MINUTES OF THE METRO COUNCIL

REGIONAL ENVIRONMENTAL MANAGEMENT COMMITTEE MEETING

Wednesday, March 3, 1999

Council Chamber

Rod Park, Vice Chair of the Regional Environmental Management Committee, called the meeting to order at 1:32 PM. He announced that he would be presiding, as Chair Washington was in Washington DC on Metro transportation business.

1.  CONSIDERATION OF THE MINUTES OF FEBRUARY 17, 1999

2.  REGIONAL ENVIRONMENTAL MANAGEMENT DIRECTOR’S UPDATE

Bruce Warner, Director of the Regional Environmental Management (REM) Division, called the committee’s attention to a report (attached to the meeting record) on the performance of Metro’s transportation contractor, Specialty Transportation Services (STS). This report is done annually and assesses the performance of this company in terms of safety and of meeting contract goals. Mr. Warner said the report is generally positive. He noted that part of Metro’s contract with STS calls for an annual meeting to be held in the Gorge to allow people to comment on the operations of the contractor. The annual meeting was held in Cascade Locks last Wednesday. No members of the public chose to attend, in spite of a large outreach effort. Representatives from the Oregon Department of Transportation (ODOT) and STS were present. No controversial issues arose.

Mr. Warner summarized the following issues. (A copy of the summary is attached to the meeting record.)

• Hazardous waste events planned for this spring. Mr. Warner gave a rundown of the events planned for this spring.

Councilor Mclain asked how long events had been held at the Forest Grove Transfer Station. Mr. Warner said they began last summer. Councilor McLain asked how much had been collected at those events. She said people have requested a permanent hazardous waste collection site out there. She was not certain whether the facility could handle large crowds.

Councilor McLain also asked about collection of commercial paint and whether a memo had been prepared, as suggested at the last REM committee meeting, that explains the operations of the permanent paint-collection site.

Mr. Warner said that as part of a study currently being done on the regional transfer stations is a study of household hazardous waste, which includes paint, to determine how to deal with the increase in demand for disposal of those wastes. The study should indicate what will be needed in terms of satellite events and permanent facilities. Mr. Warner said he would be working with his staff on ways to deal with hazardous waste in the future and how to reduce the amount of material generated in the first place. He said this issue would be discussed as part of agenda item 4, later in this meeting.

• Bulky Waste Collection events have been recently initiated by the City of Portland. Mr. Warner noted that the program has a fiscal impact, which will be discussed with the City of Portland. He also said the program had not gone without a hitch. For example, some items have not yet been picked up. He said the idea is good, but some of the details on cost and procedures still need to be worked out.

• Metro donated fifty-two 55-gallon paint cans to Honduras to help the people of Honduras rebuild after Hurricane Mitch. He said local kids painted signs and cards on the sides of the cans that were sent down there. Councilor Washington represented Metro at the event.
• A Metro/MERC Purchasing Outreach Event will be held on March 4. This will allow departments to meet the business owners and put a face with the name of the contact person for contracts.
• A REM Hotline has been set up to improve internal communications within the REM department, particularly with field staff. Any Metro employee is welcome to use it.
• Forest Grove Transfer Station Mitigation Study has been going on for some time. The REM staff has been working with the City of Forest Grove, the private operator of the Forest Grove Transfer Station, and a private monitoring committee to address issues surrounding the impact of that transfer station on the surrounding neighborhood. He noted that Councilor McLain had attended a final celebration meeting held on the evening of March 2, at which the neighborhood residents were informed of the company’s plans to respond to their concerns. She pledged Metro’s continued support for addressing resident’s complaints.

Councilor McLain thanked Steve Kraten for his work with the transfer-station committee. She said at the end of the meeting she attended, some of the neighborhood residents had asked her about the prospects for eventually moving the transfer station out of that neighborhood. She told them that the prospects were not good for moving the station into any other neighborhood, as a station of that size most likely could not be sited in any neighborhood today. She said that until the industry changes the appearance of transfer stations, reduces their size, and changes their purpose to focus on recycling rather than dumping, people’s energy is best spent making this transfer station as good as it can be.

Councilor McLain said as far as planned improvements go, landscaping to provide visual relief needs to be put in right away. She thought that Metro could expedite that through some of its programs. She asked to discuss it with the REM staff soon.

