Coping With The High Costs Of Subtitle D Regs

Since new federal environmental regulations became effective on October 9, landfill owners across the nation have been scrambling to meet the strict - and costly - requirements of Subtitle D. The Environmental Protection Agency (EPA) estimates that Subtitle D compliance will cost $330 million a year.

But operators in California do not expect to see a dramatic change in their activities resulting from Subtitle D. "The state of California has already experienced a massive overhaul of solid waste regulations in the past decade," explained David Cochrane, a landfill engineer with Norcal Waste Systems Inc., one of the largest waste haulers in northern California.

Still, the state's existing solid waste program has been modified to meet EPA approval, including revisions to state waste management board and water quality board regulations.

For South Valley Disposal & Recycling (SVDR), a mid-sized solid waste and recycling company in Gilroy, Calif., meeting the new regulations will mean higher operating expenses - and unavoidably higher fees for customers.

Founded in 1952, SVDR serves residents and commercial customers in Gilroy, Morgan Hill and south Santa Clara County. The company's operations include:

* Residential garbage collection, curbside recycling, hauling and disposal for 18,000 households in an 80 square mile service area;

* Operation and maintenance of the 136-acre Pacheco Pass landfill;

* Commercial waste hauling and disposal for about 1,000 businesses;

* Special programs including phone book, office paper and Christmas tree recycling;

* An annual household hazardous waste drop-off day; and

* Collection and sorting of recyclables at the San Martin transfer station.

Materials collected as part of the curbside recycling program include glass, aluminum, newsprint, used motor oil, plastics and tin.

In addition, the company's transfer station accepts white goods, cardboard, steel, demolition debris, wood, tires and mattresses from the public. Reusable furniture, bedding, clothing and appliances are distributed to the needy.

SVDR, with annual revenues of $9.2 million, has 56 full-time employees and a fleet of 28 waste trucks and three recycling rigs on 20 routes that manage approximately 75,000 tons of waste and recycle 10,000 tons annually. Trucks include:

* Three Crane/Carrier chassis fitted with Dempster 29-yard, two-compartment, side-loading, semi-automatic recycling truck bodies for curbside recycling;

* Eight front-loader White/Volvo three-axle chassis, fitted with Heil, Able Body and Dempster half-pack bodies for commercial bin service;

* 10 Crane Carrier three-axle side loaders with Able Body bodies fitted with ARE attachments for residential and commercial can service;

* Seven roll-off White/Volvo three-axle chassis, fitted with Norcal and Heil roll-off bodies for debris box service; and

* Three transfer trucks with Peterbilt conventional cabs and full push-out Bowles and Heil transfer trailers.

Subtitle D Challenges In 1991, the EPA issued regulations governing the way solid waste landfills could be sited, built, maintained and closed. More than two years later, most of the provisions have been phased in.

Compliance with environmental regulations can be one of a landfill's greatest expenses. "As operators, we have to comply not only during active landfill operations, but for 30 years after the landfill closes," said John Rice, general manager of SVDR. "It's not as if we can just close up shop and leave town. We have to be in business for the long haul."

Aside from the potentially damaging impact on the environment or human health, the financial consequences of non-compliance with Subtitle D regulations are unthinkable. Landfill violations with a high potential for causing health problems are penalized with fines of $25,000 per day.

To ensure compliance with Subtitle D regulations, SVDR plans to install a methane gas collection and migration monitoring system, a composite liner and leachate collection system and groundwater monitoring wells.

Recently, several companies submitted bids to SVDR on construction of a methane gas collection and migration monitoring system consisting of 18 vertical gas extraction wells with a blower and flare complex. As each current working landfill cell is constructed, the company plans to install a horizontal well extraction system.

The project's estimated cost is $723,000, with an annual anticipated operating cost of $18,000 through the remaining active life of the landfill.

The composite liner and leachate collection system was designed by Emcon Associates. The project's estimated cost will be over $500,000. The full system includes:

* A compacted clay base with a maximum permeability of 1x10-7 cm/sec. using high-quality clay located on-site;

* A minimum 60-mil double-sided textured HDPE liner, manufactured by PolyFlex Inc.;

* A layer of Amoco 4512-12 ounce non-woven geotextile fabric;

* HDPE perforated drain pipe in a gravel drain layer for the leachate control and recovery system, with pipe by Clovis-Polycon;

* A layer of Amoco 4508-8 ounce non-woven geotextile fabric;

* A final soil layer; and

* A special double-walled leachate storage tank, manufactured by Xerxes Corp.

The estimated cost to install additional groundwater monitoring wells to an already extensive well network was $48,000 for the new wells, plus $98,000 annually for monitoring. SVDR also increased contributions to an existing financial assurance trust fund for closure and post-closure maintenance. The estimated total cost of the project will exceed $8.6 million.

An extra burden is placed on operators in California, where residents throw away more garbage per capita than in any other state approximately 2.25 tons per person per year.

