Wednesday, October 21, 2015

New federal water rule blocked by court

By Ken McEntee

As many observers expected, the Obama administration’s new “Clean Water Rule” that redefines the “Waters of the United States” (WOTUS) has been stayed in federal court. This month, the Sixth U.S. Circuit Court of Appeals issued a nationwide stay of the new rule, blocking its implementation while numerous court challenges across the country are sorted out and tried.

“The Sixth Circuit stayed the rule across the country to maintain the status quo while it determines if the court has jurisdiction to hear the challenge on its merits or whether the federal district courts should hear the cases first,” according to the Pacific Legal Foundation (PLF), which sued the administration on behalf of a group of landowners, farmers and cattlemen to invalidate WOTUS.

WOTUS, which was developed by the U.S. EPA and the Army Corps of Engineers, was issued on June 29 and immediately was challenged in 10 different suits involving more than 30 states and scores of private parties.

The stay was hardly a surprise. In July, Jay Lehr, science director for the Heartland Institute, a Chicago-based research organization, told Composting News that a barrage of lawsuits, injunctions and acts of Congress was likely to block the new regulations from going into effect.

“I think this will be in the courts for years,” said Lehr, the nation’s first Ph.D. in groundwater hydrology who was among the first advocates for the creation of the EPA almost 50 years ago. “With all of the various filers from multiple states and organizations, I can’t imagine that they will have trouble finding judges at the right levels who will place injunctions against the carrying out of this law.”

H. Reed Hopper, principal attorney for PLF, said that whichever court ultimately decides the fate of the new rule, the Sixth Circuit’s stay decision is noteworthy in its conclusion that the rule appears to be invalid on its face because:

  • It is arguably inconsistent with Supreme Court decisions limiting the scope of the Clean Water Act, including PLF’s 2006 case of Rapanos v. United States;
  • It was apparently issued without adequate public review and comment; and
  • It may undermine the Clean Water Act’s goal of recognizing the primary role of the states in protecting local land and water use.

“As PLF argues in our challenge to the sweeping rule, the Obama administration’s new rule represents an unprecedented expansion of federal power that could bring virtually all the nation’s water and much of the land under command-and-control direction from Washington, D.C.,” Hopper said. “Its vast expansion of the Clean Water Act jurisdiction violates both the terms of the act and the constitution’s limits on federal authority. Under its vague and limitless terms, the only waters that are clearly not subject to federal regulatory power are a few that are expressly excluded, including artificial reflective pools, ornamental waters and some ground water.”

As reported in the August issue of Composting News, Robert LaGasse, executive director of the Mulch and Soil Council, expressed reservations about WOTUS, saying that the rule “presents a big problem for anybody who wants to make changes to their property.”

The rules are so vague that you might get one answer from one regulator and a completely different answer from another regulator.”

The U.S. Composting Council, on the other hand, isn’t concerned about the new rule, according to Cary Oshins, director of education for the organization.

“I don’t think this will make much of a difference for compost sites,” Oshins said.

Opponents like Hopper, however, said the rule, if enacted, would impact everybody.

“Property owners around the country will be faced with the prospect of being micro-managed by federal bureaucrats,” Hopper said. “This turns our federal system on its head. Under our constitutional framework, the states and localities are charged with the primary role in land use regulation and local water-quality protection. The new rule usurps the authority and responsibility of the states, and empowers bureaucrats in Washington D.C. to act as zoning and land use czars for the entire nation.”

Plastic company cannot claim biodegradability, FTC rules

By Ken McEntee

The Federal Trade Commission (FTC) has ruled biodegradability claims by a plastics additive manufacturer to be deceptive. The attorney for Painesville, Ohio-based ECM BioFilms said ECM will appeal the decision to the U.S. Court of Appeals for the Sixth Circuit.

“It is a disastrous decision that should be held as unconstitutional under the First Amendment,” said Jonathan Emord, of Washington D.C.-based Emord & Associates. “It is an egregious instance of abuse of agency discretion.”

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Thursday, February 19, 2015

Waste Management recycling will be profitable ‘come hell or high water’

By Ken McEntee
(The Paper Stock Report) While recovered paper prices continue to fall, Waste Management said it has renegotiated customer contracts to ensure that it can recover its material processing costs.