3.  REPORT ON METRO’S COMPOST BIN DISTRIBUTION PROGRAM SINCE 1994

Mr. Warner said the Council had for some time been asking for data on the effectiveness of the compost bin distribution program. The budget last year provided no new money for compost bin distribution, pending an analysis of the program’s effectiveness. Mr. Warner introduced Steve Apotheker, who would present the results of his study of the program’s effectiveness.

Steve Apotheker, Senior Solid Waste Planner, presented a series of slides that showed the program has been popular. (Prints of Mr. Apotheker’s slides are attached to the meeting record.) He said the program diverts a significant amount of organic waste from the land fills; it is the most cost-effective way of handling that waste; there is significant unmet need in the region for this service; the program should be continued; and the program should be re-evaluated every three years.

Mr. Apotheker said Metro operates four home-composting demonstration sites around the region where the public can take a self-guided tour, and a fifth site would soon open in Washington County. A sixth site is planned for Beaverton. Metro also gives 26 free 90-minute workshops every year on home composting and provides technical support to home composters.

Mr. Apotheker said the home composting program is Metro’s premier waste-prevention strategy. It has proven to cost only one-third to one-half as much as other waste-management strategies.

The program in the past has consisted of truckload sales held at four or five locations throughout the region on two weekend days. On average, about 10,000 bins have sold each year a full sale has been held. A survey of the general population reveals that there is unmet demand for about 130,000 bins. The public has requested that sales be held on more weekends and at more sites.

The price for a bin is currently $25, which the public perceives as about right. Although no sale was planned for this year, staff recommends that one be held, because of the demonstrated success of the program and in response to public demand. The department has received hundreds of calls from the public asking when the next sale will be.

Councilor McLain asked where the money would come from to hold a sale.

Doug Anderson, REM Outreach Manager, said this program had not been budgeted for this year. Some funds had been set aside for enhancing private facilities’ ability to compost of organics. The private sector has been able to do that without using public dollars. The unused dollars could be diverted to this use.

Councilor McLain asked if that would require Council action. Mr. Anderson said he did not believe it would, but he would check.

Councilor McLain said she had anticipated that this program would prove effective. She noted that bins have been sold out by 9:00 AM at nearly every sale. She also said the diversion of wet waste is positive. She said if individuals were willing to do the work at home, Metro should encourage them. She requested that staff determine whether Council action would be needed to approve the budget amendment that would allow a sale to take place this year. If it does not require Council action, she asked that staff prepare a memo explaining why.

Councilor Mclain asked Mr. Houser, Council Analyst, if this program had been included in the budget currently under consideration. Mr. Houser said he had not reviewed the budget for that item.

Councilor Mclain asked Mr. Anderson if REM staff had written this program into the budget, given that staff had recommended the program be continued for at least five more years.

Mr. Anderson said a full-blown bin-distribution program has been proposed in next year’s budget.

Councilor Park asked how much of the $25 price of the bin Metro subsidized. Mr. Anderson said last year none, as Metro had negotiated a wholesale bulk price. Before that the subsidy was about $7 or $8 a bin.

4.  REGIONAL TRANSFER STATION SERVICE PLAN

Mr. Warner said this item had been on the previous meeting’s agenda. It appears again in response to a request that the staff provide dates for when the committee would be able to review parts of the Transfer Station Service Plan study.

Bill Metzler, REM Senior Solid Waste Planner, distributed to the committee a table summarizing the schedule for the study project and indicating which stakeholders would be involved when. Another table shows who the stakeholders are and what their involvement will be. (A copy of these tables is attached to the meeting record.)

Councilor McLain said one of her concerns is that staff has not always made good use of the REM committee’s feedback. She thought it was important for the staff to address points the committee brought up before presenting issues at the Solid Waste Advisory Committee (SWAC), in front of industry representatives. She thought it particularly important when money is involved.

Mr. Metzler said he would integrate her suggestion into the process.

Mr. Metzler explained the phases of the study project, as outlined on the table. He said the study is currently in the first phase, that of defining the problem. He said staff is trying to identify what different stakeholders believe makes a good transfer station. It is also designing the stakeholder involvement process.

Councilor McLain said she had talked with the Forest Grove group about alternative configurations for transfer stations--perhaps smaller stations and more of them. She asked if looking at different configurations would be part of the first phase of this study.

Mr. Metzler said more, smaller stations might be one of the alternatives stakeholders suggest. He said this first phase was an information-gathering stage rather than one in which solutions are designed.

