LIFE CYCLE COSTS AND PUBLIC DECISIONS

RICHARD T. FELAGO

The MITRE Corporation

McLean, Virginia

JEROME J. LESZKIEWICZ AND ANDREA EATON

Office of Environmental Construction

Department of Environmental Protection

Montgomery County, Maryland

ABSTRACT

A method of quantifying economics in a re· source recovery project, and of choosing the most effective cost areas for analysis and presentation to public officials is discussed. Sensitivity analyses of resource recovery using life cycle costs can factor heavily in the public decision process. Choosing the most effective illustrations of con· struction, operating, and ownership risks and the method of their presentation can be critical to the project. This paper presents the method of combining the analysis and presentation needs effectively, to assist public officials in appreciating fully both the need for timely decisions, as well as the potential consequences from not making those key decisions and commitments. The paper is geared at publicly sponsored projects, but includes a private sector role through beneficial tax owner· ship via an equity contribution.

INTRODUCTION

Prudent choice and presentation by the tech· nical community to elected officials of resource recovery costs via life cycle cost analyses are cri· tical to the understanding by public officials and their educated decisionmaking concerning solid waste disposal options in their communities. The purpose of this paper is to explain the analyses done, presentations to officials with reasons for the scenarios chosen, and likely project outcome

due to the work presented. The subject analysis was for Montgomery County, Maryland, an afflu· ent County of population 600,000, the suburb of Wa&mngton, D.C. which has - like most large Eastern urban areas - wrestled with every imagin· able solid waste solution from plastic·dipped bales to rail haul to resource recovery.

Conduct of the project is being done according to the U.S. EPA Management Model philosophy [ 1] where there are five distinct phases of a resource recovery project: ( 1) Feasibility; (2) Procurement Planning; (3) System Acquisition and Contracting; (4) Design and Construction; (5) Long Term Oper· ation of the Facility. Phase I involved complete analysis of resource recovery plant costs, and com· pared various risks to landfill costs - which are the only bases for comparison by most public officials today.

PROJECT BACKGROUND

The County had adopted a solid waste manage· ment plan prior to 1974. The plan called for con· struction of a fluff Refuse Derived Fuel (RDF) facility on a site near the center of the County, for economic and land use reasons. This site was reo ferred to as the Central Processing Facility (CPF) site and was adopted as such by Council resolution in 1975. The plant was either to produce RDF, and truck or rail haul the product about 25 miles (4 1 km) to a coal·fired 600 MW (3 unit) utility generating station, or to transfer the waste and

397

process it adjacent to the utility. As with many co­firing proposals around that time, the utility would only sign a contract which allowed immedi­ate suspension of RDF purchase, "when in the utility's sole judgment there is indication of ad­verse effects upon the boiler." The project was considered excessively risky for this and other reasons, and was abandoned.

An arduous and painful landfIll siting effort was then undertaken by the County, and at great expense resulted in the location of a 500+ (200 ha) acre landfill, of which only 110 central acres can be used. Many environmental restrictions were placed on the site, including one which called for the location of a transfer station at the for­merly designated CPF site, strictly to reduce the number of trucks going to the landfill, located 8.3 (13.8 km) miles from the transfer station. The transfer station must also be capable of trans­ferring up to 1,700 tons of refuse in 8 hr, with no overnight storage of waste on the floor of the transfer station. The transfer station became an integral part of the system, allowing the County to site the landfill. This is an important factor in the feasibility assessment of resource recovery, as the remainder of this paper will explain. En­vironmental requirements for landfill, including an expensive transfer station design, have re­sulted in an expenditure of nearly $40 million (1981 dollars) for a landfIll system of disposal.

RE-ENTER RESOURCE RECOVERY

The pain of siting the landfIll sharpened the County's commitment to long term energy re­covery as the solid waste management solution which is in the County's best interest. In addi­tion to reducing volumetric requirements at the landfill, the recovery of the energy from waste held out the possibility of lower costs. The County authorized an exhaustive feasibility analysis and development of a procurement plan [2] . The pre­sentation of those results have paved the way for an energy recovery facility which will be pro­cured in the near future.

