1. California Integrated Waste Management Board August 19, 2008 Item 6 Discussion And Request For Rulemaking Direction To Formally Notice The 45-Day Comment Period For Draft Regulations For Long- Term Postclosure Maintenance And Corrective Action Item 6 Discussion And Request For Rulemaking Direction To Formally Notice The 45-Day Comment Period For Draft Regulations For Long- Term Postclosure Maintenance And Corrective Action

2. Financial Assurances Topics AB 2296 Issues Posed by the Makeup of Waste Management Industry Closed and Operating Status Types of Financial Assurances (FA) Provided Closed Landfills’ Time Performing PCM System Cost Exposure to State AB 2296 Issues Posed by the Makeup of Waste Management Industry Closed and Operating Status Types of Financial Assurances (FA) Provided Closed Landfills’ Time Performing PCM System Cost Exposure to State

3. AB 2296 Requirements By July 1, 2009, the CIWMB shall: Adopt regulations (Phase II) Develop recommendations for needed legislation to implement the findings of the study

4. Landfill Operators in California Types of Operators and Default Concerns FA Demonstrations “System View” in Calculating Costs Exposure to the State

5. Makeup of Waste Management Industry

6. Type of PCM FA Demonstration

7. Trust Funds and Enterprise Funds

8. Landfills Years Into Postclosure Maintenance

9. System Cost – Status Quo

10. Management of Risk Operator FA Demonstration Level Encouraging Good Performance Managing Divestiture Through FA Requirements Minimizing Defaults Operator FA Demonstration Level Encouraging Good Performance Managing Divestiture Through FA Requirements Minimizing Defaults

11. Definition of Terms Financial Assurance Assured Costs Unassured Costs Defaults Divestitures Draw-Down Step-Down Step-Up Contingency Financial Assurance Assured Costs Unassured Costs Defaults Divestitures Draw-Down Step-Down Step-Up Contingency

12. Definition of Terms Financial Assurance Financial mechanism used to assure that funds will be available to pay for the PCM costs when needed.

13. Definition of Terms Assured Costs – Financial exposure covered by a matching financial demonstration. Unassured Costs – Financial exposure not covered by a financial demonstration. This includes both Defaults and Divestitures. Assured Costs – Financial exposure covered by a matching financial demonstration. Unassured Costs – Financial exposure not covered by a financial demonstration. This includes both Defaults and Divestitures.

14. Definition of Terms Defaults – The temporary or permanent inability of the operator to provide the necessary funding to perform required PCM or CA activities. Divestitures – The sale or transfer of a facility to a new entity, whether the new entity is a subsidiary corporation or a wholly unrelated company. Defaults – The temporary or permanent inability of the operator to provide the necessary funding to perform required PCM or CA activities. Divestitures – The sale or transfer of a facility to a new entity, whether the new entity is a subsidiary corporation or a wholly unrelated company.

15. Definition of Terms Draw-Down – Automatic annual incremental reduction of PCM financial assurance Step-Down –5X reductions of PCM FA based on good performance during 5-year review Step-Up – 5X increase of PCM FA based on failure to meet performance criteria during 5-year review Draw-Down – Automatic annual incremental reduction of PCM financial assurance Step-Down –5X reductions of PCM FA based on good performance during 5-year review Step-Up – 5X increase of PCM FA based on failure to meet performance criteria during 5-year review

16. Definition of Terms Contingency – Additional percentage of estimated costs required to be assured in order to cover unforeseen expenditures and cost overruns. A contingency is not a substitute for a pooled fund. Contingency – Additional percentage of estimated costs required to be assured in order to cover unforeseen expenditures and cost overruns. A contingency is not a substitute for a pooled fund.

17. Management of Risk Operator FA Demonstration Level Encouraging Good Performance Managing Divestiture Through FA Requirements Minimizing Defaults Operator FA Demonstration Level Encouraging Good Performance Managing Divestiture Through FA Requirements Minimizing Defaults

18. Management of Risk Operator FA Demonstration Level Risk Can Be Managed by Operator FA Demonstrations Amount of FA Demonstration Multiplier of PCM Cost Duration of FA Demonstration Cost Estimating Improvements Risk Can Be Managed by Operator FA Demonstrations Amount of FA Demonstration Multiplier of PCM Cost Duration of FA Demonstration Cost Estimating Improvements

19. Management of Risk Encouraging Good Performance Step-Down - Basis for Allowance No Corrective Actions Enhanced Monitoring Efforts Repayments of Prior CA Disbursements Accurate Cost Estimating Step-Up – Causes for Increase Corrective Actions No Enhanced Monitoring Efforts Non-Payment of Prior CA Disbursements Step-Down - Basis for Allowance No Corrective Actions Enhanced Monitoring Efforts Repayments of Prior CA Disbursements Accurate Cost Estimating Step-Up – Causes for Increase Corrective Actions No Enhanced Monitoring Efforts Non-Payment of Prior CA Disbursements

20. Management of Risk Managing Divestiture Concerns Potential Transfer to Unrelated Business Operation Lack of Experience Successfully Maintaining Landfills Desire to Minimize Loss and Maximize Profits for Shareholders May Be Partially Managed By Requiring New Owners to Have Enhanced FA Demonstrations Concerns Potential Transfer to Unrelated Business Operation Lack of Experience Successfully Maintaining Landfills Desire to Minimize Loss and Maximize Profits for Shareholders May Be Partially Managed By Requiring New Owners to Have Enhanced FA Demonstrations