Councilor McLain asked how the general public would be represented among the stakeholders. Mr. Metzler said the Metro Committee for Citizen Involvement (MCCI) would be involved throughout.

Vice Chair Park asked if the answers to the questions asked by Councilor McLain could be found in the complete plan for this project. Mr. Metzler said yes.

Mr. Metzler called the committee’s attention to the table that accompanies the summary schedule, which shows who the stakeholders are and details of their involvement.

Mr. Metzler said after the information is gathered, various scenarios will be created. Input will be sought from all stakeholders to produce a final set of recommendations by early July. That set of recommendations will be packaged during the months that follow, then brought to Council for review and approval.

Councilor McLain said that citizens who live in the neighborhoods near the transfer stations should be included in the conversations. She said they are the experts in knowing what makes a transfer station good to live near.

Sarah Adams-Lien, REM Associate Waste Planner, gave a brief overview of the Stakeholder matrix. She said stakeholder involvement is a high priority in this process. She said this matrix relates directly to the project schedule phases. She said staff is currently completing phase 1 and will soon be entering phase 2--developing the evaluations criteria. As the matrix shows, the REM committee has been assigned the highest level of involvement in that phase--providing concurrence and feedback. The list of criteria--which might include cost, nuisance factors, and demand--will be used later in technical analyses of various scenarios. The REM staff would like to work with the REM committee to brainstorm ideas. Tentatively, that might involve coming before the committee during its regular meetings, but staff is open to other possibilities the committee might want to suggest.

Councilor Park asked about the transportation component of good transfer stations.

Ms. Adams-Lien said transportation issues could include congestion, access, nuisance, and other issues suggested by the stakeholders. She called attention to the group labeled “Users” on the matrix, which includes haulers and self-haul groups. The department had just issued a Request for Proposals (RFP) to initiate public involvement processes with those groups. Also, staff will be meeting in the next couple of weeks with the hauler representatives, hauler associations, and local governments to solicit advice from them.

Ms. Adams-Lien said that representation of affected parties during the initial stages had been anticipated to take place through decision-makers, such as SWAC, MCCI, and MPAC. As the process proceeds, involvement will be more on the individual level--the neighborhood associations and so forth. She said she liked the idea of involving those who live in the neighborhoods adjoining the transfer stations.

Councilor McLain said the issue of public ownership versus private ownership of transfer stations had been discussed at the previous meeting. She thought that should be part of the discussions on what makes a good transfer station. Another important issue is the amount and speed of change in the industry. For example, in the past recycled material needed to be separated. Now it is commingled. She thought the industry needed to explain to the public why this change had been made--how it makes recycling more efficient. She said a good transfer station should make methods of operations known and communicate changes; it should explain the role of reusing and recycling in the overall waste management system.

Councilor Park applauded the effort to develop a process for involving the public in Metro’s waste management decisions, as it has in transportation and growth management decisions. He said he would welcome a workable formula for fostering effective public involvement.

5.  SOLID WASTE INDUSTRY TRENDS AND IMPLICATIONS FOR THE PORTLAND METROPOLITAN AREA

Doug Anderson, REM Waste Reduction Planning and Public Outreach Manager, summarized disposal industry trends. He noted that in the next few weeks, the REM committee and the Council would be considering Metro’s disposal contract. He said Councilor McLain had just brought up the issue of public versus private ownership of transfer stations. Both of these issues affect Metro’s strategic plans for waste management in this region. He presented a slide overview of the external dynamics that set the stage for the decisions that will be made in the near future. (Hard copies of his slide presentation are attached to the meeting record.) He assured the committee than although some of the information he would be presenting might seem shocking, none was proprietary. It had all been published in sources such as the Wall Street Journal. A brief summary of Mr. Anderson’s main points follow.

Trends Toward Rapid Consolidation and Vertical Integration

• The solid waste industry is consolidating rapidly, and this is a national as well as local trend.
  • In 1994 Waste Management (before it merged with USA Waste) was the only vertically integrated firm in the region. Vertically integrated firms are firms that control waste from collection through disposal at a landfill.
  • Since then, there has been tremendous growth of vertical integration throughout the industry. Two vertically integrated firms operate in this region today--Waste Management/Usa Waste and Waste Connections.
• Consolidation provides for greater efficiency, but it can become monopolistic and lead to market failure.
• Metro needs to question whether it is currently equipped to deal with these trends.

