub—indexes are, at the present time, somewhat limited.
These, as well as some of the employment costs included in the index
(notably fringe benefits), are being expanded and will be further ex-
panded sometime in the future.
The ECI has been structured by the BLS specifically to measure the
rate of increase in the total cost of a unit (hour) of labor.
Since its initial publication in September 1975, the ECI and its sub—
indexes have reflected a somewhat steady increase at an annual rate
of 6.7% to 8% depending on labor category and geographic region.
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
III . ECONOMIC ANALYSIS
1. Cost Indexes — (Cont’d)
During the same time period the CPI annual rate of increase for the
Boston area and for the New York Metropolitan Area was in the 5—6%
range.
On this limited data base Gordian determined that the ECI would
increase at a rate at least 1% above the increase in the CPI.
We challenged this conclusion principally on the basis that the time
frame used for the comparison was too short, even more so because
the CPI fluctuates quite widely over relatively short intervals of
time and the particular time frame chosen reflected a low rate of
CPI increase. The ECI on the other hand can be expected to, and
does in fact, reflect a relatively stable rate of increase.
Further examination of the CPI over a broader time frame, 1973 to
1978, indicates that it has in fact increased at an annual rate of
mare than 7%.
The following table presents this data and supports our contention
that for the purposes of this analysis a fair assumption would be
the same rate of increase for both ECI and CPI. In fact, the latest
CPI figures, not reflected here, add further support to our argument.
In the last analysis, the CPI reflects the costs of a mix of goods
and services and these costs must reflect the costs of labor and dis-
tribution which make up the major portion of the total cost.
CPI DATE (ANNUAL AVERAGE )
Annual
1973 1974 1975 1976 1977 1978 Average
Boston
CPI 134.7 148.7 162.1 174.6 183.4 192.7
% Increase 10.39 9.01 7.71 5.04 5.07 7.42
New York
CPI 139.7 154.8 166.6 176.3 185.5 195.4
% Increase 10.81 7.62 5.82 5.22 5.34 6.94
U.S. Avg.
CPI 133.1 147.7 161.2 170.5 181.5 195.3
% Increase 10.97 9.14 5.77 6.45 7.60 7.97
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
III. ECONOMIC ANALYSIS
1. Cost Indexes — (Cont’d)
ECI DATA
Annual Average
Sept. 1975 — Dec. 1978 — Increase
All Workers 7.32%
Manufacturing — Nationwide 7.92%
Northeast 6.68%
In this final report Gordian has presented a new (to us) and “after
the fact” argument to support their initial assumption. Their argu-
ment, which is poorly explained because neither the CPI nor the Ed,
in any direct way, measure “productivity”, is based on the assump-
tion that there will be a continuing increase in labor productivity
and because of this increase in productivity the labor content of
those costs which make up the CPI will, on a proportionate basis,
decline. On a purely hypothetical and theoretical plane this may
be true but relative changes in any of a number of other costs
(particularly energy) as well as deliberate changes in government
policy can and do have a marked impact on the CPI both in the short
term and the long term. These will undoubtedly overshadow any “pro-
ductivity” impact.
In the light of the many other assumptions that have been made in
this economic analysis, many of them on an understandably arbitrary
basis, this particular assumption, recognizing its significant nega-
tive impact on the Bayside economics, is without justification.
We would further suggest that if Gordian is correct and labor costs
do in fact escalate at 1% above the CPI then it is obvious that the
NESWC and SESWC contract operators will find their actual costs ex-
ceeding the reimbursement they receive. In the case of NESWC, a
rise of 7% per year in labor costs, as opposed to a 6% increase in
the CPI, will in 20 years result in annual uncompensated costs of be-
tween $1 and $2 million.
Since all service agreements have “change of circumstance” or “gross
inequity” provisions, it can be assumed that if an inequity of this
magnitude were to occur the contractor would seek relief. Therefore,
the differences in O&M cost Increase predicted by Gordian cannot be
considered as valid.
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
III. ECONOMIC ANALYSIS
2. Titan’s “Old” and “New” Escalation Formula
In revising Gordian’s second draft of this report, Titan discovered
an error in the escalation formula in its Service Agreement. The
escalation formula did not reflect either the language of intent of
the Service Agreement. Titan brought this to the attention of Gordian
and EPA who were unwilling to accept any “change” in the Service
Agreement. This commenced a “cause celebre.”
After a meeting between Titan, Gordian, EPA and community representa-
tives, and a second meeting of all eleven community representatives,
Gordian was directed to use the “new” escalation formula providing
they also showed the analysis using the “old” formula. It serves no
other purpose than to confuse the issue.
The directive from the communities asked that the projected service
fees arrived at by means of the initial (erroneous) formula be in-
cluded in the “main body of the report.” Gordian went further in-
cluding it in the comparative cost sunmiary in the Executive Summary,
thereby further confusing the issue to Titan’s detriment.
3. Energy Values
While all other costs have increased steadily since 1976, the cost
of oil, and to some extent the NEPCO’g incremental fuel cost, have
been relatively stable. In fact, during 1978, they declined signifi-
cantly.
Because the price to be paid for energy delivered to USM from the
Bayside Project is tied directly to the delivered price of oil in
Beverly and since the revenues derived from USM represent about one—
half of the energy revenues, the Bayside Project economics have been,
until recently, somewhat adversely impacted since 1976.
NEPCO’s incremental fuel cost, which is the basis for payments to both
Bayside and NESWC for electric power, is not as directly affected by
oil costs. It is dependent on NEPCO’s average load, availability of
hydropower, and the mix of fossil based and nuclear based power genera-
tion. Conversion of NEPCO’s Brayden Point unit to coal in the near
future will further dilute the direct impact of oil prices.
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CRITIQUE OF EPA - GORDIA.N FINAL REPORT
3. Energy Values (Cont’d)
III. ECONOMIC ANALYSIS
Consequently, the Bayside Project economics are, and will continue to
be, more directly related to oil prices than are the economics c f NESWC.
In early December, when the basic assumptions to be used by Cordian
were agreed upon, a price of $12.70 per barrel for oil was reasonable,
even though this was approximately the prevailing price two years ago.
The dramatic price increase, which occurred early in March, to $15.5O/bbl,
was not only a reflection of the Iranian crisis, but also of OPEC price
increases after a period of oversupply during which oil prices did not
keep pace with other price increases. All indications are that there
will be further significant increases in oil price during thi$ year,
Starting a 23 year economic project with a base oil
VS a price of $12.70 has a marked impact on the net
latter years for all three projects but more so for
or SESWC. This is a further reason for discounting
of Gordian’s projections beyond the 1982 — 1988 period.
4. NESWC O&M and Bond & Insurance Cost
price of $l5.50/bbl
disposal cost in
Bayside than NESWC
the validity of any
We have advised Gordian of an apparent error in the computation of
NESWC—UOP O&M Costs and Bond & Insurance Costs for the Moderate In-
flation, Scenario (II), in the years 1992 and 2002.
Cordian — O&M
Correct — O&M
Difference
Gordian — Bond & Insurance Cost
Correct — Bond & Insurance Cost
Difference
Total Difference
Increase in Service Fee $/ton
Correct Service Fee
Case A $/ton
Case B $/ton
1992
$ 9,729,000
10,312,700
+ 583,700
578,300
613,000
+ 34,700
618,400
$ 1.00
$ 10.77
4.67
2002
17,423,000
18,468,500
+ 1,045,500
1,035, 700
1,097,800
+ 62,100
1,107,600
$ 1.63
$ 4.82
0.21
TITAN ENVIRONMENTAL SERVICES
— 15 —
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
III. ECONOMIC ANALYSIS
5. NESWC Economic Analysis — Private Haul Tonnage
The NESWC Economic Analysis assumes an initial 1800 tons/day of member
tonnage plus two levels of private haul tonnage (500 tons per day and
1000 tons per day). There is no substantiation that this tonnage would
be available nor apparently has any effort been made to determine or
document what private haul tonnage might come to the facility and at what
tipping fee.
If this private haul tonnage does not materialize, the NESWC Net Service
Fee will increase by the amount of the Private Hauler Credit which ranges
from a low figure of $4.09/ton for Scenario I, Case A in 1979 to a high
of $16.15/ton for Scenario I, Case B in 2002.
6. Impact of ECI Inflation Rate, and Initial Oil Price on Projected
Bayside Economics
To illustrate the impact of an ECI inflation rate one percent higher
than the CPI vs. a rate equal to the CPI, and a base 1979 oil cost
of $15.50 vs. $12.70/bbl. a set of economic projections has been made
paralleling those made by Gordian. These are shown on the following
pages.
A summary comparison of these Net Disposal Cost Projections with the
Gordian Cost Projections are as follows:
Scenario I Case A (High Inflation — Low Tonnage) Bayside
Gordian Projection Titan Projection
1979 Oil Cost $12.70/bb l. $15.50/bbl.
Inflation Factors ECI=9% CPI=8Z ECICPI=8%
1982 Net Cost $/ton 13.89 13.51
1988 Net Cost $/torz 20.19 18.36
1992 Net Cost $/ton 22.97 20.04
2002 Net Cost $/ton 38.50 30.13
Less additional 2002 Credit* $/ton (47.16) (68.47)
This credit is from distribution of reserve funds and accumulated
interest.
