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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 Committee Item E (Board #12) Discussion Of Information Related To Staff And Stakeholder Analysis Of Issues Regarding Long-Term Postclosure Maintenance, Corrective Action, and Financial Assurances At Landfills California Integrated Waste Management Board Strategic Policy Committee May 12, 2009
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Agenda – Questions from Board members
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 Agenda – Questions from Board members What is the impact of establishing a rolling 30X level of financial assurance on current landfill operators? How can operators leverage their cash-value mechanisms? How has the Board considered a postclosure maintenance contingency? What is the difference between postclosure maintenance and corrective action? What is the impact of including major maintenance as part of postclosure maintenance or corrective action?
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Agenda – Questions From Board members
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 Agenda – Questions From Board members What is the value of performing risk assessments on a few landfills? What is the impact of the cost of non-water quality corrective action, including air and major maintenance, on cost? What was staff’s basis for assumptions used in financial exposure modeling? What options are there for a pooled fund and how much would they cost? Does the Board want to include any “triggers” in the regulations?
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1. What is the impact of establishing a rolling 30X level of financial assurance on current landfill operators? How long is the Postclosure Maintenance Period? Federal Subtitle D Regulations 30 years Can Be Shortened Or Extended by Director Financial Assurance required throughout Postclosure Maintenance Period California Law Minimum 30 years Until waste no longer poses a threat
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1. What is the impact of establishing a rolling 30X level of financial assurance on current landfill operators? How Long is the Postclosure Maintenance Period? California Experience Other States Poll Postclosure Maintenance Cost Survey Interstate Technology & Regulatory Council (ITRC)/ Environmental Research and Education Foundation (EREF) Cal Poly Contract
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#1 - Average Annual Postclosure Maintenance Costs
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 #1 - Average Annual Postclosure Maintenance Costs Landfill Size Number Capacity (yd3) Cost Small 54 <0.5M $50,000 Medium 184 0.5-30M $155,000 Large 44 >30M $1,100,000
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 1. What is the impact of establishing a rolling 30X level of financial assurance on current landfill operators? Costs Non-Cash Mechanisms Incremental Fee or Premium %/year Duration of Revenue Stream Cash Mechanisms Differential Opportunity
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 1. What is the impact of establishing a rolling 30X level of financial assurance on current landfill operators?
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 1. What is the impact of establishing a rolling 30X level of financial assurance on current landfill operators? 20 Closed Landfills Use Cash Mechanisms 5 Trust Funds 10 Enterprise Funds 4 Insurance 1 CD Includes 7 Single Private Landfills
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 1. What is the impact of establishing a rolling 30X level of financial assurance on current landfill operators? Adjusted Annual Cost Estimate for Inflation Since Closure Compared to Current Amount of Demonstration 6 of 20 Have Received Disbursements Returning to 30X Would Impact 6 Closed Landfills with Cash Mechanisms Cost an Estimated $2.3 million
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2. How can operators leverage their cash-value mechanisms?
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 2. How can operators leverage their cash-value mechanisms? Cash Non-cash Trust Fund Enterprise Fund Sale of Securities Hybrid Insurance Letter of Credit Surety Bond Pledge of Revenue Government Guarantee Financial Means Test Corporate Guarantee Government Financial Test Federal Certification
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#2 - How are Build-up “Cash” Mechanisms Different?
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 #2 - How are Build-up “Cash” Mechanisms Different? Most Trust and Enterprise Fund 100% of Assured Amount Required Fee or premium paid to third party Other Source of revenue needed to do the work Build-up over time “Gold Standard” if fully funded Operator may rely on for assurance and to do the work Work well for certain activities over finite period Susceptible to premature closure
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2. How can operators leverage their cash-value mechanisms?
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 2. How can operators leverage their cash-value mechanisms? Use Interest (Excess Revenue) Given Differential Between Operator Costs and State Costs Use Combination of Mechanisms to Provide Additional Flexibility Use Trust Fund as Revenue Source for Pledge of Revenue
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2. How can operators leverage their cash-value mechanisms?
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 2. How can operators leverage their cash-value mechanisms?
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3. How has the Board considered a postclosure maintenance contingency?
Other States Survey: Does your state require a reasonable contingency added to the cost of PCM? If so, what amount? e.g., 10%, 20%, etc. *Of the 25 states responding, 60% require a reasonable contingency cost.
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4. What is the difference between postclosure maintenance and corrective action?