COSTS

Aside from the absence of events which would preclude feasibility of an energy recovery facility, such as no energy market, for example, the cost analysis is the most important part of a solid waste energy recovery study. As long as the technology

exists to process the waste in an environmentally acceptable manner, the important question is, "How much will it cost?" This analysis provides the costs associated with the market, sites and technolOgies. Table 1 summarizes the basic cost calculation assumptions. This analysis addresses costs from a public project viewpoint, although the facility could involve private ownership for financing purposes.

TABLE 1 COST CALCULATION BASIC ASSUMPTIONS (2nd Quarter 1980)

Cost, Financing, Quantities

1. Construction cost escalation rate - 11 percent

2. Operating cost escalation -9 percent 3. Energy revenues escalation rate -9 percent 4. Material revenue escalation rate - 0 percent 5. Beginning of design/construction period -January

1983 6. Date of first commercial operations - January

1986 7. Level drawdown of bond issue during construction

period

8. Industrial development tax exempt bond rate -

10 percent 9. Financing period - 20 years

10. I nterest rate - 9.75 percent

11. Debt/equity ratio = 77/23 12. Total tonnage (1985) 5 14,000 tons/year, 85 per­

cent processible (437,000 tpy); 15 percent non­processible (77,000 tons/year); facility availability

80 percent of 1,800 tons/day, or 1,440 tons/day (525,000 tons/year) processible.

13. Capital cost of mass burn facility -$96,377,000 adjacent to the transfer station; capital cost of R DF-dedicated boiler facility same location -

$103,579,000

Distance and Times

1. Distance to landfill - 8.3 miles; 20 min 2. Landfill costs, including land, site work, stationary

equipment - $19,829,000 3. All traffic must be directed through transfer sta­

tion to reduce truck traffic as a condition of land­fill perm itting.

Simplifying Assumptions for Life Cycle

398

1. Rolling stock fleet replacement performed at one quarter of the fleet replaced every year after the first three years, to allow consideration as an O&M cost, with annual escalation. Transfer station al­

ready in place allows this to be done, since County will own rolling stock for several years prior to

startup of energy recovery facility.

The major capital and operating plant costs were first investigated separately in December

1980 by Bums and Roe Industrial Services Corp­oration, a major power plant design engineering firm. Bases for cost assumptions are found in Table 2. All major cost estimates are displayed in Table 3. Equipment pricing was obtained from many different vendors, and sound engineering judgment was applied to the probable escalation of costs in this particular County.

TABLE 2 BASE CASE ASSUMPTIONS FOR LIFE

CYCLE COSTING (2nd Quarter 1980)

Facility Description

1. Mass burn, electricity producing facility adjacent

to transfer station already in place

2. Nominal 1,800 tons/day plant consisting of ttiree

600 tons/day furnaces, room for one spare

3. 30 percent contingency for unforeseen problems,

special construction, architecture, screening and

landscaping

Cost Information

1. Annual Debt Service

2. Annual Facility O&M Cost

3. Annual Fixed Transporta­

tion Cost

4. Variable Transportation Cost

5. Industrial Development Tax

Exempt Bond Rate

6. Financing Period

7. Annual Escalation Rate

8. Money Interest Rate

Recovery Rates and Pricing

= $13,6 28,000*

'" $ 4,153,000*·

= $ 1 ,836,000* *

= $1.21/ton

refuse input* *

= 10 percent

= 20· years

D 9 percent

= 9.75 percent

1. 437,000 tons/year refuse processed

2. 454 kWh electricity/ton refuse generated**

3. No material recovery, no markets identified for

post-combustion ferrous scrap

4. 40 mills/kWh energy price

5. 90 percent of all revenues are paid to the County

'Cost. as-calculated using 77T23Debt/EquiW Ratio

and 10 percent Bond Interest Rate, base capital cost from Table 1 of $96,377,000.

, 'As calculated by design architect/engineer.

The major cost components were then further analyzed and in coordination with Smith Barney, Harris Upham and Company, a knowledgeable in­vestment banker, were converted into annualized costs, and into terms of dollars per ton, based on 1,200 tons/day.

Base capital and O&M costs were presented in . second quarter 1980 dollars for several reasons: (1) ease of understanding, sinc� all equipment quotes were given in June 1980 dollars and mid-

TABLE 3 BASIC COST DATA USED FOR THE LIFE

CYCLE ANALYSIS (In dollars per ton of refuse Input).

