icfi.com Study to Identify Potential Long-Term Threats and Financial Assurance Mechanisms for Long-Term Postclosure Maintenance and Corrective Action at Solid Waste Landfills Prepared for: California Integrated Waste Management Board Contract IWM06051 FINAL REPORT December 3, 2007 Submitted by: ICF Consulting Services, LLC Fairfax, VA and CalRecovery, Inc. Concord, CA 94520

icfi.com 2 Overview of Presentation Background Evaluations of Mechanisms Proxy Indicator Tool State Pooled Fund Evaluations and Model Insurance Product Conclusion

icfi.com 3 Background: Contractor Study Team ICF Consulting – Prime Contractor CalRecovery – Lead on Proxy Factors Tool American Risk Management Resources – Support to Insurance Outreach SDV/ACCI – Support to State Pooled Fund Experience

icfi.com 4 Mechanism Evaluation Results ( I ) CertaintyAmountLiquidityBurden/Cost Trust FundHighMediumHigh Enterprise FundMedium High Sale of SecuritiesMediumHigh Letter of CreditHigh Low Surety BondHigh MediumLow Pledge of RevenueLow Medium Financial Means TestMediumHighMedium Corporate GuaranteeHigh Medium InsuranceMedium High Government Fin. TestMediumHighMedium Government GuaranteeHigh Medium Federal CertificationLow

icfi.com 5 Mechanism Evaluation Results ( II) Can Current Mechanisms Assure More Money Longer? Most mechanisms would require few if any changes Some mechanisms have built-in limits on how much can be assured Many mechanisms require periodic renewal

icfi.com 6 Mechanism Evaluation Results ( III) Annuities and Guaranteed Investment Contracts (GICs) as FA Mechanisms –Complex insurance contracts not typically used for FA –Better suited for PCM than CA –Fixed pay-out schedules with penalties for early withdrawal –No industry standards/forms –Not recommended

icfi.com 7 State Pooled Fund Analyses Step 1 Analyze state pooled fund design features and options qualitatively –Finding: Can only go so far on theory, must crunch numbers Step 2 Research experience with state pooled funds –Finding: Very few landfill pooled funds found Step 3 Develop a state pooled fund working model

icfi.com 8 Landfill Screening Tool Purpose –Develop factors and method that are simple to use for quickly judging the potential relative CA/PCM concern at California landfills Potential uses of tool –characterize LF universe –setting priorities –informing FA requirements –pooled fund contributions

icfi.com 9 Criteria Governing Factors and Methodology Not a site-specific risk assessment Use a limited number of indicator factors Three categories: high, medium, and low Factors must have a quantitative basis and relate to potential occurrence, duration, and costs of CA and/or PCM Evaluate the method considering importance/weighting of factors and effect on ranking scores; data from individual landfills were not used in the analysis

icfi.com 10 Final List of 13 Factors Five more dominant factors (in bold below) Siting/climate factors: (1)seismic characteristics (2) rainfall intensity (3)floodplain (4)fire (intrusion from off site)

icfi.com 11 Final List of 13 Factors ( cont’d ) Landfill design, construction, and maintenance: (5) engineering controls (e.g., cap and liner design) (6) permitted capacity (7)type of waste in place (8)slope stability

icfi.com 12 Final List of 13 Factors ( cont’d ) Operational practices: (9)liquids management/landfill bioreactor technology Potential for migration/distance to sensitive receptors: (10) hydrogeology (11) proximity to urban areas (12)proximity to sensitive habitat Compliance record for release/system upsets: (13)compliance status

icfi.com 13 Scoring Factors and Weightings ( cont’d ) Developed weightings for each factor (range 0 to 10 for more dominant factors) Maximum score = 100 points –16 to 35 = low –36 to 69 = medium –70 to 100 = high Estimated precision of scores: +/- 10% to 15%

icfi.com 14 State Pooled Fund Working Model Model is a flexible tool for testing variety of scenarios Model designed to allow changes to inputs and assumptions, except for funding constraint (only active LFs make contributions) Addresses uncertainty and variation through probabilistic methods (e.g., Monte Carlo simulation) Uses proxy factors Excel 2003 spreadsheet model Test Case results in Final Report

icfi.com 15 What Drives the Working Model? Demand for Funds –Occurrence, cost, and duration of covered PCM and CA –Occurrence and duration of defaults Supply of Funds –Quantities of solid waste disposed –Surcharge rate –Earnings and administrative costs