Speaking on a conference call to announce the company’s full year and fourth quarter 2014 financial report, David P. Steiner, president and CEO, said falling recyclable commodity prices have created margins that are too small to recover processing costs. In response, Waste Management has renegotiated contracts to ensure that processing costs will always be recovered, even if the company has to charge customers to accept recyclables.

“We're going to use the opportunity to make sure that we restructure our business such that we can make it profitable come hell or high water,” Steiner said, adding that it isn’t only Waste Management that has been impacted by weak recyclable markets.

“We need to take some steps to really fix the recycling business. because if you look at not just at Waste Management, but across the entire recycling industry, you're seeing a stark divestment in recycling assets,” he said. “You're seeing a lot of the smaller players starting to close up shop. That gives us a great opportunity to restructure the recycling business, to restructure it to where we can make a guaranteed return every year, which means we can invest in recycling assets. We cannot invest in recycling assets in a situation where nobody has any idea where commodity prices are going. So, for the benefit not just of Waste Management, but I think for the viability of recycling in the United States, we have to have some core fundamental changes to make the business long-term viable.”

Steiner said Waste Management’s recycling operations performed well in the face of declining commodity prices. For the full year, the company’s recycling line of business increased about $0.03 per share when compared to 2013.

“This improvement was driven by better operating cost performance, offsetting a more than 5 percent decline in OCC (old corrugated container) prices,” Steiner said. “Our managers did a great job managing their rebates and costs, as commodity prices declined throughout the year. Until recently, we had expected our recycling operations to remain flat in 2015. However, the recent slowdown in Western U.S. ports has had a dramatic effect on the movement of commodities overseas.”

He said lower Chinese demand for recyclables has also affected commodity prices.

“In the last few weeks, we've seen another drop in commodity prices such that we now expect recycling to have a negative effect on 2015 earnings of between $0.03 and $0.05 per share,” he said. “That assumes that we do not see another drop in commodity prices, and given current uncertainty in the market, that's certainly possible. In the face of weaker commodity prices, we must continue to take actions to ensure the viability of recycling over the long-term.”

Specifically, that refers to the renegotiation of processing contracts.

“We need to take a stronger stance to ensure that we recover our full processing costs,” said James C. Fish – CFO and executive vice president. “Processing costs increased due to circumstances beyond our control like the Chinese Green Fence. We need to recover those costs. So as we've said in the past, our strategy in pricing our recycle business is to recover our processing costs before we split the commodity value. Our contracts will also contain force majeure language to cover increases in processing costs beyond our control, and if our processing costs are higher than the commodity values, our customers will have to pay for the difference.”

The viability of recycling, Steiner said, is based on a simple equation.

“In the past, what the industry has done is said we'll sell the commodity for a certain price and then whatever our processing cost is we'll be able to pocket the difference,” he said. “The reality is as commodity prices have come down, you have instances where our processing cost is higher than what we are selling the commodity for. And so you can't have the business model where it says we'll sell the commodity, split the proceeds and hopefully cover our operating costs. The way we're changing the contracts is to say, look, we are going to recover our operating costs, whatever those might be and however those might be affected by things that we can't control like the Chinese Green Fence. So we're going to recover our processing costs. And if we're able to sell the commodity for more than our processing costs, then we'll split the proceeds with the customer. If our processing costs are higher than what we can sell the commodities for, we're going to have to charge our customers in order to recycle. And that's the only way that we can make recycling viable for the long-term.”

Fish, however, suggested that all of the contract changes have not been implemented and noted that January’s overall recyclable commodity prices fell $10 per ton, following by further declines in February, Fish said

“We finished the year 2014 at $98 (per ton) and we saw a January drop about $10, so to $89, and that impacts us on the 6 million tons that we actually pick up and take to our MRFs, about $60 million in revenue, which equates to somewhere in that $0.03 to $0.05 range on the EPS line,” he said “We think in January, the cost control that we put into place fully compensated for that which is why we were prepared to come on a call and say we thought it'd be flat. And then with the February decline, we just have not been able to put the more stringent contract changes and cost controls in place yet. So can we do that? That is our plan.”

Fish added that Waste Management is going to be more aggressive in setting contractual limitations on contamination levels for materials going to processing plants, and impose contractual remedies for contamination in excess of those limitations.

