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Study to Identify Potential Long-Term Threats

and Financial Assurance Mechanisms forLong-Term Postclosure Maintenance andCorrective Action at Solid Waste Landfills

Prepared for:California Integrated Waste Management Board

Contract IWM06051

FINAL REPORTDecember 3, 2007

Submitted by:ICF Consulting Services, LLC

Fairfax, VA 22031and

CalRecovery, Inc.Concord, CA 94520

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Overview of Presentation

• Background

• Evaluations of Mechanisms

• Proxy Indicator Tool

• State Pooled Fund Evaluations and Model

• Insurance Product

• Conclusion

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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

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Mechanism Evaluation Results (I)

Certainty Amount Liquidity Burden/Cost

Trust Fund High Medium High High

Enterprise Fund Medium Medium High High

Sale of Securities Medium High High High

Letter of Credit High High High Low

Surety Bond High High Medium Low

Pledge of Revenue Low Low Medium Medium

Financial Means Test Medium High Medium Medium

Corporate Guarantee High High Medium Medium

Insurance Medium Medium Medium High

Government Fin. Test Medium High Medium Medium

Government Guarantee High High Medium Medium

Federal Certification Low Low Low Low

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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

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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

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State Pooled Fund Analyses

• Step 1 Analyze state pooled fund design features and optionsqualitatively

– 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

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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

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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

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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)

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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

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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

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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%

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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

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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

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Example Scenarios that Can be Evaluated with the Working Fund Model

Scenario Method 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 30th years the costs can be set at 50% of the initial annual PCM costs, and then in the 31st 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.

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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)

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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

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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

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Test Case Assumptions, Absent Good Data

• CA frequency and magnitude

• Default rates for public sector entities’ LFs

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Test Case Assumption: CA Occurrence

Corrective Action Type

Average Number of Corrective Actions Over theModeling Period per Landfill by Landfill Sizes

Small LF Medium LF Large LF

Low Cost 10 13 15

Medium Cost 5 8 10

High Cost 2 3 4

Average Number of Corrective Actions by Type and Landfill Size

Over the Modeling Period for a Single Landfill

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Test Case Assumption: CA Frequency

Corrective Action Type

Average Frequency of Corrective Actions Over theModeling Period per Landfill by Landfill Sizes

Small LF Medium LF Large LF

Low Cost every 24 years every 18 years every 16 years

Medium Cost every 48 years every 30 years every 24 years

High Cost every 120 years every 80 years every 60 years

All Types every 14 years every 10 years every 8 years

Average Frequency of Corrective Actions by Type andLandfill Size Over the Modeling Period for a Single Landfill

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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”

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Insurance Product

• Charge: Define a Mandatory Insurance Product thatWould Cover Any Gaps in Coverage by FAMechanisms 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

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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

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Conclusion

• Evaluate mechanisms

• Develop proxy factors tool

• Develop pooled fund working model and research state funds

• Develop insurance product and check market interest

Done

Done

Done

Done

It has been a pleasure working together!

, ICF