Regular and Periodic Activities to Monitor and Maintain the Integrity of the Containment and Environmental Control Systems Listed in Postclosure Maintenance Plan Repair or replacement of existing items Add Maintenance of Known Corrective Action Active or Passive measures taken to constrain a release of waste, to eliminate its effects, or to prevent or minimize additional releases of waste from a landfill One time or unanticipated, but reasonably foreseeable Formal enforcement action
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#4 - Postclosure Maintenance or Corrective Action?
Site Security - PCM Ground Water Monitoring - PCM Cleanup - CA Landfill Gas Monitoring – PCM Control – PCM or CA Drainage/Erosion Control Repair - PCM Replacement – PCM or CA Final Cover Repair - PCM Replacement - CA Slope Stability – PCM or CA Leachate System Repair – PCM or CA Replace - CA Fire Damage – PCM or CA
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 5. What is the impact of including major maintenance as part of postclosure maintenance or corrective action? Option A – Consider as Postclosure Maintenance Item through Phase II Regulations Option B - Consider as Corrective Action Through Phase II Regulations Option C - Recommend as a Statutory Change to Address Through Pooled Fund
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 6. What is the value of performing risk assessments on a few landfills? Value: What has been previously done? How would results be used? Who and how would select landfills selected? What risk criteria and methodology would be used? How much would it cost? Would the benefit be worth the effort?
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 6. What is the value of performing risk assessments on a few landfills? Previous Work: Landfill Compliance Study (Geosyntec Report) Landfill Risk Screen Methodology (ICF/CalRecovery) Financial Exposure Modeling Tool (ICF) Corrective Action Survey (CIWMB staff)
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# 6- Corrective Action Comparison Over 240 Years
Contractor’s Study CA Survey Type Small LF Medium LF Large LF Low Cost 10 13 15 5 Medium Cost 8 9 High Cost 2 3 4 Total 17 24 29 18 CA Survey results similar to Pooled Fund model Actual cost data was rarely available Corrective actions were grouped based on the nature of the activities Many low cost events are not being captured via enforcement actions
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# 6- California Landfill Corrective Action Survey - Summary Results
Most Common Corrective Actions Ground Water (47%) LFG Migration (29%) Slope Failure Surface Water Liner Issues Waste Boundaries Fires (underground and surface) Erosion
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7. What is the Impact of the Cost of Non-water Corrective Action?
One Combined Plan Release to Water (current requirement) Non-Water Quality - Top Types from Corrective Action Survey Release driven (similar to current requirement) LFG migration Leachate seep Event driven (e.g., quake, flood, rain, etc) Within design criteria for type of LF Determine most expensive CA type Separate Plan – Non-Water Quality only Most Expensive Cost From Water Quality Plan
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# 7 - Major Maintenance Analysis Results
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 # 7 - Major Maintenance Analysis Results System Costs = $700 million over 100 years Defaults = $95 million Double Default Standard Default Single Private Default Rural Public Default Default Resulting From Divestiture
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#7 - Extraordinary Corrective Action Analysis
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 #7 - Extraordinary Corrective Action Analysis In Addition to Other Corrective Action Costs Assumed 100% Default Suggested Frequency Once Every 20 Years Suggested Cost = $100 million Not Modeled System Cost = $500 million over 100 years
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 8. What was staff’s basis for assumptions used in financial exposure modeling? Conceptual Approach: Consider the Time-Value of Money 49X provides funding indefinitely Below 30X compounding diminishes, by 15X essential year for year Increasing above current levels may prompt early defaults especially by single private landfills Below 15X default resulting from divestiture becomes problematic 5X is the minimum that can be considered financial assurance Most single private landfills will ultimately permanently default Some rural public landfills will temporarily default Some level of default exposure is inevitable regardless of the required level of assurance
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 8. What was staff’s basis for assumptions used in financial exposure modeling? Used constant costs and reduced modeling period from 240 years to 100 years due to uncertainties Inflation Differential increases in engineering costs Rate of replacement of aging containment and environmental cost systems Changes in solid waste infrastructure Success of disposal reduction efforts New technologies Future design requirements
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 #8 - How did staff use Modeling Tool to analyze difference levels of assurance? 49X=Perpetual 43X=100 years 30X=48 years 15X=18 years 8X= 9 years* 5X= 5 years * Current Proposed Phase II regulations
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 #8 - How did staff use Modeling Tool to analyze different levels of assurance? Default Delay = 30+(Time-Value $X) Years
