INFORMATION ON MSW DISPOSAL CONTRACTS by Record Journal

INFORMATION ON MSW DISPOSAL CONTRACTS

PREPARED FOR DECEMBER 16, 2008

TOWN OF WALLINGFORD TOWN COUNCIL MEETING

~"77

• Response to Questions Posed by Town Council, dated December 2008.

• MSW Disposal Contract Comparison, dated December 16, 2008

• Tables (referenced in each of the above documents):

MSWDispContractCompCovSheet

Table 1:

Estimates or Projections of Tip Fees, dated 12/2/08

Table 2:

Estimate of PILOT Payments, dated 12/2/08

Questions Posed by Wallingford Town Council, December 2008: Question 1: How much of the reserves will be returned under each plan? Could a reserve be accumulated under the CRRA plan? What would happen to these reserves under the CRRA plan? Answer: If we accept the Covanta plan, upon the expiration of the current agreement, the Towns will each receive its pro rate share of the reserves existing at that time. The CRRA plan requires approximately $8,000,000 in new reserves to be funded by the Towns upon contract signing in 2008. Under the CRRA proposal, the new reserves would be returned to the towns upon approval of the CRRA Soard of Directors at the contract termination except for the Decommissioning Reserves which will continue and, if necessary, must continue to be funded by the towns.

Question 2: What will be the tip fee for next 20 years under the Covanta plan, under the worst case scenario, excluding consideration of "market reset"? Explain the "market reset." Answer: Tip fee projections for the next 20 years under the Covanta plan are shown in Table 1. The projections exclude consideration of "market resets," and are shown for escalations at 1.75%, 3% and 3.5% (worst case). According to the contract, the tip fee shall be reset at the end of each five-year period. The reset of the tip fee will be based on the Local Market Average (See Question 4 for more detailed explanation).

Question 3: What will be the tip fee under the CRRA plan, under the reasonable scenario for as far into the future as can be estimated? Answer: Tip fees under the CRRA plan are shown in Table 1 and in Figure 1. The IISase Case" would be considered the most reasonable scenario based on the information that has been received from CRRA to date.

Question 4: 1tv11i::1i defines the "marKet" for the purposes of "market reset"? What are the current tip fees at facilities that define the "market" for the purposes of the "market reset"? Answer: In the proposed Covanta contract the definition of "Local Market Average" means the average of six municipal solid waste disposal fees paid pursuant to disposal contracts similar in scope of services to the proposed Covanta contract. The contracts must be between a municipality and the owner/operator of a mass-bum or refuse-derived fuel trash-to-energy facility located in Connecticut with a term of at least five years and entered into within twelve months prior to the date of determination (or 30 months prior if the Parties cannot identify six representative contracts within the twelve-month period). The Policy Board and Covanta each select half of the contracts and then come to agreement on the average. If the parties cannot

identify at least six representative agreements and othervvise cannot agree on an average, the matter is submitted for arbitration. Current tip fees are as follows: Mid Conn

$72.00

Bristol

$65.50

Wallingford

$60.00

Preston

$60.00

(Lisbon)

$70.00

Bridgeport

$61.00 (effective January 1,2009)

Question 5: Please tabulate the PILOTS, under each deal for next 20 years? Answer: PILOT payments under both the Covanta and CRRA plans are shown in Table 2.

Question 6: Is each prospective owner (CRRA/Covanta) obligated, unconditionally to take all our acceptable waste? Could there be a scenario, under either plan, where, even for a brief period, the facility could refuse the waste and we would have the expense and administrative responsibility for disposal? Answer: Both proposed contracts require the facility to take delivery of all acceptable solid waste and either process it or direct it elsewhere for disposal. (CRRA Section 201.){ Covanta Section 1.2.) The requirement is not unconditional in either proposed contract. The CRRA proposal gives CRRA the discretion to determine if the waste is a "quantity, quality or other nature materially impair the operation or capacity of the Facility" ..... "or ..... materially impair the strength or the durability of the structures, equipment, or works of the Facility"... CCRRA Section 202(b} (c), Section 501.}