icfi.com 16 Example Scenarios that Can be Evaluated with the Working Fund Model ScenarioMethod for Modeling All PCM and/or CA costs are paid for through the fund, not just defaulted costs. Select the option buttons for including all CA costs and/or all PCM costs. PCM costs are included Y years after landfill closure.Change the “Delay including PCM costs in Defaults for X Years” input to Y years. PCM costs are not included at all for coverage by the fund.Change the “Delay including PCM costs in Defaults for X Years” input to 250 years. PCM costs change over time. For example, in the first five years after closure, PCM costs can be set at 150% of the initial annual PCM costs, and then in the sixth through 30 th years the costs can be set at 50% of the initial annual PCM costs, and then in the 31 st and beyond years, the costs can be set at 25% of the initial annual PCM costs. The model allows for the PCM costs to change at three different points in time. The user enters a number of years after closure that the change takes place and the percent of the original PCM cost that will be used going forward. The initial PCM estimates should be higher or lower.Change the “Post Closure Maintenance Multiplier” for either open or closed landfills, or both. CA costs are included Y years after landfill closure.Change the “Delay including CA costs in Defaults for X Years” input to Y years. Landfill size is not considered a valid differentiation for simulating CAs. Thus all landfills are in the same size category in the model. To have all landfills be in the Large category, enter zeros for the Permitted Capacity Size Category breakpoints. To have all landfills be in the Small category, enter a large number, such as 100 billion for the Permitted Capacity Size Category breakpoints. To have all landfills be in the Medium category, enter a zero for the breakpoint between small and medium, and 100 billion for the breakpoint between medium and large. The disposal rate changes over time, either increasing or decreasing.The model allows for the disposal rate to change at four different points in time. The user enters a year that the change takes place and the annual percent change. The fund size is not capped at any dollar amount.Change the “Suspend Contributions at a Fund Balance of” input to 100 billion.

icfi.com 17 Working Model’s Use of Empirical Data Demand for funds –Landfill closure dates are based on SWIS data –PCM costs based on actual cost estimates –CA occurrence and frequency – no empirical data found –CA costs based on actual cost estimates and experience in Minnesota; did not use EPA estimates from federal rulemaking –Default probabilities based on best available data (private sector)

icfi.com 18 Working Model’s Use of Empirical Data (cont’d) Supply of funds –Disposal quantities based on current data and trends Landfill population –282 LFs with very few data gaps –Maintained integrity of landfill data

icfi.com 19 Landfill Characteristics Data Used in Model Owner type Current operational status Permitted capacity Annual rainfall Proximity to urban areas Expected year of closure, if currently open Estimated PCM cost/year (and CA cost estimates) Depth to groundwater Design level

icfi.com 20 Test Case Assumptions, Absent Good Data CA frequency and magnitude Default rates for public sector entities’ LFs

icfi.com 21 Test Case Assumption: CA Occurrence Corrective Action Type Average Number of Corrective Actions Over the Modeling Period per Landfill by Landfill Sizes Small LFMedium LFLarge LF Low Cost Medium Cost5810 High Cost234 Average Number of Corrective Actions by Type and Landfill Size Over the Modeling Period for a Single Landfill

icfi.com 22 Test Case Assumption: CA Frequency Corrective Action Type Average Frequency of Corrective Actions Over the Modeling Period per Landfill by Landfill Sizes Small LFMedium LFLarge LF Low Costevery 24 yearsevery 18 yearsevery 16 years Medium Costevery 48 yearsevery 30 yearsevery 24 years High Costevery 120 yearsevery 80 yearsevery 60 years All Typesevery 14 yearsevery 10 yearsevery 8 years Average Frequency of Corrective Actions by Type and Landfill Size Over the Modeling Period for a Single Landfill

icfi.com 23 Key Inputs: Test Case Default Rates 1%/year for single-owner LFs, both private and public.15% year for private LFs not singly owned.17%/year for public LFs not singly owned LFs with high-cost CAs have double the probability of default 1%/year for event-driven group defaults 1% of defaults are “permanent”

icfi.com 24 Insurance Product Charge:Define a Mandatory Insurance Product that Would Cover Any Gaps in Coverage by FA Mechanisms and/or State Fund Possible Sources of Gaps: –Cost estimates too low –Releases occur that were not reasonably foreseeable –FA mechanisms insufficient in amount (e.g., build-up periods) –FA mechanism or provider fails

icfi.com 25 Insurance Product (cont’d) Insurer Concerns: 1-3 year policies possible, not 10 years underwriting costs substantial (> $11 million) moral hazard and credit risk concerns “all risk” problematic immediate full payment problematic right to void coverage desired limits of $100M too high, even with $10M deductible

icfi.com 26 Conclusion Evaluate mechanisms Develop proxy factors tool Develop pooled fund working model and research state funds Develop insurance product and check market interest Done It has been a pleasure working together!, ICF