Casella Changes Pricing Structure to Account for Cost of Recycling

That industry-wide chorus you’re hearing about the onerous cost of recycling was grating on the last nerve of the numbers crunchers at Casella Waste Systems.

So they’ve hatched a proposal to deal with it. This spring, the Rutland, Vt.-based waste hauler started tacking a sustainability/recycling adjustment (SRA) fee onto the bills of residential customers with month-to-month service and business and commercial customers with adjustable contracts. An SRA-like charge is also figured into longer-term municipal contracts.

“We’ve all been participating in a fantasy that the revenue you get from the sale of commodities will cover the cost of recycling,” Casella Vice President Joe Fusco tells Waste360 in an interview. “But the idea that recycling is free is Homer Simpson arithmetic.”

That model isn’t a smart long-term strategy in a world where the combined prices of metal, paper, plastics and cardboard have plummeted by half in the last four years, he says.

Casella, which serves a core of six northeastern states from northwest Pennsylvania to eastern Maine, owns its 10 recycling facilities. The 40-year-old publicly-traded company opened its first recycling plant in Vermont in 1977.

The SRA fee is designed to iron out volatility and increase the stability and predictability of an industry that collects raw materials and transforms it into a product, just like any other manufacturing plant.

“If you were running a convenience store, you wouldn’t say that the milk is free because the money you make from selling diet soda covers that,” Fusco says. “It’s the way you have to run your business.”

The fee is not tied solely to any particular commodity index, he says. Instead, it’s a reflection of Casella’s ability to sell and price commodities combined with the capital investments and regulatory pressures that the company endures. It floats, so customers can expect to receive a credit when average commodity prices reach a certain high and pay a bit more when they drop.

Michael Durfor, executive director of the Epsom, N.H.-based Northeast Resource Recovery Association, says the basic premise of the SRA fee has merit because sophisticated recycling infrastructure is expensive and investing in it is risky.

For instance, he points to recent Vermont legislation that will be phased in over five years that prevents recyclables from entering landfills. One way or another, he adds, customers have to fund that diversion.

“The reality is … that people need the material to go away whether it is in the trash bin or the recycling bin,” Durfor says. “To Casella’s credit, they want to stay in the recycling business. The nomenclature won’t make a difference. Whether you call it a sustainability fee or a cost of doing business, the cost of all of this is going up.”

Durfor says the fee's ups and downs would be more transparent if it were linked with a specific, independent commodities index.

The fee appears as a separate line item on each customer’s bill, Fusco says, adding that it changes periodically, not monthly or daily.

“It’s really a general statement of where the market is,” he explains, adding that customers can track broad commodity trends via any number of resources available to the public. “Markets fluctuate. Plastics could be going north while cardboard is going south.”

When the waste industry groans about the cost of recycling, insiders usually point fingers at a pair of culprits—China for being more stringent about materials it accepts and single-stream recycling for bumping up contamination.

But Fusco is an ardent defender of what Casella has christened zero-sort recycling. Those vilifying it likely should be blaming themselves for not spending enough time and effort on education.

“If you’re really committed, you have to work harder on those contamination issues,” he says. “Single-stream was a significant innovation because people can recycle more material more easily.”

Thus far, Casella hasn’t received many customer complaints about the SRA fee. That’s not too surprising in a region with a long, strong recognition of the economic, environmental and social benefits of a sustainability ethic.

“Some companies might not have the stomach for it, but we’re trying to make recycling into a real business that reflects the real costs,” Fusco says. “It’s our obligation.”