The Covanta proposal provides that Covanta may reject a delivery of acceptable solid waste as a result of a (1) breach in the agreement by the muniCipality, (2) a delivery of waste which violates rules of law, the agreement or hauler's rules and/or (3) an event of Force Majeure. {Covanta 1.2 (c).) With regard to a possible scenario in which the municipality would bear the responsibility of waste disposal, the CRRA proposal passes on an costs to the Town. Assuming that CRRA was still in operation, CRRA would be obligated to find a site or facility for disposal of acceptable solid waste. Under the Covanta proposal, an event of change in law and/or Force Majeure can result in the municipality having to bear the responsibility of waste disposal. Sections 7.1 (a) and (b) however do require Covanta to use commercially reasonable efforts to arrange for delivery of

'.,.

rejected acceptable solid waste to an authorized location or facility. The Town would pay the tip fee and additional cost.

Question 7: What is a shortfall under each plan, and what are the consequences of a shortfall under each plan? Answer: Assuming that a shortfall means that a town fails to deliver its minimum guaranteed tonnage to the facility, the CRRA proposal requires that towns deliver the average number of tons of acceptable solid waste delivered to the facility during each of the two most recent 12 month periods but at the same time are obligated to deliver all acceptable solid waste to the facility. {Section 301 (a).) In a year during which the tip fee payments are insufficient to pay operating costs, the CRRA proposal provides that all municipalities pay their proportionate share of the shortfall amount regardless of which municipalities failed to deliver their guaranteed tonnage. (Section 301 (e).) The Covanta proposal requires that towns deliver an Annual Minimum Commitment (Wallingford at 18,999 tons). but contractually obligate themselves to use reasonable efforts to see that all acceptable solid waste is delivered to the facility. (Appendix A.) The Town's annual minimum , commitment will change following the first contract year, the commitment is recalculated to reflect any increase or decrease in the town's share of the total municipal minimum commitment of 66,825 tons. If a town fails to deliver its annual minimum commitment, the Town will be obligated to pay the tip fee for tons not delivered if the total tonnage required by all of the towns has not been delivered. (Sec. 3.1 (b) and definition Municipality's Shortfall Obligation.)

Question 8: Under the Covanta plan, how would we be able to verify the tonnage each year so as to allow us to verify the PILOT? Answer: Under the Covanta Host Municipality Fee Agieement, Covanta will cause documents relating to the calculation of the Wallingford Municipality Fee available to a representative of Wallingford for inspection upon reasonable notice and during normal business hours.

Question 9: Explain "a thorough breakdown of equity possibilities after contract duration from each Covanta and CRRA," and "a breakdown of options concerning all parties involved at the end of the new contract agreement" including Participating Towns, Plant Owner, Land Owner, Host Community, and any other possible involved entity. Answer: CRRA Proposal: CRRA will own the facility and land during the proposed agreement. Upon termination of the agreement, CRRA will continue to own the property. The Towns will have no equity/ownership interest. The Towns will have no option to purchase the facility and site.

Covanta Proposal: At the end of twenty-year term, the remaining, original towns shall have the right to purchase the facility and land at fair market value. The Host Fee Agreement lasts as long as the waste disposal agreement is in effect (10 years with two options to renew for five years each). At the end of the term, the Host Fee Agreement ends.

MSW DISPOSAL CONTRACT COMPARISON

December 16, 2008

COVANTA MSW DISPOSAL AGREEMENT, 12/02/08 ARTICLE 1.2 WASTE DELIVERY

ARTICLE 1.3 TERM

COVANTA

CRRA

Town shall make reasonable effort to cause all acceptable waste generated to be delivered to plant.

T own shall deliver or cause to be delivered all acceptable waste generated to be delivered to plant. (See Section 201.)

Town shall ensure Annual Minimum Commitment is delivered to plant. 2010 commitment is 18,900 tons and, thereafter, adjusted based upon rolling average.

Annual tonnage commitment used to determine shortfall payment (See Section 301 (e).

