Boiler problems create budget shortfall
Thanks to a perfect storm of boiler problems at the Perham Resource Recovery Facility including low steam prices and low commodity prices for recyclables, the Prairie Lakes Municipal Solid Waste Authority saw its 2015 budget blown sky high and ha...
Thanks to a perfect storm of boiler problems at the Perham Resource Recovery Facility including low steam prices and low commodity prices for recyclables, the Prairie Lakes Municipal Solid Waste Authority saw its 2015 budget blown sky high and has had to turn to its member counties to make a nearly-$1 million bond payment due May 1.
The county is financially committed to the Perham facility, of which it is part owner via a joint powers agreement. Becker County Commissioner Larry Knutson represents the county on the Prairie Lakes board.
"The board needs to have a discussion about how the county will pay for this in the long term," Becker County Commissioner Ben Grimsley said.
The county will be scrambling to make big bond payments into the future "if we don't demand a new operational plan, and perhaps new leadership," he said.
The four other member counties in the Prairie Lakes Municipal Solid Waste Authority, which operates the twin-boiler incinerator and recycling facility, also will have to pony up, based on their percentage of the consortium's waste stream.
"Each county owns a share of the consortium," said Mike Hanan, executive director of the Prairie Lakes Municipal Solid Waste Authority.
Otter Tail County will feel the most pain, since it committed to supply 39 percent of the waste. Its May 1 bill is nearly $390,000.
Clay County committed to 15 percent, giving it close to a $150,000 bill. Todd County committed to 14 percent, so its bill is nearly $140,000. Wadena County committed to 10 percent, making its share of the bond payment close to $100,000.
Otter Tail County bonded on behalf of the group to pay for the big incinerator expansion project. It floated two bonds, one for $10 million and one for $19 million.
The payments due May 1 and Nov. 1 are combined payments on the two bonds, Hanan said.
There are no guarantees, he added, but it's hoped the facility's operational budget will stabilize enough next year to cover the bond payments, as originally planned, so counties are not hit with the big twice-yearly payments.
The bonds were issued to pay for a major project involving adding a second boiler to the incinerator to increase capacity and adding a large MRF "dirty recycling" facility.
Revenue is produced when garbage is burned, producing steam which is sold to industrial users in Perham, and recyclables pulled from the waste stream are sold.
Revenue also comes from "tipping fees" of $94.50 per ton of compacted garbage that comes into the Perham facility, paid by the five member counties.
Becker County, for example, charges $75 per compacted ton for garbage received at its transfer station north of Detroit Lakes.
That garbage is moved to Perham via a contracted hauler.
The local tipping fee is lower in order to keep a rough balance with tipping fees charged by neighboring counties, said Steve Skoog, environmental services director for Becker County.
The economics of garbage mean that it tends to flow to where tipping fees are lowest, although Becker County does what it can to keep the garbage (and tipping fees) flowing to its transfer station.
Since Becker County doesn't charge enough to cover the tipping fee at Perham, it makes up the difference through a $40 a year special assessment on residential property tax bills, and a special assessment on commercial property based on volume.
A big part of the problem is that the new boiler never performed as it was supposed to, said Hanan.
Seeking improvements, Prairie Lakes went to mediation with the boiler contractor, and that dispute is now in arbitration.
Not only has Prairie Lakes had to pay for repairs and modifications to the new boiler, its tipping fee revenue suffered whenever the boiler was shut down to do the modifications, Hanan said.
And while it was shut down, it also had to buy natural gas to meet its obligation to provide steam for industrial users, he said.
Adding to the budget problems, the price it gets for its steam is low, since it is tied by contract to natural gas prices. Prices for recyclables, like metal and cardboard, are also low.
The facility is supposed to be able to process 73,000 tons of waste per year, but because of the boiler problems only handled 45,000 tons last year.
"Add it all together and it didn't generate nearly as much revenue as we needed," he said.
Hanan believes that with the continued improvements to the new boiler system, which have been costly, the facility will begin to operate as originally planned.