“Contamination above 10 percent leads to higher processing costs, and we need to continue to get assurances from our customers that they will either give us clean material or compensate us for higher processing costs,” Fish said. “This will ensure that we only pay a rebate for the net volumes produced and not pay our customers for residue.”

Fish noted that glass has always been a difficult commodity to recycle and an economic challenge.

“Unlike other recycled materials, recycled glass must compete with an abundant supply of virgin materials,’ he said. “As a result, glass recycling does not provide the same environmental benefits to the society and it's always been financially challenging for recyclers. In addition, glass is difficult to handle, hard on equipment, and as of today, only one company takes recycled glass for MRFs, so our options are significantly limited. With most commodities, we get paid to deliver recycled materials. Glass is the only commodity where we aren't paid for the outbound product. We actually have to pay to send it to a processor. We certainly recognize that our cities and communities want to divert glass because it is the second largest recyclable by weight. But given the many challenges associated with glass, we need to charge extra if a customer wants to recycle.”

James E. Trevathan – COO and executive vice president, noted that Harrisburg, Pa., has stopped taking glass in its residential recycling collections.

“They recognize that the value of recycling the material is just not just positive,” he said. “There's no real market for it, and they've decided not recycle glass. So that's a positive sign for us.”

Looking forward at recyclable commodity markets, Fish noted a weaker Chinese economy.

“There are quality issues with outbound product,” he said. “And there is, of course, the (West Coast port slowdown). One of the concerns we have, honestly, about the port strike is that there's a lot of products sitting idle at this point. When that does eventually get resolved, all that product ends up out on the market, which could have a dampening effect on commodity pricing.”

Canadian rail strike over; what about U.S. ports?

“At least the Canadian government has the balls to step into the fray and get them back to work,” said a Canadian broker. “What is Obama doing for the West Coast of the U.S.?” 

By Ken McEntee

(The Paper Stock Report) Almost as quickly as it started, the Canadian rail strike ended. Canadian Pacific (CP) and the Teamsters Canada Rail Conference (TCRC) agreed on February 16 to enter into binding arbitration, putting an end to the work stoppage by CP's locomotive engineers and conductors.
Meanwhile, recovered paper traders are wondering when the U.S. federal government is going to take action to end a West Coast port slowdown that is holding up import and export activity.

“At least the Canadian government has the balls to step into the fray and get them back to work,” said a Canadian broker. “What is Obama doing for the West Coast of the U.S.?”

Meanwhile, in an appearance this week on CNBC’s Mad Money investment show, Waste Management President and CEO David Steiner called on the federal government to be more proactive.

“We have tens of thousands of materials that are ready to be shipped to China but it can’t be shipped because of the slow down at the ports,” Steiner said. “We’re joining with all the American businesses saying let’s do something to get this resolved. Let’s be a little more proactive at the federal government level to get this resolved and not hurt the economy more than it has already been.”

In Canada, an arbitrator was to be appointed by the federal government to oversee binding arbitration talks.

"This decision ensures both sides will get back to the table, and gets us back to moving Canada's economy forward," said E. Hunter Harrison, CEO of CP. “While we would have preferred a negotiated settlement, this is the right thing to do at this time."

Restructure contracts

Steiner also told Mad Money host Jim Cramer that Waste Management has restructure its contracts for recyclables.

“When the commodity prices go down so that your processing costs are actually higher than what you can sell the materials for, that’s a recipe for disinvestment into recycling,” Steiner said. “So what we told customers is we need to restructure to make sure that we can make money long term in recycling, not just so waste management can do better, but so that we can do better for the environment, because as a business, we have to make money to invest in recycling assets.”

Waste Management last week reported that recyclable commodity prices had a negative $0.03 per diluted share effect on the fourth quarter of 2014, but were more than offset by benefits from operational improvements in the recycling line of business. Overall, recycling operations positively affected earnings by $0.01 per diluted share in the fourth quarter when compared to the fourth quarter of 2013, despite an average old corrugated container price decline of 24 percent.

The company said recycling operations improvements are not expected to keep pace with recent recycling commodity price declines such that the recycling line of business is estimated to be between a negative $0.03 and $0.05 per diluted share in 2015 compared to 2014, assuming no further degradation in the prices of commodities.