california integrated waste management board august 19, 2008 item 6 discussion and request for...
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California Integrated Waste Management Board
August 19, 2008
California Integrated Waste Management Board
August 19, 2008
Item 6
Discussion And Request For Rulemaking Direction To
Formally Notice The 45-Day Comment Period For Draft Regulations For Long-Term
Postclosure Maintenance And Corrective Action
Item 6
Discussion And Request For Rulemaking Direction To
Formally Notice The 45-Day Comment Period For Draft Regulations For Long-Term
Postclosure Maintenance And Corrective Action
Financial Assurances TopicsFinancial Assurances Topics
AB 2296 Issues Posed by the Makeup of
Waste Management IndustryClosed and Operating StatusTypes of Financial Assurances (FA)
Provided Closed Landfills’ Time Performing
PCMSystem Cost Exposure to State
AB 2296 Issues Posed by the Makeup of
Waste Management IndustryClosed and Operating StatusTypes of Financial Assurances (FA)
Provided Closed Landfills’ Time Performing
PCMSystem Cost Exposure to State
AB 2296 RequirementsAB 2296 Requirements
By July 1, 2009, the CIWMB shall:
Adopt regulations (Phase II)
Develop recommendations for needed legislation to implement the findings of the study
By July 1, 2009, the CIWMB shall:
Adopt regulations (Phase II)
Develop recommendations for needed legislation to implement the findings of the study
Landfill Operators in California
Landfill Operators in California
Types of Operators and Default Concerns
FA Demonstrations“System View” in Calculating
CostsExposure to the State
Types of Operators and Default Concerns
FA Demonstrations“System View” in Calculating
CostsExposure to the State
Makeup of Waste Management Industry
Makeup of Waste Management Industry
Type of PCM FA DemonstrationType of PCM FA Demonstration
Trust Funds and Enterprise Funds
Trust Funds and Enterprise Funds
Landfills Years Into Postclosure Maintenance
Landfills Years Into Postclosure Maintenance
System Cost – Status QuoSystem Cost – Status Quo
Management of RiskManagement of Risk
Operator FA Demonstration LevelEncouraging Good PerformanceManaging Divestiture Through FA
RequirementsMinimizing Defaults
Operator FA Demonstration LevelEncouraging Good PerformanceManaging Divestiture Through FA
RequirementsMinimizing Defaults
Definition of Terms Definition of Terms
• Financial Assurance• Assured Costs• Unassured Costs• Defaults• Divestitures• Draw-Down• Step-Down• Step-Up• Contingency
• Financial Assurance• Assured Costs• Unassured Costs• Defaults• Divestitures• Draw-Down• Step-Down• Step-Up• Contingency
Definition of Terms Definition of Terms
Financial Assurance
Financial mechanism used to assure that funds will be available to pay for the PCM costs when needed.
Financial Assurance
Financial mechanism used to assure that funds will be available to pay for the PCM costs when needed.
Definition of Terms Definition of Terms
• Assured Costs – Financial exposure covered by a matching financial demonstration.
• Unassured Costs – Financial exposure not covered by a financial demonstration. This includes both Defaults and Divestitures.
• Assured Costs – Financial exposure covered by a matching financial demonstration.
• Unassured Costs – Financial exposure not covered by a financial demonstration. This includes both Defaults and Divestitures.
Definition of Terms Definition of Terms
• Defaults – The temporary or permanent inability of the operator to provide the necessary funding to perform required PCM or CA activities.
• Divestitures – The sale or transfer of a facility to a new entity, whether the new entity is a subsidiary corporation or a wholly unrelated company.
• Defaults – The temporary or permanent inability of the operator to provide the necessary funding to perform required PCM or CA activities.
• Divestitures – The sale or transfer of a facility to a new entity, whether the new entity is a subsidiary corporation or a wholly unrelated company.
Definition of Terms Definition of Terms
• Draw-Down – Automatic annual incremental reduction of PCM financial assurance
• Step-Down –5X reductions of PCM FA based on good performance during 5-year review
• Step-Up – 5X increase of PCM FA based on failure to meet performance criteria during
5-year review
• Draw-Down – Automatic annual incremental reduction of PCM financial assurance
• Step-Down –5X reductions of PCM FA based on good performance during 5-year review
• Step-Up – 5X increase of PCM FA based on failure to meet performance criteria during
5-year review
Definition of Terms Definition of Terms
• Contingency – Additional percentage of estimated costs required to be assured in order to cover unforeseen expenditures and cost overruns.