Basis: 437,000 Tons/Day Processed (2nd Quarter 1980)

at T ranster Station

COSTS

Plant Capital

Plant Operating

Residue Haul·

Residue Disposal"

Material Haul (Fe)

Total Cost Per Ton

REVENUES

Energy Price

@ 30 mills/kWh

@ 40 mills/kWh

@ 50 mills/kWh

Materials (Fe)

I nterest on Debt

Service Reserve (@ 9.75 percent)

NET COST

@ 30 mills/kWh

@ 40 mills/kWh

@ 50 mills/kWh

Mass Dedicated Burn Boiler

31.20

9.50

1.20

4.20

NA

46.10

12.20

16.30

20.40

NA

3.00

30.90

26.80

22.70

32.00

14.30

1.20

4.20

.20

51.90

12.45

16.60

20.80

2.15

3.00

34.30

30.15

25.95

'Incudes haul cost of residue. By-pass materials are not Included in this presentation, as they are Independently directed to landfill.

" Includes capital and O&M costs of landfilling tha reli­due, partially In a l andfill under construction; includes a s inking fund for naw landfill.

1980 labor, equipment and utility costs were used; (2) in many projects, once the estimated costs of the project are made known, general discussions and the media will often escalate costs automa­tically. This phenomenon has often occurred, and in at least one project in Ohio, caused major complications for the project's credibility b�cause some quoted current dollars while others quoted future dollars, after the costs had already been calculated. To avoid this problem, the project team made a conscious decision to use current dollars, leaving escalation to individuals who chose to investigate that; (3) for an initial feasibility analysis, most decision makers could relate better to the value of money at that time.

Table 3 is based on 437,000 tons/year, which is the amount of waste which will be burned by the energy recovery facUity. Table 3 illustrates costs related only to the processing plant, residue haUl and disposal, and revenues.

399

ENERGY SYSTEM OPTIONS

Column headings on Table 3 indicate the two major technologies examined: mass bum and coarse RDF dedicated boiler. Both mass bum and dedicated boiler options generate electricity which is then sold to the utility. The early part of the study indicated the local utility purchasing elec­tricity was the most viable energy market. The cooling tower option considered for both systems is a wet slat-type evaporative tower. The concept of once-through cooling was evaluated and re­jected as a possibility for cooling the facility be­cause of the excessive usage of water, and diffi­culty obtaining permits. Work was performed on air cooled condensers, but is not needed for this discussion. Both the mass bum facility and the dedicated boiler are located on site with the trans­fer station now under construction. This allowed savings of about $ 5 million per year in transporta­tion costs; both truck and rail were examined.

EXPLANATION OF COSTS

PLANT CAPITAL

This cost element covers the annual capital cost of the facility which converts the MSW into elec­trical energy.'In the mass bum option, this in­cludes the entire system, starting at the MSW re­ceiving pit to the electricity generated by the turbo-generators. The dedicated boiler option be­gins at the receiving, storage ·and handling of RDF and terminates at the electricity produced by the turbo-generators. That is, the cost of front end processing equipment (shredders, classifiers, screens, and related equipment) is included in this estimate.

PLANT OPERATING

This includes the annual operating and mainte­nance costs of the facility which converts the MSW or RDF into electric power. The systems are pre­cisely the same as those described under ''Plant Capital" above. Both the MSW plant and the RDF dedicated boiler plant would be integrated with the transfer station.

RESIDUE HAUL

Regardless of the option selected by the County, a process residue, mostly ash residue in

mass bum systems, and heavy rejects and resi­due from an RDF system, will remain. For this analysis it was assumed that the County would be responsible for disposing of the residue from the system in the County's new landfill during the facility's operation.

Haul costs for residue from facilities burning refuse are straightforward, and make up a signifi­cant additional expense.

RESIDUE DISPOSAL

This element includes the annual cost of labor, equipment, capital and operating costs solely for the disposal of process residue.

MATERIAL HAUL

In the case of an RDF dedicated boiler, the cost associated with haul of the material to market is included. This is an absolute cost, since the cost of equipment, as well as revenues, are considered as other line items.

