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Posted 01/28/12

CES Waste-to-Energy Project

SUMMARY

Having observed the exhaustive Mason City Board of Adjustment approval process and its outcome, I continue to look upon the CES waste-to-energy project favorably provided a suitable agreement can be developed between the Landfill of North Iowa and CES and the company can receive proper permits from the DNR. The LNI/CES agreement must not place the economic viability of the Landfill at risk, and it must protect the Landfill from liability resulting from CES operations.

Additionally, we must maintain the integrity of the operating permit issued to the Mason City Water Reclamation facility, and ensure that CES maintains responsibility for clean-up and closure of their property in the future.

The Landfill of North Iowa has been exceptionally well run (by the Staff and the Board), and is a financially sound organization providing a needed service to North Iowans. The CES opportunity can improve upon an exceptional waste processing model already in place.

The Landfill Board hired Foth Infrastructure & Environment, LLC to analyze and report on the proposed CES project and its potential impact on Landfill operations. Hereafter this report is referred to as "Foth". Click here (Foth Report) for a link to the complete (and very thorough) report.

Following is information regarding the company, the Landfill, the project, and various concerns that have been raised throughout the approval process. As there is likely more detail than the average person is interested in, I have attempted to categorize thoughts so the reader can skim to topics of highest interest.

CES

• Headquartered in Colorado (the home state of the principal)
• Intends to operate multiple pyrolysis facilities in the US, each as a unique profit center. The Mason City facility will operate as Energy Recovery Specialists, LLC, and is incorporated in Wyoming (for tax purposes).
• For purposes of this posting I refer to the developer as CES (rather than ERS) as that is the most recognizable moniker in the public domain at this time

Project Approval Process (Six Main Steps)

• Mason City Council - Approval of Terms of Development Agreement (Complete-Oct)
• Mason City Zoning Board of Adjustment - Approval of Conditional Use Permit (Complete-Dec). The ZBA added thirty (30) conditions to the Conditional Use Permit (click here for a link to the ZBA approval). These conditions are meant to ensure the highest protection to the people of North Iowa, and include monitoring and real-time reporting of stack emissions on a website accessible to the general public.
• Alliant Energy - Agreement to Purchase Electricity (Complete)
• Landfill of North Iowa (LNI) - Approval of Municipal Solid Waste (MSW) Agreement - Pending (attorneys representing the developer and the Landfill are negotiating a mutually beneficial agreement for consideration by the LNI Board)
• Department of Natural Resources (DNR) - Issue Construction Permit (requires LNI agreement to start the process) and Title V Permit (following plant start-up test results)
• Mason City Council - Approve Development Agreement (Note: It is my desire to have a public hearing whereby the DNR can be on hand to answer questions specific to the permit prior to final council approval).

Pyrolysis

• "Pyrolysis is the thermal breakdown process of carbon based materials in an oxygen-deficient atmosphere using heat to produce syngas. The process does not allow air or oxygen so there is no direct burning of the waste material" (Foth, page 17). Continued efforts by deterrents to classify this facility as an incinerator are misleading.
• Pyrolysis generates three outputs: syngas, liquid, and char/ash
• The syngas from the CES plant will be scrubbed (cleaned) and run through a turbine to generate electricity to be sold to Alliant
• Liquids will be treated and discharged to the Mason City Waste Water Treatment Facility. "Any liquid discharges from a plant can also be treated to achieve discharge limits" (Foth, page iv). "Existing water treatment methods are believed to be adequate to treat the water to discharge standards" (Foth, page 27).
• Materials not suitable for processing as well as solid process waste will be tested and transferred to LNI.
• Any hazardous materials that cannot be transferred to LNI or the MC WWTP will be properly disposed of by CES
• "Good engineering, construction, and operations can mitigate most, if not all, environmental concerns" (Foth, page 16).
• "Pyrolysis plants operating using MSW as a feedstock are in Japan, Europe, Australia, and Indonesia. There are no known commercial MSW pyrolysis plants in North America"(Foth, page 22).

