Dear Councilman Robert Apple, Esq.,

After a quick perusal, I have made a few corrections and notes to Mr. Menke's remarks (highlighted in red).

Councilman Apple:

Mr. Sullivan’s insinuations are his opinion. The contract language cannot be interpreted as Mr. Sullivan asserts. As detailed below, the O&M contract does NOT call for competitive bidding for the sale of the recovered metals, unless the purchaser is a subsidiary or affiliate of WSI.

Mr. Sullivan:

Thank you for your response. I’m sorry that I did not accurately convey my request for evidence of criminal behavior. I feel your evidence consists mostly of opinions and interpretations which neither I, nor the City share. In fact, the contract for the audit of the System will be advertised in a matter of days, and we stand by our operations and hope the results of that audit put your concerns to rest. Nevertheless, as I am not a lawyer, I have sent this to the City Attorney’s office for review. My specific comments are as follows, mostly as a review for those who are new to this discussion:

The O&M Agreement between the City of Spokane and Wheelabrator DOES NOT specifically state that the recovered metal shall be sold at an “arms length competitive price basis.” The Agreement specifically states “Any sales to subsidiaries or affiliates (emphasis added) shall be on an arm’s length competitive price basis”. At the time the original O&M agreement was negotiated (1987) the experience nationwide in marketing metals from these types of facilities was dismal at best. Because of the metals’ low density, ash entrainment and corrosion, the market value was close to zero, (not true) and occasionally these recovered metals were landfilled since they could not be sold. In fact, some facilities built in this time frame did not even incorporate equipment to recover the ferrous metals. Because WSI’s parent company had more experience than the City of Spokane, and arguably anyone else, in successfully marketing these metals, the Agreement assigned this marketing responsibility to WSI. The Agreement language was written to prevent WSI from executing a “sweetheart deal” with a subsidiary or affiliate; American Recycling is not a subsidiary or affiliate of WSI.  ($2 per ton looks like a “sweetheart deal” to me. Since ARC does not acquire title to the metal until after the metal is processed and weighed, and stipulating that ARC must process/bale the material onsite before ARC acquires ownership, Wheelabrator created an affiliation, whether that affiliation is acknowledged in WSI-ARC contract or not (from the O&M - “Company shall provide, at it’s sole cost and expense… ALL PERSONNEL …necessary to operate the Facility” - which includes contract personnel). Wheelabrator needlessly hired ARC to process the metal, and then sold the metal to ARC at 1.5% of market value - exactly the type of “sweetheart deal” that the O&M Agreement attempted to avoid. Wheelabrator’s obligation was to sell the metal at market value - not to dictate if, where, or how it was processed.).  Further, WSI, like the System, does have an interest in maximizing metals sales revenues, since they receive 50% of these revenues. How could a negotiated price be “mutually beneficial” to both American Recycling and WSI, while being to the detriment of the ratepayers, since WSI only receives the same revenues that the System receives?  (See loader operator details below*).  The City has not insisted that Wheelabrator fulfill a contractual obligation to use a bidding process, since no such contractual obligation exists. Because after the original 10 years of the metals sales contract the investments made by American Recycling were fully amortized, WSI renegotiated the rate for the following three years to $15.00 per ton,  (incorrect – it was $5.00 per ton from January 2004 through August 2006, Seattle #2 price was $80 - $100 per ton during that period)  which was a reasonable price in comparison to the value of this metal at other facilities. As noted in my original email, the rate for 2008 through 2010 is the Seattle #2 bundle rate, less $55 per gross ton.
WSI is not obligated to offer anything for bid. As to their responsibilities to clean the ash, the language you quote (from a footnote in Appendix R, City Permit Responsibilities) clearly limits their responsibility to operating the grizzly separator and magnetic separator in a normal manner. Any further cleaning of the metals (to meet the draft permit conditions) is the City’s responsibility. Note that this entire discussion centers on meeting permit requirements, and has nothing to do with producing a specific grade of scrap metal. WSI’s metals recovery obligations are only to operate the grizzly separator and magnetic separator, not produce any specific grade or type of scrap metal. (From Appendix R (City Permit Responsibilities) - Cleaning of recycled material to remove all ash (Health Permit Condition S12(D)(6)).With the exception that the Company will take all reasonable steps to produce the cleanest ferrous metal consistent with normal operation of the grizzly separator and magnetic separation systems.)
You are correct; the agenda sheet background does state, in error, that the O&M Agreement requires WSI to both process and market the recovered ferrous metals. To my knowledge, WSI has no processing obligation; only a marketing obligation. However, I doubt that this error was made as part of a “conspiracy to defraud and fraud”(sic). You are certainly entitled to your opinion. (This so-called “error” (sic) was intended to deceive.)
I have no knowledge of WSI cutting any fulltime positions; in our recollection, the operating staff has been essentially stable since the plant began, with a crew of 6 working each shift (=24) a maintenance crew of 7, an office staff of 4, plus an operations supervisor, a maintenance supervisor, and a loader operator, for a total crew of 38. The loader operator previously loaded metals as well as operated the tipping floor.  (*ONE loader operator to cover 3 shifts, plus weekends? The facility recovers 2300 pounds of metal every hour, of every day, of every week, and those 400,000 pounds of metal recovered each week need to be continuously removed from the Facility to make room for more recovered metal. Seems like an impossible task for just one employee who also has tipping floor duties – hence the imaginary requirement that the metal needs to be “processed” by ARC. ARC is onsite for the benefit of Wheelabrator and themselves, and to the detriment of the ratepayers)  There were not “several fulltime positions at the plant” just to load metals. In fact, under the Agreement, WSI could market the metals FOB the floor of the ash building  (not true, Wheelabrator is responsible for providing ALL PERSONNEL to operate the Facility, and removing metals from the ash building floor is certainly Wheelabrator’s responsibility. ARC, or any one else, would not be allowed to enter the facility to clear this material from the ash building floor. Wheelabrator can, however, place the metal outside of the Facility for pick-up),  and had no obligation to even load the metals. They do not “collect O&M fees for work that they do not perform”; they have never had an obligation to perform this loading service. I fail to comprehend what makes the baling operation fraudulent.  (The baling operation is not part of the O&M Agreement, it’s unnecessary, costly, and it deprives the ratepayers of revenue)
WSI is responsible for marketing the metals, they have done so, and the current price is Seattle #2 bundle index price less $55.00 per ton, which I consider to be a fair price.  (If Seattle #2 bundle price less $55 is a fair price in 2008, why wasn’t this “fair price” used from 2004-2007?)

I have no knowledge as to WSI’s actual profits, though I doubt they are as much as $5 million. Could you please explain how you arrived at this number?  ($10 million in operating revenues and electricity sales, minus $3.5 million labor costs and $1 million in overhead = $5.5 million profit).  In any event, the level of their profits is not relevant  (it is to the ratepayers);  they were selected based on a competitive process, and we are merely enforcing the contractual obligations of both WSI and the System. I am not defending WSI, merely presenting the facts as I know them.

Sincerely,
Russ Menke, PE
Interim Director
Spokane Regional Solid Waste System
625-6524

Mr. Apple, perhaps as Chairman of the Liaison Board, you can inquire to the Regional System as to why the ratepayers continue to subsidize an unnecessary and costly baling operation, when it is clearly not in the ratepayer’s best interest.

Thank you, C Sullivan