EXPLANATION OF REVENUES

ENERGY

The energy revenue shown in the base case is the major revenue associated with the facility. The analysis assumes a 90 percent County - 10 percent contractor sharing of revenues, based on 40 mills/kWh. The sensitivity of technology costs and revenues are brought out on the subsequent graphs.

MATERIALS

400

The revenues are based on potential revenues from only one of the markets identified, mainly precombustion ferrous metals. For the 20 mesh mixed color glass cullet, originally assumed to sell at $18.7 5/ton f.o.b., the delivery point was includ­ed. This analysis assumes these products are possible on a sustained basis. The wisdom· of attempting production of uncontaminated 20 mesh cullet is questionable, but was included, allowing for im­provements in the state-of-the-art. Costs for state-of-the-art equipment and shakedown are in­cluded in the estimate. Markets for products re­covered from mass bum residues were not iden­tified, thus no credits are claimed for this system option.

INTEREST ON DEBT SERVICE RESERVE

The use of a leveraged financing as envisioned for this project requires that a reserve fund equal to at least one year's debt service be available for contingency. The funds are raised in the original. bond issue, and are kept as a reserve until the last year. Each year the interest on the fund repre­sents a constant-level income, which is shown in this analysis.

EXPLANATION OF NET COST

The net cost is the sum of the total costs less the revenues. Table 3 shows the first year net cost. The life cycle charts illustrate the effects of the costs and revenues as they vary over time.

THE LIFE CYCLE COST

SENSITIVITY ANALYSIS

Approach: Life cycle costing is a method for comparing alternatives on a long-term basis [3] . The complexity and long-term nature of resource recovery facilities lend themselves particularly well to this type of an analysis. Rather than com­paring only initial capital cost (or outlay) among options, life cycle costing compares differences in total economic impact of the life of the project. Use of this technique is not new. It has had exten­sive use in planning and acquisition of complex military systems for years, where choices between optimized systems require understanding of long­term costs. This technique is receiving wider ap­plication in public works projects today.

The value of this economic tool lies in the fact that the relationship of capital to operating costs differs from system to system, and that costs and revenues do not remain static from year to year. In addition, the multitude of cost and pricing factors that affect a resource recovery facility do not es­calate or deescalate at equal rates. Therefore, ex­amining costs and revenues for the first year of operation alone is inadequate and misleading. A life-cycle analysis incorporates these changing cost and pricing factors and portrays how these cash flows interact to alter annual total costs. These costs are then divided by annual through­put tonnage to show the change in tipping fee over time.

Project alternatives and risks can be com­pared on graphs of calculated life cycle costs. The graphing of projected tipping fee over project

life illustrates when costs and revenues are in­curred or accumulated. Costs can be shown as either remaining relatively constant over time, or as occurring primarily in a particular period during the project life. Fluctuations in cash flow are important to recognize because although for the long-term, they may seem insignificant, pro­jects are less economically vulnerable when in a steady state.

401

A computer program was used to project life life cycle costs for comparison of alternatives and analysis of risks. This program is designed specific­ally for performing life cycle cost analyses of re­source recovery projects. Several escalation rates for various cost fractions are divided simultaneous­ly into fixed and variable components where ap­plicable. The basis for the analysis of the County's project risks and alternatives follow.

BASIS FOR LIFE CYCLE COST ANALYSIS

In order to visualize the effects of varying the factors examined, the result of each life cycle cost analysis was placed on the same graph with a

•

chosen base case analysis. The alternative of lowest cost as shown in Table 3 was chosen as the base case: a mass burn facility with wet cooling tower located adjacent to the transfer station. Tables 1 and 2 gave the list of assumptions used.

Using this case analysis as a basis for compari­son, the effect of varying several major factors is examined. The factors are:

1. Technology choice 2. Financing method 3. Energy selling price 4. Energy escalation rate 5. Facility under-utilization 6. Construction delay 7. Turbine generator ownership

The reason for choosing each of these items is given in the appropriate sections following.

EFFECT OF TECHNOLOGY CHOICE

Life cycle cost modeling was used to compare the two alternatives that were estimated to be lowest in cost: the base case described above and the RDF dedicated boiler with wet cooling tower in the same location. Figure 1 presents the results of this analysis. Table 4 shows changes in assump­tions made for the analysis of a 100 percent RDF dedicated boiler system. This analysis was chosen for presentation to show public officials the sensi-

tivity of cost to a higher revenue, yet higher O&M system. The intent was to assist in decision-making concerning a type of technology.