Contract requires no immediate action to address MSW delivery to the facility; but, Town may need to address flow control in the future.

Town required to pass flow control ordinance directing all MSW to facility. (See Section 201)

Covanta may accept waste from sources other than participating municipalities, but Covanta can't reject wastE? from Town.

CRRA may accept waste from sources other than participating municipalities, but CRRA can't reject waste from Town.

Initial 1O-year term with two (2) 5-year renewal options at same terms as initial term.

20-year term. (See Section 601.)

COVANTA MSW DISPOSAL AGREEMENT,12/02108

COVANTA

CRRA

ARTICLE 1.4 PURCHASE OPT(!ON

Private ownership by Covanta with an option for municipal purchase by one or more Original Participating Towns at Fair Market Value in year 20. Agreement details appraisal process.

Public ownership by CRRA but no municipal ownership option. (See Section 204.)

ARTICLE 1.5 OTHER OBLIGATIONS OF COVANTA

Covanta operates scalehouse and invoice CRRA responsible for operation and

haulers/municipalities. maintenance of facility and ash disposal.

Residue (ash) disposal by Covanta. Covanta responsible for repair,

maintenance and improvement of Facility

Covanta will not expand processing throughput without prior consent of Town of Wallingford.

Policy Board approval needed for certain

Project additions. (See Section SOB.)

Covanta responsible for payment of Host

Municipal Fee each year.

If electric market rate exceeds benchmark All electric revenues are applied to project

rate, Towns receive pro rata share of expenses. (See Section 301.)

20% of difference between market and

benchmark rates.

COVANTA MSW DISPOSAL AGREEMENT, 12102108

ARTICLE 1.6 POLICY BOARD

COVANTA

CRRA

Covanta will contribute to operating expense of Policy Board. First-year funding will be $56,000 (funding for Project Coordinator), then escalate according to agreed upon CPI.

Operating expenses of Policy Board n ot referenced in Agreement. (Project coordinator position not mentioned in pro forma).

Covanta will meet quarterly with Policy Board. Policy Board has a consultation role.

CRRA will meet periodically with Policy Board. Policy Board has a consultation role. (See Section 205.)

ARTICLES 2.1 AND 2.2 DELIVERY PROCEDURES AND VEHICLE IDENTIFICATION

Haulers regulations and procedures similar to status quo, with exception of fine schedule.

Haulers regulations and procedures similar to status quo. (See Exhibit A.)

ARTICLE 2.3 AUTHORIZED HAULERS

Municipality establishes list of Authorized Haulers. Covanta to invoice Authorized Hauler(s) for Towns, but Towns guarantee payment.

Haulers obtain permits from CRRA, then from towns. Towns guarantee payment.

ARTICLE 2. SOLID WASTE DELIVERY PROCEDURES & AUTHORIZED HAULERS

ft.· OVANTA MSW DISPOSA.L LAGREEMENT, 12/02/08

COVANTA

CRRA

$65/ton tip fee for Year 1 (2010). Tip fee changes based on CPI (Northeast Urban Less Energy) with floor (1.75%) and ceiling (3.5%). See Table 1 of accompanying

Range from $63.98-$110.77 estimated tip fee for Year 1 (2010); however base case estimated at $67.45. (See pro forma) » Tip fee estimates for Year 1 based on Fair Market Value assumption of $23.5 million. If required reserves are

ARTICLE 3. DISPOSAL FEES

ARTICLE 3.1 TIP FEE AND ANNUAL MINIMUM COMMITMENT

document for projections.

considered, tip fee in 2010 would

be approximately $72.00. Yearly tip fee determined by net cost of operations. (See Table 1 of accompanying document for projections.) No other municipality will be offered a similar contract of 5 years or more with a lower tip fee by Covanta without extending the same to participating municipalities ("most favored nation" status). Every 5 years tip fee subject to local market reset (both higher or lower). Look at up to 6 contracts of similar scope entered into within past 12 months; Towns pick 3 and Covanta picks 3 contracts. If parties can't agree, issue goes to arbitration. Year 2010: 18,900 tons.