TITAN ENVIRONMENTAL SERVICES
— 16 —
-------
TITAN
Estimated Service Fee Ranges
SCENARIO I SCENARIO II
(High Cost/Inflation) (Moderate Cost/Inflation)
Case A Case B Ca8e A Case B
Year 1982 ( Low Tonnage) ( High Tonnage) ( Low Tonnage) ( High Tonnage )
Member Tonnage (TPY) 182,500 182,500
Private Tonnage (TPY) 0 0
Total Annual Tonnage (TPY) 182,500 182,500
Net Annual Debt Service $ 13.50 $ 13.50
Annual 0&N Cost 14.76 13.84 -
Payment to Trustee .08 .08
‘..O QJ
Taxes and Assessment 0 0
S
Payment to Reserves 0 0
- 5 .
Amortization of TEOSI •
4 / ) - ,-4
Capital Infusion 0
o 1-4
Alteration Reserve Payment .50 .50 0
r-l
Host Community Fee 1.13 1.13
Landfill Location Levies .20 .20
Excess Tonnage Landfill Cost 0 0
___ 5 0
Gross Service $ 30.17 $ 29.25
•i-I S
0 I-i
Credits —,
Gross Recovered Resource Revenue
Less Oil Coat During Downtime c
Net Recovered Resource Revenue
Communities Share — 85% $ 13.15* $ 13.15* 5
Interest on Credit Funds 3.51** 3.51** r
Tax Credit — —
Total Credit $ 16.66 $ 16.66
Net Cost to Community $ 13.51 $ 12.59 l
-------
YEAR 1988
Member Tonnage (TPY)
Private Tonnage (TPY)
Total Annual Tonnage (TPY)
Net Annual Debt Service
Annual O&M Cost
Payment to Trustee
Taxes and Assessment
Payment to Reserves
Amortization of TEOSI
Capital Infusion
Alteration Reserve Payment
Host Cotmnunity Fee
Landfill Location Levies
Excess Tonnage Landfill Cost
Gross Service
TITAN
Estimated Service Fee Ranges
SCENARIO I
(High Cost/Inflation)
Case A Case B
( Low Tonnage) ( nigh Tonnage )
193,700
0
193,700
$ 12.72
22.25
.08
0
0
0
.50
1.78
.20
.03
$ 37.56
SCENARIO II
(Moderate Cost/Inflation)
Ca8e A Case B
( Low Tonnage) ( High Tonnage )
193,700
0
193,700
$ 12.72
18.70
.08
0
0
0
.50
1.59
.20
.03
$ 33.83
Credits —
Gross Recovered Resource Revenue
Less Oil Cost During Downtime
Net Recovered Resource Revenue
Communities Share — 85
Interest on Credit Funds
Tax Credit
Total Credit
$ 22.10
1.84
20.26
17.22
1.25
. 73
$ 19.20
$ 19.55
1.59
17.96
15 . 27
1.10
. 65
$ 17.02
Net Cost to Community
$ 18.36
$ 16.80
-------
YEAR 1992
Member Tonnage (TPY)
Private Tonnage (TPY)
Total Annual Tonnage (TPY)
Net Annual Debt Service
Annual O&N Cost
Payment to Trustee
Taxes and Assessment
Payment to Reserves
Amortization of TEOSI
Capital Infusion
Alteration Reserve Payment
i- Host Community Fee
Landfill Location Levies
Excess Tonnage Landfill Cost
Cross Service
Credits —
Cross Recovered Resource Revenue
Less Oil Cost During Downtime
Net Recovered Resource Revenue -
Communities Share — 85%
Interest on Credit Funds
Tax Credit
Total Credit
TITAN
Estimated Service Fee Ranges
SCENARIO I
(High Cost/Inflation)
Case A Case B
( Low Tonnage) ( High Tonnage )
201,600
0
201,600
$ 12.22
29.25
.08
0
0
0
.50
2.40
.21
.15
$ 44.81
$ 28.72
2.59
26.13
22.21
1.62
. 94
$ 24.77
SCENARIO II
(Moderate Cost/Inflation)
Ca8e A Case B
( Low Tonnage) ( High Tonnage )
201,600
0
201,600
$ 12.22
22.86
08
0
0
0
50
1.99
.21
.12
$ 37.98
$ 23.34
2.07
21.27
18.45
1.33
. 78
$ 20.56
Net Cost to Community
$ 20.04
$ 17.42
-------
YEAR 2002
Meciber Tonnage (TPY)
Private Tonnage (TrY)
Total Annual Tonnage (TPY)
TITAN
Estimated Service Fee Ranges
SCENA.RI0 I
(High Cost/Inflation)
Case A
( Low Tonnage )
222,700
0
222,700
SCENAMO II
(Moderate Cost/Inflation)
Case A
( Low Tonnage )
222,700
0
222.700
Net Annual Debt Service
$
11.06
$
11.06
Annual 0&M Cost
Payment to Trustee
57.96
.08
37,74
.08
.
ri
.
.
rxi
,
I
Taxes and Assessment
Payment to Reserves
Amortization of TEOSI
Capital Infusion
Alteration Reserve Payment
Host Community Fee
Landfill Location Levies
Excess Tonnage Landfill Cost
Cr088 Service
Credits —
Gross Recovered Resource Revenue
$
$
0
0
0
.50
4,85
.26
2,47
77 7
56.48
Last Ye
(2002)
Revenues
$ 61.28
$
$
0
0
.50
3.31
.26
1.71
54.66
39.10
Last Year
(2002)
Revenue
S
$ 41.62
r( 1.1
o.. w
U)
G
,
4 r1
.4 i-
.
I.&W
C) 4.1
.-1
Jo
m
Uu-i
U
4.1 U)
Q)
U
E-i l
•‘ . 4
‘.0
.-1 I.i
. u
U)
U
ILl
IJw-l
i-
,
ai
i w
C ) 1-1
‘-I
0
E
1-SO
W4-i
I-i
.
4J U)
U
‘-I I-i
U
E- J
.-.i
Less Oil Cost During Downtime
6.07
6.68
4.06
4.38
..
•‘ri
r-I
Net Recovered Resource Revenue
50.41
54.60
35.04
37.24
Qici
wc
Coimnunities Share — 85%
42.85
46.41
29.78
31.65
. ‘
‘ .
,,-4 U
-op.
‘ .1
.—l U
Interest on Credit Funds
3.12
20,98*
2.15
20.47**
U
-1
,
U
Tax Credit
1.08
1.08
1.08
1.08
p.
.— .
p.
J ..—
Total Credit
$
47,05
$ 68.47
$
33,01
$ 53.20
‘ .4 ’ .O
“
U i •
-t O
,- ‘.C
U)
-( O\
Net Cost to Community
$
30.13
$
21.65
.O.-4
O.-I
(-4 (1)
Less 2002 Credit
Net Profit to Community
$
—68.47
38.34
$
—53.20
31.55
-------
CRITIQUE OF EPA — GORDIAN FINAL REPORT
III. ECONOMIC ANALYSIS
6. Impact of ECI Inflation Rate, and Initial Oil Price on Projected
Bayside Economics (Cont’d)
Scenario II Case A (Moderate Inflation — Low Tonnage)
Gordjan Projection Titan Projection
1979 Oil Cost $12.70/bbl. oil $15.50/bb].. oil
Inflation Factors ECI=?% CPI=6% ECI=CPI=6%
1982 Net Cost $/ton $12.97 $12.59
1988 Net Cost $/ton 18.46 16.80
1992 Net Cost $/tori 19.85 17.42
2002 Net Cost $Iton 27.54 21.65
Less additional 2002 Credit* $/ton (31.93) (53.20)
*Thjs credit is from distribution of reserve funds and accumulated
interest.
We believe that these costs are a more realistic projection than
those made in the Gordian report.
7. SESWC—CEA Energy Recovery
We question the validity of the energy recoveries claimed by CEA and
used by Gordian. For SESWC—CEA, an energy recovery of 7.2 x iô6 BTU
per ton of raw refuse is used. This value is much too high if one
considers the nature and source of ECO—Fue]. II.
ECO—Fue]. II is basically embrittled cellulose. Thus, this recovery
can represent only the recovered energy available from the cellulosic
materials present in the refuse.
The BTU content of MSW attributable to cellulosic materials ranges
from 5O to 75Z of the total BTIJ’s found in refuse. Both Titan and
UOP used a value of 9.0 x io6 BTU’s/ton — an accepted average. Thus,
the maximum cellulosic energy content would be:
(0.75) x (9.0 x 106) = 6.75 x 106 BTU/ton
TITAN ENVIRONMENTAL SERVICES
— 21 —
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
III. ECONOMIC ANALYSIS
7. SESWC—CEA Energy Recovery (Cont’d)
The analysis of MSW used by Titan (supplied by Beverly) for the Beverly
area shows that 68% of its BTU content is attributable to cellulogic
materials. Thus, for this case, the cellulosic energy content would
be:
(0.68) x (9.0 x 106) = 6.12 x io6 BTU/ton
Assuming that CEA could recover 100% of the cellulosic material, it
still could not recover 7.2 x 106 BTU/ton. Depending on the efficiency
of the CEA process in recovering cellulosic materials, a recovery of
less than 6.0 x 106 BTU/ton is more realistic.