In the first year of operation, the tipping fees of the two technologies are estimated to be about three dollars apart. Although the estimated capi­tal cost for the 100 percent RDF system is only slightly more, and the energy recovery efficiency is expected to be greater, the tipping fee for the RDF system is projected to be greater due to higher operation and maintenance costs. Over

TABLE 4100 PERCENT RDF SYSTEM COMPARISON TO BASE CASE ANALYSIS: CHANGES IN

ASSUMPTIONS (2nd Quarter 1980)

• Annual Debt Service = $13,984,000· • Facility Annual O&M Cost = $ 6,248,000·,*0-• 462 kWh electricity/ton refuse generatedt • 0.0314 ton ferrous/ton refuse recoveredt • $30.00/NT ferrous prieet

'As calculated for Table 3. • 'Includ", cost of material recovery and material trans·

portatlon. tCalculatad based on system heat balance.

taased on 1980 market quotations; NT = net to n of 2,000 Ib (0.9078 t).

time, this difference in tipping fee increases sig-' nificantly. The major cause for this widening difference is due to the RDF system's high O&M cost to capital cost ratio. Annual debt service is a fixed cost over time, but operation and mainte­nance costs escalate (in this case, at the assumed rate of 9 percent). For the RDF system, these escalated costs barely negate the increased rev­enues expected due to energy escalation. This analysis is subject to debate concerning the ex­pected efficiencies of an RDF system. A conserva­tive approach was chosen since there are no RDF dedicated boiler plants operating today which de­liver steam to a market on a consistent basis.

EFFECT OF FINANCING METHOD

Differences in annual debt service as a function of financing method were examined. The two variables that will affect the debt service most are the debt/equity ratio and bond interest rate. The effects of varying the debt/equity ratio were used to illustrate to elected officials the benefits of in­volving an equity investor to the maximum degree

30'OOh=-----------_-:::::-�:_::_-_ 100% RDF

-

Z o ... _ 10.00 -

w W LL.

� O.OO�--------------------�------------��------, Z 1986 96

YEAR

FIG. 1 EFFE.CT OF TECHNOLOGY CHOICES: 100 PERCENT RDF VS MASS BURN

402

possible under a leveraged financing. The strong effect of a varying bond interest rate makes a case for officials to retain the best possible finan­cial advice and the most knowledgeable bond mar­keting talents, since timing of the bond sales can be critical to the final interest rate.

Figure 2 shows the effect of varying the bond interest rate by 1.5 percent. The difference in tip­ping fee is Significant; approximately six dollars per ton is estimated, and remains constant over the life of the facility. This graph illustrates the im­portance of the timing of the bond issue in today's volatile market.

Figure 3 presents the results from varying the debt/equity ratio from the base case, 77 percent Debt/23 percent Equity, to 61 percent Debt/39 percent Equity. (A 61 percent Debt/39 percent Equity ratio would be required in the opinion of the investment banker, for the equity investor to benefit from a 10 percent investment tax credit, a 5 percent energy tax credit, and depreciation.) Again, the difference in tipping fee resulting from the

40.00

variance of this factor is significant, in this case estimated at about $12/ton. This diagram illus­trates how, with proper tax incentives, an equity investor can favorably affect the tipping fee. '

In both of these cases, note the difference in tipping fee remains constant over time. Financ­ing method will affect the size of annual debt service only. Annual debt service does not esca­late as other cost factors do; therefore, a cost change due to a debt service change will remain constant during the lifetime of the project.

EFFECT OF ENERGY SELLING PRICE

As presented in Table 3, tipping fee for the first year of operation is very sensitive to the energy selling price. This difference becomes increasing­ly Significant when examined over time. Figure 4 presents the results of varying the electricity sell­ing price from 30 to 50 mills per kWh. The 30 to 50 mill range was chosen because that was the price range expected as a result of obtaining pay-

30.00 11.5% BOND INTEREST RATE

-

Z o 10.00 .... ....... o -

(10% BOND INTEREST RATE)

w w � O.OO�----------------------�r-------��--��--�--� C) 1986 Z -

Q.