21. Potential Landfill Operator Default Types Standard Default – Operator and Financial Institution Single Privates (29) Most (22) Are Anticipated to Eventually Permanently Default 14 closed 6 operating 2 permitted Some Are Not Likely to Permanently Default 7 corporate or publicly assured Rural Publics – Temporary Defaults (64) Divestiture – Sell During PCM, All Privates (Potentially a Few Publics), Calculated Costs Utilize “Start-up Business” Default Rate Standard Default – Operator and Financial Institution Single Privates (29) Most (22) Are Anticipated to Eventually Permanently Default 14 closed 6 operating 2 permitted Some Are Not Likely to Permanently Default 7 corporate or publicly assured Rural Publics – Temporary Defaults (64) Divestiture – Sell During PCM, All Privates (Potentially a Few Publics), Calculated Costs Utilize “Start-up Business” Default Rate

22. Management of Risk Managing Defaults Operator Retention Improving Cost Estimates and Review Postclosure Maintenance Performance Some Defaults are Unavoidable and Will Occur

23. Management of Risk Pooled Fund A Method to Address Defaults and Divestitures Pros Increased ability to mitigate the costs of defaults and divestitures Ability of the Board to provide additional relief to individual operators by allowing further reductions in PCM FA Cons Transfer additional costs to rate payers May not successfully establish in statute A Method to Address Defaults and Divestitures Pros Increased ability to mitigate the costs of defaults and divestitures Ability of the Board to provide additional relief to individual operators by allowing further reductions in PCM FA Cons Transfer additional costs to rate payers May not successfully establish in statute

24. Managing Long-Term PCM Risk A Certain Level of Defaults Will Occur Regardless of the Amount of Individual Financial Assurance. Imposition of a Perpetual Operator Provided FA Will Likely Precipitate Early Defaults of Single Private Operators. Divestiture Leading to Default May Be Partially Controlled by Buyer Financial Assurance A Certain Level of Defaults Will Occur Regardless of the Amount of Individual Financial Assurance. Imposition of a Perpetual Operator Provided FA Will Likely Precipitate Early Defaults of Single Private Operators. Divestiture Leading to Default May Be Partially Controlled by Buyer Financial Assurance

25. Key Financial Exposures Defaults Divestitures Level of Individual FA Demonstration Defaults Divestitures Level of Individual FA Demonstration

26. Managing Long-Term PCM Risk of Landfill System Scenario Assured Risk Unassured Risk Std Rural Publics Sgl Pvt Defaults Divest -itures Total 43X$5,5900$11$26$263$3000 30X4,562$1,232292641960 15X2,9722,7486026841700 5X2,1532,9557526103204$578782 Status Quo 1,8223,1728326120229667896 $ in Millions over 100 years

27. Financial Exposure Comparison Between State and Operators

28. Rulemaking Approach Options Develop regulations as if a pooled fund will be established Two-step rulemaking approach to allow further step-down to 5X after fund is established Reducing FA below 15X before fund is established increases risk to State up to $782M over 100 years Reduces incentive for pooled fund creation Develop regulations without the pooled fund concept Recommend not going below 15X Develop regulations as if a pooled fund will be established Two-step rulemaking approach to allow further step-down to 5X after fund is established Reducing FA below 15X before fund is established increases risk to State up to $782M over 100 years Reduces incentive for pooled fund creation Develop regulations without the pooled fund concept Recommend not going below 15X

29. Individual FA Without Pooled Fund Option 1(a) 30X Draw-Down to 15X Rolling 15X Until PCM Ends 10% PCM Contingency Exposure to State=$96-170M over 100 Years Minimizes Divestiture Risk Addresses Temporary Defaults 30X Draw-Down to 15X Rolling 15X Until PCM Ends 10% PCM Contingency Exposure to State=$96-170M over 100 Years Minimizes Divestiture Risk Addresses Temporary Defaults

30. Individual FA Without Pooled Fund Option 1(b) 30X Step-Down to 15X Based on Performance Minimum of 15X Until PCM Ends No PCM Contingency Exposure to State=$96-170M over 100 Years Minimizes Divestiture Risk Addresses Temporary Defaults Rewards Good Performance 30X Step-Down to 15X Based on Performance Minimum of 15X Until PCM Ends No PCM Contingency Exposure to State=$96-170M over 100 Years Minimizes Divestiture Risk Addresses Temporary Defaults Rewards Good Performance

31. Individual FA Combined With Pooled Fund - Option 2 30X Draw-down to 15X, then Step-down to Rolling 5X based on Performance Minimum of 5X Until PCM Ends No PCM Contingency Defaults – Exposure to State Covered by Fund=$96-204M over 100 years Divestitures add up to $578M Exposure Partially Address Divestiture Defaults by Returning FA to 15X for Buyer 30X Draw-down to 15X, then Step-down to Rolling 5X based on Performance Minimum of 5X Until PCM Ends No PCM Contingency Defaults – Exposure to State Covered by Fund=$96-204M over 100 years Divestitures add up to $578M Exposure Partially Address Divestiture Defaults by Returning FA to 15X for Buyer

32. Questions / Discussion Regulatory Approach for Long-Term PCM Other Regulatory Changes Previously Identified as Groups A,B & C Regulatory Approach for Long-Term PCM Other Regulatory Changes Previously Identified as Groups A,B & C