Year 2010 estimate: 43,200 tons. (See Exhibit E.)

COVANTA MSW DISPOSAL AGREEMENT, 12/02/08 ARTICLE 3.1 TIP FEE AN D ANNUAL MINIMUM COMMITMENT (CONTINUED)

COVANTA

CRRA

Committed tonnage is adjusted annually by a formula that uses rolling averages. (This will account for increased recycling that a town may achieve.)

Committed tonnage is adjusted annually by a formula that uses a two-year rolling averages.

Shortfall payment required if all Towns combined do not hit five-town aggregate minimum of 66,825 tons; payment by Town responsible for shortfall.

Shortfall payment required when cost of operation exceeds revenue; each Town invoiced for its pro rata share of total shortfall. (See Section 301 (e).)

Covanta provides for disposal even in event of Force Majeure if commercially reasonable.

ARTICE 3.2 SURCHARGE FOR CHANGE-IN-LAW AND FORCE MAJEURE COSTS

Towns have the risk of paying for change-in足 law and/or Force Majeure costs.

Towns have the risk of paying for change-in-Iaw and/or Force Majeure costs.

Covanta pays for initial $30,000 in costs of new surcharge in each year.

All change-in-Iaw costs are charged to the project.

Change-in-Iaw is a new law, change in permit, termination/denial of permit or change in tax, except for net income and profit taxes.

Change-in-Iaw is a new law, change in permit, termination/denial of permit or change in tax amount. (See Definitions.)

Force Majeure includes occurrences beyond reasonable control, acts of God, a Court Order, blocked access, change-in-Iaw and takings.

COVANTA MSW DISPOSAL AGREEMENT, 12/02/08 ARTICLE 3.3 RECORDS & INSPECTION RIGHTS

ARTICLE 4.3 PRESEGREGATION & RECYCLING

COVANTA

CRRA

Covanta shall keep proper books and records.

CRRA shall keep proper books and records. (See Section 401.)

Covanta shall allow representative(s) of the Municipality to inspect books and records and facility upon reasonable notice.

Subject to provisions of any Operating contract, CRRA agrees to permit a representative of the Municipality to inspect during normal business hours.

Provides for expansion of Town's recycling programs.

Definition of "recyclable materials" may be amended. (See Definitions.)

Changes in recycling law not a change-in-Iaw event.

ARTICLE 5.4 OBLIGATION OF THE MUNICIPALITY TO MAKE PAYMENTS

Town pledges full faith and credit for payment of all amounts pursuant to terms of the agreement.

ARTICLE 6 GOVERNMENT REGULATION

Routes specified in Hauler Regulations. Covanta to issue citations and fines.

6足

Town pledges full faith and credit for all amounts pursuant to terms of the agreement. (See Section 305.)

Routes specified in Hauler Regulations. CRRA will assist Towns with enforcement of truck routes.

COVANTA MSW DISPOSAL A9REEMENT, 12/02/08 ARTICLE 7 EVENTS OF FORCIS MAJEURE & CHANGE-IN-LAW

COVANTA Covanta to make commercially reasonable efforts to provide location or facility to accept waste in the event of Force Majeure; Towns will pay tip fee and additional costs.

CRRA CRRA must dispose of waste and Towns pay the cost. (See Section 201.)

Adjustment to minimum commitment if Covanta is unable to accept waste. -

Contract provides for time to cure.

CRRA provides time to cure. (See Section 603.)

If Covanta fails to accept waste, Town has

Equitable relief, no right against CRRA

right to_go to court directly.

for damages.

HOST COMMUNITY BENEFITS

Host benefit based on $11/ton for all Accepted solid waste, includes personal and real property taxes owed to Wallingford.

Host benefit based on property tax that facility would pay escalated at 3%/year.

RESERVES

No reserves required by contract.

Initial project reserves (estimated at $8,000,000) to be funded with current project reserves on a pro rata basis among towns. (See Section 307.)

ARTICLE 8 DEFAULT & REMEDIES

OTHER

Table 1.