Q. t=-10.00

-20.00

-30.00

96 YEAR

FIG.2 EFFECT OF VARYING BOND INTER-EST ,RATE

403

20.00

w o.

� 1986 CJ

·z

ii:�10.00� £1.' -

....

BASE CASE (77% DEBT/23%EQUITY)

96 YEAR

61% DEBT/39% EQUITY

06

FIG. 3 EFFECT OF VARYING DEBT/EQUITY RATIO

ment for full avoided costs pursuant to the Public Utilities Regulatory Policies Act of 1978 (pURP A). The minimum revenue was not expected to be below 30 mills/kWh in 1980 dollars. Because the cost of energy escalates over time, the higher the initial price of energy, the greater the impact of escalation as it is compounded over time. This presentation was made to officials to drive home the significant benefits of negotiating the best possible energy price. Good background work, a strong netotiating team and perhaps other market needs can bring pressure to bear on the energy market so that the best possible price is obtained. Since the energy price in its entirety fluctuates with time, a moderately significant price can be­come even more pronounced with time.

EFFECT OF ENERGY ESCALATION RATE

Energy revenues are the major source of rev­enue received by the resource recovery system. Therefore, tipping fee will be greatly influenced not only by energy selling price as discussed pre­viously, but by energy escalation rate as well. Figure 5 presents the difference in life cycle cost

due to a one percent difference in energy escala­tion rate, assuming that the escalation of the O&M costs remains the same as the base case or 9 per­cent annually. This presentation was used to re­emphasize to officials the inherent good sense in a project of this type, as long. as energy prices out­pace O&M costs as they have in the recent past. An energy escalation of 8 percent annually, allow­ing cost escalation to outpace revenue escalation is also shown for comparison.

The difference in tipping fee shown for the first year of operation is relatively small in comparison to the overall effect. The gap between the two cost curves widens over time for a large overall cost dif­ference. The sensitivity of tipping fee to energy cost and escalation cannot be overemphasized.

EFFECT OF FACILITY

UNDER-UTILIZATION

Refuse is the raw material for a resource re­covery system. Sized at 1,800 tons per day, the facility should be able to process well in excess of 437,000 tons per year at 85 percent availa­bility. The plant was sized with growth in waste

404

p ...

z o ... .........

0-

30.00

20.00

10.00

o.

� 1986 u.

� -10.00 -

Q.

Q.

t= -20.

-30.

-40.00�

-50

ELECTRICITY 30 MILLS

YEAR

ASE CASE (40 MILLS)

06

ELECTRICITY

50 MILLS

FIG. 4 EFFECT OF ENERGY SELLING PRICE CHANGE

quantities in mind. The quantity 437,000 tons represents the entire processible waste flow in the County.

. Revenues, realized through energy generation and sale as well as through materials recovery where feasible, offset the costs of the facility. While these revenues are variable (Le., are de­pendent on waste volume), a majority of costs are fixed. Debt service is a major fixed cost. Oper­ation and maintenance costs for the facility are also largely fixed. The fixed and variable nature of these costs and revenues dictate tipping fee sensitivity to waste quantity.

Figure 6 presents the effect of a twenty per­cent loss of waste flow to the resource recovery facility. Fixed costs must be shared by a lower an­nual tonnage base, and lower tonnage also means

405

that less revenue is available to offset those costs. The additive effect is an increasingly significant disparity between processing all and only a frac­tion of the available waste stream. The magnitude of the overall difference accentuates the impor­tance of considering waste stream control meas­ures.

This effect of under-utilization is an extremely important presentation to make to elected offi­cials. Many decision makers are reluctant to make hard decisions, such as the method of controlling waste flows. A battle through several levels of court is unpalatable for most officials, but this presentation drives home the potential impact of not controlling the waste. If waste is not control­led, and the annual budget is derived from the facility tipping fee without a tax supplement (as

F===�----------�-------------a8°%��E�N�ERGYESCALATION

20.00 BASE CASE 9% ENERGY ESCALATION

-

Z 0 I-.......

0 -

0.00 W w 1986 lL

(!) Z

-10.00 YEAR

c. C. I- -20.00

-30.00

-40.00

-50.00

FIG.5 EFFECT OF VARYING ENERGY ESCALATION RATE

in the subject County), then the elected officials' are helped via this presentation to understand the consequences of losing waste without control.