8. SESWC—CEA Energy Credits
The energy credit calculations used by Cordian are based on a trans-
portation cost for ECO—Fuel II of $0.31/MN BTU. A detailed analysis
made by Titan of these transportation costs between the proposed
SESWC facility site and the Narragansett power station (the present
assumed user) would be approximately $0.60/MM ETU (in 1979).
This change results in the following changes in Gordian’s Estimated
Service Fee tabulation.
COflMUNITY ENERGY CREDITS
SCENARIO I SCENARIO II
@ $.31/MM ETU @ $.6OINM BTU @ $.31/MM BTU @ $.60/MM BTU
1979 0 0 0 0
1982 0 0 0 0
1988 $ .20/ton 0 0 0
1992 2.17 $ .35 $ .81 0
2002 12.16 7.86 6.29 $ 3.20
Service Fee projection will increase by the difference of the credits
calculated at $.31/MM BTU.
The service fee proposed by CEA tacitly implies that CEA expects to
generate a significant portion of their revenues from the sale
of ECO—Fuel II, and from private tonnage tipping fees.
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
III. ECONOMIC ANALYSIS
8• COMMUNITY ENERGY CREDITS (Cont’ d)
If either or both of these revenue streams fail to materialize to the
extent projected, CEA may well be forced to exercise its option for
renegotiation of its service fee to the communities at the end of 5
years. The extent of this financial exposure should be made clear
and should be shown in Gordian’s projections.
TITAN ENVIRONMENTAL SERVICES
— 23 —
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CRITIQUE OF EPA - GORDIAN FINAL REPORT
IV. TRANSPORTATION COST ANALYSIS
1. Gordian changed from a basis wherein the NESWC communities were rebated
haul costs back to their borders at $O.lO/ton—mln to one in which com-
munities were rebated haul costs back to the center of the town at the
full rate of $O.329/ton—mjn. This change was not brought to the at-
tention of communities or of the vendors; the client communities had
no opportunity to discuss this change and to indicate whether it should
or should not be done. This change was made after March 15. It repre-
sents a basis which the NESWC participating communities have not as
yet agreed to, according to Judy Wiegand of BSWD. While it removes
many of the inequities which exist with the former approach, It does
add significant costs to certain closer—In communities and may alter
their incentives to join NESWC.
2. Many of the tonnage figures used for the BAYSIDE communities, and quite
probably for other towns, are not believable and, to the degree they
are wrong, they influence the aggregate $/yr and, therefore, the average
$/ton.
3. If the VCI (Vehicle Cost Index) is believed by Gordian to be valid and
to be higher than the CPI, why was the escalation of transportation
cost elements not done at the VCI rate (9%) as opposed to the CPI (8%)
rate?
4. For NESWC transportation costs, there is no Case A and Case B. If
558,000 T/Yr are delivered from communities in both cases, then the
shared cost to the communities for such delivery is the same in both
cases.
5. The Cordian report does not reflect the fact that Lynn has agreed to
join RESCO and, therefore, is not available for any other project, In-
cluding NESWC.
6. Titan has made a detailed study of both the NESWC transportation system
and the BAYSIDE system. Some results of this study are presented In
this written critique, but the full scope and content of the study (with
all assumptions and calculations) will be made available to all interested
communities, at no charge. All communities, all sponsors, all vendors,
the EPA and Gordiari are invited, and in fact encouraged, to meet to-
gether with their experts with Titan to review in detail the methodology,
assumptions, calculations, etc. to verify the accuracy of the results
obtained.
7. For only ten communities of the BAYSIDE system (leaving Lynn out),
Titan’s study for 1979 indicated 146,137 tons/yr at $2.81/ton weighted
TITAN ENVIRONMENTAL SERVICES
— 24 —
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CRITIQUE OF EPA = GORDIAN FINAL REPORT
IV. TRANSPORTATION COST ANALYSIS
7. (cont’d)
average cost for a total of $409,950. The range of cost is from
$1.31/ton to $ 6 .77/ton.
Gordian’s study for these same ten communities (except Lynn) in—
dicates 137,100 tons/yr at $5.00/ton weighted average cost for a
total of $ 68 5,600/yr. The range of cost is from $2.30/ton to
$10. 46/ton.
These differences arise principally because all communities now
are, or are planning, to have their refuse delivered by the pri-
vate sector. Thus, no 3—man packer—hauls are indicated, and this
reduces the $O. 3 29/ton—mjnute to $O.170 ton—minute at 30 mph for
a 1—man packer—haul. Other factors causing these comparative re-
sults are differences in travel times used, and differences in
tonnage assumed.
Titan drove, several times, at normal truck speeds, all of the
routes to be used by delivery vehicles, and the distances and times
were accurately measured as well as calculated. The mileages agree
very well with those scaled from U.S. Geological Survey maps, but
the actual travel times are generally somewhat longer. The longer
actual travel times are used in Titan’s study.
8. Contrary to the statement made in the Gordian report, the Mitre
transportation report of June, 1978, does not contain projected
travel times between coinniunities or between transfer stations and
the NESWC facility. Titan scaled distances for all projected runs
from U.S. Geological Survey maps.
9. Titan found serious errors in the travel times indicated by Gordian,
particularly for the 18 mini—station communities. Most were under-
stated.
overstated 3 of 18
understated 15 of 18
seriously understated 13 of 18
some by as much as 40%
The impacts on calculated costs are apparent. Where there was more
than a 10% difference between Titan’s figure and that used by Cordian,
Titan rechecked calculated travel time thoroughly. For the transfer
TITAN ENVIRONMENTAL SERVICES
— 25 —
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________________________________________________________________
CRITIQUE OF EPA - GORDIAN FINAL REPORT
IV. TRANSPORTATION COST ANALYSIS
9. (cont’d)
hauls, travel times used by Titan and Gordian were very much the
same except for the Portsmouth haul where an indicated 43.6 minute
time should be 55.4 minutes to cover 37 miles with 1 toll station
and 6 “intersections.”
10. Leaving Lynn out of the Salem transfer station reduces that tonnage,
resulting in a negative impact on transfer station owning and op-
erating costs.
U. There were serious errors in the travel time indicated for the BAY—
SIDE system.
Danvers travel time is 8.0 minutes by actual measurement and not
14.2 minutes as Indicated. Conversely, 7.0 minutes for Salem should
be 17.0 minutes (from its transfer station).
12. Gordian has calculated $1 ton—minute in two differing ways. The manner
of calculation used for a packer—haul (page 98) is deemed correct as
opposed to the method used for the transfer trailer calculation (page
101). These two methods, as applied to the transfer haul, are:
19.82
A. (correct) O.5l4 xO.5) + 17.5 = $O.089 ton-mm
B. (Incorrect) E0.514 x 0.05) + 6OxO.7 17.5 = $O.080 ton-mm
Method A was used to calculate packer—haul costs
Method B was used to calculate trailer—haul costs
Therefore, all transfer haul costs should be increased by 11.3%
13. The 24,216,460 ton—minutes of trailer—haul are for the full comple-
ment of 921,900 tons/yr, all from communities . (See Mitre report
configuration ib).
24,316,460 X 0.089 = $ 2 .545/tori
921,900 — 71,600 (Lynn) (not $ 2 .73/ton)
(850,300)
And there is no difference between Case A and Case B. The 713,000
T/yr and 868,000 T/yr have no place in this calculation .
TITAN ENVIRONMENTAL SERVICES
— 26 —
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
IV. TRANSPORTATION COST ANALYSIS
14. None of the mini—transfer coimnunities can afford to put in a pack-
ing transfer station. Therefore, the use o compaction trailers to
bring the refuse to the facility is not realistic. These com-
munities should use 8—ton roll—off containers for which the trans-
fer haul cost is $0.17/ton—mm. not $0.08/ton mm. Thus, the cost
of hauling from mini—transfer stations should be doubled. The use
of 17.5 ton transfer trailers would dictate the installation of
packing transfer stations the cost of which would not be part of
the shared cost and would, thus, escalate the costs to the mini—
communities beyond all reason.
15. The turnaround time of transfer trailer rigs at the North Andover
facility are not included in the annual costs of the transfer
stations. At 45 minutes per turnaround, which yields $0.85/ton,
this would add about $500,000/yr to the (24,316,460 x.0.089) found
in paragraph 13 above or about $O.59/ton. A 25—mm turnaround at
the facility would add $0.30/ton.
16. The method of aggregating costs expressed as $/ton starting on page
100 is applicable only to the full complement of 922,000 tons/yr
from communities. The methodology used here is totally inapplicable
for either Case A (713,000 total and 558,000 from communities) or
Case B (868,000 total and 558,000 from coumiunities). This method-
ology would be applicable only if the 60% (558,000 tons of 922,000)
of the tonnage comes from the various sources (direct haul, mini—
transfer and transfer stations) in exactly the same proportions as
projected at 922,000 T/yr and that each source has 60% of the $/yr
cost as is projected at 922,000 T/yr. This obviously will not be
the case.
The summary table of Titan’s analysis of the NESWC transportation
system shows the tonnages projected to be delivered from the eight
separate wastesheds comprising the total and for each, the projected
$/yr, the weighted average $/T, and the minimum $/ton and maximum
$/ton of any community within each wasteshed. It is apparent that
signing the “right” communities could reduce shared transportation
costs significantly and signing the “wrong” communities could in-
crease shared transportation costs disastrously.