CES Financial Impact

• CES has secured $35,000,000 from Forbes Financial with a 10 year payback (contingent upon execution of requisite agreements and receipt of required permits).
• Equipment has a 20 year life expectancy
• The City of Mason City will reimburse property taxes at 100% the first ten years. Thereafter, the project will generate approximately $66,000 annually in new property tax revenue for Mason City.
• CES will receive MSW typically destined for burial at the LNI at no cost. The LNI will continue to receive the traditional $30/ton for all MSW received by CES (from the member communities). Approximately 83% of MSW normally buried will be converted to energy. Material that cannot be processed, and the ash, will be transported to the LNI (following testing to ensure it is non-hazardous).
• CES has the ability/desire to process used tires
• In addition to the construction jobs and increase in valuation CES brings to the community, 53-57 new jobs will be created.

Emissions

• Dioxins require oxygen to form; in an oxygen-deprived process (pyrolysis), dioxins cannot form.
• Mercury: "Research has indicated mercury travels long distances in the atmosphere prior to being deposited on the ground and in lakes where inorganic mercury is converted to organic mercury. It is suspected that a large amount of mercury deposited in the US may actually be coming from other countries, like China, where the environmental controls on coal-fired facilities are not as stringent as they are in the United States" (CGC Department of Public Health Letter, 12/14/11). Mercury will be removed from the feed stock for the process. Filters will be in place to catch anything that may get missed. These filters will be disposed of in accordance with standards in place.
• Emissions from pyrolysis and gasification plants can be treated to meet air pollution regulations using readily available air pollution control equipment (Foth, page iv).
• IES Air Emissions has a pyrolysis plant installed at a test facility in Romoland, CA. "The proposed CES plant is based on the IES process" (Foth, page 25). "For the system tested in Romoland, emissions were well below U.S. EPA standards" (Foth, page 26).
• "The CES plant intends to discharge water generated by the plant to the Mason City waste water treatment plant. The water reclamation facility treats 6.5 million gallons of waste water per day and has a permit from the Iowa DNR" (Foth, page 28).

DNR Permitting

• The DNR issues permits in accordance with EPA standards. EPA standards are set to protect an at-risk population (children, people with asthma, etc.). Thus, by design EPA standards are conservative.
• "The solid waste permit is not anticipated to be difficult for CES to obtain or maintain throughout the life of the proposed facility" (Foth, page 28).
• "It is likely emission standards could be met using conventional standards" (Foth, page 28). "If a facility is likely to meet the air emissions criteria, then a construction permit will be issued" (Foth, page 28).
• "The Title V (operating) permit for the proposed CES plant should be able to be obtained depending on the results from testing conducted during the initial plant start-up" (Foth, page 28).
• The DNR offers the opportunity for public hearings after they process applications. I have requested such a public hearing prior to the Mason City Council considering approval of the Development Agreement so citizens have the chance to ask specific questions about the permitting process, all feedstock sources, and anticipated air, water, and solid residuals based upon the anticipated feedstock.

LNI Governance

• The Board is comprised of an elected representative from each of the 29 member communities. Each representative has a weighted vote in proportion to the population served.

LNI Benefits

• Significant reduction in waste stream while maintaining current revenue; LNI will retain 100% of the tipping fees while CES processes roughly 83% of MSW to energy and the remaining 17% is burried at LNI.
• Life expectancy of LNI extended 55% (approx. 25-30 years)(Foth, pages iv, 32).
• Reduction in operating expenses (decreased fees to DNR?)
• Cost avoidance (LNI spent $33,382.31 in fiscal 2011 recycling tires that CES can process)
• Cost delay (a new cell, tentatively scheduled for construction in 2014 may be pushed back as a result of decreased tonnage buried) (Foth, page 32).
• "No employees are expected to lose their jobs as (impacts to staffing are not anticipated to occur" (Foth, pages iv, 31).
• As the plant proves itself out over time, it may be possible to reduce tipping fees (to the benefit of ALL LNI members and the taxpayers they represent) and/or utilize surplus capital for targeted projects (like capturing methane). The intent of such projects would be to generate incremental revenue, which could in turn result in reduced tipping fees.
• LNI becomes a de facto participant in moving member communities to 100% recycling (recyclables currently buried with MSW will be sorted out of the CES feedstock and processed as a recyclable commodity).