EFFECT OF CONSTRUCTION DELAY

There are several unforeseen circumstances that can cause construction delays. Strikes and in­creased environmental regulation mandating a revi­sion of process design are two examples. Institu­tional difficulties are a major' cause; fmancing may be more complex than anticipated, or contract negotiations more time consuming than plarmed. Potential areas for delay should be recognized and controlled where possible, as implementation de­lays are costly to the project.

This presentation is geared at moving officials to make decisions to minimize delay. While con­struction cost inflation is well known, this presen­tation drives home the effects of those delays. Fig­ure 7 presents the effect of a one-year construc­tion delay on estimated tipping fee over the life of the project assuming all else remains constant. The delay causes an increase in capital escalation; con-

sequently, annual debt service increases. The dif­ference in tipping fee remains constant over time because only annual debt service is affected. The cumulative impact over the lifetime of the project is significant, however. In this case, the difference in tipping fee is nearly five dollars per ton of refuse.

Another possibility, not presented in this analy­sis, is the change in first year O&M costs due to delay during construction. The bid price would not change, but initial costs would be higher. This would increase costs even more, because the new O&M fraction is escalatable.

EFFECT OF CHANGE IN TURBINE­

GENERATOR OWNERSHIP

The possibility of utility ownership of the turbine-generator was explored. Figure 8 presents the effect of this alternative ownership of the tur­bine generator. The capital cost decrease would be enough to cause a Significant decrease in tip­ping fee, in this case estimated at approximately

406

40.00 80% OF WASTESTREAM

30.

20.00 ... ...

Z 0 I-.........

0 10 . .., "

• BASE CAS w w u.

(!J o. z 1986 9 -

c.. YEAR c..

i= -10 •

-20

-30.00'--

•

FIG. 6 EFFECT OF FACILITY UNDER-UTILIZATION

$3.50/ton of refuse. This difference in tipping fee remains constant over time, as annual debt service is the affected cost factor, and does not escalate. Whether the utility is willing to - or even can - own the turbine-generator requires investi­gation, but the graph illustrates the reason why that should be pursued as far as possible. The revenue distribution was assumed to remain the same.

COMPARISON OF LANDFILL AND

ENERGY RECOVERY COSTS

The costs of an energy recovery project can be put into perspective by comparison with pro­jected landfill costs. This may be the most power­ful presentation for decision-making. The cost of landfill in the subject County is high, relative to other counties around the country. As explained

previously, the cost of long-tenn landfill with a high tonnage input in this County actually in­cludes transfer station costs, haul.costs, and land­fill costs. The landfill costs alone are high, when considering purchase of land and construction of the landfill. The County used the highest standards for siting, designing, constructing, and screening the landfill from view and therefore required the high cost.

The cost of landfill can only escalate with in­flation of prices. The cost of an energy recovery project, as shown in the life cycle cost graphs, can decrease, given the same escalation rate for energy revenues as for operation and maintenance costs_ The effect of inflating the operating costs of land­fill while holding the capital cost constant is shown in Fig. 9. The 9 percent escalation rate used in this paper results in a unit cost increase of about $30/ton over the 20-year term of the project. This

407

30.0

1 YEAR CONSTRUCTION DELAY 20.00

-

� 10.00 ... "-

* -

w W O.OO�-----------------------r--------------���--� lL

� Z -

� -10.00 �

-30.00

30.00

10.00

1986 96

YEAR

FIG.7 EFFECT OF CONSTRUCTION DELAY

O.OO�----------------------.-----------��r-----�

-10.00

1986 96

YEAR

TURBINE OWNED BY UTILITY

FIG.8 EFFECT OF CHANGE OF TURBINE -GENERATOfl OWNERSHIP

408

50,OOr

40.00 LANDFILL 9% ESCAL IN (O&M) COSTS -

� r---------------���� !::: 30.00 o -

w w u.. C!) 20.00 z Il. Il. .... 10.00

ELECTRICITY 30 MILLS/KWH

O.OO�----------------------------�------------------��--------, 1986

-10.00

96

YEAR

FIG. 9 LANDFILL VERSUS ENERGY RECOVERY

represents an increase of about 140 percent over the life of the project, which is reasonably con­servative since the charge for landfill in the County increased 180 percent between 1974 and 1980. The original 1974 $ 5 tipping fee did not reflect all costs, however, and the real landfill cost in­crease may not be 180 percent. Nevertheless, the tipping fee was increased 180 percent in 6 years. Figure 9 shows the relationship between the base

. case energy recovery project cost and the costs of landfill over the same 20-year project time period. The initial cost of transfer, haul, and landfill is about $22/ton, including about $ 14/ton in capital expense, and about $8/ton in operating (O&M) costs. The $14 remains constant over the life of the project; the $8 is subject to inflationary pres­sures, and is escalated at 9 percent.

