Covanta Ends Long Beach Contract to Burn Waste for Power

Covanta is ending its contract to burn Long Beach, California’s waste to make power at Southeast Resource Recovery Facility (SERRF) three months early (effective early 2024). Now the city is looking for a long-term alternative to manage the 325,000 to 350,000 tons flowing each year into the facility, which is owned by the city of Long Beach and Los Angeles County Sanitation Districts (LACSD).

The contract, amended from a previous agreement, just went into effect Feb. 1, 2023, placing onus on the facility’s long-time operator Covanta to cover operating and maintenance expenses. Covanta declined comment on specific questions around financials and/or other challenges leading to the agreement’s premature end. But Jane Hermsen, City of Long Beach SERRF bureau manager, says a main driver was the removal of diversion recycling credits for SERRF (stipulated by AB 1857 in August 2022), which “made it impossible to compete with cheap landfill disposal.”

About 148 jurisdictions were sending their municipal solid waste to the Long Beach facility for the credit, generating a substantial revenue stream and making up roughly 50% of incoming materials, according to the city’s Energy Resources Department.

Officials will continue to look at long-term planning including working towards encouraging zero-waste efforts, and it has released a request for proposal to install infrastructure for organics processing at SERRF, Hermsen told Waste360.

The most weighty factor in determining how to manage the waste will be how well the strategy would support compliance with AB 1826 and SB 1383, which mandate organics recycling for businesses and require municipalities to provide residential and commercial organics collection. About half of SERRF’s incoming stream is organics.

In the interim, municipal solid waste that can’t be recycled will be handled at local transfer stations and landfilled.

“The City did anticipate SERRF to continue operations until the end of the current agreement term of June 30, 2024. Termination three months early will not have detrimental effects as the city has already been in the process of a Request for Proposals for disposal [to have a recourse] to manage additional capacity if SERRF were to close,” Hermsen says.

“Covanta now finds itself in a similar situation as the City nearly a year ago with projected expenses exceeding revenues, resulting in the decision to exercise its right to terminate the agreement for convenience,” Bob Dowell, the city’s director of Energy Resources wrote in a recent memo.

Launched in 1988 to operate for 30 years, SERRF has been known for some time to be in need of major capital expenditures. There have been failures of aging equipment and unanticipated outages that have resulted in significant facility downtime.

HDR performed an assessment in 2017 determining that running the facility through 2024 would cost $8.185M to $12.885M and would require $40.905M to $66.310M in capital investments to run through 2039.

A financial hit came in 2018—the expiration of a 30-year power purchase agreement with utility Southern California Edison –resulting in an annual loss of about $4M. Without the credit to supplement revenue, the operation would incur an additional $2M loss per month, forcing the facility to shutter at the end of February 2023, according to city officials.

In Fiscal Years 2019 and 2020, just ahead of the loss of the credit, the city invested $13.7M in capital and refurbishments, anticipating that SERRF would be able to process waste and generate electricity through the Covanta contract term of June 30, 2024, according to a memo written by Dowell.

As the economic pressures intensified, the city notified Covanta of plans to terminate the contract, and it was then that the New Jersey-based contractor came back with a proposal to take responsibility for SERRF revenues and expenses from February 1, 2023, until the end of the June 2024 contract—likely banking that it was on firm footing due to additional agreements for special waste and refuse pricing flexibility.

Long Beach City Manager Thomas Modica has opposed AB 1857 and the removal of the credit that helped keep the facility going for years. Modica wrote to Governor Gavin Newsom just over a year ago, “The bill will directly contribute to an increase in landfilling as the state aims to move toward zero waste … and exacerbate the environmental impacts of waste management given the lack of available alternatives to landfilling.”

Environmental groups have long fought to close SERRF, and they see the bill as a victory.

East Yard Communities for Environmental Justice has led most of the anti-mass burn work in Long Beach, calling on the city to decommission the facility, citing toxic emissions and concerns about SERRF’s health impacts on nearby underserved communities.

As Long Beach who for some time anticipated SERRF’s closure continues vetting alternatives, Covanta is also moving in another direction. Nicolle K. Robles, Covanta’s director of Communications, wrote to Waste360: “We are working closely with the city to formally end our oversight on operations as we turn to new business opportunities as part of our service expansion efforts in North America.”