As a professional with over 40 years of experience in the planning, design, construction, startup, problem resolution and operation of large solid waste processing and waste-to-energy facilities, it is my opinion that critical information still needs to be provided and actions taken before an informed and fiscally responsible decision can be made regarding the planned MRC-Fiberight Hampden project. This opinion is based on my review of the project over the past three months, including separate discussions with the MRC, Fiberight and other involved parties.
Although I generally encourage implementation of projects that incorporate some form of new technology or equipment, this project involves the first-time integration of multiple technologies into one system. The technologies range from fully demonstrated to, as Fiberight has noted, “cutting-edge” technology (enzyme hydrolysis). Additionally, some of the other technologies to be employed have not been demonstrated in the intended application. Therefore, the proposed facility should be considered a large, 650-ton-per-day demonstration project with significant risks, especially given the scale-up magnitude from the 50-ton-per-day capacity of Fiberight’s Virginia demonstration plant.
The MRC municipalities need to know, with certainty, the extent to which each of the parties involved will be responsible for these risks and which party or parties will provide the financial guarantees necessary so that the MRC will not have to bear the additional cost burdens of technology development and project cost overruns.
In its Bangor City Council presentation, Fiberight indicated that the MRC will be contracting with the “Project Entity” and that Covanta, along with Fiberight, would be a general partner in the project entity. When asked by a city councilor who would be guaranteeing the facility, Fiberight replied that it would be the project entity. Unfortunately, no one followed up to ask who would be financially backing the project entity, probably assuming it would be Covanta. However, to date, there is no documentation or indication that this is the case.
The most significant concerns are related to the agreed-upon, $70-per-ton initial tipping fee. First, the figure, which was developed in the latter part of 2015, was based on what designers would categorize as conceptual-level cost estimates. As such, there should have been a substantial contingency built into these estimates, especially for a demonstration project of this size. However, that does not appear to be the case. Second, and most importantly, is to determine which parties will bear responsibility for construction, startup, facility modifications (as will be required to meet the agreed-upon performance standards) and facility operation and maintenance (O&M) costs that exceed the amounts used in development of the $70-per-ton estimate.
Fiberight would not address this directly. Instead, it indicated that any construction and startup cost overruns will be covered by a combination of the contingency, utilization of multiple fixed-price contracts for process equipment and process systems procurement and an insurance policy. Although these might cover a portion of the cost overruns, it’s unlikely that the majority of such costs will be covered. With respect to O&M cost overruns, Fiberight indicated that these will be Covanta’s responsibility under its fixed-price O&M contract. However, such contracts typically exclude additional costs incurred as a result of inaccurate information provided by the developer, which would be Fiberight.
If cost overruns exceed the limited mitigation and contingency provisions provided by Fiberight, such costs would need to be covered by the Fiberight/Covanta project entity (which is expected to have only limited assets), investors or a tipping fee increase. Unless recent changes have occurred, no investors have publicly agreed to financially back the project entity. Covanta’s only public communication to date is its Dec. 18, 2015, letter to the DEP in which Covanta expressed interest in providing an equity investment. When asked, Fiberight indicated that Covanta does not plan to publicly identify its roles in the project until sometime in June.
Without financial backing, Fiberight would need to negotiate a tipping fee increase or equivalent arrangement with the MRC. If MRC members reject the increase and investors still are unwilling to back the project, or if alternative measures cannot be negotiated, the only apparent options are for the project entity (Fiberight/Covanta) to file for bankruptcy or abandon the project, which is unlikely.
In conclusion, I believe that there are significant financial risks associated with the project and that the responsibilities of the parties regarding these risks have not been clearly identified nor contractually addressed. The MRC should immediately concentrate its limited resources on these activities and resolution of other issues that have been called to its attention. If such protective measures are not taken, then, in my opinion, the $70-per-ton tipping fee will be inadequate — and perhaps significantly so.
Kenneth A. Smith of Lamoine is a retired engineer who was responsible for facility operations with three different employers.