Unless the wasteshed accommodated reduces concentrically as capacity
is reduced from 922,000 T/yr to 558,000 T/yr, an increase in shared
transportation cost per ton is certain to occur.
A community signing with NESWS at this time is exposed to the possi-
bility of a shared transportation cost which can easily be twice
the $8.80/ton shown in this report .
TITAN ENVIRONMENTAL SERVICES
— 27 —
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CRITIQUE OF EPA - GORDIAN FINAL REPORT
Iv. TRANSPORTATION COST ANALYSIS
16. (cont’d)
In addition to the above , to the extent that any subregional trans-
fer station handles lesQ tonnage than it is projected to do at
922,000 T/yr from communities, there will be an increase in both
capital charges and O&M expense for those tons handled, because
of loss of economies of scale. And what happens if only one-or
two communities projected to go to a given transfer station sign
up?
The answer to 1l of the above questions is that when and if com-
munities having 558,000 T/yr of solid waste have signed, Mitre will
again use its WRAP and PLANIT models to find the least cost con-
figuration and will thenestimate the shared cost of such a con-
figuration; thosecommunjtjeg which will have signed will then have
to absorb that shared cost, as built and operated, whatever it is.
No guarantees are madeby anyone!
In the meantime, there is no meaningful way of determining the shared
cost without making all manner of assumptions as to which communities
will join and what their Intrinsic delivery costs are, which assump-
tions represent great risk
It is regrettable that Gordian did not see fit to,put. this risk in
its proper pe*spectiv ,
17. Attached is a table of the transportation costs for certain communities
participating in BAYSIDE. This was prepared using Mitre’s methodology
and Gordjan’s cost factors and Titan’s estimated tonnages except that
all delivery éhic1es 1 have only a 1—man crew. It also assumes mini—
transfer stations at both Gloucester and Rockport and delivery in
8—ton roll—off containers. It also assumes that Swainpscott will de-
liver its waste via the present Salem transfer station.
18. Also attached are several tables pertaining to the Titan study of
NESWC transportation for a 100% community load of 922,000 T/yr, less
Lynn’s tonnage. The back—up for and detailed explanation of these
tables can be found 1II the Titan report to be .ssued under separate
cover. -
TITAN ENVIRONMENTAL SERVICES
— 28 —
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
V. PROJECT CONSIDERATIONS WHICH COULD AFFECT COST AND/OR SERVICE
1. Tonnage Commitment Requirements
Titan offered the following comments or suggested language which
Gordian chose not to incorporate.
A. Maximum Waste Delivered & Excess Tonnage Charges
a) For the Bayside Project, there is no upper limit as to
the amount of waste a community may deliver. Any over-
age, delivered by all communities (not all customers as
is stated in the report) in the aggregate, will be charged
at the incremental landfill cost. Such charges are spread
over all tonnage delivered and are not significant (see
Economics).
b) The discussion relativeto the NESWC—IJOP project neglects
to state that the project operator is not obligated to
accept more than 930,000 tons of refuse per year and
neglects to discuss what alternatives member communities
have if this tonnage is exceeded and the operator chooses
not to accept the excess
B. Bayside Minimum Guaranteed Tonnage
a) The Table on Page 107 should state, for the Bayside Project,
that the Minimum Guaranteed tonnage in years subsequent to
the first year is “85% of the previous years actual tonnage
delivered less unusual and non—recurring amounts agreed to
by Titan and community.”
C. Private Haul Tonnage
a) Gordian persists in the assumption that private short—term
tonnage will always be available at a tipping fee that exceeds
the cost of processing such refuse and that Titan will retain
all tipping fees, minus expenses, received from private or
short—term tonnage.
It would be difficult to conclude that private haul short—term
or spot tonnage will always be available when needed or de-
sirable by any project. If short—term tonnage can only be
acquired at a tipping fee that only covers Titan’s additional
expense, there would still be an incentive to process such
tonnage — Titan receives 15% of the revenues and the com-
munities receive 85%. No costs associated with private ton-
nage enter into any calculation of community Service Fees.
TITAN ENVIRONMENTAL SERVICES
—29—
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
V. PROJECT CONSIDERATIONS WHICH COULD AFFECT COST AND/OR SERVICE
C. Private Haul Tonnage (Cont’d)
Unlike NESWC—IJOP, the expected Bayside member tonnage will
approximate the capacity of the Facility and thus this would
be no apparent need or desire to accept private haul tonnage
on a year—around basis. Bayside will be looking for such
tonnage only at times when, due to seasonal fluctuations,
member tonnage is less than plant capacity.
b) Gordian states (on Page 108) that, in the NESWC Project,
the operator will secure long—term and spot commitments
from private haulers. The NESWC Service Agreement does
not support this. Section II, paragraph 17, says — “The
company enter into arrangements with Private Haulers
for the processing of Acceptable Waste at the Facility pro-
vided that. . . .“
The statement in Section VI, paragraph 1 (ii) of the NESWC
Service Agreement, that UOP “will secure long—term and spot
cominitnients from private haulers” is not an enforceable corn—
mitment. The agreement does not state how much private haul
tonnage UOP will secure, and for how long. And the “will”
in this context is obviously inconsistent with the “may” in
the above quoted paragraph.
There is no commitment by UOP to secure Private Haul tonnage.
There are no commitments for this tonnage and no evidence is
presented that any effort was made to ascertain that such
tonnage might be available. Gordian has apparently made a
conscientious effort to verify the validity of all claimed
revenues and credit streams but not this one.
The presentation of the economics, both in the Executive
Summary and in the Report , without any acknowledgement of
this crucial unsupported assumption, is grossly misleading.
2. Plant Downtime and Outage
The Bayside project has 1—1/2 to 2 days of raw refuse storage, plus
2—3 days storage of shredded refuse. While there will be a single
processing line and a single boiler, the processing line and boiler
are independent. The processing plant will only operate 10 to 12
hours per day, 5—1/2 days per week. Availability of a complete spare
rotor and motor for the shredder will limit shredder downtime to 24
TITAN ENVIRONMENTAL SERVICES
—30—
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
V. PROJECT CONSIDERATIONS WHICH COULD AFFECT COST AND/OR SERVICE
2. Plant Downtime and Outage (cont’d)
hours in all foreseeable circumstances short of a catastrophe. A
shredder explosion is not considered to be in the nature of a catas-
trophe. The shredder will be isolated and enclosed to minimize
explosion damage. Shredder explosions invariably result in little
or no damage to the shredder itself.
Like NESWC, BAYSIDE will have a dump condenser, but because of the
existing multiple turbine installation at USM, the need to dump
steam will be minimal.
Titan anticipates that, on an annual basis, there will be less than
10% of the incoming waste by—passed to a landfill.
The NESWC claim that they will not have to bypass acceptable
waste to landfill is highly optimistic. It assumes that two out
of three boilers will never be out of service at the same time for
any length of time. It ignores the possibility of total plant out-
age due, for example, to a fire in the storage pit (not uncommon)
or a failure in any system con on to the entire plant — cooling
water for example. -
TITAN ENVIRONMENTAL SERVICES
—31—
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CRITIQUE OF EPA — GORDIAN FINAL REPORT —
VI. DISCUSSION OF SERVICE CONTRACTS AND RISKS
While substantially all of the contract risk analysi5 language is accu-
rate as to what was reported, nonetheless significant impact gaps exist
relative to important contract features omitted or not properly empha-
sized on a comparative basis. The Overviews , preceding each contract
risk analysis section, leave a great deal to be desired. They do not
treat topical matter comparatively, mislead the reader as to topical
importance between projects and, in general, address rather unimportant
risk impact subjects.
As a “tool” to public decision makers, many of whom lack technical,
economic and legal expertize, one would be compelled to conclude that a
more practical and preferred treatment would have been to create a matrix
or tabular comparative form. Thus all identified and important risk
topics could have been easily compared. The Report could have high-
lighted any unusual contract features which were not commonly treated.
Certain errors or significant distortions appear throughout the Report
and are highlighted below:
Pa Comment
29 Project Summary
Bayside—Titan — Major project buyer is local
industry with utility back—up for
purchase of all recovered energy.
39 Amortization of TEOSI Capital Infusion — treated in
such a way as to be misleading to reader and as if
this subject were not included in the other projects
( NESWC , Section VII and SESWC , Section 207). This
paragraph could be shortened and reader given apprecia—
tion of how such an item could arise.
40 Alterations Reserve Fund — the sentence beginning on
line 3 of this page is inaccurate as to “elective
alterations”. The Alterations Reserve Fund can only
be used with the approval of Council and cannot be
used for Elective Alterations (Section 6.5).
42 Interest on Reserves — neglected to mention the Altera-
tions Reserve Fund and Recovered Resource Revenue
Revolving Fund.
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA - GORDIAN FINAL REPORT
Page Comment
48 TABLES REFLECTING O&M COSTS INFLATED BY TITAN’S OLD
FORMULA PRIOR TO MARCH REVISION — Comment appearing
here concerning “a recent change” is very misleading.
The change, in fact, is a correction in a drafting
error which was discovered by Titan with advice to
EPA and Gordian. The intent of the parties was not
properly and accurately expressed by the original
luation in question.
