Monday, July 4, 2011

Garbage Out

Twenty years ago, solid waste disposal in Washington state changed significantly when most communities purchased long term contracts for disposal from two fiercely competing companies that took the garbage by train to rural eastern Washington and Oregon.  Today, another garbage war is about to break out with more companies, less local ownership and some big questions for local governments hosting the landfills. 

The change was mostly good.  Pushed by the Resource Conservation and Recovery Acts of 1976 and 1992, local governments and the private sector created new, safer landfills and higher recycling rates.  They closed down and capped old leaky landfills on the wet, west side of the state in favor of new, highly engineered sites in the drier east side in a policy that provided significant environmental value. 

The timing was right politically as well.  Governor Christine Gregoire was ending her time as Director of the Department of Ecology and had participated in the formulation of the new laws and understood their implications and values. Her move to the Attorney General's office put her in a unique position to further the legal changes necessary to replace the old landfills and open big, well-lined landfills with collection and treatment of leachate and methane gas. 

Statistics from the 1999 Department of Ecology Annual Solid Waste Report show how, in just a few years, significant change happened to landfills taking household and commercial solid waste.

Ownership  Landfills           Waste (Tons)              % of Total
               1991 1998         1991              1998        1991   1998
Private        9      6      1,200,000     2,800,000        31      61
Public        36    16      2,700,000     1,780,000        69      39

Washington state Department of Ecology

Not only did the new legislation increase the private company role in waste disposal, it stirred the consolidation of the solid waste industry as giants like Waste Management first purchased local and regional companies and then their national and international competitors.

Rabanco, a company owned by the storied Razore family, was the clear winner against the giant Waste Management in Garbage War I, circa 1989-1995.  During that time, more than 20 municipal contracts in Washington state were let and Rabanco took nearly all of them, the only large exception was Seattle along with a couple of smaller municipals.  Publicly-owned Waste Management was playing to investors and its internal financial rules.  Rabanco's culture was simpler -- win.

After the contract fights were settled, consolidation in Washington state picked up steam.  The regional heirloom, Rabanco, was plucked by Allied Waste Industries in 1998 and, in 1999, Allied purchased the US assets of Browning Ferris, another long time solid waste brand.  Rabanco's Roosevelt Regional Landfill was very good to Rabanco and costly to Allied.  Before Roosevelt was operational, in 1990, Rabanco was valued at about $50 million.  Allied bought it eight years later for $400 million. 

In 2008, Allied itself was eaten by Florida's Republic Services, though the deal is characterized locally as a merger because of Republic's efforts to avoid contract rights held by Klickitat County, which hosts the Roosevelt Regional Landfill.  It's one of several indicators of a less than effective partnership.

Ron Mittelstaedt
California Polytechnic Institute
In the mid-nineties, an energetic Browning Ferris employee named Ron Mittelstaedt heard that the company was selling its assets in Oregon and Idaho and he organized a team and found money to buy them.  They included a weak competitor from Garbage War I, Finley Buttes Landfill, that served Clark County and a handful of other, smaller customers.  Waste Connections earned $13 million in his first year, 1997.  Quarterly revenue in first quarter 2011 was $333 million. 

Mittelstaedt then acquired a group of companies, in and around Tacoma and Pierce County that had been able to site a landfill in the eastern part of the county.  Pierce County had long resisted waste-by-rail because it wanted complete local control, though a handshake deal between Warren Razore and Harold LeMay, the principal partner in Murrey Collection and Land Resources Inc., sent some of Pierce County's garbage to Klickitat County. 

LeMay Museum

Harold's successful company, even before he sold it, allowed him to amass the largest collection of antique cars in the world and break ground on Tacoma's next attraction, America's Car Museum, which will put Tacoma's vaunted Museum of Glass to great shame. 

Two other landfills have the capability to compete for large, regional contracts that will come in Garbage War II -- Coffin Butte near Corvallis (Republic/Allied) and Simco Road in Mountain Home, Idaho (Idaho Waste Systems).  

So, the competitive atmosphere is way different today.  Five, arguably, six landfills have the capacity to take any waste stream generated in Washington state. Only one of them with the capacity and the will, Roosevelt Regional Landfill, operates in Washington state. The region is significantly over-capacity, and the fact that Seattle quietly extended its deal with Waste Management and its Columbia Ridge Landfill until 2028 means that there are just two markets with major league waste streams, Snohomish County and King County.   

King County has managed the million tons a year that go to its Cedar Hills landfill intensively, extending the landfill's life by several years.  However, the string is running out and its garbage will shortly start moving to the waste-by-rail system.  It has considered what it calls conversion technologies, a euphemism for burning garbage, but the cost of burning solid waste exceeds rail-served landfilling by $15-$30 dollars a ton and siting a burner is traditionally associated with great peril, if not low sperm counts in nearby men.   

Soon, King County plans to start rail hauling with about a tenth of its waste, 100,000 tons/year.  It labels this as an "experiment."  The bidding for that amount will be furious, with the expectation that subsequent King County contributions to the waste by rail system will naturally flow to the early winner.

The strongest competitor in the market is Waste Connections' Mittelstaedt.  He has been aggressive just as the Rabanco successors have been passive and out-maneuvered.  The acquisition of the LRI properties by Mittelstaedt gives him a tremendous logistical upside in west central counties like Thurston, Mason and Lewis.  In addition, he is benefitting from the deal offered by Pierce County to the local garbage handler LeMay.  The contract is about $5 dollars above market.  The LeMay assets were purchased just after the Pierce County contract was signed, so, Pierce County taxpayers are subsidizing Mittelstaedt's efforts elsewhere in the state, a nifty advantage.

Snohomish County, another big generator currently going to Allied/Republic's Roosevelt site, has its contract coming due.  Republic will try to extend the contract there, but extension comes with a cost, likely something like a price reduction of $5/ton, about what Waste Management accepted when Seattle extended its contract to 2028.  If Mittelstaedt is as aggressive now as he has been, he will go after both Snohomish and King County as hard as he knows. 

The big loser in this ploy is Klickitat County, home of Roosevelt Regional Landfill.  Each ton of garbage is worth about $3 bucks to the county and it has been getting about $8,000,000/year from these host county fees, about 20% or its total budget.  An ominous indicator of the Allied partnership with Klickitat County is the disappearance next year of 100,000 tons/year that stemmed from the Razore/LeMay handshake.  Allied never told Klickitat County it had raised no objections to the Pierce County contract provision that directed the tonnage would go to Waste Connections after 2012 and failed to mention the whole thing to the county.  That move cost Klickitat County $300,000/year.

If Allied/Republic loses out on King County and other waste streams now going to Klickitat County, the county's revenues will suffer considerable decline.  Replacement tonnage could come from special waste streams -- petroleum contaminated soils, dredge spoils, environmental clean-ups -- but Allied/Republic has not demonstrated the creativity it needs to compete in that sphere.  So, Allied/Republic is at risk of being second tier in the Northwest after it so recently entered the market.  

The company's only anchor waste stream is the solid waste that comes from Snohomish County.  If Allied/Republic can't compete in King County, and if Waste Connections decides to aggressively compete in Snohomish County and the many other counties that are part of the Razore legacy, then Klickitat County will be raising taxes as quickly as it lowered them when their landfill business started to cook in the early 90s.  It is quite possible that the industrious Mr.  Mittelstaedt will be surveying a Northwest landscape that is, for the most part, all his.


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