LNI Concerns

• Does the service area generate enough feedstock to service CES? Not an LNI concern; that's a concern for the folks putting up $35 million
• Can CES find enough labor to run the plant? Not an LNI concern; that's a concern for the folks putting up $35 million
• What if workers sort through my personal trash? Likelihood is not any higher, in my opinion, than that of workers sorting through the trash curbside, in transit, or at the Landfill.
• Emissions? Not an LNI concern. This issue rests with the DNR and the City of Mason City.
• What if CES fails? Appears to be a non-issue. The Director has twice confirmed LNI could receive and process the current waste stream if CES had an unplanned, catastrophic failure IF we maintain employees (again, Foth anticipates no impact on current staffing levels).
• Ash from CES? Must be tested (at CES cost) to ensure no unpermitted hazardous waste is received at LNI. CES must retain responsibility for proper disposal of hazardous waste. This can be handled with language in the Agreement. "Ash and residue from a pyrolysis or gasification plant can be tested to verify it can be placed in a landfill" (Foth, page iv). "Through adequate processes at CES and LNI, the risk of acceptance and disposal of unauthorized materials can be mitigated" (Foth, page 32).
• Acceptance of dust and air pollution control waste generated by CES will likely require an amendment to the LNI permit (with DNR).

LNI Temptations

• Why don't we sell (rather than give) CES our trash? With the 83% reduction in MSW volume/100% revenue retained plan before us, LNI will realize incremental margin over current operations. There is no opportunity on the table (nor is one anticipated) that would enable LNI to market MSW as a commodity. If such a regional opportunity were to materialize, it remains to be seen if LNI members would need the LNI as their MSW broker.
• If there is money to be made, why doesn't the LNI do this ourselves? For starters, we don't have $35,000,000. Neither do we have the expertise. If we truly question the financial viability of the business model, how could we even consider selling 20-30 year bonds to fund a speculative project. We can make more money with substantially less (if any) risk to current member communities by letting CES assume the financial and operational risk.
• Why don't we put the opportunity out for bid? That would be appropriate if the LNI Board had the initial concept and sought interested parties. In this case, a company sought us and has invested significant time and effort to make this work. If we don't dance with the partner that brought us we will likely end up without a date. Further, it is questionable whether other suitors would invest in similar technology without additional subsidies. This would create incremental risk over the current project.
• This project seems to be moving very fast? This opportunity was first presented to the LNI Board in September. The project has been before us for five months now. Through no fault of the LNI, staff and the Board was not in a position to consider details until January. The project has become time sensitive due to constraints on financial commitments CES has in place. Attorneys (not the Board) need to hammer out a suitable agreement that protects the LNI from financial and environmental risk on LNI property. LNI concerns/risks are manageable given the other substantial hurdles CES needs to clear (ZBA, DNR, MC Council).

By The Numbers

• LNI will continue to collect 100% of the $30.00/ton tipping fee regardless of whether MSW is received at the Landfill or at CES
• LNI reported NET revenue of $554,925 in fiscal 2011
• LNI has NET Assets of $9,622,390 as of December 31, 2011 (55% is restricted in a Closure/Post Closure Fund, and cannot be used for any other purpose).
• This project will maintain current revenue while reducing expense to the landfill
• This project will generate $35,000,000 in incremental economic development in North Iowa with NO financial risk to local taxpayers
• This project will add 53-57 net new jobs to North Iowa

In a nutshell, CES has virtually all of the risk with this initiative. If they are successful, the entire region benefits. If they fail, we maintain status quo.

Scott Tornquist

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