BioCycle August 2009, Vol. 50, No. 8, p. 32
Nationwide gate rates and changes in those rates are a widely quoted set of market statistics. However, they don’t tell the whole story when evaluating alternative waste management technologies.
A NUMBER of years ago, our firm, the Chartwell Solid Waste Group (The Envirobiz Group, Inc.), began using the acronym “LERAT” as a description for the lowest price in waste management services. LERAT stands for “least expensive regulatory accepted technology.” We originally used the word “approved” but subsequently revised it to “accepted” to acknowledge that some alternatives do not require formal regulatory approval.
In most markets, there is a competitive advantage to being the LERAT option. Historically, that competitive advantage has been so dominating that it has taken both legislation and regulation to prevent the customers from using LERAT options that were considered environmentally unacceptable.
The underlying premise of this report is that the price of landfilling continues to be the LERAT benchmark for the financial feasibility of many other waste management alternatives. Its purpose is to provide insight into landfill gate rates as reported by the Chartwell Solid Waste Digest, published by The Envirobiz Group, so that developers of other waste management alternatives can judiciously use the gate rate data and research.
Gate rates, as used in this report, are the retail price per ton for a load of waste at the landfill. The gate rate is usually higher than the wholesale price per ton that landfill operators charge their largest volume waste collection companies; the wholesale gate rates are typically regarded as proprietary information and can vary with each waste collection company. The actual charge to the household or commercial establishment is typically higher than the gate rate because the waste management company needs to make a profit from its collection services.
Underlying Chartwell Solid Waste Digest’s research into gate rates over the last two decades is the premise that gate rates are an indicator of overall pricing changes due to waste management costs. More specifically, increases in retail gate rates will typically coincide with increases in wholesale pricing to haulers and the costs of services charged to the customer whose waste is being collected.
GATE RATE BASICS
Between 1990 and 2005, the Chartwell Solid Waste Digest provided a monthly update of landfill gate rate prices that typically reported an upward movement in gate rates, giving the impression that individual landfills were adjusting their prices monthly; this was not and is not the case. Rather the monthly increases historically reported in the Digest were simply due to the addition of new updated gate rate (as a result of annual or semiannual changes) in the overall survey group.
Figure 1 illustrates the average nationwide gate rate found by Chartwell surveys since 2000. There is an asterisk on the years where we believe it is probable that not enough surveys were done; consequently the year-to-year change during that time period may have been under reported. The overall change in the nationwide gate rate average between 2000 and 2008 was $7.67/ton (a 22 percent change since 2000).
The nationwide gate rate and changes in that rate are probably Chartwell’s most quoted set of market statistics. However, the reality is that these nationwide statistics are potentially misleading to stakeholders evaluating alternative technologies. Like most market statistics, the fact that the nationwide average gate rate was $42.10 in 2008 needs to be considered relative to results from the entire research effort.
Historically and today, the nationwide average is calculated from a wide range of gate rates; for example, in 2008 the nationwide low gate rate was $5/ton and the high was $200/ton. Since the survey results determine a range where the highest price is nearly 40 times the lowest, it becomes important to examine the mathematical distribution of gate rates in the surveyed groups. In fact, there are more landfills with gate rates below the national average than above. The 2008 nationwide median gate rate for landfills is $37.00; as illustrated in Figure 2, the median has been lower than the national average since at least 2000. The median national gate rate has changed $6, representing an overall gain of 19 percent since 2000.
STATE GATE RATES
As statisticians often caution, when there are significant differences between an average and median of a survey population, it is important to understand the underlying reasons. Figure 3 illustrates that the state average gate rates are often significantly different than the nationwide average gate rate. The average state rates range from about $22 to approximately $106/ton. Not only do many state average gate rates differ from the nationwide average gate rate of slightly over $42/ton, but so too do their rate of change ($/Ton/Year) and percent change.
Figure 4 illustrates the distribution of state median gate rates relative to the nationwide median gate rate. The median gate rates range from a low of $19.75/ton to a high of $100/ton. While we believe that the median national gate rate is often a better indicator than the nationwide average gate rate, it has similar limitations because of the same wide range in rates. Similarly, the state median gate rates change ($/Ton/Year) and percent change in state gate rates in the market are different.
For this reason, the Digest now reports both state average and median gate rates, as well as changes in recent years. In general, the state gate rate statistics represent a reasonable basis for initially assessing whether an alternative technology is potentially competitive in a state market. However, even state statistics need further examination.
Many alternative technologies have “economies of scale” such that their overall costs become less expensive when they manage more wastes. Correspondingly, it is more appropriate to examine their market opportunities in regions of the state where there is a sufficient amount of waste to make their technologies economically competitive. Gate rates help identify potential target markets within a state where their technology may be competitive.
In states with large geographic areas and significant differences in population density across the state, there is often a significant range from low to high gate rates. For this reason, in state markets, our researcher analyzes state gate rates in three categories: landfills based on estimated gate receipts being over 500 tons/ day (large), landfills with gate receipts between 100 and 500 tons/day (medium), and landfills with gate receipts below 100 tons/day (small).
There is often still a relatively wide range in pricing even when one narrows the scope of the evaluation to a certain sized landfill in a state. This is illustrated in Figure 5, which presents the average, highest, lowest, and median gate rates for large landfills in ten randomly selected states. Compared to the differences between lowest and highest gate rates for these large landfills, the differences between average and median gate rates are comparatively small.
Figure 5 illustrates that average and median gates rates, even when calculated on the basis of specific criteria, such as the landfill’s size, are subject to the same mathematical limitations as the national average and median. Hence it is an important part of the due diligence process to examine individual landfill gate rates within a target market.
From the perspective of due diligence on alternative waste management technology, land disposal may not always be the LERAT default. But at the very least, landfilling will typically reflect a competing waste management option that will be given consideration. Therefore, whether landfills are the LERAT option or not, gate rates are an initial information tool for assessing a waste management alternative’s competitive position.
One can summarize the situation based on common sense: as a waste management technology’s costs increase, the opportunities to find viable markets for it decrease. Figure 6 provides a visual perspective on how much state market opportunities are likely to diminish as costs increase. An alternative with a cost of less than $20/ton would find market opportunities in every state, whereas an alternative with costs greater than $70/ton has far less states with potential markets.
In many respects, the old adage of “location, location, location” is the bottom line. Within any given state, there are typically unique situations that make land disposal more expensive or even not viable. Consequently, whereas states with higher MSW landfill gate rates represent potentially more viable overall markets, states with lower MSW landfill gate rates can still have viable markets within them.
Cary Perket is President of The Envirobiz Group, Inc. (www.envirobiz.com) in San Diego, California, the research firm that publishes the Chartwell Solid Waste Digest and owners of the Chartwell Solid Waste Group.
August 19, 2009 | General
Understanding Dynamics Of Landfill Gate Rates
BioCycle August 2009, Vol. 50, No. 8, p. 32