Through no fault of their own, Becker, Otter Tail, Wadena, Clay and Todd are among a small number of Minnesota counties that might get hit with big property insurance bills next year for their waste-to-energy operations.
The five counties jointly own the Prairie Lakes Municipal Solid Waste Authority, which operates a recycling and incineration plant at Perham.
In the worst-case scenario, Prairie Lakes could see its property insurance bill rise from $76,000 this year to nearly $380,000 next year -- if it can get insurance for the incinerator facility at all.
Don’t blame the twin 1,800-degree incinerators, burning merrily 24 hours a day, turning household garbage into clean steam for food manufacturing plants in Perham.
Don’t blame the plant’s preprocessing stage, which involves workers tending to the trash as it flows through a sturdy Rube Goldberg-like assortment of conveyer belts, metal platforms, bins, ladders, and separation equipment -- pulling out recyclables and non-burnables and leaving the rest for the incinerators to consume.
Those incinerators burn very hot and clean, so much so that no smoke is generally visible to the naked eye -- just a small trail of clean vented steam, said Prairie Lakes administrator Chris McConn. There’s no problem getting liability and workers comp insurance, just property coverage, he said.
Blame the chaotic world of 2020: Prairie Lakes may have a very low insurance claims history and a good safety record, but it is a waste-to energy plant, and that has become an insurance problem.
“For the first time I can remember, waste-to-energy operations have become a difficult business for anybody to reinsure,” said Robyn Sykes, who has been executive director of the Minnesota Counties Intergovernmental Trust since 1999.
Minnesota Counties Intergovernmental Trust is a joint powers entity made up of Minnesota counties and others (like the Becker County Museum and Becker County Fair Board) that pool resources to provide property, casualty and workers’ compensation coverage to members. MCIT also offers risk management and loss control services.
Since 1979, the system has worked well, but this year, for some reason, it had a terrible time getting property insurance coverage for the four county-run waste-to-energy facilities in Minnesota.
In addition to Prairie Lakes in Perham, she said, there’s also the Polk County incinerator, the Pope-Douglas waste-to-energy facility in Alexandria and the Prairieland solid waste facility in Faribault County.
Sykes said all four are well-run operations with 20 years worth of good track records and low claims histories -- but MCIT’s reinsurance provider flat-out refused to cover them this year.
Reinsurance companies provide deep-pocket insurance to insurers. For example, MCIT has a $1 million deductible, and its reinsurance provider picks up everything over that, Sykes said.
That could theoretically get expensive: The combined value of all four waste-to energy facilities in Minnesota is about $135 million, she said.
But the move by the reinsurance provider caught MCIT off guard.
“We thought ‘why don’t they want us? We’re well-run,” Sykes said.
The answer seems to lie in major claims facing insurance companies in other parts of the country, leaving reinsurers shell shocked. Minnesota just got caught in the crossfire, she said.
Fair or not, that left MCIT to shop in the expensive specialized reinsurance market to find coverage for the four waste-to-energy plants, including Prairie Lakes. They found it, but it cost a little over $1 million a year, with no guarantees for coverage next year.
Because it was such short notice, MCIT agreed to swallow 80% of the bill, or $800,000, with the affected counties paying the other 20%, or $200,000.
Prairie Lakes share was $76,000.
But MCIT says it won’t pick up that 80% for next year, because the counties have had time to plan for that added expense. The counties are pushing for MCIT to pick up half the cost, said Becker County Commissioner Larry Knutson. But counties could get stuck with the whole $1 million bill. That would put Prairie Lakes’ property tax bill for 2021 at about $380,000.
The counties that own Prairie Lakes Prairie Lakes Municipal Solid Waste Authority face varying amounts of exposure: Otter Tail County owns 39%, Becker County owns 22%, Clay County owns 15%, Todd County owns 14% and Wadena owns 10%, McConn said.
Sykes says MCIT pushed hard to get the four waste-to-energy plants included in its regular property insurance booking, and has been shopping around for insurance solutions.
Officials from the affected counties across the state have been talking to each other and also considering various insurance options, said McConn.
One thing is sure, property insurance is important. It would cost $30 million to $40 million to replace the Perham facility if it were destroyed, he estimated.