When air and water pollution regulations began to close down the dumps where Boston's North Shore suburbs had disposed of their garbage for the last two centuries, Wheelabrator-Frye Inc. and DeMatteo Construction Co. offered the town of Saugus an alternative.

Bring us your garbage, they said. Pay us what you've been paying to use landfills, and we'll make the garbage go away.

Four years and a million tons of trash later, Saugus and a dozen other Massachusetts communities have proven that garbage is more than rotten tomatoes, rusty tin cans and last Sunday's newspaper.

The stinking stuff that was once buried in the salt swamps of Saugus is now burned in a $52 million plant that makes steam for a nearby General Electric factory.

Every ton of trash yields as much energy as a barrel of oil, said Wheelabrator-Frye Vice President Norm Ritter. Since the Saugus Refuse Energy Systems Co. (Resco plant began burning garbage in 1974, the North Shore's trash has saved the equivalent of a million barrels of crude.

At that rate, there's enough energy in the nation's garbage cans to cut oil imports by 400,000 barrels a day and to make a major contribution toward President Carter's goal of energy independence.

But garbage also yields pollution, politics and practical problems that have left the Saugus system a solitary example of the potential for turning trash into treasure.

Of more than a dozen "urban waste energy plants" around the country, Resco is one of only two or three that work. Most of the rest have blown up, broken down or bankrupted their owners.

As a result, the growth in the use of garbage to make energy is slow. Trying to steer clear of the multi-million-dollar hulks of plants that never kept their promises, public and private decision makers are studying and stalling rather than signing contracts.

The District of Columbia last week received a $298,000 federal grant to study the feasibility of building a refuse-burning plant in Washington.

Despite the President's emphasis on alternatives to oil, only four or five major refuse energy projects are likely to be started in the next year, estimates the DOE's garbage specialist, Charlotte Rines.

"There's an awful lot of procrastination today in the refuse energy field," acknowledged Gary L. Allison, executive vice president of Wheelabrator Clean Fuel Corp., Wheelabrator-Frye's alternative energy subsidiary.

Most of the pilot plants for extracting energy from garbage have been built by private companies or local governments. The president's proposed Energy Security Corp. is expected to offer federal loan guarantees, price supports and other incentives to speed the commercialization of refuse energy plants.

Time, rather than money, may be all that it will take to get the refuse energy business going. As time passes, the cost of oil climbs, the number of landfills shrinks, the economics of turning garbage into energy improves and the hardware headaches get engineered away.

By 1984, garbage could become too valuable to throw away, DOE officials are projecting.

Wheelabrator's Ritter contends that the process used at Resco already is "competitive with landfill when landfill is realisticly priced."

Resco has signed long-term contracts with the dozen communities it serves, and currently charges then $14.82 a ton for disposing of their garbage. The "tipping fee" for unloading garbage trucks was originally $13 a ton and has escalated under a cost-of-living provision.

Landfill costs run in the range of $6 to $10 a ton across the country, but are higher in the Northeast. It is 20 or 30 miles from Saugus to the nearest legal landfill, and the savings in trucking costs helps make Resco more attractive.

Charges for taking garbage are one source of income for Resco; the other is the sale of steam to the nearby General Electric works in Lynn. Resco doesn't disclose how much it charges GE, but says the fees are pegged to the cost of making steam from GE's regular fuel, imported oil.

A joint venture of Wheelabrator and DeMatteo -- a big Boston construction company that operated several landfills before they were legislated out of business -- Resco "lost less than $1 million pre-tax" last year, and this year's profit-and-loss picture is "dramatically improved," Ritter said.

Because Resco was built as a profit-making venture, it pays property taxes -- nearly 1.5 million worth last year -- making it Saugus' biggest taxpayer. Take away the tax bill and the plant would be showing a profit.

What's known of Resco's economics appears to be in line with DOE projections that refuse energy plants will take about five years to become profitable and after that can produce energy as cheaply as conventional power plants.

Resco's economic problem -- and the hang-up for most new plants -- is lack of garbage. The plant is now running at a rate of 375,000 tons a year, short of its designed capacity of 500,000 tons a year. The municipalities that have contracted with Resco provide only about 40 percent of the plant's garbage fuel, far short of the 70 percent share of municipal waste planned for. The rest comes from private haulers whose junk is more difficult to burn than ordinary plate scrapings.

Resco has had few of the operational problems that have plagued other plants, said manager Ken Batten. The chronic complaint about the plant concerns carbon flakes that sometimes fall like black dandruff on the shoulders of North Shore commuters. The floating flakes -- some as big as a dime -- escape the filters and electrostatic preciptators that enable Resco to comply with federal Environmental Protection Agency and state air pollution limits.

The plant has broken down a few times and blew up once, but "we've never turned away a ton of garbage," said Batten.

