Christine Stuart file photo

Earlier this year, Gov. Dannel P. Malloy and the General Assembly gave the state’s trash authority an ultimatum: figure out how to become sustainable through new revenue streams or face dissolution.

The Connecticut Resource Recovery Authority handles trash disposal and recycling for 75 municipalities. It takes the trash from some of those member municipalities and turns it into energy by burning the trash at its Mid-Connecticut Project facility in Hartford.

The problem is that the price of energy has dropped so dramatically that the CRRA is losing millions of dollars a year while at the same time facing capital replacement needs that will increase its overhead by $13 million in 2015. The drop in energy prices from 8.5 cents per kilowatt-hour to 3.5 cents per kilowatt-hour is related to the oversupply of cheap natural gas in the Northeast, according to the $500,000 audit the legislature forced the quasi-public agency to conduct.

The audit, which was released Friday, is just the first step in the process of transforming or dissolving the state’s last publicly owned trash-to-energy facility. It was meant to give state officials answers about what to do with its garbage — whether to burn it for energy at a cost, or ship it out of state to be buried in landfills elsewhere.

“It validates what we’ve been saying for years,” Paul Nonnenmacher, spokesman for CRRA, said Monday. “Trash-to-energy is in jeopardy because of falling electric prices.”

Department of Energy and Environmental Protection Commissioner Daniel C. Esty said the audit report “makes clear that CRRA is faced with many challenging trends — including declining prices for the electricity it produces, a reduced volume of solid waste as a result of the diversion of materials from the waste stream, the age and inefficiency of its technology, and deficiencies in its operations.”

But he acknowledged that this is only a first step in the process. Executives at CRRA will give their own presentation on the future of the agency on Nov. 19.

Sustainability is an issue with which the agency has been wrestling for the past couple of years.

CRRA, which was created by the legislature in 1973, is not allowed to end the year in the red so it has to resort to postponing maintenance to its equipment and delaying upgrades to stay in the black. However, that makes it less efficient than similar privately run trash facilities in the state.

Auditors encouraged the agency to use its bonding authority to take care of some of the long overdue capital projects.

“The bonding authority granted to CRRA may be the most useful tool in addressing the Authority’s capital needs,” the report found.

Auditors recommended against increasing the tip fee to erase the short-term deficits, but they didn’t believe increasing the spot tipping fee would be detrimental. To the contrary it could raise about $2.4 million in additional revenue.

The deficits the trash authority is running in its operating budget range between $4 million in 2014 and about $9 million a year in each of the next two fiscal years.

This isn’t the first time the agency has struggled to put its fiscal house in order.

Just as CRRA recovered almost all of the $220 million it lost in a deal with Enron in 2001, it was threatened by another group looking to wrestle its operations away from it. In 2010, the Metropolitan District Commission laid out plans to take over the trash agency. Later in 2010, when its contract to run the facility ended, the MDC sued CRRA. The two agencies are still in arbitration over the matter. The MDC, according to the auditors’ report, is claiming CRRA owes it about $47 million in post-employment benefits for the employees who worked at the facility.

But do all these observations made by the auditor mean the state should sell the Mid-Connecticut Project to a private company?

The audit, which was performed by Cohen Reznick, suggest that there’s a risk to the state if it wants to get rid of the trash-to-energy facility.

“The absence of CRRA’s mid-Connecticut WTE facility in its current form could have a significant impact on Connecticut’s management of solid waste,” the audit concluded. “Out-of-state disposal is currently on the incline, and could increase significantly.”

The report also found that municipal tipping fees could go up based on an oversupply of solid waste and a decrease in competition if CRRA gets out of the market.

“Connecticut must weigh the benefits of CRRA as a policy tool versus the risks of no longer having a quasi-governmental entity that acts as a market leader,” the report concludes.

There are five privately run trash-to-energy facilities in the state. The audit suggested that CRRA should explore options such as anaerobic digestion and composting in an effort to mitigate the decline in revenue. It says its private competition already practices these methods.

However, environmental leaders are not convinced that a trash-to-energy facility is the best way to dispose of solid waste in the 21st century.

“The Comprehensive Operation Review demonstrates that despite years of public subsidy and support, burning more trash per person than any other state in the country is not an economically viable strategy,” Abe Scarr of ConnPIRG said Monday. “Nor should we want it to be, as incineration is a public health threat and a waste of valuable resources.”

Scarr suggested the state look at investing in “recycling infrastructure, transitioning away from incineration and setting us on the path to zero waste.”

Last year there were 2 076,525 tons of trash burned at the six trash-to-energy plants in Connecticut and 25,245 tons of trash were landfilled, while 317,589 tons were shipped out of state.

Editor’s Note: This story was updated to take out erroneous information about the Capital Region Council of Governments.