65 Annual Debt Service — the fifth paragraph under this
caption fails to indicate to the reader how the in-
vestment tax credit will be an advantage to communi-
ties (unless it is to be inferred the equity investor
will charge less because of it and thus the communi-
ties benefit — that or may not be true).
67 Electricity Credit — it is both inaccurate and mis-
leading to state that “UOP guarantees a minimum
electricity credit of $7.50 per ton.” This is only
true if the plant is initially built at 3,000 TPD in
all respects (not likely at an 1,800 TPD subscription)
and 4,200 BTU/# waste. There is nothing stated in
the contract to obligate UOP to guarantee any amount
under different conditions.
79 Ferrous Revenues — the assumption here is unrealistic-
ally optoniistic and out of proportion to the reality
of the market place — scrap dealers Boston area — for
this product (incinerated tin cans). $20? Short ton?
FOB plant?
104 Financial Stability of the Parent Company — since the
comments in this section are addressed to all projects
and given that Titan has acknowledged a financial
guarantor will be needed for the Bayside Project — this
caption should have read Financial Stability of Guaran-
tor (Parent Company) . The first paragraph under this
caption is very misleading since the Commonwealth of
Massachusetts has, by law, the requirement of over-
seeing all waste disposal facilities, including land-
fill and transfer stations, in Massachusetts. The
Resource Conservation and Recovery Act is also requiring
the State to meet certain minimum requirements in this
regard.
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA - GORDIA.N FINAL REPORT
Page Comment
105 For the reasons stated above, Page 104, the reference
to Form 10—K should have included reference to “each
company’s or project guarantor’s most recent” 10—K.
107 Penalty for Fluctuation — the comment under S.E.S.W.C.—
C.E.A . to the effect “there is no upper limit in sub-
sequent years” is inaccurate. There is a maximum limit
as to the amount of waste which CEA is obligated to
take, equivalent to 1,282 TPD by contract language
(Article It, Section 201.C., Section 202.A and
Section 206.B.).
108 Tonnage Commitment Requirements — The sentence beginning
on the fourth line of this page is inaccurate. CEA
cannot accept Class II waste without approval of the
District (Definitions, Class II waste and Section 202.C.)
113 Product Marketing and Revenues — the comment appearing
on the fourth line of this page to the effect that
“Titan would market additional electricity to NEPCO” is
misleading. If USM were not available as an energy
market then Titan would market all energy as electricity,
to NEPCO (on a take or pay basis).
121 Recognizable Capital Infusion — the first sentence
appearing under this caption is misleading. The only
cost and expenses incurred by TEOSI which would be in-
cluded in a recognizable capital infusion by TEOSI
would be those which are as defined and as approved
under the provisions of the contract. The reader is
given the impression that TEOSI of its own initiative
can incur certain costs and expenses and pass them on
through a Recognized Capital Infusion.
The last line under this caption should be modified to
show that the type of insurance proceeds would come
from “replacement value insurance.”
124 ARTICLE VII SERVICE ADJUSTMENTS — an error exists in
the second sentence under this caption. The selected
indices have already been identified. What needs to
be identified and agreed upon prior to the approval of
execution of Agreement are the values and dependency
fractions.
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA — CORDIAN FINAL REPORT
Page Comment
130 Section 702 Competitive Facilities — the language
under this caption does not properly emphasize the
contract subject matter. Furthermore, there is an
inaccuracy in the second sentence. The fourth line
should read “. . .the District which is not municipal
solid waste in one or more instances
133 The report does not expose the reader properly to the
many roles which the State has in the NESWC project.
The State has the obligation of providing the facil-
ity site, access, and landfill sites; will issue
General Obligation Bonds and be the Community Repre-
sentative with authority to make binding decisions.
There is a distinct probability that during the course
of the project life that the State will find itself
in conflicting roles as financier, regulator and
Community Representative.
138 SECTION VI Compensation and Revenue Sharing 6) —
There is a legal question as to the validity of in-
voicing a community on the basis of an estimate where
there is an unconditional obligation to pay.
An example of a preferred treatment to some of the topics addressed by
this Report might be set forth as noted below:
1. Maximum waste required to be accepted
Bayside — no upper limit (Article 4)
NESWC — not in excess of guaranteed plant capacity
(Section 11.15.).
SESWC — maximum commitment 100,000 tons per quarter
(400,000 TPY) — Definitions, Article II, Section
20l.C. Maximum 33,333 tons per billing period,
Article II, Section 202.A. atid Section 206.B.
District responsible for excesses — Section 206.B.
2. Amortization of Capital Infusion — applicable to all projects.
Bayside — Definitions, Articles 6, 9, 10 and 11.
NESWC — Costs may be high because amortization is limited
to the balance of the 20—year term (Section VII).
TITAN ENVIRONMENTAL SERVICES
- 35 -
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CRITIQUE OF EPA — GORDIAN FINAL REPORT
SESWC — Amortization over remaining term of Contract
(Section 207).
3. Taxes and Levies — applicable to all projects
Bayside — O&M component (Article 6).
NESWC — Element B in formula (Section VI.2.).
SESWC — Exempts District, except where City of Peabody
imposes taxes (Section 203).
4. Termination of contract by customer
Bayside — Voluntary after Bonds fully paid and TEOSI
Capital Infusions amortized or repaid (Section
14 .1).
— Non—restoration (Section 9.3).
— TEOSI default for six months and another
organization assumes takeover (Section 12.2).
— Arbitration, consistant with Article 14 (Section
13.1).
— Failure of contingencies — insufficient tonnage,
lack of contracts for sales of resources and
failure of Bond Issue (Section 16.3).
NESWC — Limited to substituting new operator — customer
cannot escape (Section XI.4.).
SESWC — Municipalities have no rights to terminate since
they are “locked into District”. District can
only terminate if Company fails to complete
Facility (Section 201.A.(1) ).
5. Obligations to make payments
Bayside — Escape if TEOSI fails to accept and dispose of
Acceptable Waste (Section 3.3 and paragraph 12.2.2.)
NESWC — Absolute and unconditional (Section VI.7.).
SESWC — Must pay even If “force majeure”, can’t deliver
(Article IV,Section 402.B.). If Company can’t
accept then District goes elsewhere and does not
have to pay (Section 402.A.). Unconditional and
absolue so long as Company accepts waste (Section
504).
TITAN ENVIRONMENTAL SERVICES
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CRITIQUE OF EPA - GORDIAN FINAL REPORT
6. Indemnification by Customer —- applicable to all projects.
Bayside — Section 3.8.
NESWC — Section V. [ II.L.
SESWC — Article IX, Section 90l.B.
7. Industrial disturbances, strikes — applies in all projects
Bayside — Agrees to submit to non—binding arbitration
(Paragraph 16.1.1).
NESWC — An effective excuse from performance — Section
XIV.2., Uncontrollable Circumstance and Defini-
tions.
SESWC — An effective excuse from performance — Defini-
tions, Force Majeure and Article IV.
8. Recycling and source separation programs — permitted by all
Projects.
9. Minimum standards of performance relative to the conversion of
waste to recovered resources .
Bayside — “Due diligence” to convert (Section 4.5).
— Best prices and terms (Section 4.5).
— Experiments and studies (Section 4.5).
— Income incentive from revenue sharing (Section 6.3).
Note: there is no guaranteed Income to TEOSI
in the event there are any shortfalls
on waste deliveries.
NESWC — Operate plant to recover steam, electricity and
materials (Section 11.1.).
— Agrees to recover energy and by—products and best
efforts to sell (Section 111.1.).
— Sale of electricity to Mass. Electric (Section
111.2.).
— Recovery of magnetic ferrous metal at 90%
efficiency (Section 111.3.).
— Be5t efforts on aluminum (Section 111.4.).
— Shortfall payments (UOP profits) (Section VI.2.c.).
— Income incentive from revenue sharing (Section VI.2.).
TITAN ENVIRONMENTAL SERVICES
— 37 —
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CRITIQUE OF EPA - GORDIAN FINAL REPORT
SESWC — Only share in Eco Fuel II, FOB (Article I,
Excess Revenues, Section 501 and Schedule A).
— Process waste to Fuel and ferrous at minimum of
50% of incoming waste (less quantity of Class II)
(Section 204).
— Penalty of $1/ton for landfill disposal which
exceeds 40% by weight of all incoming waste (less
Class II and Residue) (Section 306.B.).
— Heaviest “fine” is $2.00/ton if exceeds 40% of
incoming waste to landfill disposal (Section 306.C.).
— Force rnajeure applies — fires, explosions, strikes,
etc.
— Incentive if economically feasible Eco Fuel II
market.
The analyst, the Report states, has taken the view of “a third party
community” to focus on pertinent risks. Obviously many of the risks
commented on are not important or necessarily very pertinent to this
port .
A comparative risk pattern should have been established which insured
focus on major risks reflecting risk and revenue sharing programs — these
risks would appear, from a community point of view, to fall into the
following categories:
o Contracting parties
o Waste
o Payment
o Termination
o Disputes
o Facility on—line
o Customer indemnification
o Capital Infusions
o Taxes and levies
o Recycling and source separation programs
o Standards of performance relative to the conversion
of waste to recovered resources.