Estimatl~s

or Projections of Tip Fees ($/ton) at Wallingford Facility under Different Scenarios CRRA

Covanta

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

1.75% escalation 3% escalation 3.50% escalation $65.00 $65.00 $65.00 $66.14 $66.95 $67.28 $67.46 $68.96 $69.37 $68.81 $71.03 $71.54 $70.19 $73.16 $73.77 $71.59 $75.35 $76.07 $73.02 $77.61 $78.45 $74.48 $79.94 $80.89 $75.97 $82.34 $83.42 $77.49 $84.81 $86.02 $79.04 $87.35 $88.70 $80.62 $89.98 $91.47 $82.23 $92.67 $94.32 $83.88 $95.45 $97.27 $85.56 $98.32 $100.30 $87.27 $101.27 $103.43 $89.01 $104.31 $106.66 $90.79 $107.44 $109.99 $92.61 $110.66 $113.42 $94.46 $113.98 $116.96

Based on Municipal Solid Waste Disposal Agreement, dated 11/26/08. Covanta contract calls for Northeast Urban CPI less energy with floor of 1.75% and ceiling of 3.5%.

CRRA Public Purchase Base Case" $67.45

$71.09 $73.02 $75.10 $77.97 $80.31 $82.72 $85.20 $87.76 $90.39 $93.10 $95.89 $98.77 $101.73 $104.79 $107.93 $111.17 $114.50 $117.94 $121.47

CRRA Public Purchase Range"

63.9B 짜 $67.52 $60.0B $61.77 $64.23 $66.16 $68.14 $70.19 $72.29 $74.46 $76.69 $78.99 $81.36 $83.81 $86.32 $88.91 $91.58 $94.32 $97.15 $100.07

110.77tt $117.35 $120.70 $124.13 $12B.1B $132.03 $135.99 $140.07 $144.27 $148.60 $153.05 $157.65 $162.37 $167.25 $172.26 $177.43 $182.75 $188.24 $193.88 $199.70

Highlighted figures calculated by CRRA and shown in proforma; non-highlighted figures calculated by TOW staff at an escalation of 3% annually. See Figure 1 for projected CRRA tip fees. * Based on proforma provided by CRRA on 8/12/08;

purchase price of $23.5 million. NOTE: Covanta escalations do not include any market resets or energy sharing revenues.

짜Low range assumes development and opening of Franklin Ash Landfill in 2013.

:t::t: High range assumes contract with Traditional Operator (Covanta) to operate facility and escalation rate of app. 3.0%. Prepared on 1212108

Figure 1. From CRRA proforma dated 8/12/08.

Connecticut Resources Recovery Authority

Wallingford Resource Recovery Facility

Projected Tipping Fees

$200

. -- I

$190

$1BO

l /1

$160 $150

$130

c ~ $140 W

(]) l.l..

$120

$110

$100

j::

$90

0足

$80

$170

Scenario 3

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Secna,;u 1

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$70

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$60

$50 ..------,

$40 N

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Scenario 1

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Year --Is-

Scenario 2

-0-

Scenario 3

-..,'1!1--- Scenario 4

Scenario 1 = low electric revenue, Scenario 2 =effects of recycling and population increase,

Scenario 3 =Traditional Operator of Facility, Scenario 4::: Franklin IF in 2013, and

Scenario 5 = CRRA personnel cap does not apply.

---It-

Scenario 5

Table 2. Estimate of PILOT Payments

Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

CRRA PILOT based on market value of $23.5 million $1,266,247 $1,114,494 $962,741 $810,988 $764,235 $787,162 $810,777 $835,100 $860,153 $885,957 $912,536 $939,912 $968,110 $997,153 $1,027,067 $1,057,879 $1,089,616 $1,122,304 $1,155,973 $1,190,653

Covanta PILOT (estimate)"

$1,600,000

TOTAL

$19,559,057

$32,000,000

"Covanta PILOT estimate based on fee of $11.00/ton and approximately 146,000 tons waste accepted annually.

Prepared on 1212108