The energy recovery facility, including residue haul and disposal (mass burn, wet cooling tower at the transfer station; base case) has a total gross unit cost of about $46/ton, including $36/ton in capital expense, $9/ton in plant operating, about

$4/tori in landfill capital cost, and about $1/ton in operation for residue haul and disposal. The portion of the cost subject to escalation is about $10. The interest on debt service reserve remains a

constant revenue. As explained under the life cycle cost section, the $10/ton operating cost is offset hy about $16/ton in energy revenues. If both $16/ Lon for revenues and $1 Olton are escalated at the same rate, the curve descends rapidly, since the $16 credit outpaces the $10 cost.

Figure 9 shows that the curves cross by the fifth year after the plan commences operation. That is, in this scenario, within five years, the County would be saving money with an energy recovery facility operating, instead of providing a long-term landfill. In general, if the operating costs and energy revenues are escalated at the same rate, and the energy market is stable, solid waste energy recovery will be more favorable than land­fill over the same project life. Even a lower esca­lation rate such as 6 percent would result in curves that are closer together, but the difference would still be significant. The key to this is a belief that energy prices will continue to escalate at least as fast as the general cost of living.

Figure 10 compares landfill to energy recovery on the basis of cost to each household, excluding cost of collection. This was purposely escalated alone in this instance to put all costs on the same basis in the future, when individual household

409

C ..1_ 0 (1) ::I: a: W e( (1)..1 ::l..l 0 0 XC

-

a: a:

80 70 60 50 40 30

20 YEAR ENERGY RECOVERY $0.03/KWH w e(

o.. w .... > (I) a:

20l;..._--=":",,,,:,� 10 20 YEAR ENERGY RECOVERY

$0.04/KWH O w 00.. 1980 1985 1990 1995 2000 2005

YEAR

FIG. 10 COMPARISON OF COSTS TO HOUSEHOLDS FOR SOLID WASTE DISPOSAL (EXCLUDING COLLECTION)

costs were presented. This fmal presentation was used to show elected officials that the costs to homeowners in absolute dollars is not so devasta­ting, in that the project needs are in tens of dol­lars per household per year. This statement is im­portant to individuals concerned about the impact of the project on individual taxpayers, and can be a strong asset in gaining project support.

CONCLUSION

Quantifying economics via life cycle cost sensi­tivity analyses will assist public officials in making key solid waste program decisions. The analysis provides an understanding of long term cost im­plications of factors within and outside of their control. The life cycle cost presentation makes clear what could happen to costs if the decision makers delay, or attempt not to deal with major critical factors such as waste control or tech­nology choice over the long term. The presenta­tion can be a major positive force in moving the project ahead, and therefore the factors analyzed

should reflect as many issues of local concern as possible.

This type of analysis has always �en well re­ceived in the communities to which it has been presented. It makes use of good common sense in helping elected and appointed officials feel comfortable with their decisions on massive ex­penditures of money. In at least five communi­ties, these analyses have been an integral part of making the projects be considered as definitely "go" projects, and if used appropriately can factor into many intermediate decision points along the way.

REFERENCES

[1] "U.S. EPA Resource Recovery Management Model;" The MITRE Corporation 1979; pp. 34.

i2] ,Solid Waste Energy Recovery Project; Mont­

gomery County, MD, "Feasibility Analysis," The MITRE

Corporation; December 1980. [3] Russell, S. H., and Wees, M. K., "Life Cycle Cost·

ing for Resource Recovery Facilities," Proceedings of 1980 National Waste Processing Conference, Ninth Bien­

nial Conference, ASME, New York, pp. 259-260.

KEY WORDS

Bonding

Economics

Life Cycle Costing

Planning

Waste Control

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