Since this is a comparative analysis of three projects, it would seem
appropriate that a “risk” comment on one project would require a corres-
ponding risk comment on the other projects. The absence of such treat-
ment results in prejudicial or biased statements and a violation of the
basic idea of a comparative analytical approach.
TtTAN ENVIRONMENTAL SERVICES
— 38 —
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NESWC PROJECT
TRANSPORTATION ANALYSIS
SOIJRCE AND
DELIVERY MODE
1979
T/YR.
$/YEAR
$/TON (1979)
s/TON
RANGE IN 2002
WEIGHTED
AVERAGE
MIN.
MAX.
DIRECT HAUL
255,800
1,396,300
5.46
3.05
15.64
17.91 — 91.83
MINI—TRANSFER—MA.
69,100
515,000
7.45
3.80
14.07
22.31 — 82.61
MINI—TRANSFER—N.H.
55,200
395,500
7.16
6.04
8.43
35.46 — 49.50
BEVERLY T/S
109,600
1,493,000
13.62
10.83
16.08
63.59 — 94.41
SALEM T/S
85,100
996,700
11.72
11.15
14.59
65.47 — 85.66
READING T/S
109,600
1,290,700
11.78
8.38
13.56
49.20 — 79.62
LOWELL T/S
140,600
1,543,600
10.98
9.59
14.51
55.90 — 85.19
PORTSMOUTH T/S
29,800
498,700
16.73
16.20
20.54
95.12 —120.60
TOTAL (1979)
854,800
8,129,500
9.51
55.84
DCB/4/6/79
-------
BAYS IDE TRANSPORTATION
(1979)
Packer Haul $
1979 __________
Co m munity T/Yr( 1 ) itin. (3) MPH Ton—Mfn( 4 ) $/Ton $/Yr Remarks
Beverly 24,752 1.0 3.0 20.0 0.173 0.519 12,846 (1) Bayside 1981 Estimate
Discounted to 1979 @ 1%
Danvers 24,752 3.1 8.0 23.3 0.180 1.443 35,705 (2) Measured
ioucester 39,604 16.5 26.0 38.1 0.192 5.004 198,178 (3) Clocked — usually slightly
Essex 2,079 14.5 27.0 32.2 0.201 5.415 11,255 greater than calculated by
Mitre method
Salem (6) 26,733 5.1 17.0 18.0 0.072(6) 1.305 47,549
(4) Calculated by equation
Ipswi h 7,723 12.5 29.0 25.9 0.186 5.400 41,700(8) $It—min =
0.128 + 2.25 x 10 3 (MPH)
Hamilton 4,554 8.2 18.0 22.3 0.190 3.411 15,534
Manchester 3,861 11.5 23.0 30.0 0.196 4.497 17,361 (5) Mm—transfer station with
8—T roll—off
Middleton 4,455 7.6 21.0 21.7 0.177 3.714 16,546 $/t—min =
0.087 + 2.77 x 10 3 (MP}I)
Wenham 2,277 6,2 13.0 28.6 0.192 2 50l 5,695
Swampscott 7 9,703 2.8 9.0 18.7 0.170 1.530 14,846(7 6) Transfer station exists
trailer haul to Bayside
Marblehead 14,251 6.8 22.0 18.5 0.170 3.734 53,236 $/t—niin =
0.049 + 1.305 x 10 3 (MPH
Nahant 2,871 4.6 12.0 23.0 0.180 2.157 6,193
Rockport 5 3,960 21.1 37.0 34.2 0.182 6.726 26,634 (7) Packer haul to Salem T/S
(8) Includes Swampscott’s
Total (1979) 171,581 2.933 503,278 tonnage from T/S
DCB/4/6/79
-------
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-------
“Final Report on the Three Proposed Resource Recovery Projects
in the Boston North Shore Area.”
Carrnents by the NES -UOP Project
Generally the report is infonnative, thorough and objective. The report provides
municipalities with a detailed nparative analysis of peting options which is
cat reherisive and tthely. The report will enable the municipalities to make in-
formad decisions regarding their long term solid waste disposal practices based
on independent professional and factual analysis of these options.
The caTrnents contained herein are sthnitted with the intent of clarifying the
report in the few’ areas where we feel it requires clarification or additional
Et asis. The cam nts are divided into three categories:
Substantive Clarifications which we feel are of a significant nature arid
are ii rtant for the client municipalities to be fully aware of.
Minor Clarifications which we feel should be identified solely to insure
the coir lete accuracy of the report in each detail.
Ccimients on ass truptions These catn nts are intended to hasize that nore
favorable assumptions in certain areas are realistic and uld reduce the disposal
cost of the NEWSC-uop project.
Substantive Clarifications
1. Strengths and Weaknesses of projects
o NES -uop technology on the chart (pg E-9) is only marginally
distinguished fran the canpeting technologies. W I ’ is characterized
as “dcnonstrate technology” while the canpeting projects are
diaracterizeci as “basic technology denonstrated.” NES C-UOP feels
strongly that this distinction will riot present a clear picture of
the tr situation to the municipal official unversed in the nuances
of such characterizations. The LOP—Martin tethri logy has a long
history of successful full scale operation in nurerous installations
throughout the world. The number of plant years of experience with
this technology is in the hundreds. In contrast, the CEA Technology
has not been in contintx us ccxrirercial operation and has only a
spotty history of pilot plant and test operations at its East Bridge-
water, Mass, facility. Operating history and experience of the Titan
technology with municipal solid waste is also quite limited in
canparison to the LOP-Martin systa . NESWC-WP feels that a realistic
characterization of the canpeting technologies would be to change the
LOP characterization to “carnercially proven” in order that the
distinction will be clear to municipal officials.
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—2—
o The NFSWC-UOP strengths on this chart (pg E—9) should include the
strong revenue sharing arrang ne.nt provided in the NE WC-UOP Project.
The revenue sharing arrang rent of 90% of energy revenues arid 50%
of materials revenues (with 100% of the first $15/ton of ferrous
revenue) going to the municipalities is the best revenue sharing
arranget nt of all available options. Revenue sharing has been
atutted from the NESWC-WP strengths while it is included as a
strength or weakness in the carpeting projects.
o Bayside-Titan’s united (if any) capability to provide capacity for
rmercia1 and industrial wastes generated in contract municipalities
is anitted from this chart (pg E-9) and should be identified as a
“weakness” of the Bayside—Titan Project. Municipalities with a
ourn rcial and industrial tax base should be concerned that provision
is made for future disposal of wastes generated fran these sources.
bst municipalities provide service for local business at existing
rrn.nicipal disposal facilities. en municipalities contract for
resource recovery services existing municipal facilities can be
expected to close. If resource recovery facilities are not designed
with capacity to handle camercial and industrial waste from
municipalities served, solid waste disposal will bex e irore
difficult and an increased cost of doing business for local
carirerce and industry. Municipalities working to retain existing
industry and attract new industry should be aware of this weakness
in the Bayside-Titan Project.
2. Contract Risk analysis (pg E15 to E17)
The contract risk analyses for the Bayside-Titan project and the
SES -CEA project do not include analyses of the risks associated
with the Special Acts which authorize the establishirent of the
Bayside Resource Recovery Council and the SESWDD respectively.
Municipalities should carefully review these Special Acts and
the risks to municipalities inherent in the delegation of municipal
p ers to these new governnental entities.
For exarr 1e, the Special Act authorizing the creation of SESWDD
provides that once the District is forrred it is authorized “to issue
general obligation bonds for the purpose of ao uiring land and for
constructing and reconstructing sanitary landfills and improver.ents
there to . .“; the District is given broad pcwers to contract for
solid waste disposal as well as for contracts of “every na ire and
nature”; the District is authorized to preEtipt the municipal functions
of collection, transfer and transportation of solid waste; the
District is authorized to apportion the costs of the District
including the principal and interest on the general obligation
bonds and notes issued by the District anong the IrEnber cities
and t ns based on population.
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—3—
While Gordian has analyzed the S - A contract to determine
municipal risks, it is impossible to fully ca rehend the risk in vlved
in the project without a oanprehensive analysis of the ability of
the District to control the solid waste disposal practices and
decisions of nErrber n nicipalities. This can only be accanplished
by a careful and nplete analysis of the Special Act which authorizes
the District.
3. Consistency of Bayside-Titan Landfill Cost .
Landfill costs are not treated consistently thro hout this
report. The Bayside-Titan project which is expected to make greater
proportionate use of landfill for raw refuse than the N -WP
project asst es a $5 per ton landfill cost (pg 60). The landfill
cost assured for the NE -WP project is $8 per ton (pg 76),
estimated current costs of canplying landfill are $9 per ton
(pg E-l8) and n federal standards could increase these costs
to $15 per ton (pg E-18). In the absence of irore definitive
information about specific landfill sites and costs, it would
sean appropriate to use consistent landfill cost assumptions.
Given the greater reliance of the Bayside-Titan project on
landfill for excess tonnage cct pled with the lack of process
equiprent redundancy, an understatanent of landfill costs
ass m tions would cause the Bayside-Titan project’s actual
disposal cost to be even higher than anticipated.