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 8. What was staff’s basis for assumptions used in financial exposure modeling? Contractor Standard Default Rates: Single Landfills, Public and Private=1% per year Multiple Landfills, Private=.17% per year Multiple Landfills, Public=.15% per year Group Default from Regional Event=1% per year Permanent Default=1% of defaults
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 8. What was staff’s basis for assumptions used in financial exposure modeling? Staff Modified Default Rates: Double-default – simultaneous default by operator and provider = square of standard draft rate Single Private Landfills (18)=1% per year, 100% of defaults permanent Rural Public Landfills (64)=1% per year consistent with single landfill default rate Default Resulting From Divestiture (37)=1% per year for Small Business Start-ups
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 8. What was staff’s basis for assumptions used in financial exposure modeling? All Scenarios: 100 year Modeling Period 42 million tons of waste used to calculate fee Constant Postclosure Maintenance Costs Postclosure Maintenance Costs from 282 Plans 10% Fund Fee % Fund Interest Rate $50 million fund cap 0.90 Confidence Interval
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 9. What options are there for a Pooled Fund and how much would they cost? Basic - backstop for defaults Combined (public and private) Split (public/private) Enhanced - backstop for defaults including Basic Defaults Resulting from Divesture if not addressed separately Major Maintenance Extraordinary Corrective Action Key Considerations
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# 9 - Basic Combined Pooled Fund
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 # 9 - Basic Combined Pooled Fund Estimated Fee: $0.09 per ton Cap: $80 million
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# 9 - Landfill Trends Public/Private
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 # 9 - Landfill Trends Public/Private
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# 9 - Basic Split Pooled Fund
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 # 9 - Basic Split Pooled Fund Public Fee - $0.13 / ton Cap - $30 million Use of Excess Revenue - $1.5 million per year Private Cap - $50 million
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# 9 - Enhanced Combined Pooled Fund
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 # 9 - Enhanced Combined Pooled Fund Estimated Fee: $0.18 per ton Cap: $275 million
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#9 - Enhanced Split Pooled Fund
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 #9 - Enhanced Split Pooled Fund Public Fee - $0.09 per ton Cap - $30 million Private Fee - $0.34 per ton Cap - $245 million
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# 9 - Pooled Fund Key Considerations
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 # 9 - Pooled Fund Key Considerations Coverage Definition of Public/Private Myth of Gift of Public Funds Use of any Excess Funds Changes Public/Private Over Time Administrative Cost Indemnification of Locals Fair share
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10. Does the Board want to include any “triggers” in the regulations?
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 10. Does the Board want to include any “triggers” in the regulations? Does the Board want to recognize “good performance” by reducing financial assurance levels? Does the Board want to incentivize a Pooled Fund?
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Strategic Policy Development Committee May 12, 2009
Committee Item E/ Board Agenda Item 12 # 10 - Does the Board Want to Recognize Good Performance By Reducing Financial Assurance levels? 5X Step-down 5X Step-up for lack of continued performance Step-up to original level for transfer/sale with waiver provision Initial Site-specific Environmental Risk Assessment Financial Assessment Participate in Proactive Monitoring No Corrective Actions Costs Consistent with Estimates
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#10 - Does the Board Want to Incentivize a Pooled Fund?
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 #10 - Does the Board Want to Incentivize a Pooled Fund? Include higher financial assurance levels to sunset with enactment of a Pooled Fund and a Board finding Include intent language in the Final Statement of Reasons (FSOR) to revisit if a Pooled Fund is enacted Include intent language in the Board Resolution adopting the Phase II regulations, to revisit if a Pooled Fund is enacted
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Possible Postclosure Assurance Level Scenarios
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 Possible Postclosure Assurance Level Scenarios Rolling 30X, Add Major Maintenance Rolling 30X, Recommend Pooled Fund Rolling 30X, Step-down to 15X with Triggers, Recommend Pooled Fund Rolling 15X, Recommend Pooled Fund
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Possible Corrective Action Financial Assurance Scenarios
Strategic Policy Development Committee May 12, 2009 Committee Item E/ Board Agenda Item 12 Possible Corrective Action Financial Assurance Scenarios Scenario 1 Current Phase II Regulatory Proposal Recommend Pooled Fund for Defaults Scenario 2 Most Expensive Water Quality or Replace Final Cover as Assurance Level Recommend Pooled Fund for Defaults including Major Maintenance Scenario 3 Site-specific Risk-based Assurance Level Recommend Pooled Fund for All Defaults and Extraordinary Corrective Action
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