The California Solid Waste Management Act of 1989, broadly known as Assembly Bill 939 (AB939), was enacted to reduce the amount of waste going to landfills; improve the amount of materials recycled; encourage the processing of recyclable materials diverted from landfills into new products; and strengthen regulation of existing and new sanitary landfills.

The most widely known provision of the bill requires municipalities to reduce the amount of solid waste they send to landfills by 25 percent by 1995 and by 50 percent before 2000. Although cities and counties are obligated to achieve the mandated diversion levels, much of the actual record keeping falls to the companies that collect recyclables and trash curbside and run the local landfill.

Increased Expenses This year, two new industrial scales and a computer system will be installed at the Pacheco Pass landfill. A weighmaster is also being hired to record the amount of waste received by the fill and to measure progress on AB939's waste reduction goals. This project is expected to cost $80,000.

SVDR expects to spend approximately 35 percent of its annual budget on environmental compliance. But AB939 and Subtitle D are only two factors driving up rates to increasingly reluctant customers.

Labor costs, resulting from a 20 percent annual increase in workers' compensation and health care and increased mandated tax and benefit rates, have driven up SVDR's overhead in the past five years.

Escalating franchise fees the percentage of receipts paid by solid waste haulers to the cities where they operate are another element that can quickly increase a company's costs.

Perhaps resulting from the fact that strapped municipalities are looking for new sources of revenue, SVDR's fees have climbed to among the highest in the two-county surrounding area. The company predicts that it will pay $1.6 million on revenues of $9.2 million to the cities of Gilroy, Morgan Hill and unincorporated Santa Clara County this year.

In addition, several long overdue capital expenditures are putting upward pressure on South Valley's rates. Leases on four new collection trucks are planned for the coming year to replace vehicles built in the 1970s.

Finally, the company's profitability picture, which has been dismal over the past five years, must be improved if the company is to survive. SVDR did not build any profit into its rate structure from 1991 until now, in an attempt to keep rates lower.

Three-Step Plan Recognizing the red ink handwriting on the wall, SVDR developed a three-part plan. First, an accounting firm, Deloitte & Touche, performed a comprehensive analysis. More companies as well as cities and counties are relying on outside firms to help with the garbage rate process, according to Erik Gilberg, a Deloitte partner specializing in solid waste issues.

"Over the past five years we've seen solid waste rates rapidly rising," said Gilberg. "Companies have to go back to city councils repeatedly to ask for rate increases. They are looking for help in proving that their requests are legitimate and necessary for continuing operation."

The study computed where rate-payers' money was going and where it would need to go in the future. It also compared SVDR's operating expenses and rates to similar jurisdictions in the area. The major cost categories were defined as labor, equipment, repairs, landfill costs, franchise fees, profit and other costs.

Based on this information, a detailed rate increase application was prepared. The study recommended the company request a 30 to 47 percent rate increase from the relevant city councils. The application was filed in September.

Under the application, solid waste rates for residents would go up, but still be less than rates in surrounding cities such as Sunnyvale, Saratoga, San Jose, Mountain View, Cupertino and Los Altos.

If implemented, the new rates would be in line with the average refuse collection rate for the region from Mountain View to Hollister: $20.40 for a customer with two cans weekly. (SVDR's service includes unlimited cans.) Customers will pay between $19 and $21 a month under the new plan, up from $13.44 to $15.68.

Finally, the company initiated a public information campaign to explain the necessity of the rate increase to customers and the city council.

First, the application was presented jointly by Deloitte & Touche and SVDR to city council staff in separate meetings. A program of news releases, phone calls to reporters and radio and television interviews followed immediately, timed to give certain reporters access to company information the day the rate application was made public.

SVDR credits the muted public reaction to the requested rate increase to news coverage that fairly represented the company's side of the story.

"We've had one customer phone complaint and one letter to the editor that complained about utility rates in general," said John Rice. "I believe it's because people are willing to pay if they recognize the link between higher rates and environmental benefits."

The costs of environmental compliance are typically passed from companies to those that generate waste in the first place. Solid waste regulatory costs are no exception.

For example, California's waste management board is collecting fees from companies to provide funds for safe closure of abandoned landfills. These fees are expected to add over one dollar to the price of disposal for each ton of refuse.

Unlike most private enterprises, however, landfill operators have to gain permission from local oversight bodies before passing on compliance costs. A decision on SVDR's rate application is expected this winter. The city councils of Gilroy and Morgan Hill have retained an accounting firm to review the company's numbers and help determine if the rate request is reasonable.

"South Valley is really hit with a double whammy in the rate process, in the sense that the company runs both collection and landfill operations," said Gilberg. "They have to comply with the full gamut of recycling and waste handling laws."

"I think it's important for our customers to know there is an outside force at work that is pushing up collection costs, namely regulations," said Rice. "And they are not going away."