• A contingency is not a substitute for a pooled fund.
• Contingency – Additional percentage of estimated costs required to be assured in order to cover unforeseen expenditures and cost overruns.
• A contingency is not a substitute for a pooled fund.
Management of RiskManagement of Risk
Operator FA Demonstration LevelEncouraging Good PerformanceManaging Divestiture Through FA
RequirementsMinimizing Defaults
Operator FA Demonstration LevelEncouraging Good PerformanceManaging Divestiture Through FA
RequirementsMinimizing Defaults
Management of RiskOperator FA Demonstration
Level
Management of RiskOperator FA Demonstration
LevelRisk Can Be Managed by Operator
FA DemonstrationsAmount of FA DemonstrationMultiplier of PCM CostDuration of FA DemonstrationCost Estimating Improvements
Risk Can Be Managed by Operator FA DemonstrationsAmount of FA DemonstrationMultiplier of PCM CostDuration of FA DemonstrationCost Estimating Improvements
Management of RiskEncouraging Good
Performance
Management of RiskEncouraging Good
PerformanceStep-Down - Basis for Allowance
No Corrective ActionsEnhanced Monitoring EffortsRepayments of Prior CA DisbursementsAccurate Cost Estimating
Step-Up – Causes for IncreaseCorrective ActionsNo Enhanced Monitoring EffortsNon-Payment of Prior CA Disbursements
Step-Down - Basis for AllowanceNo Corrective ActionsEnhanced Monitoring EffortsRepayments of Prior CA DisbursementsAccurate Cost Estimating
Step-Up – Causes for IncreaseCorrective ActionsNo Enhanced Monitoring EffortsNon-Payment of Prior CA Disbursements
Management of RiskManaging DivestitureManagement of RiskManaging Divestiture
ConcernsPotential Transfer to Unrelated
Business OperationLack of Experience Successfully
Maintaining LandfillsDesire to Minimize Loss and
Maximize Profits for ShareholdersMay Be Partially Managed By
Requiring New Owners to Have Enhanced FA Demonstrations
ConcernsPotential Transfer to Unrelated
Business OperationLack of Experience Successfully
Maintaining LandfillsDesire to Minimize Loss and
Maximize Profits for ShareholdersMay Be Partially Managed By
Requiring New Owners to Have Enhanced FA Demonstrations
Potential Landfill Operator Default Types
Potential Landfill Operator Default Types
Standard Default – Operator and Financial Institution
Single Privates (29) Most (22) Are Anticipated to Eventually Permanently
Default 14 closed 6 operating 2 permitted
Some Are Not Likely to Permanently Default 7 corporate or publicly assured
Rural Publics – Temporary Defaults (64) Divestiture – Sell During PCM, All Privates
(Potentially a Few Publics), Calculated Costs Utilize “Start-up Business” Default Rate
Standard Default – Operator and Financial Institution
Single Privates (29) Most (22) Are Anticipated to Eventually Permanently
Default 14 closed 6 operating 2 permitted
Some Are Not Likely to Permanently Default 7 corporate or publicly assured
Rural Publics – Temporary Defaults (64) Divestiture – Sell During PCM, All Privates
(Potentially a Few Publics), Calculated Costs Utilize “Start-up Business” Default Rate
Management of RiskManaging Defaults
Management of RiskManaging Defaults
Operator Retention Improving Cost Estimates and
ReviewPostclosure Maintenance
Performance
Some Defaults are Unavoidable and Will Occur
Operator Retention Improving Cost Estimates and
ReviewPostclosure Maintenance
Performance
Some Defaults are Unavoidable and Will Occur
Management of RiskPooled Fund
Management of RiskPooled Fund
A Method to Address Defaults and Divestitures
ProsIncreased ability to mitigate the costs of
defaults and divestituresAbility of the Board to provide additional
relief to individual operators by allowing further reductions in PCM FA
ConsTransfer additional costs to rate payersMay not successfully establish in statute
A Method to Address Defaults and Divestitures
ProsIncreased ability to mitigate the costs of
defaults and divestituresAbility of the Board to provide additional
relief to individual operators by allowing further reductions in PCM FA
ConsTransfer additional costs to rate payersMay not successfully establish in statute
Managing Long-Term PCM RiskManaging Long-Term PCM Risk
A Certain Level of Defaults Will Occur Regardless of the Amount of Individual Financial Assurance.
