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South Sioux City Health Board Meeting

Big Ox Energy spokesman Kevin Bradley speaks during a South Sioux City Health Board meeting at City Hall on March 15. Expenses incurred by the city and company for sewer odors linked to Big Ox's renewable energy plant recently eclipsed the $3 million mark, according to a Journal analysis of city records.

Jim Lee, Sioux City Journal file

SOUTH SIOUX CITY | Sewer odor issues in South Sioux City that began in fall 2016 have now cost the city and Big Ox Energy nearly $3.2 million, according to reports obtained and analyzed by The Journal. 

The city has paid most of the expenses, about $2.5 million, through a fund financed with water and sewer fees. Big Ox Energy, whose renewable energy plant in the Roth Industrial Park has been tied to the odors, has contributed around $700,000.

The odor-related costs include a wide range of expenses related to noxious sewer gas issues that forced more than two dozen families from their homes beginning in October 2016. Some families accepted assistance to restore their homes and settled back in more than a year ago. A smaller group has yet to move back into their homes and have filed legal claims against the city and Big Ox, seeking millions of dollars in damages.

The hundreds of transactions detailed in the expense reports mainly include hotel and food accommodations for displaced residents, air testing, home restoration, design and construction of a brand-new sewer force main and legal fees to handle multiple legal issues associated with the incident. 

City Administrator Lance Hedquist has said the city is in "sound financial shape" and was in a good position to handle the large, unbudgeted expenses. So far, the city has been able to swallow the costs by drawing down utility reserves, rather than increasing fees for ratepayers. 

The City Council did approve a 20-cent water rate increase in August, but the increased revenue is for a new water tower, not for odor-related costs, he said. 

The city has also been approved for a $1.5 million, low-interest state loan to cover a sewer construction project that has rerouted sewage from the Roth Industrial Park around the residential area that was affected by the gas issues. The project was completed in mid-June, and the associated design and construction costs are included in the report The Journal examined. 

Mark Albenesius Inc., the contractor that completed the sewer line work, received the most money of all the vendors listed in the report, more than $1.3 million. McClure Engineering, an engineering firm which assisted with the project, received more than $450,000. 

With the sewer project now complete, the frequency and amount of the city's expenses has decreased over the past two months. Most of the listed costs are now ongoing legal fees for several pieces of litigation related to the incident. Legal fees paid to a handful of law firms over the past 14 months have exceeded $110,000.

More legal fees will likely be on the way, as the city faces a rising number of lawsuits from the homeowners, who left their residences in October 2016 as a result of sewer odors. As of Thursday, 15 homeowners had filed suits against the city and Big Ox in Dakota County District Court.

More than half of the city's legal fees, $64,345.16, have been paid to Remboldt Ludtke, the Lincoln, Nebraska-based firm representing the city in a lawsuit against two of its insurers. The city filed the suits in August, seeking to require the Charter Oak Fire Insurance Company and Philadelphia Indemnity Insurance Company to cover $35 million in tort claims that were filed by 16 residents and one business against the city in May.

Under Nebraska law, plaintiffs contemplating legal action against a local government are required to first file a tort claim and then wait at least six months before filing a lawsuit in district court.

The city's sewer odor issues started shortly after Big Ox fired up its plant in September 2016. Residents began reporting putrid odors in a five-block area of Red Bird Lane and Le Mesa Way, along 39th Street, both indoors and outdoors. More than two dozen residents left their homes during the odors' height. The odors were traced to sewer gases coming up from the line the homes share with Big Ox Energy and the rest of the Roth Industrial Park. 

Big Ox and the city have contended faulty plumbing, not the plant or sewer line, was at fault for the odors, citing a study prepared by an engineering firm hired by the company that showed plumbing deficiencies in several affected homes.

According to the Nebraska Department of Environmental Quality, during October 2016, Big Ox had on a number of occasions received and released water with a low pH level into the sewer system, contributing to the generation of hydrogen sulfide gas in the sewer line. 

Each of the lawsuits filed against the city and the company allege that both entities knew or should have known that after testing the plant's operations prior to its opening that the city's sewer system would be unable to handle the pressures and waste being released into it, leading to the release of gases that escaped through manholes and into residences near the plant.

The lawsuits are initially seeking more than $7.4 million in damages. The total could increase if the houses are razed and rebuilt because they can not be repaired safely. 

Asked about the potential effect that a loss of the lawsuits could have on the city's finances, Hedquist emphasized the city is prepared for any major issues. He declined to offer an estimate of how much the city would need to come up with if it loses, saying it was "unknowable." 

"I could guess, but I don't think that's fair to the public to do so. We will be fine," he said.  

Hedquist also didn't rule out additional financial assistance from Big Ox to help cover the city's odor expenses. He said the two entities were "still in discussion" and didn't have a specific date by which they would need to reach a decision. 

Kevin Bradley, a spokesman with Big Ox, said in an email that the company has an "open line" with the city and is "always open to discussions." 

Big Ox's more than $30 million plant extracts organic nutrients from animal, grain and other waste to create methane, which is sold into the natural gas pipeline.

The facility was expected to save South Sioux City an estimated $75,000 each month by pre-treating the industrial waste it sends to Sioux City's wastewater treatment plant. 

Over the past year, Big Ox has resolved a trio of Occupational Safety and Health Administration citations after investigations into three separate worker incidents at the plant.

The plant paid more than $60,000 in fines for the citations, which detailed a lack of protection, education and safety practices for employees, which at times left employees vulnerable to hazardous gases inside the facility. 

The plant in June received a consent order from the Nebraska Department of Environmental Quality concerning compliance with state air and water regulations and, in December, agreed to pay nearly $50,000 as part of a settlement with the Environmental Protection Agency for alleged violations of the Clean Air Act. 

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