Economic Drivers Behind the Mergers

• Larger landfills. Larger landfills came about as a result of federal mandates to address environmental problems. Those mandates required more capital investment, which make sense only for very large landfills. Very large landfills also mean very large returns due to economies of scale. They have thus become major profit centers.
• Curse of the “early innovators,” such as the early Waste Management and BFI. These firms undertook the research needed to address federal mandates. They established landfills such as the Columbia Ridge landfill. (Columbia Ridge was one of the first in the nation). They had to do all the research and learn from their mistakes. This drove up their cost per ton for disposal--to about $40/ton. Firms that acquired landfills later used the lessons by the early innovators. This cut their disposal costs per ton by more than half--to about $18/ton.
• Acquisitions of collection facilities and other landfill. These acquisitions can easily be financed by cost savings from disposal costs when they are less than half that of the major competition. As fewer companies acquire more, the competitive gap grows larger.

Strategies of merged companies

• Specialization in disposal, with diminishing commitment to recycling and to collection of all types hazardous waste
• Development of a “hub and spoke” strategy--comprehensive system integrated both vertically and horizontally. This translates into not only controlling waste management from collection to disposal, but also having a lot of collection trucks and transfer facilities that blanket the region.
• Consolidation and use of market power to push disposal prices.
• Acquisition and development of a national network of strategically located regional landfills--the “hubs” --then begin acquiring collection companies to feed those landfills--the “spokes.” The industry calls this “internalization,” and it means a company collects the waste and delivers it to its own landfill. the problem is that in a company of that size, there is less room for specialization. Metro’s market participation is limited to just one role--transfer. It is not in collection nor disposal except by contract.

Conclusions

• There is lots of momentum behind the national trend, driven by short-run economics and long-run profitability strategies.
• Metro can, in Mr. Anderson’s opinion, expect local acquisitions to continue, because this is a profitable region for such acquisitions: There are lots of small haulers, privately owned that cannot achieve the economies of scale and offer the variable collections schedules larger haulers can.
• Acquisitions of hauling franchises can be expected, but that of transfer facilities is not out of the question. Because of the nature of the industry, this will lead to pressure for vertical integration--for this waste to go to their own facilities and to their own landfills. This can be expected of any vertically integrated firm, not just Waste Management/USA Waste.

Councilor McLain referred to Mr. Anderson’s prediction that Waste Management would try to acquire more small collection companies. She said she understood that Waste Management had been required to divest itself of certain elements of the system the company owned, to prevent monopoly control. She asked how much is not too much to own.

Mr. Anderson offered his opinion, which he emphasized represented only speculation on his part. He said the REM department had provided advice, by request, to Waste Management and the federal government during the merger with USA Waste. At that time, they explained three markets in the solid waste industry--collection, transfer, and disposal. Metro expressed concern about concentration at each level and warned the federal regulators to pay attention to that. He said in his opinion, the federal government paid little attention to concentration in collection, as they believed local governments have regulatory power. They were concerned about landfills, because those are the profit centers. They required divestiture of certain landfills by Waste Management. On the collections side, Waste Management was required to divest itself of only eight routes in Portland.

• Consolidation is not all bad. Lots of small haulers sacrifice economies of scale and routing efficiencies.

Councilor McLain offered the suggestion that Metro’s promotion of self-haul was a positive move toward helping out the smaller companies.

Mr. Anderson encouraged Councilor McLain to work with Mr. Metzler and Ms. Adams-Lien as they define the problems and design evaluation criteria for transfer stations. In his opinion, self haul can be good, but it is an open question as to whether it is good on balance. He said it has resulted in long lines at the transfer stations, which has affected everyone’s rate as everyone has to pay for the commercial haulers to wait in line. Private facilities have resisted self-haul because of the cost and because of siting, because it is a retail activity. He encouraged studying this as part of the larger transfer stations study. He offered the following concerns.

