Up in Smoke
Harrisburg’s waste to energy to bankruptcy saga
Oct 31, 2011, Vol. 17, No. 07 • By JONATHAN V. LAST
But in the midst of all the bad news, there was a glimmer of hope. As part of the ’70s oil shocks, parts of the American energy establishment cottoned on to the idea of turning “trash to steam” to generate electricity. In 1978, for instance, the Public Utility Regulatory Policies Act was passed requiring the Federal Energy Regulatory Commission to guarantee a market (meaning subsidized loans) for electricity produced by small power plants (meaning trash-to-steam facilities). The idea was simple: Use the heat from incinerators to send steam from boilers through turbines, which generate electricity. The Europeans had been using variations of trash to steam for years, and if the Europeans liked it, it had to be a good idea. The first American waste-to-energy plant (engineers in the field hate the term “trash to steam”) opened in Massachusetts in 1975; and the fad spread nationwide.
Harrisburg jumped on the bandwagon in 1984, when it built a 5,000-foot pipeline to vent steam to power a nearby Bethlehem Steel plant. In 1985 the town added a turbine, for on-site electricity generation. But the added revenues did little for the bottom line. In 1993 the city unloaded the plant, selling it to a quasi-public utility, the Harrisburg Authority. The incinerator was “sold” for $40.7 million, which wasn’t as good a deal as it looked. The Harrisburg Authority was closely tied to the city, and most of the money from the sale was in IOUs.
Shunting the incinerator to the Harrisburg Authority was mainly a way to insulate the town’s mayor and council from the decision to raise garbage collection fees. The city was still on the hook for the costs of the plant. For instance, when the incinerator needed $10 million worth of repairs in 1996, the Harrisburg Authority technically borrowed the money—but the city backed the loan and guaranteed whatever payments the company couldn’t make.
In the late ’90s pollution from the plant began to get worse, too. Dioxin levels ran eight times higher than they had been just a few years earlier and the incinerator was clearly on the wrong side of the 1990 amendments to the federal Clean Air Act. Harrisburg bargained with the EPA for a decade before the feds finally came in and shut the incinerator down in December 2000.
The shutdown was a crisis for the city. They still owed enough money on the facility that they needed the revenues it provided (even though it still ran at a net loss). And the city continued to believe that, if the kinks could just be worked out and the boilers kept running at peak capacity—for much of the time, the plant limped along at 25 percent capacity—then it could eventually be made profitable. And sitting out there was the debt load. Abandoning the plant would mean eating the entire nut, with nothing to show for it.
The EPA gave the city two options: shut the incinerator down permanently, or put in place a plan to meet federal air-quality standards by 2003. The city deliberated for three weeks. Then they decided to double down.
Over the next three years, the city requested bids for modernizing the plant. The proposals from the big players in the industry were in the $100 million range. (The highest bid came in at $178 million.) But one contractor stood out. Barlow Projects had a revolutionary design for waste-to-energy boilers. They were willing to do the job for $57 million.
The Barlow price was a trap. It was so low that it should have sent the city running. But by 2003 the total accumulated debt on the incinerator was $104 million. So the fact that the price was absurdly low made it, for a city already on the ropes, almost impossible to pass up.
Retrofitting the plant meant shutting it down for three years. In order to pay for the job, cover lost revenues, and maintain service on their existing debt, the city had to take out $125 million in new loans. The plan called for rebuilding the existing two boilers and adding a third, upping the plant’s capacity to 800 tons per day. In addition, Barlow’s proprietary technology promised that the boilers would have no moving parts (forced air would churn the trash), so they would not constantly be on the fritz, as they were in the old plant. The plan projected that revenues from the new facility would be $23.2 million in the first year and would rise robustly from there. By 2034, it would be generating $44 million a year and the entire debt would be worked off.
The cascade of failure which followed resembled the sinking of the Titanic.
The problems began immediately. The new contractor, Barlow, revised its cost upward to $77 million before it even began work. Also, it turned out that the firm was too small an operation to get bonded for a project of such magnitude. Instead, the city sought to protect itself by withholding large chunks of payment until goals were met, attaching stiff penalties for failure.
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