4. Overstatanent of NFS -UOP ansportation Costs . (pg 100-102)
The NESc 7C transportation cost estimate in the lc tonnage
scenario is overstated by $ .58 per ton for 1979 because of the
treathent of certain variable costs (vary with tonnage thru put)
as fixed costs. The only NES C-LOP transportation costs that
can be considered fixed for the purpose of this analysis are
the transfer station costs ($1,564, 100). Mini-transfer turnaround
costs ($59,080), transfer haul costs ($1,945,317) and mini—
transfer haul costs ($310,115) at 868,000 tons are variable
costs, thus changing the cost estimate for transportation of
713,000 tons fran $8.80 per ton to $8.22 per ton.
This correction also applies in future years and the Gordian
calculations should be adjusted according to the specific tonnage
in the 1 z tonnage scenario for each year.
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—4—
Minor Clarifications
The foll dng additional clarifications while not considered of major
significance are identified solely to insure the cciiplete accuracy of
the report in each detail.
0 (pg E-7) N SWC-WP miniinur guarantees
This chart indicates that the N -UOP Project requires the minimun
guarantee in subsequent years to be 100% of the previous year’s tonnage.
This is not accurate. There is rio autanatic ratcheting ard of rninirmzn
tonnage guarantees. The municipalities have the right to increase
their minuinurn guarantee up to the aitount of the previous year’s
actual deliveries but such adjusth nt is not required.
o (pg E-14) NESc -UOP Project approval status
This chart should be updated to note that the final envirorgnental
impact report has been approved.
o (pg 16) Guaranteed plant availability
The N E -uOp project contract does provide for UOP guarantees of
plant capacity and provides specific remedies to the rmiiicipalities
in the event that tJOP fails to maintain the availability of this
• plant capacity with certain “force majeure” situations excepted.
o (pg 18) Bayside-Titan Tipping Fee Payment Arrang nt
The format for the Bayside-Titan project tipping fee payment arran nent
is riot consistent with the formats of the NESWC-UQP and SESWC-CEA
projects (pg 19+20). The Bayside-Titan format does not include
transportation costs for normal tonnage delivered t o the project.
The Bayside—Titan format should include a line iten similar to the
SES -CFA format as fo11c s:
TP Z PCiRJ TI j CCSTS (EXTR FOR ThOSE SERVED) - .1 XYT INCLUDED
Carinents on Assumptions
While we accept the necessity of Gordian selecting certain ccxrrron
ass unptions arid do not question that these ass uiptions have been
applied uniformly and fairly, the NESWC-rJOP Project considers the
Gordian assumptions to be very conservative. The NESWC-UOP Project
wishes to bring tc the atterticn of the municipalities that n re
favorable assumptions in certain areas are realistic and would reduce
the NESWC disposal cost.
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—5—
1. We hope that the sustained 6% to 8% rates of inflation ass.nred by
Gordian are higher than act l1y occur.
2. Gordiari ass ijn s no reven for recovery of aJ .tunintm and heavy
non-ferrous n ta1s. UOP inte.rids to recover these metals arid
expects the revenues to reduce the disposal costs.
3. Gordian a s t s no revenus for sale of steam to Western Electric Co.
UOP is negotiating with Western Electric Co. and expects to sell
steam and provide additional energy reventE.
4. Gord.ian ass ii s that the NESWC-UOP Project will not reach full
capacity tonnage until after the mid point (10th year) of contract
operations. NESWC and t P feel that this is riot valid arid that
full capacity will be reached early in the project (within first
five years) and sustained throughout the contract.
In addition to the above o nents, the NESWC-WP Project has suggestions
for presentation and report format which are intended to increase the
Utility of the final report to municipal officials.
We suggest the fol1 dng:
1. Distinct identification in the title of the E ecuUve S m azy and
the Full Report as a two voluie set. Consideration should also be
given to including the Executive Siiiutary as a separate section in the
Full Report.
2. Graçhic depiction of Table 1 S runaxy of Cost Data for the Bays ide NESWC and
SES Projects in the Executive SuriTrary to increase its clarity
and utility to municipal officials. Attached for your consideration
is a suggested format for such grajthic depiction.
WPG/jyl
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130 -
SUr ARy OF YJST DATA
FDR E BAYS IDE, NEZWC M D
SES - PIOJECIS
/
/
SE WC
BAYSIDE
—
p
• p P
• p P
p P
04
120 -
110 —
100 —
90-
80.
70_
60_
50_
40
30...
20
/
n
I I
1979 80
I I I - I I I I I I
82 84 86 88 90 92 94 96 98 2000 02
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COMBUSTION EQUIPMENT ASSOCIATES, INC.
4 555 Mad son Avenue, NY, N Y 10022 • 212/980-3700 • Telex 126695
April 10, 1979
Mr. Ira W. Leighton
Sanitary Engineer
Solid Waste Program
U.S. Environmental Protection Agency
Region I
J. F. Kennedy Building
Boston, Massachusetts 02203 -
Dear Mr. Leighton:
The following is a critique of your final report on the three competing
solid waste alternatives available to towns in the North Shore.
The few days allowed to review the report prevent me from examining every
project. I therefore concentrated on SESWC and NESWC. If your goals
were to report the facts of each project as they were available, then I
offer that you did an excellent job. On the other hand, during the inter—
views of CEA, I felt that goals were set to interpret facts, verify their
validity and present the revised facts, if such was needed. I agree with
this philosophical approach as long as the procedure is applied consistently
over the three projects. I’m not convinced that the above procedures were
followed consistently.
My first comments deal with the practical viability of the projects. Since
1974 NESWC has been a reality in the North Shore area. During the early
periods of its existence, it had no competing projects. Yet it remains,
struggling to sign up its first community. I suggest that the project is
too large for the area it intends to serve and that its dependence on “out
of state” waste demonstrates this point. Should New Hampshire invoke its
own plan, NESWC will suffer. Ironically, RCRA may well enable this to
Occur. One may argue that other plants of comparable size are planned or
under construction. For example, Black-Clawson is erecting a 3,000 tonI
day facility in Dade County Florida. In Dade’s case, a strong county form
of government exists, and the facility’s input has been legislatively assured.
In other areas, such as Newark, New Jersey, CEA is building a 3,000 TPD
facility with 2,000 TPD being built in the first phase. But the waste shed
contains 40,000 tons per week being dumped within ten miles. Therefore, I
believe it was your responsibility to point out that the NESWC project
located in Northern Massachusetts is more ambitious than any other of equal
size and that its level of acceptance in five years demonstrates this fact.
This has a direct bearing on the communities, since the risk of oversized
capability in the project lies with the communities and their increase in
tipping fee. I would now like to review the basis of the numbers for the
NESWC project. I am particularly dismayed by your allowing a negative
disposal fee to appear in the economic analysis.
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L()MBUS F ION I OUII 1 MI N I ASSOLIA I ES INC.
Mr. Ira W. Leighton -2- April 10, 1979
In the year 2002, the fee ranges from +3.19 to -7.40/ton. One would
presume that a futures market might develop in solid waste disposal.
This negative disposal fee is consistent with the concept of sharing in
90% of Net revenues; net being the key word. If there were value in
the revenues, 90% would not be given away.
The following represents criticism of various components of the numbers
structured in the NESWC disposal fee.
Annual Debt Service : (Pg. 65)
You have allowed an effective interest rate of 3.4% to be used in the
computation of debt service. In the interest of a conservative presenta-
tion, you should have used a 6-1/2% or 7% rate, since the communities are
at risk in the event of an unfavorable tax ruling. Also in your calcula-
tions list on page 70 for the year 1979, you have calculated debt service/
ton on 713,000 instead of 558,000 member tons. This error increases annual
debt service to 17.59, a difference of $3.69/ton. All net service fees
should be increased by $3.69/ton in 1979. That is, the net service fees
will be 10.78 or 15.15 (based on this error alone).
Operating and Maintenance Costs:(Pg. 65)and.Private Hauler Credits
(Pg. 68 - Pg. 69)
The calculations in t se items require close scrutiny. The benefits are
obvious but the risks (to the communities) are subtle. The tables on
Pages 70 through 74 reflect decreasing disposal fees as member tonnage
incfeases and private tonnage remains constant. Consider the opposite.
If a business decision is made to fill the facility with private tonnage
rather than community tonnage, the debt service and 0 H costs will fall
on the first 1800 tons/day of community tonnage. For purposes of example
on Pg. 69, the comunities do receive credits, but it is unclear what
charge is being made to private haulers. It could be $20.00/ton with the
communities receiving a small share of that revenue.
Consideration should also be given to the potential of extended down time
under the scenario of 1800 TPD of contracted communities. During partial
shutdown of the facility, private tonnage could be shut out, with no revenue
for that tonnage accruing to the participating communities. Yet the facility
would be taking member tonnage will full debt service and 0 E M cost placed
on the communities.
Ferrous Credit Pg. 68 and Residue Disposal Fee Pg. 66 67
I am confused about the treatment given these items. The residue consists
of non-combustibles, unburned combustibles, and incinerated ferrous. Since
no incinerator can or has achieved a truly inert state for its residue
under operating conditions, the worst case must be assumed. That is, it
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(;( )M(FLJS I ION 1- QI JII’l 1I Ni AS CA IF S INC
Mr. Ira W. Leighton -3- April 10, 1979
must be treated as a bio-degrad waste and subjected to the same regula-
tions imposed on solid wastes. Therefore, it is not conservative in your
presentation to give it the benefits of a superior residue that does not
require cover. Furthermore, during the incineration process, the residue
is quenched to cool it to ambient temperatures. If it is to be transported
offsite, a cost provision must be made to de-water the residue prior to
transport so that leaking quench water is not distributed over the highways
in transporting the residue.
