CEO John Casella's disposal philosophy
The Northeast CEO talked with Waste Dive about operating in the nation's tightest disposal market and why he believes landfills are underappreciated.
Some might say CEO John Casella's home region of New England is trying to turn landfills into an endangered species. And while his company was among the early adopters of recycling and organics technology, he is still keen on burying waste in the right situations.
As disposal capacity declines in the Northeast, exporting waste out-of-state has become more and more common for some localities. Coupled with a concentrated amount of disposal bans and organics diversion mandates, plus an inhospitable climate for any new landfills or waste-to-energy facilities, this makes operating in the region uniquely challenging. Casella Waste Systems is the only publicly traded company doing it exclusively.
The company's top executives discussed this "supply and demand imbalance" at last week's WasteExpo investor summit, and how it could actually be good for business. With an estimated 3.6 million tons of disposal capacity either already closed, or anticipated to come offline soon, the Northeast is in a tight spot.
According to a March presentation from Casella, landfill capacity shortfalls can be expected in New York, Massachusetts, Vermont, New Hampshire and Maine by 2021 at the latest. Massachusetts will likely be down to one MSW landfill by the end of next year and waste-to-energy capacity isn't expected to grow.
Casella has 10 landfills in those states, though only some of them are currently viewed as generating adequate returns based on regulatory costs. One in Southbridge, Mass. will close at the end of this year due to lack of community support for an expansion. One in Bethlehem, N.H. has faced similar opposition though is not seen as a done deal just yet.
Aside from those two sites, Casella sees potential to profit in a region where tip fees are high due to lack of available capacity. Further growth is also an option. The company has identified at least $500 million of acquisition opportunities on top of its existing infrastructure.
Waste Dive spoke to CEO John Casella after the investor session for a glimpse into his thinking on community relations, disposal versus recycling and the waste hierarchy itself.
The following conversation has been edited for brevity and annotated for context.
We began the conversation discussing broader business trends that have impacted Casella's business in the past three years.
JOHN CASELLA: The investment that we made in disposal capacity eight years ago now is really beginning to pay dividends. Unfortunately for us when we first put the disposal capacity in place the recycling market collapsed, the economy collapsed, the financial markets collapsed and we had levered up at the wrong time. So we struggled through that. We made the changes that we need to make and got out of a lot of ancillary businesses and we've been focused clearly since 2015 on the core business, and the results speak for themselves.
WASTE DIVE: In terms of community relations, where are things going well at one of your assets right now?
CASELLA: Waste USA in Vermont. It's the largest facility in Vermont. It's the only lined landfill in Vermont. We've got a tremendous relationship with the community there. And our facility in Clinton County, N.Y. Ontario [N.Y.] Our facility in Chemung [N.Y.] You know most of our facilities we've got a good relationship with the community, with the municipalities.
Just before before the vote we had some misinformation that was put into the marketplace about the [Bethlehem] facility, and that being said I think that it's an uphill battle.
The National Environmental Law Center, Toxics Action Center and Conservation Law Foundation filed a notice of intent to sue Casella over an alleged violation of the Clean Water Act on March 8.
It's very difficult when you have to go through public votes because it's easy for everyone to say "no we don't want a landfill in our backyard." Yet, you know, everyone wants their waste picked up. So it's part of the business that's very difficult. We'll go back to the community. We'll try to find out the concerns that the folks have and try to meet those concerns.
That's the only place that we have a public vote is in New Hampshire. The rest of our facilities, it's a matter of just permitting. We don't have public votes to go through. So that bodes well for the future.
Is the Northeast's future going to be sending stuff farther and farther away? It doesn't seem like anybody wants anything in their backyard.
CASELLA: I think that's a fair perspective. I do think that we're going to continue to go farther and farther away. And that's why, sitting with 47 transfer stations, we're in a good place. The infrastructure that we put in place over the last 10 years is really going to be beneficial to us.
But I think from a practical standpoint you're right. Waste is going to travel further and you know the cost is going to be higher for the consumer. And I think that we're going to see some fundamental changes from a recycling standpoint.
If mixed paper doesn't come back, as an example, then junk mail, catalogs and magazines are all going to have to come out of the stream from a recycling standpoint. So it's not that recycling is going to go away, it's just going to change.
Some would say that vertically integrated companies have an inherent conflict when it comes to recycling because a reduction in landfill volume is seen as a financial risk to the business. How do you view that?
CASELLA: I think that the one thing that we've done as an organization, from the '70s on when we built the first recycling facility, is we'll cannibalize ourselves in the landfill before somebody else does.
So if there's a commercial utilization that's a higher and better use for a resource and we can make money at it, we're going to do it before somebody does it to us. So we'll cannibalize our landfills day in and day out.
So when you look at risk factors in a filing ... If there's less [material] going to the landfills then we've got to offset that. So that's clearly a risk factor, but it's not policy or the culture that we've created at Casella.
We want to understand what the next black box is, we want to understand whether Entsorga technology works, whether you can create black char, whether you can create a fuel for the cement kilns. We want to understand all of those technologies, because if there's an opportunity to cannibalize ourselves we want to do it to ourselves.
Vermont is on track to have one of the most aggressive organics diversion policies in the country by 2020, though some companies have sought to delay that timeline and Casella himself has previously said he felt it was moving too fast.
What's your sense of the organics processing market? Aside from activity in states with regulations in place it doesn't feel like we're seeing a big boom otherwise.
CASELLA: You're not going to see a big boom. Because fundamentally the model is really challenged from a financial standpoint. There's a lot of private equity money that's being put into it. But at this point in time it's our view that it's going to be very difficult to get a financial model that will work.
We built the first two anaerobic digesters with partners in Massachusetts. We invested on an equity basis $600,000 in that project and we raised about $3 million. We still wrote off that $600,000 because we can't get that financial model to work the way it should. You can't get enough for the power. Tip fees are what they are. So as time goes on, as supply and demand affects the price of disposal, then maybe that gets more relevant.
What changes that economically aside from more commercial mandates like we've seen in Northeast states?
CASELLA: So I think that the challenge is that those changes, in my view, need to come from innovation and technology. Not from a tax, not from a government subsidy. That's the beauty of what we've done from a recycling standpoint. Let's make it work from a commercially viable perspective.
It's not just that it's environmentally sound and then an economic disaster. That's not sustainable. If you have subsidies that are coming from government — fair enough. It may very well be the way to start a program, but it's not the way to maintain a program because those subsidies can go away.
There are really problems with the hierarchy from a solid waste standpoint, because it was done 25 years ago. [They have] no validity in today's market to put waste-to-energy above a landfill with gas control [and] energy being produced. So we're sucking and trying to create a situation where we're collecting as close to 100% of the methane that is generated in the landfill to produce power, right? So there's no reason for there to be a problem in terms of putting waste into a landfill if you have landfill gas-to-energy where you're utilizing the gas.
There's a fallacy in terms of the mindset. Not with every solid waste company, but with some solid waste companies it's a fallacy to say that it's not a good thing to put waste into a landfill. It is a good thing until innovation and technology takes it someplace else. So if you have a state of the art double-lined facility with landfill gas-to-energy being produced it's a renewable energy that's being produced. It was state-of-the-art seven years ago. And now all of a sudden it's a bad thing. It's like, what the hell are you guys talking about?
So when you think about going to landfill, if you find something you could do differently with waste you'd stop sending it to the landfill.
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