Waste Management 2011 Annual Report Download - page 86

conditions such as inflation, electricity prices and other general market factors. During 2010 and 2009, several of
our long-term energy contracts and short-term pricing arrangements expired, significantly increasing our
waste-to-energy revenues’ exposure to volatility attributable to changes in market prices for electricity, which
generally correlate with fluctuations in natural gas prices in the markets in which we operate. Our market-price
volatility will continue to increase as additional long-term contracts expire. The next long-term contract will
expire in March 2012. We use short-term “receive fixed, pay variable” electricity commodity swaps to mitigate
the variability in our revenues and cash flows caused by fluctuations in the market prices for electricity. Refer to
the Quantitative and Qualitative Disclosures About Market Risk section of this report for additional information
about the Company’s current considerations related to the management of this market exposure.
We continue to look at opportunities to expand our waste-to-energy business. In 2010, we made two
investments which increased the total assets of our Wheelabrator Group by $318 million. In the first quarter of
2010, we paid $142 million to acquire a 40% equity investment in Shanghai Environment Group (“SEG”), a
subsidiary of Shanghai Chengtou Holding Co., Ltd. As a joint venture partner in SEG, we will participate in the
operation and management of waste-to-energy and other waste services in the Chinese market. SEG will also
focus on building new waste-to-energy facilities in China. As of December 31, 2011, SEG owned and operated
two waste-to-energy facilities, five landfills and five transfer stations. An additional five waste-to-energy
facilities were under construction. Our share of SEG’s earnings are included in “Equity in net losses in
unconsolidated entities” in our Consolidated Statement of Operations. In the second quarter of 2010, we paid
$150 million for the acquisition of a waste-to-energy facility in Portsmouth, Virginia. Additionally, Wheelabrator
is actively pursuing development projects with industry partners and pursuing other opportunities to provide
waste-to-energy services in the United Kingdom.
Recycling. Our recycling operations provide communities and industries with an alternative to traditional
landfill disposal and support our strategic goals to extract more value from the materials we manage. In 2001, we
became the first major solid waste company to focus on residential single-stream recycling, which allows
customers to mix recyclable paper, plastic and glass in one bin. Residential single-stream programs have greatly
increased the recycling rates. Single-stream recycling is possible through the use of various mechanized screens
and optical sorting technologies. We have also been advancing the single-stream recycling programs for
commercial applications. Recycling involves the separation of reusable materials from the waste stream for
processing and resale or other disposition. Our recycling operations include the following:
Materials processing — Through our collection operations, we collect recyclable materials from
residential, commercial and industrial customers and direct these materials to one of our MRFs for
processing. We operate 107 MRFs where paper, cardboard, metals, plastics, glass, construction and
demolition materials and other recyclable commodities are recovered for resale. We also operate 13
secondary processing facilities where recyclable materials can be further processed into raw products used
in the manufacturing of consumer goods. Materials processing services include data destruction and
automated color sorting.
Plastics materials recycling — Using state-of-the-art sorting and processing technology, we process,
inventory and sell plastic commodities making the recycling of such items more cost effective and
convenient.
Commodities recycling — We market and resell recyclable commodities to customers world-wide. We
manage the marketing of recyclable commodities that are processed in our facilities by maintaining
comprehensive service centers that continuously analyze market prices, logistics, market demands and
product quality.
Fees for recycling services are influenced by the type of recyclable commodities being processed, the
volume or weight of the recyclable material, degree of processing required, the market value of the recovered
material and other market factors.
Some of the recyclable materials processed in our MRFs are purchased from various sources, including third
parties and our own operations. The cost per ton of material purchased is based on market prices and the cost to
transport the processed goods to our customers to whom we sell such materials. The price we pay for recyclable
materials is often referred to as a “rebate.” Rebates generally are based upon the price we receive for sales of
7