Covanta Indianapolis is proposing to build a $45 million recycling facility next to its incinerator on Harding Street. Covanta Energy Corporation, traded on the NYSE, owns and operates worldwide, over forty new generation waste combustion facilities with added benefit of energy recovery, also known as waste-to-energy or energy-from-waste power generation plants. Under the deal negotiated by his honor, Mayor Greg Ballard’s administration, the city would continue to send all waste to Covanta, but the company would pluck out recyclables and sell them on the commodities market. These are usually metals e.g., copper, aluminum, iron, etc.
The new “material recovery facility,” or MRF, would pluck out 80 percent to 90 percent of paper, plastics, cardboard and metal. There are commodity markets for these materials as well, i.e., paying cash per ton. Other materials that are not recyclable will be burned to create steam that would then be sold to Citizens Energy, which “generates” more cash.
The city of Indianapolis faces financial penalties if it launches alternative recycling programs, under a pending deal with the incinerator operator. The agreement is worth more than $112 million in revenue to Covanta, which would become the city’s main residential recycling provider for the next 14 years. Companies that rely on recycled goods oppose the deal because they say Covanta’s facility would generate sub-par material for their industries (Read: they know who they are dealing with.) So what happens if they don’t buy from Covanta? Where does Covanta sell its materials if these companies refuse to buy their product?
The Department of Public Works says it’s a way to boost the city’s overall recycling rate without requiring residents to sign up for a separate curbside service. It’s good that the city was looking out for you, but the public wasn’t privy to the terms and conditions of the agreement and you have to wonder if other recycling initiatives were considered. Note that the majority of the members of the Board of Public Works were appointed by Ballard. The panel is expected to approve the Covanta deal Wednesday. But, they, the board, has no authority over the Covanta contract and terms of the agreement weren’t known when they held a public hearing on the issue July 23. So, the public hearings purpose was to let people and environmental groups vent, while the board supposedly “considered” the expressed concerns of the people, without knowing the particulars of the agreement!?
This contract was negotiated behind closed doors with no public input on the details of the contract. So what was the purpose of the hearings?
Here’s a breakdown of key points in the contract:
The contract provides a financial disincentive for the city to significantly boost participation in the current curbside program i.e., the contract with Republic. Curbside recycling is currently available for an additional monthly fee through Republic Services, but the city, meaning taxpayers, will be penalized if a competitor grows a 5 percent market share. The city will receive a cut of the revenue Covanta generates by selling steam produced by its incinerator to Citizens Energy, but the amount of the cut could diminish, according to other terms of the contract.
- The agreement prohibits the city from launching new recycling programs, and it provides that Covanta could receive $333,333 a month in liquidated damages. If entrepreneurial innovation creates a better recycling program, the city is locked in and would have to pay Covanta $4 million per year for the duration of the contract.
- Through the city’s garbage collection it will continue to pay tipping fees, which are $30.04 per ton of trash in 2014. That would generate about $8 million for Covanta, based on the city’s waste stream last year, which was 267,158 tons. The contract would last through 2028, making it worth at least $112 million.
- The city will no longer have to meet a quota to provide 300,000 tons of waste. It’s worth mentioning that Republic operates on of the largest landfill in the country, based in Newton County, Brook Indiana. Does it mean they’ll import more trash from other cities to make up for the lost revenue?
- The city will continue to receive a share of steam revenue sold to Citizens Energy. The city’s share will be 10.8 percent, if it delivers at least 260,000 tons of trash. That share will increase or decrease by 0.4 percent for every 10,000 tons over or under that minimum. Steam revenue may be reduced further if curbside-recycling tonnage exceeds the 2013 amount by more than 5 percent.
- Covanta is guaranteeing and must pull at least 18 percent of waste for recycling.
- The city and Covanta will share recycling revenue after the sixth full year of operation if 18 percent of the waste stream is recycled and Covanta receives $225 per ton (net of recovery costs) for the material i.e., what the commodity market will bear.
- The city will continue to pay Covanta’s real and personal property taxes (as provided in earlier agreements), not to exceed $4 million.
So, let’s parse this…the city receives revenue from Covanta, who sells steam to Citizens Energy, who passes on their operating cost to you, but Covanta can only guarantee that a minimum of 18 percent of all trash they collect will be recycled. The amount of revenue paid to the city could be less than expected. So, we are paying Covanta and the city via Citizens Energy for recycling without knowing how much we’re paying, nor is it clear how trash will be picked up.
Will the purchase of steam via Covanta reduce our utility rates?
Let’s say that Covanta achieves everything and more of what it promised. How will the taxpayers benefit? Also, lost in this agreement is what happens to the ash residue that’s produced and the fact the burning trash is not recycling nor sustainable.
I think we just got royally screwed again.
Tell me what you think?