Imposition of a Perpetual Operator Provided FA Will Likely Precipitate Early Defaults of Single Private Operators.
Divestiture Leading to Default May Be Partially Controlled by Buyer Financial Assurance
A Certain Level of Defaults Will Occur Regardless of the Amount of Individual Financial Assurance.
Imposition of a Perpetual Operator Provided FA Will Likely Precipitate Early Defaults of Single Private Operators.
Divestiture Leading to Default May Be Partially Controlled by Buyer Financial Assurance
Key Financial ExposuresKey Financial Exposures
DefaultsDivestituresLevel of Individual FA
Demonstration
DefaultsDivestituresLevel of Individual FA
Demonstration
Managing Long-Term PCM Risk of Landfill System
Managing Long-Term PCM Risk of Landfill System
ScenariScenarioo
AssureAssured Riskd Risk
UnassureUnassured Riskd Risk
StdStd Rural Rural PublicPublicss
Sgl Sgl PvtPvt
DefaultDefaultss
DivesDivest-t-ituresitures
TotalTotal
43X $5,590 0 $11 $26 $263 $300 0 $300
30X 4,562 $1,232 29 26 41 96 0 96
15X 2,972 2,748 60 26 84 170 0 170
5X 2,153 2,955 75 26 103 204 $578 782
Status Quo
1,822 3,172 83 26 120 229 667 896
$ in Millions over 100 years$ in Millions over 100 years
Financial Exposure Comparison Between State
and Operators
Financial Exposure Comparison Between State
and Operators
Rulemaking Approach Options
Rulemaking Approach Options
Develop regulations as if a pooled fund will be established Two-step rulemaking approach to allow further
step-down to 5X after fund is established Reducing FA below 15X before fund is
established increases risk to State up to $782M over 100 years
Reduces incentive for pooled fund creation
Develop regulations without the pooled fund concept Recommend not going below 15X
Develop regulations as if a pooled fund will be established Two-step rulemaking approach to allow further
step-down to 5X after fund is established Reducing FA below 15X before fund is
established increases risk to State up to $782M over 100 years
Reduces incentive for pooled fund creation
Develop regulations without the pooled fund concept Recommend not going below 15X
Individual FA Without Pooled Fund Option 1(a)
Individual FA Without Pooled Fund Option 1(a)
30X Draw-Down to 15X Rolling 15X Until PCM Ends10% PCM ContingencyExposure to State=$96-170M over
100 YearsMinimizes Divestiture RiskAddresses Temporary Defaults
30X Draw-Down to 15X Rolling 15X Until PCM Ends10% PCM ContingencyExposure to State=$96-170M over
100 YearsMinimizes Divestiture RiskAddresses Temporary Defaults
Individual FA Without Pooled Fund Option 1(b)
Individual FA Without Pooled Fund Option 1(b)
30X Step-Down to 15X Based on Performance
Minimum of 15X Until PCM EndsNo PCM ContingencyExposure to State=$96-170M over
100 YearsMinimizes Divestiture RiskAddresses Temporary DefaultsRewards Good Performance
30X Step-Down to 15X Based on Performance
Minimum of 15X Until PCM EndsNo PCM ContingencyExposure to State=$96-170M over
100 YearsMinimizes Divestiture RiskAddresses Temporary DefaultsRewards Good Performance
Individual FA Combined With Pooled Fund - Option 2
Individual FA Combined With Pooled Fund - Option 2
• 30X Draw-down to 15X, then• Step-down to Rolling 5X based on
Performance• Minimum of 5X Until PCM Ends• No PCM Contingency• Defaults – Exposure to State Covered
by Fund=$96-204M over 100 years• Divestitures add up to $578M
Exposure• Partially Address Divestiture Defaults by
Returning FA to 15X for Buyer
• 30X Draw-down to 15X, then• Step-down to Rolling 5X based on
Performance• Minimum of 5X Until PCM Ends• No PCM Contingency• Defaults – Exposure to State Covered
by Fund=$96-204M over 100 years• Divestitures add up to $578M
Exposure• Partially Address Divestiture Defaults by
Returning FA to 15X for Buyer
Questions / DiscussionQuestions / Discussion
Regulatory Approach for Long-Term PCM
Other Regulatory ChangesPreviously Identified as Groups A,B &
C
Regulatory Approach for Long-Term PCM
Other Regulatory ChangesPreviously Identified as Groups A,B &
C