• Consolidation can lead to concentration of market power. However, as companies achieve cost savings through efficiencies and economies, the public should share in that cost. In concentrated industries, how can that be assured?
• If vertical integration leads to these companies using their own facilities, Metro’s investments in its own facilities could be left stranded. General principle of large industries, cost containment and rate regulation, become more difficult. These companies have the resources to be at the rate-regulating table. That has been the case in the past.
• One big question is whether Metro is prepared to deal with concentrated markets. Metro is not vertically integrated; but rather a single participant in a specialized field. In a vertically integrated arena, Metro cannot control its destiny when it controls only a small piece of the action. Because Metro does not have authority over the local government’s control of collection; as a market participant it has no basis for being vertically integrated. It is risky to protect Metro’s investments through flow control only.
• Are local governments prepared also? Local governments regulate by franchising many haulers, a strategy that has worked well in the past. For technical reasons, it doesn’t necessarily work as well when bigger players enter the market. Local governments normally grant those franchises in perpetuity. They have the right of review but limited scope for affecting franchise transfers. This means local governments are not well equipped to stand in the way of consolidation even if they want to. They have some tools, but probably not all they need.
• If consolidation happens and local governments cannot set rates in the quasi-competitive way they do now, they do not have the resources to go through full-scale, fiduciarily responsible rate regulation. How would the public interest be protected? How could Metro ensure that the public participates in cost savings?

Policy Choices

• Regional system--who will be the guardian of the public’s interest--cost savings and recycling?
• Does the public’s interest need guarding? How much concentration is good?
• No one government is in a position to guard the public’s interest--regulation, ensuring or enforcing competition.
• Metro’s questions lie in what its market participation will be, how it will regulate, how to remain a governmental model, how to manage the regional solid waste system, and how to meet its recycling goals. Even though recycling threatens Metro’s financial goals, it is something Metro does out of commitment. But internal conflicts can be challenged as the competition becomes more fierce.

Marvin Fjordbeck, Senior Assistant Council, explained a significant federal court case--Woodfeathers versus Washington County--that affects the ability of local governments to regulate through their franchises. He said he had just that morning heard the arguments presented before the 9th Circuit Court of Appeals in the Woodfeathers case. Woodfeathers wanted to provide construction debris disposal services but had not obtained a certificate from Washington County. Woodfeathers sued, alleging the County’s solid waste control ordinance was unconstitutional. Judge Haggerty ruled that the ordinance was preempted by federal law and was facially discriminatory against interstate commerce. Those two issues and an issue lawyers refer to as “abstention” were the focus of today’s hearing.

Abstention has the following meaning. In a federal court litigation, if there is also a previous state action, the federal court will be asked (it was in this case, but declined) to abstain from acting further until the state court finishes its handling of the matter. Judge Haggerty was asked to abstain but declined, because he believed the federal issues might not be fully explored in the state court. The questions to the legal counsel for the county focused on the commerce clause of the case; in particular, the panel was concerned about the difference between Washington County’s circumstances and a critical 1994 solid waste case called Carbone, which invalidated a solid waste ordinance of a city that demanded that solid waste go the city’s solid waste facility. The questions to legal counsel for Woodfeathers focused almost wholly on this argument of abstention. Very few questions were put forth on preemption. That argument was characterized as “dubious” by at least one member of the panel. Mr. Fjordbeck said a decision can be expected in four to six months, and he would come back after that to describe its effect, if any, on Metro’s solid waste code.

Councilor McLain said she remembered the Carbone information. She suggested looking back to find a memo that explained that decision. She thought it would provide good background to this decision.

Mr. Fjordbeck said he would do that, and he would also find the September 1997 presentation made on flow control in general. It might be worth an informal session.

Councilor McLain said she would be meeting with Mr. Metzler and Ms. Adams-Lien on the transfer station project. In addition, she said she had received complaints from citizens in her district about illegal dumping. She said she understood that Washington County had not accepted Metro’s offer to help with enforcement on this. She said citizens do not understand why this service has not been accepted. She suggested bringing the offer back to Washington County again.

Mr. Warner said he would do that. He had had some recent meetings with Washington County staff. He thought they were now more interested in forming partnerships, and it might be a good time to find ways of working together to address the dumping problem.

Councilor Park asked if there might be other industries that could provide examples of consolidation that could guide Metro . He said he suspected the waste industry was following some other industry’s pattern, either domestically or abroad.

Mr. Anderson said he did not know which industry, but he thought it would be a good idea to find one and follow up on it.

6.  COUNCILOR COMMUNICATIONS

None.

There being no further business before the committee, Chair Washington adjourned the meeting at 3:04 PM.

Respectfully submitted,

Pat Emmerson

Council Assistant

ATTACHMENTS TO THE PUBLIC RECORD FOR THE MEETING OF MARCH 3, 1999

The following have been included as part of the official public record.