The need for cover not only satisfies leachate control methods but prevents
fine materials from blowing through the countryside contiguous to the land-
fill site. This is another reason for meeting the daily cover, landfill
requirement.
On Page 68, it is stated that neither a steady price nor an outlet is assured
for recovered ferrous. Since ferrous is part of the residue stream, is the
residue higher than 18% if ferrous is not recovered? Further, if it is
admittedly doubtful that the market place exists and the price undetermined,
why, in the interest of conservative accounting, should ferrous recovery be
demonstrated as credits through charts on Pages 70 through 74?
Also, does the capital cost included in the proposal include equipment
necessary to remove and beneficjate the ferrous component? Do operating
costs include the cleanup of ferrous so that the communities receive the full
$20.00/ton of ferrous credit or is this incremental cost deducted from the
sales price?
Recovered Resource Credit :
The major source of revenue to the NESWC project is obviously the electrical
sales revenue. However, the project is not described adequately in the
report to ascertain the revenue risks.
One could assume that if the project guarantees a $7.50/ton revenue to the
communities that $8,261,190 must be generated to offset this credit in 1979.
$8,261,190 = 423 KWh (3000 Ton) (310 Days) (1.34) ( $.Olo )
Ton Day KWh
If this $8,261,190 is not generated, is tonnage from the succeeding year
used to offset the previous year revenue shortfall? If so there will not be
a credit in excess of the fixed $7.50/Ton credit.
In the revenue stream projection for 1979, (Pg. 70) a credit of $9.84/ton
is illustrated. In addition, a credit of $4.09 is added for Private Hauler
credit. I can calculate a $9.84 credit by dividing $8,261,190 by 930,000
annual tons which equals $8.77/ton and assuming the balance is ferrous
credits.
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.()MBI.JS I l( N [ ( ) JUN.11 NI ASS( )( IA II
Mr. Ira W. Leighton -4- April 10, 1979
On the other hand, only 713,000 tons is processed in this 1979 evaluation.
Of this amount 558,000 tons is community tonnage which should yield a
revenue of about $5,000,000.00. Under this circumstance, the contractor
has not reached a revenue level of $8,000,000 and sharing cannot be more
than the $7.50/ton. In addition, the $7.50 component in the private hauler
tonnage must also be disallowed.
As this shortfall contunues, and if full capacity is not attained, there
will be a continuous debit against revenue that will prevent credits beyond
the $7.50/ton guarantee.
Notwithstanding, the above, the NESWC project predicts 98% utilization of
equipment. In roy view, this is overstated. Comparable utility equipment
is generally available 70 to 80% of the time and I believe in the interest
of a conservative presentation that a utilization factor of 85% be used.
One page 111, you anticipate 15% downtime at light load periods which is
optimistic. To this you must add, turbine downtime (scheduled or unscheduled)
during which perids, no revenue accrues to the community.
My summary of revisions to (page 70) 1979 Service Fees is as follows:
** Annual Debt Service: $ 25.40
Annual 0 M Cost: 8.66
Bond Insurance: 0.52
Host Community Fee: 1.00
*Residue Disposal Fee: 2.87
GROSS SERVICE FEE: $ 38.45
Recovered. Resource Credit: $ 7.50 (No Ferrous)
Private Hauler Credit: 2.00 (No Revenue Credit)
$ 9.50 Total Credit
NET SERVICE FEE: $ 28.95
** Annual Debt service of $13,100,000 for 140,800,000 Bond issue @ 7%
for 20 years: $13,100,000 + 555,000 Annual Tons = $25.40
* Residue Disposal Fee: 713,000 Input Tons
. 18
128,000 Residue Tons
$ 8.00/Ton Disposal
$ 4.00/Ton Dewatering
$_4.00/Ton Trans.
$16.00/Ton Total
128,000 X $16.00 $ 2.87 (Cost For Residue Disposal
713,000 Per Input Ton)
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(.( )M 31J5 I ION L()L JII MI Ni AS ( ( IA II IN(
Mr. Ira W. Leighton -5- April 10, 1979
If the same conditions prevail throughout the life of the project, i.e.,
a continual shortfall of ca city to the facility, the net service fees
will change radically. Since the $7.50 guaranteed credit is constant, the
net service fee in year 2002 would change to +43.67 from -7.40/ton, on
this issue alone.
In addition, at an interest rate of 7% on the financing, debt service per
ton for 1800 TPD will be $8.00 more than previously stated.
To minimize a given community’s risk, it would be beneficial if each town
when joining, was the 3000th ton tthder contract rather than among the
first 1800 TPD committed.
SESWC / CEA
Project Viability :
In contrast to the NESWC plan, the SESWC project is more realistic in
size and requires 275,000 annual tons for it to be a reality. This is
approximately 900 tons per day and is well within reasonable limits of
the service area.
Price Stability :
Also, in contrast to NESWC, once this intial tonnage level has been reached,
there is no risk to community in terms of varying price levels. The prices
are set, understandable, and a clear cut budget decision can be made. While
these differences exist in my mind, the report lists tables of figures with
little indication of the softness of one and the hardness of the other.
Landfill Acquisition Costs :
SESWC originally budgeted $1.05/ton for site acquisition and improvement.
Your report overstates this figure due to potential increases from RCRA
or increas s in land value. I submit, that the original estimate is con-
servative and should be kept intact.
$1.05/ton is equal to a $3,000,000 investment in the property capitalized
by a 0. 0. Bond over 20 years @ 7%.
Of that amount, 750,000 was dedicated to acquire over 100 acres B $6300.00/
acre which represents 150% of the price of the last taking.
The balance of $2,250,000 shall be used to rectify the Peabody landfill
operation and prepare the new site for landfill capability.
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;( )MU( J - I( )N E( )1 JiF t 1 N I AS OflIA irs INC
Mr. Ira W. Leighton -6- Apr11 10, 1979
Energy Sharing :
The intent of CEA in presenting a fixed price to SESWC was to satisfy
the district requirements of eliminating capital investment by the
district members, avoiding encumbrance of the debt service load associated
with that capital investment and finally to enable the Towns to deal with
a fixed price.
To the extent that the SESWC project is virtually risk free, then revenue
sharing starts at a higer level after CEA has obtained its return.
To present a solid case for the security of its project, CEA submitted
a signed contract for its Eco-Fue]. as a demonstration of its capability
to market Eco-Fuel. As a penalty for this, the economics of revenue
sharing are severly impaired by transportation costs to a fuel user
outside the district. In addition, CEA’s project is tainted by state-
ments on the ability to market fuel when it is the only project with a
signed energy contract.
In effect, a signed contract is penalized by transportation when compared
to contracts “in negotiation.”
CEA has signed contracts for Eco-Fuel with the following companies:
1) Public Service Electric Gas of New Jersey
2) United Illuminating of Connecticut
3) Naragansett Electric Company of Rhode Island
4) James River Corporation of Massachusetts.
Further,CEA has letters of intent from Toledo Edison, Tampa Electric,
Long Island Lighting Company and others close in to large wat sheds.
To the extent that Eco-Fuel is marketable to Salem Harbor Station and
other close in fuel users such as the Southern Essex Wastewater Treatment
Facility as a substitute for fossil fuel in sludge incineration, I insist
that the transporation cost be fixed at a lower rate of 3% of the sale
price of Eco-Fuel at any time period.
To confuse matters, the calculations of Eco-Fuel revenue on Page 88
are in error as well as the entry on Page 55 for 1992 revenues.
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(;( )MUUS I ION EQI II NI ASSU( ,IA I IS IN(
Mr. Ira W. Leighton -7- April 10, 1979
The price of Eco-Fuel should be:
when fossil fuel (Po) = $8.67/MM Btu,
Eco-Fuel is: $ 5.09
C .15) 3% Transportation
( .56 ) 0 M Cost
$ 4.38
- 2.50
$ 1.88 Available for SESWC Sharing
1.88 x 7.2 x .8 = $10.83/Ton (For SESWC Sharing)
My calculations for the year 1992 tipping fee is as follows:
Base Cost $ 23.07
Landfill Acquisition $ 1.05
Host Community Fee $ 3.78
TOTAL $ 27.90
LESS:
Energy Credit $ (10.83)
Income from Non-
District Tonnage $ ( .59 )
NET COST TO
COMMUNITY $ 16.48/TON
I respectfully submit that this is a hard number, competitive for the
year 1992, with very little risk to the communities. In the context of
risk, CEA has operated its facility in E. Bridgewater, Massachusetts since
June of 1973. We serve Brockton, Whitman, Avon, Dedham, Southboro, Duxbury
and Staughton and have never turned a truck away.
I ask that you please review my comments and change those entries in your
report that will offer a fairer comparison than demonstrated. Also correct
any mathematical errors.
I thank you for this opportunity to comment and look forward to the presenta-
tion to the communities.
Very truly yours,
n B. Reilly
ce President - Marketing
Environmental Systems Division
JBR/mc
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