Catch-22 May Snag San Marcos Trash-Burning Plant

A Catch-22 kink threatens to further stall contract negotiations between San Diego County officials and the would-be developer of a trash-burning power plant in San Marcos.

County staff members have recommended to the Board of Supervisors that it not negotiate a contract with North County Resource Recovery Associates until NCRRA’s parent company, Thermo Electron, lines up another partner to help build the controversial, $220-million project.

But Thermo Electron officials say they cannot line up another partner for the project until they have first reached a contract settlement with the county. The Waltham, Mass.-based company has lost three previous partners in the project.

Compromise Offered

A consultant to the county has recommended a compromise of sorts: that the county and Thermo Electron negotiate a contract, but not sign on the dotted line until a partner is brought into the project. The consultant also recommends that Thermo Electron guarantee that the county will not be liable for the project should the company proceed on its own and fail.

The issue will go to the Board of Supervisors on Tuesday, and Barry Welch, project development manager Thermo Electron, promises to be there to argue his case.

The contract is necessary because NCRRA wants to build a trash-to-energy plant at the site of the county landfill in San Marcos, where it would process most of North County’s waste by recycling some of it, burning most of it and burying the balance in the landfill. The privately funded project would share its revenue with the county, but the county, for its part, would be liable for some of the plant’s expenses. Environmental arguments aside, critics contend the county’s exposure to financial risk is too great to warrant its involvement.

Contract Invalid

NCRRA and the county had a previous contract, but it was ruled invalid by a San Diego Superior Court judge, and NCRRA itself wanted to renegotiate terms of the contract anyway.

The stalled contract talks are just another hurdle for NCRRA, which faces a handful of lawsuits contesting the trash-to-energy plant on environmental and procedural grounds and which is facing growing public opposition, including that of the city councils of Carlsbad, Encinitas and Escondido.

The project has been on the drawing boards for more than six years.

Sharon Reid, deputy director of the county Department of Public Works, said she is insistent that supervisors not sign a contract with Thermo Electron until the county knows who the other player in the project will be.

‘Wants to Renegotiate’

“Each and every time they bring in a new partner or potential partner, the partner wants to renegotiate our contract,” Reid said Tuesday. “We negotiate with one party for what we think is the best deal for us, then they come back with a new partner who wants us to start over.”

In June, Combustion Engineering of Windsor, Conn., became the third company to drop out of partnership with Thermo Electron to build the project. Company officials cited escalating costs, delays because of the protracted litigation and uncertainty over negotiating a successful contract with the county.

Combustion Engineering would be interested in recommitting to the project if it first knew the terms of the contract between NCRRA and the county, Welch said Tuesday.

Extensive Talks

“We have had extensive discussion with potential customers who are extremely interested” in joining the project, he said. But those companies, he said, want to know the terms of the agreement before they buy into it, he said.

The partners would be expected by Thermo Electron to accept the contract already in place and to not renegotiate it on their own behalf, Welch said.

Reid said she was reluctant to accept Welch’s promise that a partner would have to abide by the existing contract.

“They haven’t stuck to the existing contracts in the past,” she said. “They’ll say that, but a partner will come in and see it differently.”

Letters of Credit

Another option, as suggested to the county by the financial consulting firm of Goldman, Sachs & Co., is that, if Thermo Electron moves ahead alone--as it says it can and might do--that it at least have letters of credit from its lenders showing that it can financially back the project, or guarantees from its primary vendors that their machines and boilers will perform properly.

“Vendor guarantees answer the ultimate question: what if a boiler doesn’t work? There is not only the costs to fix the problem, but costs you encounter as a result of having to pay some debt service in the meantime,” Welch said. “A vendor guarantee refers to the particular manufacturer’s willingness to provide substantial sums of money to throw at a particular problem.”

Welch said his company can acquire such guarantees--but that they likely won’t be signed until the county and Thermo Electron finish their own negotiations.

Another Goldman, Sachs recommendation to the supervisors is that they stick with NCRRA rather than pursue the project on their own or with an altogether different company.