Explosions are a problem for every refuse energy system. They occur not in the burners, but in the shredders that chop up garbage before burning. Discarded gas tanks, leftover dynamite and other hazardous materials -- including a batch of defective perfume containing highly volatile alcohol -- have been blamed for the blowups.

Resco's solution was to stop shredding the garbage, after a blast destroyed the shredder, Batten explained. Now a traveling crane picks up huge scoops of garbage from a pit where trucks unload and drops it directly into the giant burner. The crane operator picks out and sets aside things that don't burn well -- on a recent day that included several refrigerators and a batch of railroad ties.

The Saugus plant uses technology invented by a Swiss firm, Von Roll Ltd. and licensed to Wheelabrator-Frye in this country. Von Roll has built more than 130 similar plants throughout the world, but Resco is the only one of its kind in the U.S. In the Von Roll system, heat from the burning garbage makes steam that either can be sold or used to directly run an electrical generator.

Iron and steel pulled out of the ashes by a magnet are sold as scrap. The 5 percent of the garbage that remains is now "stockpiled" but could be used in road-paving materials, Batten said.

Because it simply burns garbage to make heat, the Resco plant is considered unsophisticated compared with many competing systems. ("Sure," responds Ritter, "but ours is the one that works.")

Other companies, most notably American Can in the Milwaukee Americology plant (see separate story) tout the benefits of "total resource recovery" by sorting out the aluminum cans, glass bottles and other recyclable materials.

"We feel the maximum resource to be recovered is energy," said Ritter. "If you want to recycle bottles, you should do it at the grocery store.

DOE officials are skeptical that the value of even scrap aluminum makes it economical to try to sort the soda cans out of the other garbage. The main reason for removing glass and metals is to keep them from junking up the machinery, Rines suggested. Glass is a particular problem because it forms stalagmites in boilers that have to be chipped off when they begin to hurt the efficiency of the boiler.

Several efforts to reduce garbage to some form that can be burned in conjunction with coal or other fuels in conventional power plant boilers have run into difficulties, and many engineers are dubious.

Rines and DOE's resource recovery and waste energy systems division, with a budget of about $15 million this year, has financed 30 planning studies for local garbage-burning power plants and about 50 research and development projects, most of them to engineer better hardware.

Federal efforts are largely leaving simple burning systems in private hands while financing more esoteric answers to the garbage and energy questions.

In Flordia, researchers are trying to make bacteria eat garbage and turn it into methane gas, which can be burned directly or converted chemically into gasoline. It's well established that bacteria break down garbage into methane; it happens spontaneously in landfills, where the gas can cause pollution problems. In California, DOE-financed work is drilling gas wells in old garbage dumps to tap that methane and pipe it into gas mains.

Researchers also are pursuing pyrolysis -- heating garbage in a kiln with little oxygen to produce burnable gases, an oil-like liquid fuel and char, a combustible solid similar to charcoal.

Monsanto Corp. built a pyrolysis plant in Baltimore more than five years ago, but abandoned the project in 1977 after operating glitches, pollution problems and major cost overruns. The city poured another $4.5 million into the project and last May started it up for a 30-day run. Since then, the Baltimore plant has been running "off and on" said Jake Bochinski, assistant chief of solid waste for the city.

Baltimore gets $30,000 to $40,000 a week selling steam from the plant to Baltimore Gas & Electric, Bochinski added, but more than half of Baltimore's garbage still is burned in old-fashioned incinerators with no attempt to capture its energy.

Other high-tech systems that are having start-up problems include one at Hempstead, Long Island, where the Black Clawson Co., a division of Parsons and Whittemore, has built a plant in which garbage is mixed with water -- the metal and glass sinks out -- then dried and burned.

At Bridgeport, Conn., Combustion Equipment Associates and Occidental Petroleum are partners in a plan to convert garbage to a form that can be substituted for oil in power plant boilers. The technique involves spraying the garbage with an "embrittling agent" (something like starch) that makes the trash shatter into fine powder when it is shredded.

Chicago has two plants to extract energy from its rubbish, but neither is considered a great success. One extracts heat from an incinerator to make steam, but so far the city has no market for the steam; the other reduces garbage to a dried fuel that is sold to a local power company.

Nashville, Tenn., and Ames, Iowa, have relatively small refuse energy plants that are considered successful technologically, but not economically.

The economics of plants that can be made to work right is improving rapidly as the cost of other energy sources increases, but there is one major problem, said DOE's Rines -- the cost of constructing new plants is increasing even faster than the cost of energy, far faster than the rate of inflation.

The DOE estimates that the cost of operating and maintaining most refuse energy plants will be about equal to the annual cost of paying off the mortgage on the plant. Because most have been built with private funds, high interest rates push up the plant costs. Federal loan guarantees and low-interest tax-exempt bonds could offset some of the cost escalation.

DOE officials also are considering what amounts to price supports for garbage used as a fuel, indirect subsidies to keep the fee plants charge for taking garbage competitive with local landfill costs.